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Defending Against Competitive Trade Channel Encroachment. May 6, 2003. www.hoytnet.com. 8912 East Pinnacle Peak Road • Scottsdale, AZ 85255 Phone (480) 513-0547 • Fax (480) 513-0548 • E-Mail: chrishoyt@hoytnet.com • nancyswift@hoytnet.com.

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defending against competitive trade channel encroachment

Defending Against Competitive Trade Channel Encroachment

May 6, 2003

www.hoytnet.com

8912 East Pinnacle Peak Road • Scottsdale, AZ 85255 Phone (480) 513-0547 • Fax (480) 513-0548 • E-Mail: chrishoyt@hoytnet.com • nancyswift@hoytnet.com

welcome to our mini workshop on defending against competitive channel encroachment
Welcome to Our Mini Workshop On Defending Against Competitive Channel Encroachment
  • This is your meeting – feel free to interrupt at any time with questions
  • If you have a question, don’t be shy – it’s probably the same question everyone else has too
  • Take the best and leave the rest
  • Feel free to disagree with anything we say – but if you do, you must speak-up
  • Feel free to get up and move around
  • The benefits you derive from this workshop will directly reflect the time and effort you put into it:
    • Workshop participation
    • Proactive participation will bring happiness and deep inner satisfaction
    • Use us! – we are here to answer your questions and clarify points to the best of our ability
today
Today
  • Key issues facing supermarkets in the current competitive environment
  • Price
  • Supermarket strengths and weaknesses vs. consumer expectations
  • Creating value beyond price
to kick this off we have a few questions
To kick this off, we have a few questions…
  • Whom do you see as your most serious competitive threat over the next five years?
  • What’s most threatening?
  • How are you trying to compete?
now let s see if our perceptions are the same as yours
Now let’s see if our perceptions are the same as yours…

The Key Issues Facing Supermarkets In The Current Competitive Environment

slide6

The U.S. Supermarket industry is under siege and, to date, has not been able to develop an effective response to competition from Value Discounters

  • Earlier this year, USA Today reported one one analyst’s forecast that supermarket’s share of the grocery business will drop to 34% by 2010 from its current 53% with the bulk lost to Wal-Mart.
  • The BLS just reported that Club Stores’ and Supercenters’ share of Food At Home sales catapulted from 1.8% in 1991 to 7.4% in 2001.
competition from value discounters cont d
Competition from Value Discounters (cont’d)
  • Value Discounters have forced Supermarkets to lower prices repeatedly over the past five years, thereby reducing profits, driving down stock prices and further limiting Supermarkets’ financial ability to compete effectively.
  • Location can no longer be relied-upon as a passive Supermarket advantage because all those folks shopping at Supercenters and Clubs are obviously driving around Supermarkets to get there.
on top of all this we have
On top of all this, we have…
  • Trip loss
  • No increase in transaction size
  • Category hijacking
  • Consumer shopping patterns that have morphed into regular “Big Shops” at Value Discounters, supplemented by “fill-ins” at Supermarkets for commodity-type center-of-the-store items
  • A continual share loss trickle to Value Discounters – defined as Supercenters, Clubs and now Dollar Stores – with no let-up in sight
trip loss
Trip loss
  • One trip = 105.5MM visits
  • Shopper Trips By Channel (1996 – 2002)(Avg. # Trips/Household/Channel/Year)
  • Trip Losers
  • Trip Gainers

Total Trips

  • Down 2.3 Billion Trips Annually in Seven Years

180

167

Source: AC Nielsen Homescan, 2003

no increase in transaction size
No increase in transaction size
  • Annual Shopper Dollars Per Trip By Channel

Source: IRI Consumer Shopper Panel Database, Custom Analysis

category hijacking
Category Hijacking
  • Dry Grocery Sales Trends In Drug Chains vs. Food Stores

Food ‘95 to ‘99

Drug ‘95 to ‘99

Snacks - Health Bars & Sticks

Spaghetti - Canned

Water - Bottled

Cereal – Ready-to-Eat

Ravioli – Canned

Soup - Canned

Snacks – Potato Chips

Coffee - Ground

Soft Drinks - Carbonated

Dry Dinners - Pasta

Jelly

Dog Food - Dry Type

Cat Food - Dry Type

Granola & Yogurt Bars

387%

6%

77%

-8%

35%

13%

16%

-16%

30%

21%

-2%

24%

16%

-9%

681%

183%

160%

159%

128%

119%

68%

60%

59%

58%

50%

48%

41%

29%

Source: AC Nielsen

slide14

$37.00

Using Clubs vs Supermarkets as an example, for some consumers the shopping pattern appears to have morphed into something like the following:

  • Annual Trip Frequencies & Transaction Size:Clubs vs. Supermarkets

Avg.TransactionSize

$84.00

Source: AC Nielsen Homescan, 2003 and 2001; IRI Consumer Shopper Panel Database, 2003

daily defections to non food trade channels
Daily Defections to Non-Food Trade Channels
  • Share/Share Chg of Supercenter Shopper $ by Channel

-0.6

-1.2

+0.1

+0.0

-0.2

+0.3

-0.5

+2.1

Source: ACNielsen Cross Outlet*Facts 2000; Total US

bottom line steady erosion of total share to value discount formats
Bottom line: Steady erosion of total share to Value Discount formats
  • Percent Share of Total Annual Shopper Dollars

-4 pts

+5 pts

+1 pt

+1 pt

Source: IRI Consumer Shopper Panel Database, Custom Analysis

no let up in sight
No let-up in sight
  • One analyst predicts that Wal-Mart will open over 3,000 Neighborhood Markets by 2010:
    • Now building 25 in Florida as we speak
  • Over the next five years Costco plans to buckshot the landscape with 200 – 300 60K sq. ft. versions of its 10 – 14% margin Club Stores.
  • Dollar Stores are planning an explosion of new outlets between now and 2010, mainly in a pincer movement with Dollar General, Dollar Tree and Family Dollar moving west and 99¢ Only Stores moving east.
slide18
Over the years, Supermarkets have responded to threats like these with a variety of epidemic-like initiatives, mostly without much success:
  • 1980 – Direct Product Profitability (DPP)
  • 1985 – Category Management
  • 1989 – “Partnering”
  • 1991 – Activity-Based Costing (“ABC”)
  • 1993 – “ECR”
  • 1995 – Prepared Take-Home Meals
  • 1997 – “Club Packs”
  • 2000+ – “Meal Solutions”
slide19

The fundamental problem with the way in which these initiatives have been implemented is that they have focused the attentions of both Supermarkets and Suppliers on the relationships they have with each other instead of on the relationships Supermarkets ought to be building with their customers.

the net as far as supermarket shoppers are concerned
The “net” as far as Supermarket shoppers are concerned:
  • Don’t care about:
    • DPP
    • Category Management
    • ABC
    • ECR (etc.)
  • Lack compelling reasons to shop a particular store other than location and price:
    • “84% of consumers think all Supermarkets are alike.” (American Research Council)
  • Have strayed from the channel by the millions and allowed to become habituated to shopping for groceries in other formats
slide22
No Fast Food

No Mass Merchandisers

No Clubs

No Supercenters

Independents Dominated Drug

A&P Dominated Food

Most CPG-type Products Sold Through Supermarkets

Most Meals Prepared and Eaten at Home

In the 50’s and 60’s Supermarkets competed mainly with other Supermarkets and used price, location and assortment as their principal weapons. This worked well as long as Supermarkets competed with other Supermarkets.

  • The Supermarket Competitive Environment – 1950’s & 60’s
slide23
Today

120K Convenience Stores

32K Supermarkets

6K Mass Merchandisers

20K Drug Stores

1K Club Stores

12K Dollar Stores

McDonaldsBurger KingWendy’sJack-in-The-Box

48% of Food DollarsSpent Away From Home

1950’s + 60’s

No Fast Food

No Mass Merchandisers

No Clubs

No Supercenters

Independents Dominated Drug

A&P Dominated Food

Most CPG-type Products Sold Through Supermarkets

Most Meals Prepared and Eaten at Home

Today, Supermarkets are faced with an entirely different environment characterized by outlet saturation and a huge excess of selling space
slide24
% Buyers InIn addition, Supermarkets no longer have a lock on “traditional” grocery items which were formerly almost exclusively theirs to sell
  • SuperCenters
  • Grocery
  • Mass
  • Clubs
  • Drug
  • C-Stores
  • Non-Choc. Candy
  • Chocolate Candy
  • Artificial Sweeteners
  • Ground Coffee
  • Dried Fruit Snacks
  • HH Cleaners
  • Toilet Tissue
  • Paper Towels
  • Liquid Soap
  • Soft Drinks
  • 79.4%
  • 83.6%
  • 80.2%
  • 90.2%
  • 83.2%
  • 78.6%
  • 86.4%
  • 77.8%
  • 55.4%
  • 97.5%
  • 62.0%
  • 58.0%
  • 21.8%
  • 30.0%
  • 22.8%
  • 42.9%
  • 50.3%
  • 25.1%
  • 45.0%
  • 44.7%
  • 18.0%
  • 16.6%
  • 8.1%
  • 11.3%
  • 7.2%
  • 12.1%
  • 16.5%
  • 6.6%
  • 11.6%
  • 16.9%
  • 12.6%
  • 10.4%
  • 11.9%
  • 15.5%
  • 12.7%
  • 11.4%
  • 10.4%
  • 10.0%
  • 10.3%
  • 9.2%
  • 43.5%
  • 5.1%
  • 5.2%
  • 7.7%
  • 4.2%
  • 14.7%
  • 19.8%
  • 9.5%
  • 9.9%
  • 24.1%
  • 9.5%
  • 1.5%
  • 0.4%
  • 1.0%
  • 0.8%
  • 0.8%
  • 1.6%
  • 0.6%
  • 0.2%
  • 20.4%

Source: Scarborough Research, 1999-2000

slide25

On top of this, Supermarkets are now confronted with competition from Value Discounters whose business models deliver higher net incomes than Supermarkets at significantly lower retails. For example:

  • Wal-Mart Operating Costs vs. Leading Supermarket: Impact on Margins – 2002/2003

Operating Profits 5.2% 4.9% 5.1% 5.2%

Wal-Mart Kroger Albertson’s Safeway

Sales $81B* $53B $36B $32B

Operating Costs 16.6% 22.1% 24.1% 25.9%

Net Income 3.3% 2.2% 1.4% (2.5%)

Gross Margins 22.2% 27.0% 29.2% 31.1%

Source: Company SEC filings, Kroger & Albertson’s through 3 quarters, Wal-Mart & Safeway reflect full FY2002

*Food Only, Total U.S.

question
Question:

How many of you are thinking at this point that Wal-Mart and other Value Discounters have acquired this advantage because suppliers sell to these companies at lower net prices than they sell to Supermarkets?

answer you are 100 correct
Answer: You are 100% correct!
  • Suppliers do sell to Wal-Mart, Clubs and Dollar Stores at lower net prices than they sell to Supermarkets BUT:
    • This is not due to these retailers’ clout or size or to favoritism by suppliers
    • It is due to the fact that these retailers have different business models and buying protocols than Supermarkets which makes them inherently more efficient from a pricing standpoint
    • Bottom line is that suppliers offer no better pricing or deals to these accounts than they do to Supermarkets – only they structure them differently
  • Want to know how this works?
first thing to understand is what suppliers have available in terms of discretionary spending
First thing to understand is what suppliers have available in terms of discretionary spending:
  • This is known as the “Advertising & Promotion budget”:

2002 Supplier Discretionary Advertising & Promotion Spending

Category

Spending

Type

Net Sales

Consumer Advertising

Consumer Promotion

Trade Promotion

Total Adv. & Promotion

$100.00

$7.00

$5.00

$17.00

$29.00

TV, Radio, Print, Etc.

FSIs, Coupons, On-Packs, Etc.

Slotting, O/Is, Accruals, Bill-backs, Etc.

Avg. Industry A&P Spending*

*All numbers have been rounded to the nearest dollar

Source: Cannondale Associates, Inc.; Trade Promotion spending and Merchandising 2002 Industry Study, 2003

next thing to understand are the buying protocols of value discounters for example
Next thing to understand are the buying protocols of Value Discounters. For Example:
  • Wal-Mart:
    • Does not want slotting
    • Does want trade promotion but is willing to accept less providing the supplier uses the balance to reduce net prices
    • Does not want any consumer promotion that would in any way increase prices
    • Works with every supplier to achieve the right “balance” between discretionary funds available and net pricing to Wal-Mart
    • Works equally hard on the supply-side to keep operating costs as low as possible
buying protocols cont d
Buying protocols (cont’d)
  • Clubs:
    • Require suppliers to strip-out all slotting, trade promotion and consumer promotion and reduce prices accordingly
    • Are willing to accept up-charges for packaging changes and use of packaging sub-contractors
    • Provide full disclosure on promotion costs and require suppliers to promote only using retailer-developed promotion vehicles
    • Pricing is always a negotiation
    • Structure supply requirements to keep handling and labor costs at absolute minimums
how value discounter buying protocols translate vs supermarkets
How Value Discounter buying protocols translate vs. Supermarkets

Supermarkets

Wal-Mart

Clubs

Net Sales

Consumer Advertising

Consumer Promotion

Trade Promotion

Total Advertising & Promotion

Add-Backs For Packaging

Net

Pricing vs. Supermarkets

$100.00

$7.00

$5.00

$17.00

$29.00

$29.00

–0-

$100.00

$7.00

$2.50

$8.50

$18.00

$18.00

($11.00)

$100.00

$7.00

$2.00

$9.00

$2.00

$11.00

($18.00)

impact on retail prices
Impact on retail prices:

Supermarkets

Wal-Mart

Clubs

Standard case price

Budgeted A&P investment

Actual A&P costs

Balance to price

Net case cost to retailer

Avg. gross margins (2002)

Retail per case

Per SKU (12 unit case)

% difference vs. Supermarkets

$100.00

$29.00

$29.00

$0.00

$100.00

29.1%

$129.05

$10.75

$100.00

$29.00

$18.00

($11.00)

$89.00

22.2%

$108.93

$9.08

15.5%

$100.00

$29.00

$11.00

($18.00)

$82.00

11.1%

$92.23

$7.69

28.5%

translation into real world pricing differences
Channel Pricing Index on Selected Consumables(Scottsdale, AZ, 8/7/2002)Translation into real world pricing differences
  • Food
  • Supercenters
  • Clubs
  • Formula 409
  • Pine Sol
  • Pledge
  • Lysol Disinfecting Spray
  • Windex
  • Arrowhead Water
  • Tea Bags
  • Maxwell House Coffee
  • Sweet ‘n Low
  • Equal
  • Hershey’s Kisses
  • M&M’s
  • Bath Tissue – 36-48 Roll
  • Bath Tissue – 12-24 Roll
  • Napkins
  • Towels (roll)
  • 100
  • 100
  • 100
  • 100
  • 100
  • 100
  • 100
  • 100
  • 100
  • 100
  • 100
  • 100
  • 100
  • 100
  • 100
  • 100
  • 61
  • 92
  • 68
  • 66
  • 59
  • 92
  • 49
  • 71
  • 92
  • 72
  • 66
  • 65
  • 54
  • 73
  • 60
  • 77
  • 53
  • 58
  • 57
  • 54
  • 37
  • 65
  • 45
  • N/A
  • 43
  • 48
  • 67
  • 54
  • 41
  • 57
  • 39
  • 73
  • Source: Hoyt & Company Store Checks w/o 8/7/2002.
  • Largest sizes carried indexed to Food on a per unit (oz/sheet/count) basis.
slide34
It is because the consumer intuits these differences that she has become habituated to shopping different formats
  • In 2002:
    • 100% of U.S. HH shopped Supermarkets approximately 1.5x’s per week and spent an average of $37.00 per trip.
    • 92% of HH shopped Mass Merchandisers about every other week and spent about $41.00 per trip.
    • 86% of HHs shopped a Drug chain about every three weeks and spent an average of $24.00 per trip.
    • 63% of HHs shopped a Supercenter about every 3 weeks and spent an average of $54.00 per trip
    • 62% shopped a Dollar Store about once a month and spent about $12.00 per trip.
    • 52% shopped a Club about once every 5 weeks and spent a whopping $84.00 per trip.
    • 46% shopped a Convenience store about 1X per month and spent about $14.00 per trip.
key message 1
Key Message #1
  • Supermarkets mustcompletely revamp their go-to-market strategies in order to remain viable in the 21st century:
    • The 1950’s and 60’s model built on price, location and assortment is no longer working effectively
    • Fact is that Supermarkets cannot compete on price alone with Value Discounters and continue to grow profits on a sustainable basis
  • By continuing to attempt to compete with Value Discounters on price, Supermarkets are allowing these channels to dictate the way they (Supermarkets) do business
  • On the other hand, there is a way to create a low price impression without digging one’s grave in the process
how to create a low price impression
How to create a Low Price impression
  • Top 15 Supermarkets Items Ranked in Order of “Pulling Power”

HHPenetration

PurchaseFrequency

PullingPower

Index ToMedian

%of Sales

X

=

1. Baked Goods (Fresh)

2. Milk

3. Soft Drinks-carb.

4. Snacks

5. Paper Products

6. Candy

7. Juices/drinks-ss

8. Meat & Seafood-fresh

9. Produce

10. Packaged Meats

11. Cereal

12. Condiments/sauces

13. Cheese

14. Pet Food

15. Vegetables-canned

99.4

97.8

97.7

98.7

99.3

97.9

94.7

99.9

99.9

96.7

96.1

98.3

97.5

71.1

95.4

35.5

34.3

30.3

25.7

23.5

21.8

20.9

19.1

18.5

18.9

17.8

17.2

17.2

19.6

14.6

3529

3355

2960

2537

2334

2134

1979

1908

1848

1828

1711

1691

1677

1394

1393

698

663

585

502

461

422

391

377

365

361

338

334

332

276

275

3.20%

2.96%

3.22%

2.33%

2.05%

1.03%

1.60%

14.38%

9.75%

2.49%

1.99%

1.43%

2.13%

1.29%

0.87%

50.72%

question1
Question

Just how important is “price” relative to the other factors that influence the consumer’s decision on where to shop?

slide38
Based on a 2003 FMI Study, not nearly as important to Supermarket shoppers as everyone seems to assume:
  • FMI Study results:
    • Only 20% of shoppers compare prices on every trip
    • 23% compare “fairly often”
    • 32% compare “only occasionally”
    • 25% “never” compare
  • In other words, price is not the magnet it used to be with 57% of shoppers and is only marginally important to another 23%.
  • Larry Johnston, CEO of Albertson’s, recently affirmed these findings when he told analysts that although Albertson’s was again lowering prices, Albertson’s research indicates that price is a determinant for only about 35% of grocery shoppers

Source: FMI “Spending and Saving Money”, 2003

slide39

Because price is such an important – and controversial – issue, Hoyt & Company conducted its own (informal) survey on this subject during the week of March 24 in Scottsdale, AZ

    • Approximately 100 parking lot shopper intercepts
    • Albertson’s, Fry’s (Kroger) and Safeway
    • Wal-Mart Supercenters and Costco
  • Objectives:
    • Determine why consumers shop supermarkets versus alternate outlets
    • Likes/dislikes/expectations versus alternate outlets
    • Purpose of trip/what they buy
    • Other channels at which supermarket shoppers regularly buy groceries and why
hoyt company survey results question 1
Hoyt & Company Survey Results – Question #1
  • Are you shopping today to fill-in or do a major shop?

Supermarket

Shoppers

Supercenters

Shoppers

Club

Shoppers

Major Shop

Fill-in

12%

88%

36%

64%

0%

100%

hoyt company survey results question 2
Hoyt & Company Survey Results – Question #2
  • Is this the only store where you buy groceries?

Supermarket

Shoppers

Supercenters

Shoppers

Club

Shoppers

Yes

No

8%

92%

7%

93%

0%

100%

hoyt company survey results question 3
Hoyt & Company Survey Results – Question #3
  • In what other channels do you buy groceries?

Supermarket

Shoppers

Supercenters

Shoppers

Club

Shoppers

Other supermarkets

Supercenters

Clubs

Drug Chains

Food Specialty (Oats, Joes, Whole Foods)

Other

63%

33%

56%

21%

50%

13%

57%

0%

71%

29%

50%

7%

100%

27%

0%

0%

27%

0%

hoyt company survey results question 4
Hoyt & Company Survey Results – Question #4
  • Does this store carry all of the items, or brands or sizes you want to buy?

Supermarket

Shoppers

Supercenters

Shoppers

Club

Shoppers

Yes

No

52%

48%

57%

43%

0%

100%

hoyt company survey results question 5
Hoyt & Company Survey Results – Question #5
  • What items do you buy mostly at this store?

Supermarket

Shoppers

Supercenters

Shoppers

Club

Shoppers

Fruits & Vegetables

Meats & Fish

Dairy & Frozen

Soft Drinks, Juices, Coffee

Cereals, Cookies, Chips, Canned Goods

Detergents and Paper Goods (Dry Grocery, Non-Food)

88%

83%

88%

75%

73%

42%

64%

57%

57%

64%

64%

64%

36%

36%

27%

64%

36%

100%

hoyt company survey results question 6
Hoyt & Company Survey Results – Question #6
  • Why did you choose this particular store?

Supermarket

Shoppers

Supercenters

Shoppers

Club

Shoppers

Close by

Prices

Service

More choices

Other

75%

13%

6%

2%

0%

21%

71%

0%

0%

7%

50%

50%

0%

0%

0%

net on supermarkets and price
Net on Supermarkets and price:
  • Consumers no longer perceive Supermarkets as grocery price leaders and do not shop the channel primarily for price savings:
    • Only 13% of supermarket shoppers said they shop Supermarkets for price versus 71% of Supercenter shoppers
    • Location, Service and “More Choices” are the three most frequently-cited reasons why consumers shop Supermarkets versus other channels
    • Consumers have “0” expectations of both Supercenters and Clubs to provide either “service” or “more choices”
    • Based on these findings, continuing a 24/7 fixation on price is counter-productive relative to focusing on other ways of meeting shopper expectations that would add genuine value to the overall Supermarket shopping experience.
key message 2
Key Message #2:
  • Supermarkets have unique strengths which clearly set them apart in the consumer’s eyes from other trade channels selling similar products.
  • Supermarkets have failed to leverage these strengths by imitating rather than leading.
  • The extent to which Supermarkets can learn to leverage these strengths is the extent to which Supermarkets will be able to move away from price-based merchandising and create value that aligns with shopper expectations of what a Supermarket should deliver.
slide49
Despite higher overall prices, 100% of U.S. households continue to shop the Grocery channel with no drop-off in sight:
  • % Household Penetration By Channel Per Year: 1996 - 2002

+ Ptsvs. ‘96

Channel

1996

1997

1998

1999

2000

2001

2002

Grocery

Convenience and Gas

Drug Chains

Traditional Discount

Warehouse Clubs

Supercenters

Dollar Stores

100

52

90

95

49

N/A

39

100

52

89

94

48

N/A

45

100

52

86

94

49

47

47

100

50

87

95

50

52

52

100

48

86

94

49

54

55

100

45

86

93

50

60

59

100

46

86

92

52

63

62

-6

-4

-3

+3

+16

+23

Source: AC Nielsen, Channel Blurring Studies, 1998 - 2002 inclusive

slide50
In addition, consumers shop Grocery far more frequently than any other channel and 3.5 Xs more than lower-priced Supercenters
  • US CPG ChannelsTrip Frequency – Annual # Trips/Household/Year/Channel, 1996 - 2002

+ Ptsvs. ‘96

Channel

1996

1998

1999

2000

2001

2002

Grocery

Mass Merchandise

Drug

Supercenters

Dollar

Warehouse Clubs

Convenience and Gas

Totals

95

29

16

13

6

8

13

180

85

28

15

14

9

9

18

173

83

26

15

15

10

9

13

171

78

25

15

17

10

10

14

169

75

23

15

18

11

10

15

167

73

22

15

21

12

10

14

167

(22)

(7)

(1)

8

6

2

1

(13)

Source: AC Nielsen, Channel Blurring Studies, 1998 - 2002 inclusive

slide51
Consumer satisfaction surveys repeatedly show that shopper satisfaction levels are higher with Supermarkets than with any other channel

Shopper Satisfaction1-10 Scale: 1 = not satisfied, 10 = extremely satisfied

Your Supermarket

Supermarkets

Mass Merchandisers

Wholesale Clubs

Dollar Stores

Chain Drug Stores

Fast-food Restaurants

Convenience Stores

7.49

6.67

6.49

6.16

6.05

5.93

5.11

5.09

Source: Progressive Grocer, 2002

other key strengths unique to supermarkets
Other Key Strengths Unique to Supermarkets
  • Channel of Choice for Perishables – the primary reason why 100% of households come to visit 1.5 times per week
  • Proximity – Short driving distance relative to other channels
  • Full Variety – Only channel that offers 35-50K+ food items, including regional brands
  • Ability to tie-in with community events and configure assortments and services to local tastes.
question2
Question

With such an overwhelming advantage in the competition for U.S. grocery dollars, why are Supermarkets steadily losing both trips and share to other channels where groceries are not even their destination business?

based on current research the answer appears to be comprised of a combination of factors
Based on current research, the answer appears to be comprised of a combination of factors:
  • Price – Always important but, as we have seen, not the primary driver for the majority of food shoppers
  • Time Pressures – Now cut across all economic strata and direct food shopping to any outlet that best satisfies “Quick, Easy and Convenient”
  • The Declining Importance of Food versus Other Lifestyle Priorities – Both as a daily ritual and as a percentage of disposable income
  • The Failure of Supermarkets to Connect with Consumers in Ways That Add Value Beyond Price and Location – The result of 50 years of price-based competition coupled with a passive “Build it and they will come” philosophy
  • The Value-Added Provided By Other Channels – Namely, Supercenters and Clubs, in addition to lower prices
time pressures root causes
Time Pressures – Root Causes
  • 75% of families now have two wage-earner incomes.
  • 65% of married women with children under six are in the workforce.
  • 70% of working women say that the number of things they have to do in a day is a big cause of stress.
  • 58% of consumers say convenience is a key determinant of what they eat and where they eat it.
  • 40% of the population say they have no idea of what they are having for dinner at 4:00 pm.
time pressures span all economic strata
Time Pressures – Span All Economic Strata
  • Roper Starch Worldwide U.S. Consumer Survey% Americans Saying Do “Often” / “Sometimes” to Save Time

Pt. ChangeSince 1986

+15

+16

+2

+21

+5

+19

+16

+6

+4

+14

+7

+7

time pressures impact on family meal preparation and eating habits
Time Pressures – Impact On Family Meal Preparation and Eating Habits:
  • The average time spent in meal preparation these days is less than 20 minutes – down from 2.5 hours in 1960.
  • Time Spent Preparing Meals
  • 2.5 Hours
  • 1 Hour
  • 20 Minutes

Source: National Eating Trends Data

time pressures impact on shopper decision time
Time Pressures - Impact on Shopper Decision Time

Product selection, shelf position and in-store merchandising are critical

  • Shopper’s Decision TimePercent of Total Shoppers
  • More than 15 seconds
  • 5 seconds or less
  • 6-15 seconds

Source: Price Knowledge and Search of Supermarket Shoppers – P Dickson and A. Sawyer

net on time pressures
Net On Time Pressures
  • “Quick, Easy and Convenient” must now drive the strategy
  • Must not only include “with it” product assortments but store operations – how fast the customer can get out the door
  • Supermarkets must think of themselves as facilitators, not just conduits for products
in addition to time pressures food and food shopping are simply no longer big deal priorities
In addition to time pressures, food and food shopping are simply no longer big deal priorities
  • Food as a % of Personal Consumption $: 1960-2000
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Because time pressures and low food interest cut across all channels, the one factor that stands-out as particularly applicable to Supermarkets is Supermarkets’ failure to connect with consumers in ways that create value beyond price

  • While Supermarkets repeatedly rank #1 in consumer satisfaction surveys, a 2003 Gallup Study clearly details why making customers “Extremely Satisfied” is not going far enough.
  • Gallup tracked trip frequencies and expenditures in a leading supermarket chain for a one month period and classified these according to the following customer satisfaction levels.

Satisfaction level

Frequency

Expenditures

Less than “Extremely Satisfied”

“Extremely Satisfied”

“Extremely Satisfied and Emotionally Connected”

Vs. “Extremely Satisfied”

4.3

4.1

5.4

+31.7%

$166

$144

$210

+45.8%

gallup s conclusions
Gallup’s Conclusions
  • In the case of those who were “Extremely Satisfied” versus those who were “Less Than Extremely Satisfied”, the “Extremely Satisfied” actually visited less and spent less and therefore represented no material value-added to the store.
  • On the other hand, those who were both “Extremely Satisfied” and “Emotionally Connected” visited their stores 32% more often and spent 46% more money than those who were “Extremely Satisfied” but lacked an emotional bond.
  • Gallup’s Net: “Without a strong emotional bond, “Satisfaction is a Trivial Pursuit.”
what wal mart has done to add value to the shopping experience beyond price
What Wal-Mart has done to add value to the shopping experience beyond price
  • Retail-tainment – “Fun place to Shop”
  • Works hard to become part of the local community
    • Offers parking lots for local fundraisers (HS car washes, etc)
    • Charitable donations to local causes
  • Maintains and USES a massive database to understand its consumers and their shopping behavior
    • Assorts stores based on demographics
    • Allows regional variances in products offered
  • Bonds with suppliers to create excitement via highly visible local events
  • Multi-format: Discount, Supercenters, Club, Neighborhood Markets and on-line to address a variety of consumer purchase occasions
costco
Costco
  • Treasure Chest Items – a new “surprise” every visit
  • Continual sampling and demos
  • Constantly changing, fluid assortments
  • Multiplicity of services
  • Eat-in restaurants, on-premise automotive, gas and opthalmics
  • Makes shopping a Big Deal Occasion with lots of fun and in-store activities
key message 3
Key Message #3
  • There is no question that developing a consumer-based strategy to rebuild trips and profitable top line sales must now be the single most important priority of every Supermarket who wishes to remain in business long-term.
  • Unless Supermarket Executives understand and accept the fact that they can no longer compete on a price-only basis with Value Discounters, they will never succeed in acquiring the vision necessary to add value to the shopping experience beyond price and create emotional bonds with their customers.
let s talk about value
Let’s talk about “Value” . . .
  • How many of you have bought something other than the lowest priced item OR shopped somewhere other than the lowest priced store?
  • Why?
value components
Value Components

Check-out Speed

Store Layout

Produce

Service

Service &

Store Decor & Environment

Deli

Full Variety

Ties to Local Community

Personnel(Training)

One-Stop Convenience

Cleanliness

Meats

Frozen

Bakery

Dairy

Assortment

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Based on a 2002 Supermarket News survey of 1,500+ shoppers, the expectations of what Supermarkets should deliver beyond price are as follows:

  • Cleanliness
  • Quality
  • Fast Shop
  • Broadest Assortment
  • Courtesy and Service
  • Pleasant and “Fun” Shopping Experience
  • Consistency – Repeatable on Every Trip
establishing and nurturing an emotional bond key components
Establishing and Nurturing an Emotional Bond – Key Components
  • Instead of : “Grow share, grow sales, grow profits”, shift focus to: “Give the customer and emotional reason to return.” (The former will follow.)
  • Instead of: “Increase trip frequency and transaction size”, shift focus to: “Pamper, surprise and reward.”
  • Instead of: “Just another supermarket selling groceries”, embed yourself in the local community and become an acknowledged part of the flow.
  • Promote to satisfy your customers, not your suppliers.
let s talk about this emotional bond thing
Let’s talk about this “Emotional Bond” thing . . .
  • What’s your favorite restaurant?

Why?

pamper surprise reward examples
“Pamper, Surprise & Reward” Examples
  • Free ice cream cone with every $100 spent
  • Local school support programs
  • Kid’s corner – videos, story telling, games while mom shops
  • Free cookies every week
  • Wine tasting night
  • Make-overs in cosmetics department
  • Checkout surprises
  • Local heroes photo gallery
  • Local artists’ shows
  • Preferred infants parking spaces
  • Frequent and highly visible parking lot events
equity
Equity:
  • The sum of the parts of one’s Value Equation
  • The reason why shoppers will drive 100 miles RT from NYC to Norwalk every week to shop at Stew Leonard’s
  • The reason why consumers will pay a 15-20% premium for a Coke or a Dog Chow versus a NBE private label
  • Is total corporate driven, not category driven
  • Can be continually leveraged in different ways to attract and hold new consumers while retaining current customers
  • Provides a strategic framework for all advertising, promotion activities and pricing strategies
  • Your signature – what the consumer perceives you are famous for
why equity
Why Equity?
  • The more Equity one builds, the less dependent on price one becomes.
slide77

Without question, the single best resource Supermarkets can use to begin creating value beyond price is the data and intellectual resources of suppliers

  • There are approximately 1,500 suppliers to the U.S. Supermarket industry who are in the business of creating value and equity for national brands
  • What suppliers bring to the party is:
    • Built-in consumer focus
    • Unparalleled marketing expertise
    • A demonstrated willingness to help at every turn
  • Pick whom you think are the best, ask them to do some homework and get their recommendations on what they think you could/should do to begin building sustainable value
in addition
In addition…

Talk to your customers!

  • What they expect of Supermarkets!
  • How well you are delivering on this!
  • What they would like to see improved!
  • Why they shop other channels – the specifics of what they like and don’t like!
suppliers can also serve as a resource for incremental funding providing the return is there
Suppliers can also serve as a resource for incremental fundingproviding the return is there
  • Where The Money Comes From
  • Marketing$$$
  • Trade$$$
  • OR
  • Typically slated for consumer advertising & promotion
  • A fixed pot slated for all types of trade activity
slide80
To get Marketing Dollars in addition to Trade Dollars requires delivering above and beyond ROI results
  • Let’s say that “Company A’s” normal marketing ROI is 2.5X:
  • ROI on Consumer Advertising & Promotion Investment
  • Marketing (A&P) Investment
  • Net Sales
  • ROI
  • $100MM
  • $250MM
  • 2.5 X’s
  • If Supermarkets can demonstrate the ability to generate a higher ROI than 2.5X for this Company’s Marketing Investment, then getting Marketing Dollars in addition to Trade Dollars becomes feasible.
  • Because of horrific media fragmentation over the past 20 years, all marketing people we know would be more than receptive to any proposition that enables them to reach consumers more effectively and efficiently than currently available vehicles.
  • One heads-up: Marketing $$ need to be a complete pass-through
how benchmark your vehicles and use the results to sell your suppliers marketing departments
How? Benchmark your vehicles and use the results to sell your suppliers’ Marketing Departments
  • Media
  • TV
  • Radio
  • Billboards
  • Floor Signs

Marketing

Dollars

Retailer On-Line Selling& Web Promotions

Community Outreach/Local Event Marketing

FSPs/Direct Mail

Trade

Dollars

Features/Displays/TPRs/In-Store POS

moral of story
Moral of Story
  • It’s not just price; it’s a combination of factors, carefully blended and balanced to satisfy a particular consumer need or aspiration. Each supermarket has to search within its own strengths to find the right formula. There are no easy answers but – frankly – the alternatives look bleak
slide84

We really appreciate the time and attention you have given us today!

  • Specifically, we want to thank the FMI for inviting us and trust that this has been both fun and helpful.

www.hoytnet.com

8912 E. Pinnacle Peak Rd. #650 • Scottsdale, AZ 85255 Phone (480) 513-0547 • Fax (480) 513-0548 • E-Mail: chrishoyt@hoytnet.com • nancyswift@hoytnet.com