are traditional retailers turning the corner? bishop future of...channel, non-traditional retailers...
TRANSCRIPT
Moderator:Brian Todd, The Food Institute
Speakers:Jim Hertel, Willard BishopBill Bishop, Willard Bishop
Webinar:June 27, 2007
2:00 – 3:00 PM EDT
Are Traditional Retailers Turning the Corner?
Copyright © 2007. All Rights Reserved.1
Food Institute
Moderator: Brian Todd
The Food Institute strives to be the best, “single source” for current, timely, and relevant information about the food industry from “farm to fork.”
For 78 years, we have aided and informed food industry professionals.
Resources include the weekly FOOD INSTITUTE REPORT, daily email updates, informational publications, seminars, and webinars
Consider us as a new career center for the food industry.
We are privileged to collaborate with Willard Bishop on today’s webinar as part of our series.
For more on the Food Institute, go to www.foodinstitute.com.
Copyright © 2007. All Rights Reserved.2
Format for today’s event
By now you should have received “The Future of Food Retailing Report” via email. This report provides an in-depth look at the data covered in today’s presentation.
To access a copy of the report during the webinar, go to www.foodinstitute.com\futureoffood.pdf.
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Jim Hertel
Managing Partner, Willard Bishop
In addition to his role as managing partner, Jim leads the firm’s business development, client service, and strategy development practice.
Throughout his career, he has developed insight-based growth strategies for many of the top consumer-packaged goods companies in the industry.
Prior to joining Willard Bishop, Jim worked in brand management at Procter & Gamble and led the client service group at Spectra Marketing.
His B.A. degree in Economics is from Duke University.
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Bill Bishop
Chairman, Willard Bishop
Bill has been involved in retail research and consulting for over 30 years.
In his new role as Chairman, Bill continues to provide strategic guidance and thought leadership to both the organization and the industry.
Throughout his career, he has led major studies on everything from pricing strategies, category management and new retail formats, to loyalty marketing and health and wellness at retail.
His education in Economics includes a Ph.D. from Cornell.
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The grocery game is changing…again
Today, we’ll discuss:
The state of the industry—who’s doing well and what the future holds.
How supermarkets are fighting back and what it means to your business as a supplier.
How new players are changing the rules of the grocery game and what suppliers will need to do to keep up.
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Five key takeaways from today’s presentation
Traditional supermarkets’ responses to the past decade’s competitive activity are taking hold.
Another round of format innovation is gathering momentum.
Retail growth results from strong shopper value propositions.
The implication for traditional retailers Even more productive responses will be required in the future; this is no time to rest.
The implication for suppliers The opportunity to collaborate for growth can be found in both traditional and non-traditional channels.
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Who are the players?
Traditional Retailers
Traditional Supermarket
Fresh Format
Limited-Assortment
Super Warehouse
Other (Small Grocery)
Convenience
With Gas
Without Gas
Non-Traditional Retailers
Wholesale Club
Supercenters
Dollar Stores
Drug
Mass
Military
Traditional Retailers see twoTraditional Retailers see two--thirds or more of their sales thirds or more of their sales coming from food and consumable productscoming from food and consumable products
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While traditional retailers comprise the largest channel, non-traditional retailers are a major force
2006 total industry sales grew 4% to $859 Billion.Non-traditional retailers’ grocery volume is equivalent to 68% of food and consumables sold in the traditional retailer channel.
Non-traditional retailers account for one-third of groceries sold in the US.
Source: Willard Bishop, 2007
Share by SegmentSales by Segment(Billions)
Convenience16.2%
Traditional Retailers
49.8%Non-Traditional
Retailers34.0%
Convenience16.2%
Traditional Retailers
49.8%Non-Traditional
Retailers34.0%
$138.9
$292.4
$427.6
Convenience
Non-TraditionalRetailers
TraditionalRetailers
Source: Willard Bishop, 2007
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Over the past two decades, traditional retailers have lost significant ground
By 2013, non-traditional retailers will equal traditional retailers in food and consumables sales.
Source: Willard Bishop, 2007
Market Share by Segment89.6%
42.2%
42.8%43.5%49.8%
40.3% 41.2%34.0%
2.5%
42.2%
7.9%
16.2%
16.2% 15.9% 15.7%
1988 2006 2011(e) 2012(e) 2013(e)
Traditional Non-Traditional Convenience
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Traditional Supermarket sales show signs of recovery
…Still, they are projected to lose share over the next five years.
0.2% -2.0%
2.6%
2004 2005 2006
Sales Growth Rate
Source: Willard Bishop, 2007
1.0%0.8%
2.5%2.0%
1.6%1.7%
1.1%
1.3%
37.3%
44.1%
Fresh Format
Limited-Assortment
SuperWarehouse
Other (SmallGrocery)
TraditionalSupermarket
Current and Projected Market Share
Source: Willard Bishop, 2007
Despite resurgent sales, Traditional Supermarkets will continue to lose share.
Sales were up 2.6% ($9.6 billion), compared to a 2.0% decline in 2005.
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Non-Traditional retailers’ sales growth is slowing
…While their long term market shares projected to grow.
Sales Growth Rate
Source: Willard Bishop, 2007
9.7%
6.9%6.1%
2004 2005 20062.0%1.7%
4.8%4.9%
4.6%5.0%
8.2%7.4%
20.3%
14.5%
Dollar
Drug
Mass
Club
Supercenter
20062011(e)
Current and Projected Market Share
Supercenters continue to pace non-traditionals’ growth through 2011.
Source: Willard Bishop, 2007
Sales for Non-traditional retailers were up 6.1% ($16.7 billion) in 2006, compared to 6.9% growth ($17.7 billion) in 2005.
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Convenience Store sales continue to grow
2.4%
4.0%
2005 2006
Sales Growth Rate
Source: Willard Bishop, 2007
Current and Projected Market Share
2.2%
2.4%
14.0%
13.8%
Without Gas
With Gas
20062011(e)
Source: Willard Bishop, 2007
C-store sales increased 4% ($5.3 billion) in 2006, compared to 2.4% ($3.2 billion) in 2005
While C-store sales will increase over the next five years, market share will remain flat.
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0.9%
1.4%
1.8%
2.0%
2.1%
2.9%
3.0%
3.9%
5.8%
7.3%
7.9%
9.0%
10.7%
Other (Small) Grocery
Traditional Supermarkets
Convenience (without Gas)
Military
Mass
Super Warehouse
Drug
Convenience (with Gas)
Wholesale Club
Fresh Format
Dollar
Limited-Assortment
Supercenter
Supercenter, Dollar, Wholesale Club, and Drug are non-traditional formats positioned to grow at a rate that outpaces inflation.
Expected Compound Annual Sales Growth Rate vs. Inflation: 2006-2011(Grocery & Consumables)
Source: Willard Bishop, 2007; USDA, Economic Research Service
Inflation CompoundAnnual Rate: 2.9%
Non-traditional formats will continue to have the advantage in real sales growth rates
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Traditional Supermarkets have been challenged on two fronts
A “one-size-fits-all” approach left many Traditional Supermarkets in unsustainable middle ground.
PriceImage
Low High
High
Low
Quality Image
SupercentersSupercenters
TraditionalTraditionalSupermarketsSupermarkets
Fresh Fresh FormatFormat
$$
$$
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…And strengthened their shopper value propositions against both price-oriented and premium competitors.
SupercentersSupercenters
TraditionalTraditionalSupermarketsSupermarkets
Fresh Fresh FormatFormat
Successful Traditional Supermarkets have responded on both fronts…
PriceImage
$$
$$
High
Increased emphasis on “fresh”
Credible natural and organic offerings
Enhanced shopping experiences
New pricing strategies
Increasing reliance on Private Label
High impact promotions
Low
Low
HighQuality Image
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Grocers’ shopper value propositions must be multi-dimensional
Price is critical when other elements of a grocer’s value proposition are equal to or at a disadvantage compared to competitors.
PricePrice == Maintaining ParityMaintaining ParityQualityQuality == Fresh is the WordFresh is the WordVarietyVariety == Unique/Different Products/ServicesUnique/Different Products/ServicesService Service == People & SystemsPeople & SystemsFacilitiesFacilities == Bright, Clean, FunBright, Clean, Fun
V = (Price x Quality x Variety x Service x Facility)V = (Price x Quality x Variety x Service x Facility)
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Shelf price is only one dimension of price image…
Comparing Chain B Shopper Value vs. Typical Supercenter
Chain B Advantage
5 Price Image Dimensions
Chain B Disadvantage
While Supercenters may beat Supermarket shelf pricing by 20% or more, Traditional Supermarkets can win on other dimensions of pricing.
Mer
chan
disi
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Pric
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omm
unic
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Per U
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Shel
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Prom
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Wegmans manages price image with “Hybrid EDLP”
Mix of national brands and strong private brands
Directly competitive with Hi/Lo merchandisers
“You can do real well on price there, and get great fresh items and service”
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Hy-Vee manages price image in part through private brands
They are able to differentiate and improve price image simultaneously.
Multiple price tiers Specialty Co-branded “hit” itemsfood items
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Ingles does a superior job with price communication
Same-store sales growth exceeds 5%
Well-entrenched Supercenter competition
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…And pricing is only one element of the value equation
Chain B Advantage
5 Price Image Dimensions Other Shopper Value Equation Elements
Chain B Disadvantage
Comparing Chain B Shopper Value vs. Typical Supercenter
Cle
anlin
ess
Cus
tom
er S
ervi
ce
Prod
uce
Mea
t
Loca
tion
Faci
lity
Déc
or
Com
mun
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uppo
rt
Del
i
Bak
ery
HB
C
Rx
HighImportance
LowImportance
MediumImportance
Mer
chan
disi
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Pric
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omm
unic
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Per U
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Shel
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omot
iona
l Pric
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Innovative Traditional Supermarkets are meeting “Fresh Format” competition head-on
…In shopping environment
Safeway Lifestyle store
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Innovative Traditional Supermarkets are meeting “Fresh Format” competition head-on
…And, in Private Label, too.
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Kroger takes broad-based action to enhance their shopper value proposition
Known for their customer loyalty programs
40% of U.S. households have a Kroger Plus card
Customized offers
Three-tier private label program
Offer “Try it, Like it or Get National Brand Free”
They manufacture 55% of the private label items they sell
Committed to organics
Extensive perishables assortment
“Naturally Preferred” private label brand
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Publix differentiates on customer service
Publix ranked number one in American Consumer Satisfaction Index* for supermarkets; Wal*Mart ranks last.
Motivated employees own 31% of Publix.
Same store sales +5.1%.
New GreenWise markets to offer product specialists in every department.
*Published by University of Michigan
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Leading Convenience Retailers are refocusing their merchandising efforts
Convenience Retailers like 7-Eleven and Wawa are taking a more strategic approach to merchandising, by:
Rethinking the inside of the store:
Consumer purchasing behavior
Promotional effectiveness
Assortment
Increasing focus on foodservice.
Building perishable programs.
Building private label programs.
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Thornton’s stands for fresh, high-quality food-to-go
Leading C-store and gasoline chain in Midwest.
Bringing fresh salads, sandwiches, fruit, and other high-quality items to the “one-stop shopping” experience.
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What’s next? Web grocers are growing again
2006 Internet grocery sales are estimated at $2-3 billion/year.
Format advantages include:
Convenience.Quality and low prices.Personalized promotions.Servicing the “long-tail” profitably.
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What’s next? Tesco’s move to the U.S. will intensify competition
Tesco’s U.S. expansion:
Identified under-served consumer segments
Compete with Trader Joe’s, Whole Foods and Safeway Lifestyle stores
Emphasis on fresh, private-label, and value-added products
Targeting Hispanics
Projected to spend $400 million over 5 years
Large DC built for scale beyond announced stores
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What’s next? New formats meet shoppers’ lifestyle needs
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What’s next? Meal assembly centers attractshoppers and branded good suppliers
There are over 850 meal assembly centers in the US, and sales are doubling every year.
Sales reached $270 million in 2006.
Food manufacturers and distributors are entering into partnerships to capitalize on this emerging format.
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Implications for Suppliers
Traditional supermarkets can still be sources of growth.
The best are meeting the value challenge.
They are seeing healthy same-store sales increases.
New opportunities for collaboration are emerging.
Don’t overlook mid-tier and smaller traditional supermarkets.
Emerging formats are opportunities as well.
Successful collaboration will require suppliers to “raise their game.”
Above and beyond category perspectives.
Customer requirements impact internal organization and work flow.
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Implications for Retailers
Traditional supermarkets must remain on offense.
Many have responded well to “extreme value” challenges.
New and emerging formats will pose additional challenges.
Growing retailers can attract incremental supplier resources.
Growing retailers help suppliers expand their shares.
“Intellectual property” is cited as the most valuable resource.
Enhancing shopper value propositions can drive innovation and growth.
Within existing formats.
Creation of new formats.
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Questions & Answers
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For over 30 years, Willard Bishop has been working with retail and foodservice companies to solve business problems and identify opportunities to drive
profitable growth.
To discuss today’s topic in more depth, or to arrange for us to present this in person, free of charge at your company, contact:
Jim Hertel, Managing Partner
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