1 / 38

March 18, 2003

Making the Most of Your Top-to-Top Meeting Opportunities – Talking The Subjects of Vital Interest to Retailers Today. March 18, 2003. www.hoytnet.com.

mihaly
Download Presentation

March 18, 2003

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Making the Most of Your Top-to-Top Meeting Opportunities – Talking The Subjects of Vital Interest to Retailers Today March 18, 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

  2. Today • Key questions for manufacturers • Key issues facing retailers: • Trip loss • Price competition • The need to become consumer focused • Beverage potential for helping supermarkets rebuild customer count and transaction size • Manufacturer mind-set and process changes required

  3. Definitions • Traditional Format Retailers • Supermarkets • Drug chains • Discount stores • Convenience stores • Value Discount Retailers • Super Centers • Clubs • Dollar Stores

  4. Consolidation has compressed the entire CPG marketplace to a manageable configuration of approximately 30 accounts # Leading Accounts/Channel Share 2002 Channel %Total HH 2002 Avg. AnnualTrip Freq. Y2002 ($B)Channel Vol Grocery Discount Drug Supercenters Clubs Convenience/Gas Dollar Stores $525 165 150 100 71 38 17 $1,066 5/42% 3/100% 5/92% 4/92% 3/100% 7/100% 4/85% 30/57% 100% 92% 86% 63% 52% 46% 62% 100% 73 22 15 21 10 14 12 N/A Source: Progressive Grocer, Drug Store News, AC Nielsen, Discount Store News and Hoyt & Company Records 2001 - 2002

  5. Given this configuration, one of the top priorities for every supplier in this room has got to be making the most of top-to-top meeting opportunities if and when one gets them: • If your Buyer is your only point of contact in one of your top 10 accounts, you know you are either disadvantaged or potentially at risk • Problem is: • There are currently approximately 1,500 suppliers to the CPG community, all competing for access to the top • Mega retailers do not have the time or people resources to regularly see any but their largest/most important suppliers • Even the Top five say they cannot afford to “partner” with more than 4 or 5 suppliers at any given point in time • Despite this, there are many smaller suppliers who do gain access to the top, either through their broker or distributor or because they know how to penetrate an account.

  6. Questions are: • What do say when you get there? • What do you say to get you there? • How do you align internally to make the most of the opportunity?

  7. Answer: You must be exceptional, particularly if you are not “mega” • To do this, suppliers need to step out of their traditional roles and invest the time and effort necessary to understand the core issues facing their key retailers in the current environment • For Traditional Format Retailers, these now go way beyond Category Management, which used to be a reliable door-opener for most top-to-top meeting occasions • Hoyt & Company believes that for any supplier willing to put forth the effort, the present industry situation offers a unique opportunity to add value that far exceeds the distribution value of one’s brands

  8. So what are the core issues we are talking about? • Trip loss and penetration loss in Traditional Format Retailers • Structural inability of Traditional Format Retailers to compete on price with Value Discounters • The urgent need for (most) Traditional Format Retailers to become consumer focused – defined as any or all of the following: • Understanding what consumers expect of your channel or store in 2003 • Being willing to settle for a smaller piece of the pie – otherwise known as reconfiguring all operations to target specific consumer segments • Learning to differentiate on a non-price basis, establishing a positioning and sticking to it

  9. Issue #1 Trip Loss

  10. Over the past seven years, all Traditional Format Channels except C&G have experienced significant declines in household shopping trips: • One trip = 105.5MM visits • Shopper Trips By Channel (1996 – 2002)(Avg. # Trips/Household/Channel/Year) • Traditional Formats • Value Discount Formats Total Trips • Down 2 Billion Trips in Seven Years 180 167 Source: AC Nielsen Homescan, 2003

  11. On top of Trip Loss, we have Penetration Loss, also exclusive to Traditional Formats but this time including Convenience Stores • % Household Penetration By Channel: 2002 vs 1996 PointDifference 1996 2002 Grocery 100 100 0 Convenience/Gas 52 46 -6 Drug 90 86 -4 Traditional Discount 95 92 -3 Clubs 49 52 +3 Supercenters (1998) 47 63 +16 Dollar Stores 39 62 +23 Source: AC Nielsen Homescan, 20039

  12. If both Trip Loss and Penetration Loss are combined and factored, the effect on Traditional Format Retailers has been devastating • # Trips X %HH Penetration, 1996 - 2002 Difference Channel (# HH) 1996 (99.6MM) 2002 (105.5MM) Grocery 9,462B 7,702B (1,760B) Traditional Discount 2,744B 2,135B (609MM) Drug 1,434B 1,361B (73MM) Convenience/Gas 673MM 679MM +6MM Clubs 379MM 549MM +170MM Dollar Stores 233MM 785MM +552MM Supercenters (1998) 609MM1,396B+787MM Total Trips 15,534 14,607 (927MM) Source: AC Nielsen Homescan: # Trips X % HH Penetration = Total Trips

  13. $32.94 Using Clubs vs Supermarkets as an example, the pattern appears to have morphed into something like the following: • Annual Trip Frequencies & Transaction Size:Clubs vs. Supermarkets Avg.TransactionSize $82.97 Source: AC Nielsen Homescan, 2003 and 2001

  14. Issue #2 Structural Inability of Traditional Format Retailers To Compete on Price with Value Discounters

  15. Wal-Mart’s Expansion into Food • The most significant factor in food retailing since the advent of self service in 1916: • Invents nothing but perfects everything • Does nothing different but tries to do everything better • Disdains emotion but rewards pragmatism, commitment and discipline • Between 1980 and 2001 Wal-Mart grew 35x’s faster than the market:

  16. Wal-Mart’s Expansion into Food • Wal-Mart is now the nation’s #1 food provider with 2002 food sales of approximately $80B (vs. $50B for #2) • Objective is 30% share of every business it enters • Several weeks ago, USA Today reported one analyst’s forecast that supermarkets’ share of the grocery business will drop to 34% by 2010 from its current 53% with the bulk lost to Wal-Mart

  17. The Heart of the Wal-Mart Competitive Advantage – Low Operating Costs • Wal-Mart vs. Leading Supermarket Financials: 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

  18. Channel Pricing Index on Selected Consumables(Scottsdale, AZ, 8/7/2002) Pricing advantages translated into real-world retails • 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.

  19. Other Winning Formats – Club Stores • 2001 combined food sales of approximately $38.5B Food & BevSales% Per Year# Stores SAM’s $18.4 +5.2% 498 Costco $17.7 +8.2% 363 BJ’s $2.4 +11.5% 130 • Business Model: Membership fees contribute as much as 70% of operating profits enabling cost + 10% retails • Demographic Target: Small businesses and affluent consumers • Positioning: High quality national brands and private labels at 10-30% discounts to average market prices • Average Transaction Size: $80 - $85 • Penetration grew from 49 to 52% between 1996 and 2002; trip frequency grew from 8 to 10 • Source: FMI< 2002 - 2003

  20. Other Winning Formats – Dollar Stores • $17B channel dominated by Dollar General, Family Dollar and Dollar Tree Top 100 Rank Sales % Prev Year # Stores % Per Year Dollar General 39 $5.3B +17.0 5,540 +10.8 Family Dollar 53 $3.7B +17.0 4,141 +12.3 Dollar Tree 90 $2.0B +17.0 1,975 +14.2 • Business Model: Quality closeouts, liquidation merchandise priced at 30-40% below market averages • Demographic Target: $30 - $50K, retirees and those on fixed incomes • Positioning: “A new market beneath the standard discount market” • Average transaction size: $9.00 (with most items priced around an even $1.00) • Penetration grew a whopping 39% to 62% between 1996 and 2002 while trip frequency doubled from 6 to 12

  21. Value Retailers’ Success Ingredients – Common Characteristics • Business models that differentiate by definition • No deviation to react to the latest threat • Focus on a specific consumer group • Fluid merchandising that maximizes quick rotation & change – quick in-and-out, frequent “surprises” • Below-market acquisition costs, low operating expenses & below-market pricing consistency • Leverage supplier dollars to keep prices low vs. enhance profitability = consumer-driven vs. deal-driven merchandising • Willingness to settle for part of the pie – none attempts to be all things to all people all of the time

  22. Issue #3 Urgent Need For Traditional Format Retailers To Become Consumer-Focused

  23. To understand modern consumer purchase decision drivers, a good starting point is to look at mean household income growth trends over the past 30 years • Mean Income Trends By Population Fifths, 1970-2001(2001 Dollars – Per Household) (+81%) Top 20% To p 20% (+50%) TOTAL US MEAN (+62%) 2nd 20% (+34%) 3rd 20% (+28%) 4th 20% 5th 20% (+38%) Source: US Census, Bureau of Labor Statistics, 2003. All data adjusted for inflation.

  24. Clearly, the U.S. population is gradually but progressively splintering into a nation of “Haves” vs “Have nots” • 2001 Distribution of Total U.S. Income By Population Fifths Quintile Mean Income % Distribution of Income I II III IV V 20% 20% 20% 20% 20% 50.2% 23.0% 14.6% 8.7% 3.5% $146.0 $66.8 $42.6 $25.5 $10.1 73.2% 40% Middle Class 12.2% 40% Total U.S. Mean $58.2 Source: U.S. Census Bureau, 2003; Dept of Commerce

  25. This creates a problem for Traditional Format Retailers because most of these folks are configured to capture the “Middle” • Assuming these trends continue, current forecasts are that within 20 years, there will be three very distinct groups of shoppers versus a predominance of one group at present. • 2000 • 2020

  26. Two retailers that have successfully aligned for these trends are Wal-Mart and Target – both mass merchandisers – who have done an outstanding job in positioning themselves against very different consumer segments: Wal-Mart vs. Target Shopper Demographics Indexed to Total US Categories Wal-Mart Super Center Target • Income • $30 - $49 109 102 • $50 - $74 100 117 • $75+ 74 129 • Education • High School 104 102 • College 81 125 • Post 77 120 • Home Value • $0 - $99M 140 85 • $100M+ 75 137 • Age • 18 – 34 108 112 • 35 – 54 96 108 • 55+ 98 87 Source: Hoyt & Company/Scarborough Research 2000

  27. Traditional Format differentiation success stories • Whole Foods • Trader Joes • H.E. Butt • Wegman’s • Stew Leonard’s • Walgreens • A.J.’s Foods • Ukrops

  28. The future for most Traditional Format Retailers: Pick your ground and plant your flag Income$146.0 • Aging Affluent • Favor retailers who cater to taste/ lifestyles • Variety more important than price • Prefer smaller stores/personal service • Not a “deal” shopper • Courtesy and “experience” are key • Time Calibrators • One-stop shopping • Fast service is everything • Full variety is key • Premium quality • Blind to deals $66.8 Hours0 Hours120 40 $42.6 80 • Price Calibrators • Completely disloyal • Commodity vs. quality • Cherry-picking an art • Service, decor unimportant • A continually moving target • Up & Comers • Value-channel stock-up shopper • Use supermarkets for weekly variety fill-in • Fast service • Key P.L. shopper • Growing families, growing income — soon to be affluent $25.5 $10.1Income

  29. Beverage Potential For Helping To Rebuild Trip Loss And HH Penetration

  30. Despite devastating overall consumer defections, Supermarkets remain the primary source of most beverage category volume CategoryRank 2001 Sales ($B) % Total SM Sales % Share InSupermarkets (2001) Category 4 Carb. Soft Drinks $11.8 3.2% 72.5% 6 Milk $10.9 3.0% 77.0% 14 Beer $6.8 1.9% 54.7% 16 SS Juices/Drinks $5.9 1.6% 67.3% 21 Ref. Juices/Drinks $3.9 1.1% 83.3% 25 Wine $3.61.0%45.8% Totals $42.9B 11.8% N/A Source: Progressive Grocer/IRI 55th Annual CES, 9/15/2002

  31. The flip side of this is that 3 of these categories represent 3 of Supermarkets’ Top 10 potential traffic builders • Leading Supermarket Categories Ranked In Order of Pulling Power(HH Penetration X Purchase Frequency = Pulling Power) HHPenetration PurchaseFrequency PullingPower Index ToNorm X = Rank Category 1 Baked Goods 99.4 35.5 3529 698 2 Milk 97.8 34.3 3355 663 3 Soft Drinks - Carbonated 97.7 30.3 2960 585 4 Snacks 98.7 25.7 2537 502 5 Paper Products 99.3 23.5 2334 461 6 Candy 97.9 21.8 2134 422 7 Juices/Drinks – SS 94.7 20.9 1979 391 8 Meat & Seafood – Fresh 99.9 19.1 1908 377 9 Produce 99.9 18.5 1848 365 10 Packaged Meats 96.7 18.9 1828 361 Source: Progressive Grocer/IRI 55th Annual CES, 9/15/2002

  32. These same 3 categories also rank in Supermarkets’ Top 20 categories in terms of contribution to total dollar sales • Leading Supermarket Categories Ranked In Order of Dollar Power(Dollar Power = HH Penetration X Purch. Freq. X Transaction Size) HHPenetration PurchaseFrequency PullingPower Avg.Trans. Size DollarPower Dollar PowerIndex to Norm Rank Category X X X = 1 Meat & Seafood - Fresh 2 Produce 3 Soft Drinks - Carb 4 Tobacco/Accessories 5 Deli-service 6 Baked Goods - Fresh 7 Paper Products 8 Milk 9 Pet Food 10 Snacks 11 Prepared Foods - Frozen 12 Packaged Meats 13 Cereal 14 Candy 15 Cheese 16 Medications/Remedies 17 Juices/Drinks - SS 18 Vitamins 19 Beer 20 Detergents 99.9 99.9 97.7 43.9 88.6 99.4 99.3 97.8 71.1 98.7 93.2 96.7 96.1 97.9 97.5 92.9 94.7 76.3 43.2 97.1 19.1 18.5 30.3 21.7 10.2 35.5 23.5 34.3 19.6 25.7 12.4 18.9 17.8 21.8 17.2 10.8 20.9 4.9 10.6 10.3 1908 1848 2960 953 904 3529 2334 3355 1394 2537 1156 1828 1711 2134 1677 1003 1979 374 458 1000 $26.13 $18.29 $5.03 $12.91 $13.12 $2.78 $4.03 $2.75 $6.41 $3.38 $7.40 $4.41 $4.14 $3.24 $3.97 $5.52 $2.71 $13.25 $10.63 $4.73 $49,850.23 $33,803.74 $14,881.66 $12,294.20 $11,853.35 $9,817.74 $9,392.79 $9,217.65 $8,927.32 $8,579.00 $8,546.44 $8,064.78 $7,086.41 $6,910.76 $6,649.50 $5,537.77 $5,368.54 $4,952.63 $4,866.91 $4,731.68 2,726 1,849 814 672 648 537 514 504 488 469 467 441 388 378 364 303 294 271 266 259

  33. Now back to our original questions concerning top-to-top meeting opportunities: • What do say when you get there? • What do you say to get you there? • How do you align internally to make the most of these opportunities?

  34. It is H&C’s belief that the Supplier Community has huge untapped potential to help Traditional Format Retailers defend and grow in the face of Value Discounter encroachment • Those of you in this room have a unique advantage because of beverages’ obviously crucial role as traffic builders. • The other resource – unique to suppliers – is those aspects of your Company’s brand marketing expertise that can help your key retailers address their targeting or overall differentiation objectives.

  35. So what is the framework in the present environment to optimize your next top-to-top opportunity with Traditional Format Retailers? • Develop an understanding of your key retailer’s overall business issues from a top management viewpoint: • Not brand • Not category • Core business-building issues only • Organize to address these issues as if they were your own: • Limit to subjects that enable you to leverage your normal areas of expertise • Bring the full weight of all (relevant) resources to bear on the issues – sales, marketing, market research, etc. • Confine the meeting to a dialogue focused exclusively on the retailer’s issues: • Resist the temptation to make it a platform for advancing brand (or category) objectives • Do NOT ask for anything in return at the conclusion of the meeting

  36. Jacks or better to open by trade class - Traditional Format Retailer Meeting Subjects • Supermarkets • “What makes a food store a food store in 2003?” • Financial benefits of defaulting the entire center-of-the-store to a “convenience” position • Leveraging inherent assets: location, assortment and perishables expertise • Drug Chains • Recapturing young singles • Capitalizing on senior segment growth opportunities • Why soda fountains and sandwiches now make sense • Convenience • How to leverage the consumer’s obsession with “quick, easy and convenient” • Broadening assortments to increase margins and transaction size • Moving beyond the convenience store’s traditional consumer base

  37. Moral of story • It’s not just price; it’s a combination of factors, carefully blended and balanced to satisfy the needs and aspirations of a particular consumer segment: • “Build it and they will come” and “All things to all people” are histoire. • Taking a stand and/or being willing to accept a smaller piece of the pie appears to be the winning formula. • Because of their brand marketing expertise, manufacturers are uniquely equipped to help retailers sort this out. • Being willing to do this and to move beyond the parochialism of specific brands or categories is the essence of Co-Marketing.

  38. Thank you, it has been an honor We Appreciate The Time and Attention You Have Given Us Today. Specifically, We Want to Thank Bob Phillips and Beverage Aisle for Inviting Us (for the Fifth Year in a Row) and Trust That This Has Been Both Fun and Helpful. 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

More Related