2720 Dundee Road, #255, Northbrook, IL 60062 • 847.945.1155 • www.primeconsulting.biz DOUG ADAMS, President Prime Consulting Group Milk Symposium at University of Minnesota July 20, 2017 2720 Dundee Rd #255, Northbrook, IL 60062•847.945.1155•www.primeconsulting.biz MILK AT RETAIL PERFORMANCE, CASE MANAGEMENT & CHALLENGES
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MILK AT RETAIL - Midwest Dairy Foods Research Center AT RETAIL PERFORMANCE, CASE MANAGEMENT & CHALLENGES 2 Objective & Agenda OBJECTIVE Milk at Retail: Performance, Management & Challenges
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Category Management/Development & Related Experience
• Practitioner, Consultant and Information Provider for 30+ Years
• Co-author of Industry Best Practices– Category Management Process - 1995– Category Management in DSD Environment – 1996– New Item Introductions - 1997
• Hands-on practical experience with numerous:– CPG manufacturers– Grocery, mass, conv. and drug channel retailers– Information and technology providers
• Adapted and applied process (partial or whole), in:– Consumer Packaged Goods for Frito-Lay, Sara Lee, Hostess Brands and numerous other
companies and Associations– Consumer electronics and appliances for Best Buy– Appliances for Maytag– Automotive for Quaker State Motor Oil and Aftermarket retailers– Foodservice and Schools for MilkPEP and School Nutrition Association– Energy for Propane Education & Research Council
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Industry Studies/ Reports
Building Customer Satisfaction & Sales –Nat’l. Assoc. of Chain Drug Stores (NACDS) and American Greetings Research Council
Variety or Duplication – Food Marketing Institute
Solving Out-of-Stocks – Nat’l. Assoc. of Convenience Stores (NACS) and Convenience Store News
Examples of Industry Deliverables
Developing Industry Processes & Changing Relationships
Making In-Store Advertising a Measured Medium – POPAI
Scan Based Trading & Pay-on-Scan – Grocery Manufacturers of America (GMA) & Automotive Aftermarket Industry Association (AAIA)
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Select Dairy Industry Clients
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• Continuous engagements over the past 18 years by many of the milk industry’s key associations and check-off marketing programs.
• Projects have included:– Dairy Case Dynamics performance analysis developed compelling category story.
Individual projects have led to sizeable space gains and assortment resets.– Topline Sales reporting and analysis of market trends using multiple data sources.
Quarterly Business Trends presentation for the Board.– All Channel Tracking: Innovative collection and analysis of confidential sales records from
majority of industry competitors to provide complete picture of sales across all channels. Published since 2008, with over 30 Processors participating.
– Large scale tests in Grocery, Convenience, Foodservice and Schools.– Economic and ROI analysis, including retail performance– Opportunity identification and market sizing
• Strategic, in-market and executional experience with:– Industry promotion and check-off programs.– Leading processors, manufacturers and retailers.– School foodservice operations.– Trade associations and advocacy groups.– Packaging and ingredient suppliers.
Dairy Industry Experience
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Objective & Agenda
OBJECTIVEMilk at Retail: Performance, Management & Challenges
AGENDA• Introduction
• Overview of Where Milk Is Sold• Review Dairy Case Dynamics Performance Study• Observations and Challenges
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Recap of Milk Sales by Channel
2015 FULL YEAR5,779 MM Gallons*
-76 MM Gal. or -1.4% vs. 2014-380 MM Gal. or -6.2% vs. 2012
* USDA AMS converted to gallons by Prime** Includes Preschools, Daycare & Head Start programs
*** In prior years, yogurt drinks were Class 1. These products were reclassified by USDA.
TOTAL FOOD, MASS & DRUG
57.9%
FOODSERVICE15.1%
SCHOOLS**7.6%
OTHER RETAIL18.2%
SHRINK & EXCLUDED PRODUCTS/GEO***
1.2%-0.7 pts vs ‘12
Change in: 2014 vs 2012Share of Milk -0.2 pts -1.5 ptsGal. vs. YA -1.5% -8.4%
2014 vs 2012+0.4 pts +1.3 pts+1.6% +3.2%
2014 vs 2012+0.1 pts NC
NC -6.5%
2014 vs 2012+0.1 pts +0.9 pts
NC -1.2%
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Milk Sales by Channel for 2015
5,779 MM Gallons*Share & Share Change
vs. 2012
* USDA AMS converted to gallons** Includes Preschools, Daycare & Head Start programs
*** In prior years, yogurt drinks were Class 1. These products were reclassified by USDA.
Ltd Service 5.5%, +0.6Full Service 1.8%, +0.1
Non-Restaurant 7.8%, +0.6
Mass (incl WMT) 15.3%, +0.2
Drug 1.9%, -0.2
Traditional Grocery 40.7%, -1.5Club 5.5%, +0.6
Convenience 5.8%, -0.8
Small Grocery & Dollar 5.4%, +1.2
Military 0.6%, -0.2
Nat’l Foods 0.3%, NC
Note: Individual segments may not add
to total or tie to prior page due to rounding.
TOTAL FOOD, MASS & DRUG
57.9%
FOODSERVICE15.1%
SCHOOLS**7.6%
OTHER RETAIL18.2%
SHRINK & EXCLUDED PRODUCTS/GEO***
1.2%-0.7 pts vs ‘12
NC
Other Gov’t/Comm 0.6%, +0.1
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Price Driven
Benefit Driven
Pure, Clean, Simple
Amplified, Enhanced,
Supplemented
Traditional Private Label
Milk $7.6B -1.3%
Traditional Branded Milk $5.8B -1.3%
Premium * $64M +10%
Other Value-Added/HE
$164M +5%
Source: IRI MULO+C 2015 Dollar Sales and % Change vs. 2010
Milk Category (5 Yr. CAGR %)
A Different Look at MilkBenefit Driven has Been the Source of Growth
Organic Brands $1.6B +8%
Plant Bev $1.6B +13%
Lactose F/R $0.7B +5.6%
$16Billion
* “Premium” represents a list of brands sold in glass bottles or high end plastic.
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Value-Added (VA) Has Replaced ~80% of Non-VA Dollar Sales Decline Since 2010
VA has grown $697 MM since 2010, while Non-VA has lost $884 MM.
Value Added Milk now makes up 15% of dollars sales and 8% of gallon volume.
Since 2010, category volume at retail has declined -3.1%/yr. (-656 MM gallons), while dollar sales have only declined -0.2%/yr.
Pricing changes have been larger for VA than Traditional milk products.
$7.18 $7.33 $7.58 $7.58 $7.79 $8.20 $8.25
$3.34 $3.72 $3.75 $3.82 $4.10
$3.76 $3.50
2010 2011 2012 2013 2014 2015 2016 Q1
Price per Gallon
VA Non VA
PRICE/GALLON +2.4% +2.7%
14,31715,192 15,192
13,433
1,759
-884 +697
2,456
2010 2015
Traditional VA-1.3% +6.9%
85%
15%
89%
11%
$16,076 $15,889
DOLLARS (MM)
-0.2%/yr
CAGR
4,2863,820 3,820 3,575
245
-711
+55
300
2010 2015
Traditional VA-3.6% +4.1%
92%
8%
95%
5%4,531
3,875
GALLONS (MM)
-3.1%/yr
Source: IRI MULO+C 2015 Dollar Sales and % Change vs. 2010Value Added includes Organic, Lactose F/R, Health Enhanced and Premium Brands.
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Milk 5 Year Sales Trends (Tracked Channels)
Compound Annual Growth Rate (CAGR) %
Gal $/Gal $
+4.1
+3.4 +7.6
Organic($1.6 B)
Gal $/Gal $
+5.1 +0.5 +5.6
Lactose F/R($0.7 B M)
Gal $/Gal $
+6.8+2.9 +10.0
Premium Brands($64 M)
Primarily in Glass Bottles
Gal $/Gal $
-1.8+6.6 +4.6
Health Enhanced($52 M)
(Non-Organic & Full Lactose)
“Value Added” segments have positive volume trends as well as positive pricing.
Source: IRI MULO+C
TOTAL MILK($15.9 B)
-3.1 +2.9 -0.2
Gal $/Gal $
+4.1
+2.4 +6.9
“VALUE ADDED”($2.59 B)
Gal $/Gal $
TRADITIONAL($13.4 B)
-3.6 +2.4-1.3
Gal $/Gal $
Gal. declined -3.1% /yr. while pricing ($/Gal) rose +2.9% for Dollar sales change of -0.2%/yr.
Gal. declined -3.6% /yr. while pricing ($/Gal) rose +2.4% for Dollar sales change of -1.3%/yr.
Gal. declined +4.1% /yr. while pricing ($/Gal) rose +2.4% for Dollar sales change of +6.9%/yr.
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% Change in Outlets
-10%
-8%
-5%
-3%
0%
3%
5%
8%
10%
-5% -4% -3% -2% -1% 0% 1% 2% 3% 4% 5%
Small Grocery
ClubLtd Svc Rest
Natural Foods
Grocery
Healthcare
Colleges/ Univ
Corrections Travel & Leisure
Vending/ OCS/ MM
Dollar
Convenience
Full Svc Rest
ALL CHANNELS
Military
B&I
Hospitals
Mass
Non-Rest
Drug
Fewer Outlets BUT Growing Volume per Outlet
Growth on Both Fronts Outlets & Volume/ Outlet5 Yr. CAGR
Losing on Both Fronts Outlets & Volume/ Outlet
Growing Outlets BUT Declining Volume/Outlet
% C
hang
e in
Gal
lons
per
Out
let
Full Svc. Rest. have fewer outlets, while retail adds. Retail store milk averages have declined.
Strongest growth on both fronts occurred in Dollar Stores
Channel Growth Dynamics: Outlets & Gallons per Outlet
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Total Milk Volume Change by Type
Virtually the entire decline in milk volume over the past three years came from Reduced Fat Conventional White Milk sold through retail outlets tracked by IRI.
Whole Conventional White Milk and Organic have each grown 30-40 MM gallons during the past three years.
2012 2015
+31.8 Retail *+8.1 Food-
Service & Other Retail
5,779.0
6,158.6
-379.6
+39.9 +32.7
Conv White Whole
Conv 2%/ 1% & FF
Conv Flavored
Organic
* Retail includes IRI tracked in Food, Drug Mass, Military and some Club and Dollar chains.** Misc./Other relates to an undescribed category of products in USDA reporting.
-468.0
-0.6
Buttermilk Misc./ Other
**
+4.4 +12.0+16.1 Retail *+16.6 Food-
Service & Other Retail
-435.5 Retail *-32.5 Food-
Service & Other Retail
+8.2 Retail *-1.8 Food-
Service & Other Retail
-7.0 Schools
-1.5 Retail *+5.9 Food-
Service & Other Retail
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Fat Free milk volume is now half what is was in 2010 (-10.3% per year).
Whole milk has grown for last 3 years as science/PR has turned positive toward dairy fat.
CAGR
Fat Free -10.6%
1% -3.3%
2% -3.8%
Whole +0.2%
TOTAL -3.5%
* Traditional white milk excludes organic white
2010 2011 2012 2013 2014 2015 2016
1,163 1,129 1,094 1,079 1,082 1,125 1,180
1,668 1,626 1,584 1,541 1,480 1,377 1,318
622 604 586 555 525 553 508
697 659 600 536 463 406 356Fat Free
1%
2%
Whole
Total Traditional White Milk in Gallons* (MM)Total U.S. MULO+C
4,150 4,018 3,864 3,710 3,550 3,460
Source: IRI MULO+C (Multi-Outlet and Convenience Stores)
Milk Shifts to Higher Fat Levels
3,363
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White & Flavored Milk by Channel: 2015
Sales mix is significantly different for white and flavored milk. Close to half of flavored milk is sold in schools.
* Includes K-12 schools and Preschool/Daycare.
Conventional & Organic Milk Share by Channel Group
Change vs. 2012White/Unflavored
TOTAL FOOD, MASS & DRUG
61.8%
FOODSERVICE14.7%
SCHOOLS*3.5%
OTHER RETAIL19.0%
SHRINK/OTHER1.0%
5,231.4 MM Gallons
+0.4 pts
+0.9 pts-0.8 pts
+0.3 pts
-0.8 pts
Flavored
TOTAL FOOD, MASS & DRUG
23.7%
FOODSERVICE14.8%
SCHOOLS47.5%
OTHER RETAIL12.6%
547.6 MM Gallons
+3.9 pts
+2.1 pts
-5.9 pts
+0.3 pts
SHRINK/OTHER1.4%
-0.4 pts
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Flavored Milk Development by Channel
Flavored share of milk within channel, ranges from under 2% in Natural Foods and Drug stores to over 60% in Schools.
2% 2% 3% 3% 4% 3% 4%10% 10% 11%
15%
33%
40%
61%2015 Conventional Flavored Milk as a % of Total Milk
*
* 61% includes K-12 (66%) and Preschool/Daycare (~0%).
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Flavored Milk Volume Change
Flavored milk volume declined 3.4 MM gallons over three years, driven by offsetting growth in Conventional Whole in Retail (+7.7 MM) and decline in Schools (-7.0 MM).
2012 2015
+7.7 Retail *-1.1 Food-
Service & Other Retail
551.0Conv 2%/ 1%
& FFOrganic
Schools+0.1 Retail *-2.9 Food-
Service & Other Retail
Conv Whole
-0.2+6.6 -2.8547.6 -3.4
-7.0
+0.5 Retail *-0.7 Food-
Service & Other Retail
* Retail includes IRI tracked Food, Drug Mass, Military and some Club and Dollar chains.
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Objective & Agenda
OBJECTIVEMilk at Retail: Performance, Management & Challenges
AGENDA• Introduction
• Overview of Where Milk Is Sold
• Review Dairy Case Dynamics Performance Study• Observations and Challenges
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Dairy & Milk Performance
DAIRY AISLE One of the Largest & Most Productive Parts of the Store
MILK & CHEESEKey Anchor Categories, Each Over 27% of Sales
YOGURTRoughly 13% of Sales
EGGS & OTHER DAIRY PRODUCTSRepresent About 1/3rd of Sales
SALES EXCEED 11% OF THE STORE ($60 B/Year)
5.64.63.9
2.73.2
Mix of Sales in $’s
Cheese27.2
Milk27.7
Yogurt12.9
Eggs12.2
All OtherAlt Bevs
CulturedButter
Cream/Creamers
Source: IRI Multi-Outlet Service
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Dairy Delivers 20% of Store Profit from Only 3% of Store Space
*Adjusted Gross Profit is defined as: (Sales less Cost of Goods) + Trade and Terms**True Profit = gross profit plus trade spending, less Activity Based Costs such as stocking, space, transportation.
Share of Sales Space & Profit
Note: Pharmacy not included.
Source: Willard Bishop 2015 Grocery SuperStudyTM
Linear Feet Sales
Adjusted Gross Profit*
True Profit**
Grocery 32% 27% 23% 23%Produce 4% 12% 16% 20%
DAIRY 3% 10% 11% 20%Frozen 7% 7% 7% 10%
Meat 2% 8% 6% 8%Liquor 3% 7% 4% 7%
GM 19% 10% 10% 6%Deli & Foodservice 2% 6% 9% 4%
Packaged Deli 1% 2% 2% 4%HBC 8% 5% 5% 3%
Seafood 0% 1% 1% -1%Floral 17% 1% 1% -2%
Bakery 2% 2% 4% -3%
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Dairy is Super Efficient & Delivers One of the Best ROI's
3 Key Leading Measures
Source: Willard Bishop 2015 Grocery SuperStudyTM
% SKUs Selling <1 Unit/Store/Week
Avg Days of Supply on Shelf
Gross Margin Return on Inventory Investment
Produce 35% 6 $50.43Bakery 38% 9 $29.23
Deli & Foodservice 40% 14 $27.04DAIRY 6% 6 $25.86
Meal 39% 7 $17.52Floral 52% 21 $17.22
Packaged Deli 4% 10 $16.54Frozen 14% 19 $10.80
Seafood 45% 17 $9.51Grocery 22% 18 $8.02
GM 80% 52 $5.13Liquor 47% 21 $3.30
HBC 73% 57 $2.47
Gross Margin per$ of Inventory (GMROII)
Note: Annual Gross Margin (Profit) per dollar of inventory on the shelf
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GMROII Calculation
ROII = (Margin x Turns) ÷ (1 - Margin)
Example: Assume a product cost the retailer $1.00 and is retailed for $1.50:
Milk excels in the most important KPI’s, yet Days of Supply are dangerously low – requiring multiple re-stockings each weekend.
Within Milk Case Other Parts of Dairy Case
Milk Almond Soy Cheese Yogurt Rfg Baking Rfg Juice
Linear Feet 97 13 7 210 180 66 108
SKU’s in Avg Store* 86 26 12
Wkly Sales per Ft $171 $102 $59 $80 $64 $37 $70
Wkly Gross Profit per Ft $48 $31 $18 $24 $20 $11 $19
Days of Supply 1.5 Gal
5.9 7.8 10.2 5.8 13.2 4.92.3 HG
GMROII $55 $30 $21 $18 $25 $11 $29
Source: IRI Panel, Bishop 2015 Grocery SuperStudyTM, Prime Consulting, *IRI Grocery
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How Can We Optimize the Case Today?
REMEDY OUT OF STOCKS
INCREASE DAYS OF SUPPLY
MAKE SPACE FOR NEW PRODUCTS
1 2 3
LEVERAGE POWERFUL MERCHANDISING OPPORTUNITIESFROM BRANDS AND INDUSTRY PROGRAMS4
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Milk is a Trip Driver
Frequency of buying milk, also telegraphs the “in-stock” condition of the store. • Extremely low Days of Supply
risks out-of-stocks every Friday, Saturday and Sunday.
• Mid-day restocking is required, but not always realized … Leaving consumer perception of store at risk.
What does restocking cost and how much is lost in consumer loyalty/sales and store profitability from out-of-stocks?
Source: Chicago Suburb, Wednesday 5pm, January 2016
1
Source: IRI Panel, Bishop Shopper Database, Prime Consulting
Being Out-of-Stock Hurts Shopper Satisfaction
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Space Reduction + Out-of-Stocks: Weekly Battle Causing Lost Sales
Chicago Suburb, Thursday 9AM - Normal Fall Week Midwestern City Monday 4-8 pm
1
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Retailers Lose $ When Out-of-Stock
Roughly half of the milk category must be restocked every Fri., Sat. and Sun. The praise of high turns easily turns into the nightmare of upset shoppers.
More restocking is costly* and not the solution. Recent study by milk industry and leading consultants documented that retailers lose when under spacing milk (and over spacing other parts of Dairy). Milk loses sales faster then others gain.
Retailers lose $1,800 - $3,000 per shelf (annual per store) by converting that last Milk shelf to Alternatives. Time to “reset” case and balance inventory/DOS.
Source: FMI/GMA Study & Bishop SuperStudy values
* Costs $10-24/store/week Projected by Willard Bishop and Prime Consulting based on time studies, labor costs of $24.40/hr. 2015 sales rates, incremental work for extra stocking and range of days involved each week.
1
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What Makes Milk a Star?
Translates to:• Proper days (3-4) of supply for traditional milk (means 1-1.5 days on weekend)• 5-7 days for Value-Added due to variability of demand from week-to-week,
uniqueness of items (some do not have substitutes), often limited back stock and supply chain.
• Top quality products desired by consumers that sell quickly and profitably. That means inventory that turns.
• High inventory turns are your friend delivering more profits faster … until they get too high and then they become a nightmare … out-of-stocks and dissatisfied shoppers.
• The key is finding the ‘sweet spot’ in the middle:− Fast turns with good profits, while always available to
shoppers.
2
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Milk Outperforms Alternatives 2The ‘slowest’ selling two feet (aka “Last Two Feet”) of Milk delivery 3-4X that of Almond and 6X that of Soy.
Soy continues to decline, a weak performer whose space and variety needs reducing. Almond growth has slowed – space performance has declined as well.
$67.14
$20.35
$14.10
Adjusted Gross Profit for Last 2 Feet*Weekly Sales
$249.20 CONV WHITE MILK
$70.70 ALMOND
$41.98 SOY
* Performance of the Last (worst) two feet (1 shelf in 1 door)
Source: Willard Bishop 2015 Grocery SuperStudyTM & Prime Consulting
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Innovation in Many Sections 3
In recent years, Innovation has come to many sections of the Milk case. Over the past four years:
• Lactose F/R has risen +42% or $239 mm in sales
• Health Enhanced +73% or $170 mm
• Single Serve Flavors +30%, $171 mm (60% longer shelf life)
• Organic
Together, they representnearly $500 Million
in sales.
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High Impact Opportunities in Market 4
Nutrient Powerhouse
8 Grams of High Protein
Built with Chocolate Milk
The Great AmericanMilk Drive
Official Team USA Sponsorship
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Analysis conducted for a major Midwestern grocery chain. The goals were to:• Understand performance compared to recent national study.• Identify ways to improve/optimize milk case (find the ‘sweet spot’).• Optimize Space and Assortment using decision criteria set with you.
Funded by
Dairy Case Analysis Case Study
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• New store opened with these principles in the plan-o-gram. Milk went from 8 to 11 doors (Creamers, Cultured and Cheese each declined by a door).
• Initial wave of remodels are on-track.
Dairy Case Analysis Case Study
Analysis Results
Space reallocation delivers an incremental 4-5 points in sales (conservative) across retailer stores and incremental profit of roughly $17-18,000 per store.
Retailer Management Reaction
Upon seeing results, management said, “A new store opens in less than 6 weeks, can you put this in place in time … and how about the 4 remodels coming in Q1 and Q2?”
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• Definition of “Milk”?• Value Added Growing• Traditional PL Not Growing• Unique Segment Support• Space – Shelf & Mind