ECR Europe Forum '08. Window on the world of retail

“Window on the World of Retail”

29th May, 2008

Agenda• A Global Tour of the world of retail

- Rodney Fitch, Fitch Global

• The Collaborative Experience in Virtual Worlds – - Rick Brindle, Kraft Foods

• Panel: World’s Collide!

Window on the World of Retail• Exploration of what is happening in the real world of

retail– mature to emerging markets – global players adapting to local markets– local retailers reinventing formats– changing consumer drivers (eg luxury vs value)– technology changing our world

• Learnings from emerging and enabling eCommerce technologies– virtual worlds of social networking and 2nd life– challenges of convergence between ‘real’ and ‘virtual’– changes to business models required for future success

Panel Discussion: World’s collide

• What are the implications for the future? • How can we use the experience of the

convergence between real and 'virtual' worlds to change our business models?

Agenda• A Global Tour of the world of retail

- Rodney Fitch, Fitch Global

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RODNEY FITCH [email protected]

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FOUR PROPOSITIONS…

“…SHOPPING IS THE PURPOSE OF LIFE…..”

“…SUCCESSFUL RETAILING WILL ALWAYS MIRROR THE SOCIETY IT SERVES…..”

“…THE TECTONIC PLATES OF WORLD RETAILING ARE SHIFTING…..”

“…INNOVATION AND THE CUSTOMER SHOPPING EXPERIENCE ARE PARAMOUNT…..”

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GLOBAL…THE WORLD’S TOP 5 RETAILERS HAVE A COMBINED REVENUE OF $600 BILLION…. MORE THAN THE ENTIRE ECONOMIES OF SWEDEN, THAILAND AND KUWAIT COMBINED

…THE IKEA CATALOGUE HAS A CIRCULATION OF 110 MILLION - FOUR TIMES GREATER THAN THE BIBLE

…ONLINE SHOPPING IN THE UK GREW BY 50% IN 2006

…THERE ARE MORE AVON LADIES IN BRAZIL THAN PERSONNEL IN THE ARMED FORCES (GFK)

SHOPPING IS THE PURPOSE OF LIFE… AND DRIVER OF CHANGE…

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WHICH DO YOU PERSONALLY DO TO IMPROVE YOUR SENSE OF WELLBEING?

CONSISTENTLY RANKED AS ONE OF THE TOP FOUR ACTIVITIES THAT IMPROVES CONSUMERS SENSE OF WELLBEING

2007: AVERAGE LEVEL OF IMPORTANCE OF ACTIVITY IN MATURE MARKETS 40% AND 42% IN EMERGING MARKETS

A INCREASE OF IMPORTANCE OF 5% IN MATURE MARKETS AND 9% IN EMERGING SINCE 2003

BRAZIL IN THE TOP QUARTILE

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USA MORE CONSERVATIVE, LESS INNOVATIVE, MORE LIFESTYLE DRIVEN

DUBAI A VISION TO BECOME THE WORLD’S TOURISM AND SHOPPING DESTINATION, WITH MORE AND BIGGER MALLS

UK BECOMING A NATION OF ‘ARMCHAIR SHOPPERS’ WITH ONLINE GROWTH TWICE THAT OF EUROPE

RUSSIA SHIFT FROM COMMAND TO DEMAND ECONOMY

INDIA BURGEONING SPENDING CLASS,WITH THE WORLD’S LARGEST AND YOUNGEST MIDDLE CLASS

BRAZIL YOUNGER, MORE ASPIRATIONAL CUSTOMERS WILL NEED MODERN AND COMPELLING RETAIL

BUT SUCCESSFUL RETAILING MUST ALWAYS MIRROR THE SOCIETY IT SERVES….

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…A HISTORY OF RETAILING IN SIX IMAGES

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“…THE TECTONIC PLATES OF WORLD RETAILING ARE SHIFTING…”

MATURE MARKETS

REAL

VIRTUAL

EMERGING MARKETS

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THERE IS NO WINDOW…THERE IS NO WORLD.

RATHER THERE ARE

MANY WINDOWS AND MANY WORLDS…

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MATURE MARKETS

CONSOLIDATIONTECHNOLOGYNEW FORMATSSUSTAINABILITYPRO-ACTIVE CONSUMERSTRANSFER BRAND EQUITYLUXURY (EXCLUSIVITY)

EMERGING MARKETS

CHOICEORGANISED SECTOR

GLOBALISATIONTRAINED STAFF

ASPIRATIONAL CONSUMERSLOCAL PLAYERS

LUXURY (STATUS)

“…THE TECTONIC PLATES OF WORLD RETAILING ARE SHIFTING…”

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MATURE

CONSOLIDATION…EMERGING

CHOICE…

“RETAIL PIONEER AMAZON EUROPE IS PLANNING TO AQUIRE A MAJORITY STAKE IN LOVEFILM - WHO ITSELF CONTROLS 70% OF THE INTERNET RENTAL MARKET” (MINTEL 2008)

“THE MALL IS FULL OF ENERGY. IT’S FULL OF LIFE…THERE YOU CAN DO ANYTHING YOU WANT…AT HOME IT’S RESTRICTED AND BORING” (TECHNOPAK, INDIA 2007)

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MATURE

TECHNOLOGY…EMERGING

ORGANISED RETAIL…

“BY 2011 70% OF THE UK SHOPPING POPULATION WILL REGULARLY BE BUYING GOODS ONLINE COMPARED TO JUST OVER 50% OF CONSUMERS TODAY (PRICE WATERHOUSE COOPER LLP 2008)

“…WITH 95% OF INDIA’S RETAIL SALES HELD BY THE TRADITIONAL SECTOR THINGS HAVE TO CHANGE...”

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MATURE

NEW FORMATS…EMERGING

GLOBALISATION…

“TO INCREASE MARKET SHARE AND ATTRACT NEW CUSTOMERS BEST BUY CONSTANTLY EXPLORE NEW IDEAS AND RECENTLY DEVELOPED THREE NEW FORMATS - STUDIO D, ESCAPE AND EQ LIFE” (BEST BUY)

“IN RUSSIA TOTAL RETAIL SALES ARE EXPECTED TO DOUBLE BY 2010 FROM $245BN TO $526BN - MAKING IT THE 9TH LARGEST RETAIL MARKET IN THE WORLD” (MINTEL 2007)

Qa

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MATURE

SUSTAINABILITY…EMERGING

TRAINED STAFF…

“88% OF UK CONSUMERS MENTIONED AT LEAST ONE ENVIRONMENTAL ISSUE OF CONCERN AND 60% AT LEAST ONEETHICAL ISSUE”(MINTEL GREEN & ETHICAL CONSUMERS 2007)

“INDIA: 45M GRADUATE POPULATION YET 700M DEPEND ON AGRICULTURE”(DEMOS 2007)

“THE GROWING ORGANISED SECTOR WILL NEED 10M TRAINED STAFF BY 2010” (TECHNOPAK, INDIA 2007)

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MATURE

PRO-ACTIVE CONSUMERS…

EMERGING

ASPIRATIONAL CONSUMERS…

“H&M’S FACEBOOK GROUP PROMOTING ITS RECENT FASHION AGAINST AIDS CAMPAIGN BOASTS 27,568 FRIENDS WORLDWIDE”

“I DON’T THINK THERE IS A SINGLE PERSON WHO DOESN’T LIKE SHOPPING…” (TECHNOPAK 2007)

1 IN 10 PEOPLE ON THE PLANET ARE UNDER 25 AND LIVING IN INDIA (CNN)

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MATURE

TRANSFER OF BRAND EQUITY…

EMERGING

EMERGENCE OF LOCAL PLAYERS…

“OWN LABEL BRANDS ARE FUELLING THE GROWTH OF THE EU FOOD RETAIL MARKET, EXPECTED TO RISE 36% IN A DECADE TO €1,063BN BY 2010” (MINTEL, 2008)

“OF THE US $30 BN TO BE INVESTED IN ORGANISED INDIAN RETAIL OVER THE NEXT 4-5 YEARS, US $20 BN WILL COME FROM INDIAN BUSINESSES” (TECHNOPAK, INDIA 2007)

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MATURE

RETURN TO EXCLUSIVE LUXURY…

EMERGING

EXPLOSION OF LUXURY STATUS…

“£135K THE COST OF A PRIVATE SPACE FLIGHT IN 2012 ” (THE TIMES)

“THE GLOBAL NUMBER OF THOSE CLASSED AS WEALTHY (WITH PORTFOLIOS OVER €1M), HAS DOUBLED OVER A DECADE” (WORLD WEALTH REPORT 07)

“A PRADA HANDBAG IS EQUAL TO ABOUT HALF THE ANNUAL INCOME OF THE AVERAGE BRAZILIAN HOUSEHOLD”

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VIRTUAL

INNOVATION AND THE CUSTOMER SHOPPING EXPERIENCE ARE PARAMOUNT…

REAL

MATURE EMERGING

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THE CUSTOMER SHOPPING EXPERIENCENEW FORMATS - POPUP

WINDOWONTHEWORLD ILLY, VENICE

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WINDOWONTHEWORLD MOTOROLA RED, CHICAGO

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THE CUSTOMER SHOPPING EXPERIENCENEW FORMATS - TARGETTED OFFERS

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PLASTIC SURGERY - SINCE 500 AD

TRIGONOMETRY - SINCE 700 AD SPACE OBSERVATORY - 1727 BC

TESCO, LONDON CARREFOUR, BUENOS AIRES

WINDOWONTHEWORLD CARNIVAL, DALLAS

WINDOWONTHEWORLD COS, LONDON

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THE CUSTOMER SHOPPING EXPERIENCENEW LUXURY

WINDOWONTHEWORLD HARVEY NICHOLS, ISTANBUL

WINDOWONTHEWORLD PAUL SMITH, LONDON

WINDOWONTHEWORLD PAUL&JOE/TARGET, MELROSE AVE LA

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THE CUSTOMER SHOPPING EXPERIENCEONLINE

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WINDOWONTHEWORLD AMAZON WEBSITE

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PLASTIC SURGERY - SINCE 500 AD

TRIGONOMETRY - SINCE 700 AD SPACE OBSERVATORY - 1727 BC

DELL WEBSITE COURTS, SINGAPORE

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FOUR THOUGHTS…

NEW RETAIL RITUALS

GENEROUS BRANDS

THE C2C COMMUNITY

FREE’TAIL

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RITUALSCONSUMERS ARE SEARCHING FOR A MORE STRUCTURED SHOPPING EXPERIENCE AND EQUALLY RETAILERS AND BRANDS ARE LOOKING FOR WAYS OF CREATING MARKERS IN PEOPLES LIVES THAT HELP TO BUILD LOYALTY AND A REASON TO RETURN.

EXPLORING NEW RETAIL RITUALS CAN BEGIN TO ESTABLISH A COUNTER POINT TO THE INCREASING NUMBER OF SALES BEING MADE ON LINE, PROMPTING A VISIT VERSUS WAITNG FOR CONSUMERS TO ARRIVE.

™

WINDOWONTHEWORLD SELFRIDGES - EAT MY CITY

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™GENEROUSBRANDSIN A WORLD WHERE CONSUMERS ARE BECOMING INCREASINGLY AWARE OF‘MEAN’ BRANDS FITCH HAS BEGUN RESEARCHING THE CONCEPT OF GENEROSITY. GENEROUS BRANDS ARE THE ONES WHO SHOW MORE OF A HEARTBEAT, TAKE THE FIRST STEP AND DISPLAY A GENUINE UNDERSTANDING OF THEIR CUSTOMERS NEEDS.

THIS IS A LONG WAY FROM 2 FOR 1 DEALS AND BONUS POINTS, BUT RATHER A TONE OF VOICE AND GENERAL PERSONALITY THAT ENCOURAGES CONSUMERS TO WARM TO THEIR OFFER.

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Subject: The Commoditization of the Starbucks Experience

As you prepare for the FY 08 strategic planning process, I want to share some of my thoughts with you.

Over the past ten years, in order to achieve the growth, development, and scale necessary to go from less than 1,000 stores to 13,000 stores and beyond, we have had to make a series of decisions that, in retrospect, have lead to the watering down of the Starbucks experience,

and, what some might call the commoditization of our brand.

HEARTFELT MEMO FROM HOWARD SHULTZ FEB 14 2007

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C2CCOMMUNITY

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FROM ‘AVON LADIES’ TO FRIEND AS SHOPKEEPER

A NEW RETAIL LANDSCAPE

REFERRAL AND SHARING TRANSACTIONS

FROM FARMERS MARKETS TO PEOPLE MARKETS

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FREETAILWHYPAY?THE ‘PENNY GAP’Zero Market versus The Rest

ECOSYSTEM MARKETS

THE ‘ATTENTION’ ECONOMY

THE ‘REPUTATION’ECONOMY

‘FREEMIUM’

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VIRTUAL

INNOVATION AND THE CUSTOMER SHOPPING EXPERIENCE ARE PARAMOUNT…

REAL

MATURE EMERGING

Agenda• A Global Tour of the world of retail

- Rodney Fitch, Fitch Global

• The Collaborative Experience in Virtual Worlds• - Rick Brindle, Kraft Foods

The Collaborative Experience in Virtual Worlds

The Collaborative Experience in Virtual Worlds

Rick Brindle, Kraft Foods

AgendaAgenda

• Kraft.

• Emerging technologies changing OUR world.– Recent, Current, Future

• How our industry should participate.

One of Best Brand Portfolios in F&B IndustryOne of Best Brand Portfolios in F&B Industry

40+ Brands over 100 years old

50+ Brands over $100 million

9 Brands over $1 billion

Health & Wellness Snacking

Quick MealsPremium

Kraft’s Key Growth Platforms

Kraft eSalesKraft eSales

Serving Two Major Constituencies

eTAILERS GROCERY&

RETAILERS eCOMMERCE

(since 1997)

In the U.S., “Grocery Shopping”

ranks 24th out of 25 in terms of “Desirability”

of weekly household tasks…

…lower than “going to the dentist”!

Source: Supermarketguru.com

View Shopping as a ChoreView Shopping as a Chore

Source: Verdict

EU – “Shopping is a chore”

43.6

34.5

By the first half of last year, sales were £748 million…

…up 35% versus 2006…

…profit up 62%!

Receives over 300,000 orders each week.

Internet sales contributes ~ 4.2% of Tesco's group profits and 3.1% of sales.

Customer base of more than one million active users and up 20%!

Busy Suburban Families Connected to the InternetBusy Suburban Families Connected to the InternetBusy Suburban Families Connected to the Internet

e-Grocery Consumer is Too Important to Ignore!e-Grocery Consumer is Too Important to Ignore!

Spend ~$5k/yr on food (+25% vs. avg. U.S. HH)

Highly loyal to the home delivery channel (~80% share of wallet)

Presence of children is the single biggest driver of order size

Source: eMarketer.com

Before I go any further, a question…

Are our children going to buy their

groceries the

same way we

do?

Communications? Relationships? Current Events? Entertainment?

Electronics? Clothes? Cars? Pictures? Yard Sales? Directions? Information

Gathering? Real Estate? Investments? …

Mall Shopping

is an EVENT

Grocery Shopping

is a CHORE

Some Learning’s…

• eBusiness is Business. Forget this and fail.

• Success in eBusiness is defined by measurable business results

increased sales/reduced costsimproved productivity enhanced consumer satisfaction/loyalty

• Three Major Factors have Accelerated Growth in Online Grocery:

1. BROADBAND2. DEMOGRAPHICS3. MOBILITY

Source: Pew Internet & American Life Project, Feb. 2006

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

2001-Home2002-Home

2003-Home2004-Home

2005-Home

Home & Work

Rural Suburban Urban

Broadband Penetration – U.S.Broadband Penetration Broadband Penetration –– U.S.U.S.

10

2/3 of US Web Users are 2/3 of US Web Users are now on Broadband now on Broadband

Broadband Penetration – EUBroadband Penetration Broadband Penetration –– EUEU

> > ¾¾ of EU Web of EU Web Users are now on Users are now on

Broadband Broadband

Netherlands, Netherlands, Denmark and UK Denmark and UK leading the way leading the way

Source: Forrester

Broadband Penetration – EUBroadband Penetration Broadband Penetration –– EUEU

The correlation The correlation between broadband between broadband adoption and online adoption and online

shopping is 0.86.shopping is 0.86.

US – Women Dominate!US – Women Dominate!

In 2006, Women became the largest user of the Internet.

Our best customer!

The Internet Generation is Growing up!

Source: eMarketer.com

EU – Woman are closing in!EU – Woman are closing in!

Shop.

Research future purchases.

Create Community.

Self-Expression.

Share their experiences with YOUR stores and brands!

Women use the Internet to…Women use the Internet to…

Mobility

“The device formerly known as the cell phone.”

Today, you follow the Internet…

…In the next ten years, the Internet will follow you.

The 4th

Screen

Mobility

In 2006, 25% of the world’s 2B mobile phones are 2.5-3G…

…This means they are broadband enabled.

60% of EU will have 3G phones by 2010.

OBSERVATION

GPS enabled POP!

POP Incentives…– Short Codes– Mobile Couponing

POP Advertising…– Video Clips

POP information…– Amazon’s “textbuyit”.

R U READY?

Social revolution meets Technology evolutionSocial revolution meets Technology evolution

The Social Web

Web 1.0

Web 2.0

Leve

l of I

nter

actio

n

Time

3D Interaction

What is a “Virtual World”What is a “Virtual World”

Also known as "digital worlds," "simulated worlds“, “MUVE’s” and "MMOG's“, an interactive simulated environment accessed by multiple users through an online interface.

Five Common Features:

1. Shared Space

2. Graphical User Interface

3. Immediacy

4. Interactivity

5. Socialization/Community

Virtual Worlds are here to stay Virtual Worlds are here to stay

CollaborationPrototypingMarketingCommerceInnovation

Population: >13,000,000

… Tripled since 2/07!

Gender:Male: 59%Female: 41%

Second Life – Fast FactsSecond Life – Fast Facts

Source: Linden Labs Monthly Data Report

1. USA 36%

2. Germany 8%

3. UK 8%

4. France 5%

5. Japan 5%

6. Italy 4%

7. Brazil 4%

8. Canada 3%

9. Netherlands 3%

10.Spain 3%

Total 80%

Second Life – Top 10 CountriesSecond Life – Top 10 Countries

Source: Linden Labs Monthly Data Report

Source: Linden Labs Monthly Data Report

Age Bucket Num (%) Time (%)

13 – 17 1% .5%

18 – 24 23% 15%

25 – 34 35% 35%

35 – 44 24% 28%

45 Plus 17% 21%

59% between 25-44 yrs.35+…49% of Time

Second Life – Fast FactsSecond Life – Fast Facts

Introducing!Introducing!

For the Consumer:Education, celebration, connection

For the Retailer:Marketing research, path to future

For Kraft Foods:Leadership, consumer branding

• A supermarket – all Brands invited!

• Interactive CPG packages: nutritional information, recipes and promotional opportunities

• Virtual samplings

• Kraft Kitchens Cooking Institute

• The Food Forum

• Consumer focus group discussions

• Phil’s Food Club redeem points for rewards

• Monthly e-newsletter builds relationship in community (events and new products)

Why? Why?

1. Build brand equity

2. Provide share and relationship building services for our valued retailers

3. Generate consumer learning’s via this emerging media

4. Create an open innovation learning environment for our customers, the industry and Kraft

Results to DateResults to Date

1. Build Brand Equity. – 293mm media impressions in week one. – Created the “New Product Showcase”– Created the Maxwell House Coffee Café– Created the Kraft Kitchen’s Cooking Institute

w/cooking videos on demand.– Rick’s Wine Cellar -- launched wine pairings list. – Over 27m visitors since launch.– Joined “Second Life Residents” face book group

Results to DateResults to Date

1. Build Brand Equity.

2. Provide share and relationship building services for our valued Customers.

– Created a confidential password driven conference room for focus group and strategy sessions.

– Created a stadium for open forum discussions food and grocery retailing.

– Conducted 35 store tours with customer partners – Exposure to several thousand retailers and

wholesalers via keynote presentations

Results to DateResults to Date

1. Build Brand Equity.

2. Provide share and relationship building services for our valued Customers.

3. Generate consumer learning’s via this emerging media– Provided a forum for over 20 confidential focus

groups and/or associate meetings.

Results to DateResults to Date

1. Build Brand Equity.

2. Provide share and relationship building services for our valued Customers.

3. Generate consumer learning’s via this emerging media

4. Create an open innovation learning environment for our customers, the industry and Kraft – Several other cpg manufacturers are involved!– Kwikee product images is providing 3-D product

imaging to Kraft Foods and other cpg manufacturers’ participating in Phil’s.

Observations & Best PracticesObservations & Best PracticesThe community is real.

Social responsibility is appreciated and rewarded.

A different environment is welcome.

Being too “corporate” is a risk.

Variety is key.

People will come to the store if there is an event happening.

There is something dynamic and important germinating here. It is smart to keep a close eye and participate where practical.

It is the future and worth learning more about.

ConclusionConclusion

LET’S LEARN TOGETHER!

Agenda• A Global Tour of the world of retail

- Rodney Fitch, Fitch Global

• The Collaborative Experience in Virtual Worlds - Rick Brindle, Kraft Foods

• Panel: World’s Collide!

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VIRTUAL

INNOVATION AND THE CUSTOMER SHOPPING EXPERIENCE ARE PARAMOUNT…

REAL

MATURE EMERGING