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© 2002 Cap Gemini Ernst & Young - All rights reserved1
The changing faceThe changing faceof the global food industryof the global food industryPresentation OECD Conference The Hague 6 February 2003Presentation OECD Conference The Hague 6 February 2003
JanJan--Willem GrievinkWillem Grievink
© 2002 Cap Gemini Ernst & Young - All rights reserved
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© 2002 Cap Gemini Ernst & Young - All rights reserved2
Jan-Willem Grievink
• Jan-Willem Grievink is research & strategy-director within CGE&Y
•Working for several major players in the food industry as a strategic consultant at boardroom-level
•Previous functions included:Executive Officer in food retailMarketing director in the food industryEditorial CEO in the media industry
•Expert counselling in food retailing and supply chain issues and observer of current and future trends in these areas.
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© 2002 Cap Gemini Ernst & Young - All rights reserved3
Research method: Delphi-based
III. Analysis &conclusions
II. Send out questionnaire to European, American and
Asia Pacific respondents
I.Hyphenate in-depthinterviews with top managers
from the food sector IV. Report
• Desk research with CGE&Y consultants and university specialist building the State of the Art in Food model and core questions.
• Selecting companies and persons to interview and to send the questionnaire to. • In depth interviews with 65 top managers from the retail and manufacturers side as well as other
influentials in the food branch.• Sending questionnaires with statements to over 225 policy makers.• Analysing and drawing conclusions from the questionnaires, the interviews and market facts and
figures. This has been done by a team of sector specialists of CGE&Y and Reed Elsevier together with research organizations and three university professors.
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© 2002 Cap Gemini Ernst & Young - All rights reserved4
Model State of the Art in Food
E-business
Financial markets
Consumer markets
Food Safety
and Health
Buying markets
Humanresource
environments
Supply chain integration
Manufacturer Retailer ConsumersSupplier
Economy Legal
Informationtechnology
Consumer trends
Demography
Tracking & tracingCulture
Sociology
Politics
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© 2002 Cap Gemini Ernst & Young - All rights reserved5
The 8 big battles to face for the next 7 years….
1. The battle for the consumer mindset…Some retailers will become strong brands
and dictate the supply-chain
2. The battle between out of home consumption and eating at home
The food-service market will adapt retail policy
3. The battle of the global brands…More differentiation and less regimentation!
4. The battle around the optimal supermarket formatFair prices and more transparency in segmentation in mature markets
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© 2002 Cap Gemini Ernst & Young - All rights reserved6
The 8 big battles continued
5. The battle around the power in the supply chainCo-operation and setting standards for safety and efficiency
6. The battle between demand driven and production driven agriculture
Global sourcing increasing, subsidising policy decreasing
7. The battle on the stock marketLess power for shareholders and financial analysts
and more long-term commitments for investors as stakeholders
8. The battle of leadership-styles and culture bordersCoaching Style or Democratic dictator-ship
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State of the Art in FoodState of the Art in FoodCap Gemini Ernst & YoungCap Gemini Ernst & Young
Some retailers will change the Some retailers will change the food supply chain …food supply chain …
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© 2002 Cap Gemini Ernst & Young - All rights reserved8
The 21ste century vision
• AholdAhold: “Ahold’s mission is to become the best and most succesful food provider in the world.”
• CarrefourCarrefour: “The worlds most global retailer, with a complete line of formats and te best-adapted to the various forms of local consumption.”
• TescoTesco: “We are developing our UK business, in food, non-food and financial services. Our international growth strategy is to develop large stores in big markets where we can establish a leading position.”
• WalWal*Mart*Mart: “We want to lower the costs of living around the world.”
• “AuchanAuchan bases its growth strategy on being the brand of choice for customers …adopting a ‘people-to-people’ approach”
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© 2002 Cap Gemini Ernst & Young - All rights reserved9
The world’s largest food retailers (top-25 in global sales in billion of euro)19 9
51
3 9
3 9
3 3
3 3
2 1
8 6
53
4 7
3 6
3 4
3 3
3 2
3 0
3 0
2 9
2 52 3
19
18
17
3 0
2 8
2 7
Wal-MartCarrefour
AholdkrogerMetro
Albertson'sKmartReweTesco
AldiSafeway Inc.
Costco Intermarche
SainsburyEdeka
Ito YokadoTengelmann
DaieiJusco
AuchanLeclerc
SupervalueCasino
DelhaizeLidl
USA originEurope originOther
Announced a strategyto become a Brand
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© 2002 Cap Gemini Ernst & Young - All rights reserved10
Food concepts in the context of positioning strategies
OutletOutletconceptconcept
CONDITION CONDITION MNGMNTMNGMNT
ProfitabilityProfitability
USP USP MNGMNTMNGMNT
Customer RetentionCustomer Retention
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© 2002 Cap Gemini Ernst & Young - All rights reserved11
10 main 10 main USP’sUSP’s and condition management for the big concepts…and condition management for the big concepts…
OutletOutletconceptconcept
CONDITION CONDITION MNGMNTMNGMNT
ProfitableProfitable
USP USP MNGMNTMNGMNT
Customer RetentionCustomer Retention
UniqueUniqueproductsproducts
FreshFreshdominancedominance
Safe &Safe &HealthyHealthy
VarietyVariety& Innovation& Innovation
ConsumerConsumerinfoinfo
ConvenienceConvenience
TastefulTasteful
Good dealGood deal Meet localMeet localdemandsdemands
HospitalityHospitalityControl onControl onProductionProduction
No complexityNo complexity
Switch ableSwitch able
ChangeableChangeableProfitabilityProfitability
Low CostLow CostLess StaffLess Staff
Safety, Transparency Safety, Transparency
Uniform dataUniform data& logistics transfer& logistics transfer
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© 2002 Cap Gemini Ernst & Young - All rights reserved12
Home brand policy… how to select a manufacturer?
3 basic criteria forall the suppliers
Added values for strategic suppliers
EthicsEthics
Chain quality
Product quality
Product safetyProduct safety
Product availabilityProduct availability
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© 2002 Cap Gemini Ernst & Young - All rights reserved13
New Buying Systems within Brand Supermarket ChainsNew Buying Systems within Brand Supermarket Chains
supplierssuppliersGeneric buyerGeneric buyer
for dealing withfor dealing withManufacturersManufacturers
Global sourcing and dealing will increaseGlobal sourcing and dealing will increase
FormulaFormula--salessales--managermanagerfor growth in salesfor growth in sales
and branding the conceptand branding the concept
Strategic buyerStrategic buyeror chain processor chain process
managermanager
The newThe newbuyingbuying--systemsystem
These These twotwo are are newnew……
consumersconsumers
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© 2002 Cap Gemini Ernst & Young - All rights reserved14
Store formatStore formatbrandbrand
ManufacturerManufacturer
TRA
NSF
OR
M S
TOR
ES IN
TO B
RA
ND
STR
AN
SFO
RM
STO
RES
INTO
BR
AN
DS CO
NTR
OL TH
E CH
AIN
IN O
RD
ER TO
C
ON
TRO
L THE C
HA
IN IN
OR
DER
TO
SELECT U
SP’SSELEC
T USP’S
BrandBrand--valuevalueUnique product and RecipeUnique product and Recipe
PackagingPackagingPricePrice
Quality innovationQuality innovationShelf life/ambienceShelf life/ambience
PromotionPromotionConsumer informationConsumer information
HACCPHACCP
Delivery quantityDelivery quantityDelivery momentDelivery momentFrequencyFrequencyPackagingPackagingdatadata--info & auditinginfo & auditingIngredientsIngredientsproductionproduction--methodsmethodsBenchmarking efficiencyBenchmarking efficiencyISOISO
Building the concept means that Building the concept means that you want something unique in..
ChainChain--management means management means that you want to control…you want something unique in.. that you want to control…
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© 2002 Cap Gemini Ernst & Young - All rights reserved15
Private labels in a new segmentation
Cheap No focuson qualityPRIVATE LABEL
• Cost focus
Good tasteGood quality
ExclusiveUnique
PREMIUM brand
Retailers identity
Retailers value
HOMEBRANDS
•Substitute forA-brands
Ret
ailb
rand
ing
leve
l
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© 2002 Cap Gemini Ernst & Young - All rights reserved16
Facts about articles in main supermarkets
26%13.50026.000UK
24,5%21.00041.000USA
23,5%16.00029.000France
20,5%3.4509.500Netherlands
Mix Margin for the Mix Margin for the total supermarkettotal supermarket
Fresh related SKU’s Fresh related SKU’s in main in main supermarketsupermarket
Average no SKU’s Average no SKU’s in main in main supermarketssupermarkets
Country
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State of the Art in FoodState of the Art in FoodCap Gemini Ernst & YoungCap Gemini Ernst & Young
The balance of powerThe balance of power
The Supply chain under control of The Supply chain under control of branded supermarket chainsbranded supermarket chains
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© 2002 Cap Gemini Ernst & Young - All rights reserved18
Branded retail concepts will
direct the chain
The power in the The power in the chain has been since chain has been since
decades with the decades with the party who controls party who controls the temporary main the temporary main
added valuesadded values
AuctionAuction
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© 2002 Cap Gemini Ernst & Young - All rights reserved19
Consumers 160.000.000Customers 89.000.000
Outlets 170.000
Supermarket formats 600
Buying desk 110
Manufacturers 8.600
Semi-Manufacturers 80.000
Suppliers 160.000
Farmers/producers 3.200.000
powerpower
The Supply Chain Funnel in Europe
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© 2002 Cap Gemini Ernst & Young - All rights reserved20
Retail Top-3 position in different countries
32%VEROPOULOSALFA BETACARREFOURGreece
32%CARREFOURCONADCOOPItaly
44%AUCHANEROSKI GROUPCARREFOURSpain
52%INTERMARCHEJMRSONAEPortugal
54%SUPERVALUEDUNNESTESCOIreland
57%ALDIREWEEDEKAGermany
58%ASDASAINSBURYTESCOUK
60%COLRUYTDELHAIZECARREFOURBelgium
64%INTERMARCHELECLERC/SYS UCARREFOURFrance
76%PRIMO VISAVISCOOPMIGROSSwitserland
78%ADEGSPARBML-REWEAustria
78%SUPERGROSDANSK SUPERMARKTFDBDenmark
80%SUOMEN SPARSOKKESKOFinland
83%SULAURUSAHOLDNetherlands
86%COOPHAKONNORGESGRUPPENNorway
95%AXFOODOFICASweden
Combinedshare1 2 3
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© 2002 Cap Gemini Ernst & Young - All rights reserved21
The functions of the links in the food-chain are changing!imageimage
AuctionAuction
AH
farmer supplier manufacturer Warehouse&distribution Store-formatBuying
desk client consumer
DemandsDemands
farmer supplier manufacturer Warehouse&distribution Store-formatBuying
desk client consumer
GoodsGoods
Physically build upPhysically build up
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© 2002 Cap Gemini Ernst & Young - All rights reserved22
Balance of Power Has ShiftedRetailers are increasing their relative strength vs. Brand marketers
0
100
200
300
400
500
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Top 5 retailers
Top 5 brand Marketers (‘)
(*) PH, Morris, Nestle, Unilever, P&G, BAT
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© 2002 Cap Gemini Ernst & Young - All rights reserved23
The difference in power between Manufacturers and Retailers
Globalorientation
HighDominance
(multi) localorientation
LowDominance
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© 2002 Cap Gemini Ernst & Young - All rights reserved24
Food Supply Chain Power Balance Indicators
EconomyLegal
Informationtechnology
Society(abdoman feelings)
Demography
Tracking & tracing
Culture
Sociology
Politics
Global TradeRules
Infrastructure
Market-dominance
BuyingDesk
RetailConcept
Manufacturer Outlet ConsumersSupplier customerDistributorFarmer
PRICE
Chain Control(divide & rule)
Knowing&Manipulating
Consumer behaviour
Mind-setting power
Assortment & innovation
Volume
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© 2002 Cap Gemini Ernst & Young - All rights reserved25
The effect of the retail power indicators
PRICETransparencyAlliances
Volume
Harmonizing systems
Systemizing the economy of scales
Mergers
Assortment & innovation Melting custom buying culture
Food-safetyChain Control(divide & rule)
Dependency or interdependencyQuality control
Chain link integrationMind-setting powerAnti global movementPeople Planet Profit & EnduranceKnowing&
ManipulatingConsumer behaviour Increasing power of trends & hypes
Trendsetting and trend following
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© 2002 Cap Gemini Ernst & Young - All rights reserved26
The sales trends for the future
• In mature marketsConcepts with more than Products & PriceMass customisation and re-differentiation
• In emerging marketsFormula’s en uniformizationDiscipline and harmonization
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© 2002 Cap Gemini Ernst & Young - All rights reserved27
Mature market segmentation
No value addOnly selling
Added ValueConcept oriented
HighPrice
LowPrice
Brand selling Stores35% of the market
Branded Stores30% of the market
Chain Control orientation’
Discount25% of the market
Quality Discount10% of the market
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© 2002 Cap Gemini Ernst & Young - All rights reserved28
2. The battle between out of home consumption and eating at home• Convenience meal-shops and Out of Home are increasing >7%• In Europe within 15 years sales OoH & Retail equal
WHO WILL WIN THIS GAME?
Who will benefit most of the increasing marketA combination of:
Retailers strong in cost-efficiencyCatering companies strong in service deliveryRestaurants strong in hospitalitySpecialty shops strong in products
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© 2002 Cap Gemini Ernst & Young - All rights reserved29
Out of Home branded store concepts Western EuropePercentage of total sales through branded concept outlets
190
2010
Tota
l Out
of H
ome
Con
cept
160
2000
Tota
l Out
of H
ome
Con
cept
100
1990
Tota
l Out
of H
ome
Con
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© 2002 Cap Gemini Ernst & Young - All rights reserved30
The length of time for food preparation “at Home” has reduced significantly in the past century
2,5 hours 1 hour 0,5 hour 15 min 8 min.
1934 1954 1974 1994 2010
0
30
60
90
120
150
180
1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020
traditional cooking
modern appliances
prepared food fresh and frozen
foods home delivery
Home cooking time UK
* Source: Imperial college, Prof. D. Hughes
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© 2002 Cap Gemini Ernst & Young - All rights reserved31
3. The battle of the global brands…
AA--brandbran
d
• How to avoid a mentality of ‘trying to be everybody’s darling’• Is there an end of everlasting global stretching the A-brands ???
• Three main developments behind the jamLocal relevancy coming upAnti-global movementRetailers do not want to differentiate themselves with Dry Groceries and obvious brands
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© 2002 Cap Gemini Ernst & Young - All rights reserved32
The big dilemma’s for the supply chain players
• Anticipating the demand driven chain or refocus on supply power & innovation
• Global sourcing or controlled local sourcing• Independency, interdependency or co-operation?• Anticipating the retail-power or avoiding the dictates• Branding yes or no?• Have a relation with the consumer yes or no?
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© 2002 Cap Gemini Ernst & Young - All rights reserved33
How can a manufacturer face retail power?
Focus onproduction
Focus onbranding
AddedValue
Low cost
Generic brand(outsource Production?)
Top Retailhome-brand
A-brandmanufacturer
Private labelproducer
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© 2002 Cap Gemini Ernst & Young - All rights reserved34
Brands in the Future…AA--br
andbrand
• Six scenario’s to get out of a tight corner…1. Global A-brands as cornerstones of the portfolio of a assortment
portfolio but with a lot of local jewel brands around it2. The local relevant face in front of the strategy3. Get in direct touch with the consumers (avoid the dictates of the
supermarket)4. Brand stretching to fresh assortments5. New distinguishing brand-characteristics & premium innovation6. Creating selective portfolio parts for main retailers
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© 2002 Cap Gemini Ernst & Young - All rights reserved35
Winning shop formulas
Trends:• Fast changing environment• Increasing demands concerning opening hours, assortment, quality• Focus on shopping behaviour as well as on consumers
•• MomMom--andand--pop storespop stores•• NeighbourhoodNeighbourhood storesstores•• Soft discountersSoft discounters
Incapable to react adequatelyon trends ...
•• HypermarketsHypermarkets•• FullFull--service service supermarketssupermarkets•• Hard discountersHard discounters•• ConvenienceConvenience stores
Focus on leisure (less non-food)Super-store with service assortmentsAssortment Discount & quality discountFresh and mealshopsstores
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© 2002 Cap Gemini Ernst & Young - All rights reserved36
How retailers select create segmentation in their assortments…
Emotion drivenshopping
Ratio drivenshopping
High frequentshopper
Low frequentshopper
ROUTINE
NECESSITYTEMPTATION
ENJOYMENT
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© 2002 Cap Gemini Ernst & Young - All rights reserved37
A challenge for A-brands….
Freshassortments
Strategy& USP
Positioning
Allian
ces
Allian
ces
Alliances
Alliances
BrandedBrandedconceptsconcepts
AA--brandbrandproductsproducts
----++
++
Nonfoods
++++
Chilled Brands
Services
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© 2002 Cap Gemini Ernst & Young - All rights reserved38
Seven paradoxes in company-strategy
OptimalOptimalGrowthGrowth
Key PeopleLoyalty
vs CEO-loyaltyAccountabilityvs Best Strategy
CEO on public platformvs Reliability & Integrity
Companies choosenLeadership Stylevs Local Culture
Management Rotationvs Best PracticeImplementation
Innovation inLong-term or short-term
Environment?Stock-market expectations
vs Stakeholders expectations
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© 2002 Cap Gemini Ernst & Young - All rights reserved39
Dilemmas, paradoxes contradictions, and new paradigms!
• Food is retail AND convenience AND Out of Home?
• Globalisation of brands AND Local relevancy?
• Standardisation of Master Brands AND maintaining Local jewels?
• Manufacturing is A-Brands AND Private Labels?
• Mass production AND customisation
• Transparency AND maintaining Unique Selling Propositions?
• Price AND Customer service?
• New economy AND Old economy?
• Mature markets AND Emerging markets
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© 2002 Cap Gemini Ernst & Young - All rights reserved40
•• Some outletSome outlet--concepts will develop themselves to brandsconcepts will develop themselves to brandsThey need building stonesThey need building stonesThey want to control the chain in several categoriesThey want to control the chain in several categories
•• Global sourcing will increase, but that means new chances for Global sourcing will increase, but that means new chances for local jewelslocal jewels
•• Global branding will meet difficultiesGlobal branding will meet difficultiesLocal relevancy is neededLocal relevancy is neededBranding in Fresh will followBranding in Fresh will follow
•• In mature markets we move from content to contextIn mature markets we move from content to contextUnderstanding the changing consumer needsUnderstanding the changing consumer needsControlling the food chain for cutting costs and control qualityControlling the food chain for cutting costs and control quality reputationreputation
•• There is an upcoming market for premium private labelsThere is an upcoming market for premium private labels
SummarySummary
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© 2002 Cap Gemini Ernst & Young - All rights reserved41
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mailto:[email protected]
Jan-Willem GrievinkResearch method: Delphi-basedModel State of the Art in FoodThe 8 big battles to face for the next 7 years….The 8 big battles continuedThe world’s largest food retailers (top-25 in global sales in billion of euro)Food concepts in the context of positioning strategies10 main USP’s and condition management for the big concepts…Home brand policy… how to select a manufacturer?Private labels in a new segmentationFacts about articles in main supermarketsThe balance of powerThe Supply Chain Funnel in EuropeThe difference in power between Manufacturers and RetailersFood Supply Chain Power Balance IndicatorsThe effect of the retail power indicatorsThe sales trends for the futureMature market segmentationOut of Home branded store concepts Western EuropePercentage of total sales through branded concept outletsThe length of time for food preparation “at Home” has reduced significantly in the past century3. The battle of the global brands…The big dilemma’s for the supply chain playersHow can a manufacturer face retail power?Brands in the Future…Winning shop formulasHow retailers select create segmentation in their assortments…A challenge for A-brands….Seven paradoxes in company-strategySummaryIf you want to know more?