обзор Pl

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The Private Label PropositionDublin, April 22nd 2009

Basic Guide to selling Private Label in Germany

Hermann Sievers, smk-consulting, D-Hamburg

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Germans shop around – smart shopper!

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German FMCG-Retail: Private Label + 15 %-points in 8 years!

BrandsBrandsBrandsBrands Private LabelPrivate LabelPrivate LabelPrivate Label

FMCG Brands

Private Label (incl. Aldi)

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Development of PL-share 2004 – 2008 in Germany

total Food Retail Hypermk Discount Supermk Drugstore

Brands

PL

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Aldi´s PL-dominance:40% of all PL in Germany sold through Aldi!

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Share of Private Label within categoriesexamples (01 – 06 2008)

Frozen/icecream

non alc beverage

cereals

Dairy (white)

Non-perishables

sweets

Staple foods

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Development of Private Label shareper discount retailer (Germany)

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Pioneered by Aldi, discounters are the dominant retail format in Germany.

50s-70s 80s-90s 2008

• Aldi as discount pioneer

• Market entry of other discounters

• Limited assortment with focus on food

• New format and assortment strategies (e.g., non-food)

• Strong focus on internationalization

• Expansion into new assortments and services (e.g., travel, M-Commerce, fresh products, bio)

• Beginning consolidation

< 2,000 stores2,000 stores2,000 stores2,000 stores

< 5 % market share< 5 % market share< 5 % market share< 5 % market share

≈ 12,000 stores12,000 stores12,000 stores12,000 stores

≈ 30% market share30% market share30% market share30% market share

>15,000 stores15,000 stores15,000 stores15,000 stores

> > > > 44%44%44%44% market sharemarket sharemarket sharemarket share

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• Limited, but covering all essential needs

• Enriched by seasonal items

• High standards, confirmed e.g.by Stiftung Warentest

• High degree of standardization

• Attention to details

AssortmentAssortmentAssortmentAssortment

QualityQualityQualityQuality

ImageImageImageImage

EfficiencyEfficiencyEfficiencyEfficiency

• 98% penetration

• Accepted by all consumer segments

• Each household can reach threedifferent discounters within 10 minutes

Key success drivers discount in Germany

•Low complexity, high continuity and convenience

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source: GfK ConsumerScan, Nov.2005–Oct.2006

37 trips p.a.97 trips p.a.

demand coverageat discounters

65% demand coverageat discounters

24%

98,0%of all German households bought at discounters in 2006

47,0%regular purchaseat discounters

51,0%“sporadic” purchaseat discounters

Half of German consumers can almost exclusively be reached through discounters

Today:Distribution at discounters in Germany is a success factor for brands

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German Discount Retailers

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Germany: Discount Retailers Ranking 2008

Focus on EasternGermany

3001.0Netto North(DanskSupermarket)

Focus on South/ Southwest Germany

1,2503.3Norma

300 outlets fromPlus (2008)

2,3007.0Penny(Rewe)

Merger in 20084,00011.0Netto/Plus(EDEKA)

3,00014.8Lidl

2,50011.2Aldi Nord

1,70013.3Aldi Süd

remarksoutletsTurnover in bn. €

Company

source: Trade Dimensions, Lebensmittelzeitung, own estimations

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Two Aldis in Germany: Division Aldi Nord/ Aldi Süd

n Nord: 35 subsidiaries incl. distribution centers

n 2.500 storesn Simple store- and poduct designn Limited assortment < 850 skun Turnover/store: 4,3 Mio €n Turnover/sku: 6 Mio €

n Süd: 31 Subsidiaries incl. distribution centers

n 1.700 storesn More sophisticated product- and

store designn Broader assortment <1.000 skun Turnover/store: 7 Mio €n Turnover/ sku: 7 Mio €

Some identical products can have different pricing in Aldi Nord/Süd

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TOP 6 german retailers (in bn. €)(total Market: 151 bn. € in 2008)

61 % food13.990Tengelmann Group(incl.Plus)

81 % food24.500Aldi Group(Aldi Nord+Süd)

82 % food26.500Schwarz Group(Lidl + Kaufland)

83 % food29.580REWE Group(incl. Penny)

42 % food31.575Metro Group(incl. real.-)

90 % food37.606EDEKA Group(incl. Netto)

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36,8 38,4 39,7 40,9 42,5 43,0 44,0

23,3

23,6 23,6 23,6 24,6 24,4 24,7 24,1

8,7 8,6

23,631,8 30,1 28,7 26,3 24,6

7,8 7,9 8,0 8,2 8,5drugstores

hypermarketstotal (> 1500 sq m)

supermarkets (< 1499 sq m)

discounters

share of retail chains* in retail food trade

share of sales (in %)

bn. € 134,7 136,7 136,6

Aldi

Lidl

136,6

20052002 2003 2004 2006

+1,5 +0,0 +2,7-0,1

140,2

change value (%) **

2008:2007

source: IRI universe, always at end of year * according to retail panel system ** own calculations based on GfK ConsumerScan, total till roll fmcg

2007

+2,8

144,2

+2,4

+2,7

+4,0

+6,5+11,2

+7,6

18,36,4

18,87,1

19,17,1

18,97,9

19,68,6

18,79,2

18,99,7

2008**

151,6

+5,1

The relative price increases in 2008 accelerated the growth of discounters – Aldi back on a growth path

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Retail formats cost comparison

Total costs as % of gross-price

VAT

Profit

Advert

Headq

Logistic

POS

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Growing consciousness of German retailersto become retail brands

n Pricing is not the right means to differentiate from competition. German shoppers differentiate only 3 types of food retailoutlets: supermarkets, big supermarkets (hypermarket) and cheap supermarkets (discounters). But only discounters aresynonymous for cheap prices.

n Therefore, during the last 2-4- years food retailers have starteddeveloping positionings and concepts to differentiate fromcompetition. There is a trend of becoming a retail brand likeTesco, M&S or Sainsbury in the UK

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German food retail (full assortment): consciousness to become a Retail Brand

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Some Touch-points of a Retail Brand (EDEKA):overall performance of brand is most important!

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Key success factor Private Label –focus on Retail Brand

n EDEKA: since 2005

n REWE: since 2007

n Globus: since 5/2008

n real.- (Metro): since 8/2008

Privat Label is not only another „Touch Point“ , but it is an ultimateexpression of the Retail Brand, because customer takes it home and taste it!

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EDEKA frozen Pizza>old <new

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Original Positioning of Private Label (2007): cheap me-too brand

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Key economy brands:benchmark Aldi for quality & price

Aldi movements in price & product are carefully observed and instantaniously copied („GUT&GÜNSTIG“=EDEKA, „ja“ = Rewe, „Tip“ = real.-)

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2009: Discounters start again Price War asMeans against recession & new challenger

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Germany: The Hard Discount Price WarQ 1/2009: Aldi leads the gang!

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Food Retailers (full assortment) with reasonablePrivate Label Business (>10% share)

EDEKA > 2 bn. € (75% GUT&GÜNSTIG)

REWE >1,5 bn. €

Kaufland > 1,2 bn. €

real.- (Metro-Group) > 1,0 bn. €

Tegut > 0,2 bn. € (focus organic)

Globus (St. Wendel) > 0,3bn. €

There are more chances for innovative product concepts than withcommodity products for economy brands

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EDEKA Private Label structure: cover all price tiers

n Premium

n Wellness/Organic

n Convenience

n Standard

n Economy

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Me-too of 400 – 600 Top-Aldiproducts, low cost producer, hardprice negotiations, smallrevenuel, not innovative

mostly me-too, low grade of innovation, sophisticated packaging, Low-cost, added

value

PL-structure EDEKA. Meaning for supplier

Top-quality in product and packaging, better/different than brand, innovative, create trends,

create value

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New Launches EDEKA (2007-2009)

Even for standard Private Label, retailers look for new productconcepts, they try product and packaging innovations

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EDEKA GUT & GÜNSTIG

n Philosophy: Benchmark Aldi in- assortment of core-products (ca. 500-700 sku)- Identical in quality (packaging & product & taste) and price!

n Umbrella-brand design, „cheap“-lookingn Placing: medium to lown No innovations, only me-too Aldi

n Suppliers: usual 1-year contractn Supermarkets: 7 regional wholesalers, 40 distribution centersn General PL Framework-Contract: responsibilities design, law,

cost, licensing, quality assurance/management (acc. IFS), audits, test results („Stiftung Warentest“, „Ökotest“), liability, quality of deliveries (Logistics), penalties, recall of defective products etc.

Multi-tier-retailers like EDEKA and Rewe have more than onedecision maker, that adds complexity to the buying process

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Real.-: new Private Label structure (2008)

Potentials on all tiers - problems to find „selection“-products

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REWE Privat Label structure (2008):

n Processed Meat/Meat(net-margin: 35-45%)

n Wellness/Organic(net-margin >35%)

n Standard(net-margin >30% or ratherbeyond category-average)

n Economy(net-margin >20%, butdepending on Aldi-price)

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Kaufland Private Label(Hypermarket Schwarz-Group, 11.8 bn. €/2008)

n K-Classic Label: EconomyBrand, introduced 2004

n Share: ca. 10%

n K-Classic „WellYou“ Wellness-Range, introduced 2008

n Centralized and efficientdecision making

n 5 distribution centers

Successful Hypermarket-concept in Germany: „Discount-Hypermarket“

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Which part do private label productsplay in Discount stores?

n Besides price, discount retailers seek a differentiation throughspecial products, esp. within fresh/chilled products

n Aldi and Lidl – try to distinguish themselves through private label

n Private label products in discounters are no longer only me-too, but besides the basic assortment (still me-too) there areadditional assortments to deliver profit and competence.

n Typically, there is no distribution of new product launchesofbrands (fmcg) in discount stores. Therefore discounters haveto launch new concepts/products via private label.

n In some areas, discounters like Aldi & Lidl made markets resp. create new categories.

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Aldi & Lidl create categories!

Fast adoption of trends: smoothies

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Aldi: keeping up with trendswellness & organic

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==++

Aldi Süd: Co-Branding with Brand!

Aldi Aldi Aldi Aldi PLPLPLPL----brandbrandbrandbrand French brand French brand French brand French brand

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Products you wouldn´t expect in Hard Discounters

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Hard Discount: new Luxury Private Label„Luxury for everyone“

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Aldi: strict quality standards

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Country-Promotions at Aldi, Lidl, Penny

What about an Irish Week?!

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Many ways to do business with Aldi (Nord + Süd)

n National Listing = become part of the normal assortment; one-year contract

n Local Listing = become part of the normal assortment of one ormore warehouses (>local products and for testing)

n Promotional Listing: Listing for one – usually weekly - promotionincl. national advertising in the particular week

n Seasonal Listing: Listing for a special period, f.e. a barbeque-product will be listed from April – September

n Thematical Promotion: become part of a special advertising(„America“, „Italian Week“, „Wellness“, etc)

n Usually, you don´t need a contractn Centralized distributionn Net/net-prices (incl. your delivery cost to depot/warehouse)

Promotional listings could lead to normal national ones!But it is always a matter of low price and high quality!

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Aldi´s internal listing process: Trial & errorexample cheese

Best customer is the one who shops regularly and buys much

n Which varieties of cheese are really needed?n Strong demanded, easy to handle-products for every dayn Best qualityn Internal consideration, talks with some potential suppliers*n Check the suppliers offern Test in some outlets or one region for some monthsn Analysis of test results, perhaps check another varietyn Decision, to introduce into all stores or refrain from it

*suppliers too can suggest a new product

If necessary (big category/avoid risk), Aldi takes more than onesupplier per product

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The other ones (Lidl, Netto, Penny, Norma) act similar to Aldi

n National Listing = become part of the normal assortment; one-year contract or no time limit

n Promotional Listing: Listing for one – usually weekly - promotionincl. national advertising in the particular week

n Seasonal Listing: Listing for a special period, e.g. a barbeque-product will be listed from April – September

n Themed Promotion becomes part of a special advertising(„America“, „Italian Week“, „Wellness“, etc)

n At Lidl, you have to sign a PL-contract. In general, not muchpaperwork with discount headquarter

n Centralised distribution

Promotional listings could lead to a standard national listing!But it is always a matter of low price and high quality!

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Private Label Suppliers have to be innovative

n As neither German discount retailers nor full assortmentretailers have NPD-departments at their disposal, they needinnovative and creative suppliers who deliver more than just me-too. In most cases, responsible person is the buyer/ category manager = decision maker. There is no Marketing/Product Management at Aldi, Lidl etc!

n Retailers expect ideas and suggestions for categorydevelopment by private label suppliers

n UK PL food retail is still seen as leading in Europe. Thereforesuppliers with experience to UK Private Label have an assetagainst competition from continental Europe.

n (compared to the U.K. and Ireland, German food retail is not so sophisticated. Price is still the key means to do the business)

Don´t consider commodities, think of innovations!

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Whom to start with?(Details depend on particular retailer)

n Discount:high turnover/sku, good structure and organization of decision & supply chain, fast, only centralized distribution+assureddistribution into each outlet, not much paperwork, quickly followand sometimes (Aldi) create trends, introduction of „luxury“-brands, no Marketing, spectrum from single local promotion to long lasting national listing, sometimes individualpackaging/content/size required (mixed tray etc.)

n Supermarkets:low turnover/sku, complicated structure (strategic, national, localbuying), slow decision, mostly centralised distribution but no assurance for distribution in each outlet, expect innovations frombrands+ but also open for PL-innovations, listing at Aldi isadvantage (positive argument!), much paperwork

In „discount country“ Germany try Discount Retailers first!

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Thank you very much!

Hermann Sievers, smk consulting, [email protected] www.smk-beratung.de