Promotions in the Age of EDLP – Lessons for Bulgarian ...conference.progressive.bg/archive/2015/assets/PDF... · But has Adversely Impacted Penny’s Price Perception… 29 Source:

© Kantar Retail 2015

Promotions in the Age of EDLP – Lessons for Bulgarian Retailers & FMCG Suppliers…

Presented By:

Himanshu Pal, Director of Retail Insights

May 2015

PROGRESSIVE Conference (Sadanski) - May 2015


2Trade Investments Have Increased by ~5 Times Over the Last 35 Years…

Source: Gartner

5% of Sales Turnover

25% of Sales Turnover

1980 2014



3Trade Promotions Effectiveness – Roughly 67% of Promotions Don’t Make Money…

Source: Nielsen Trade Promotion Landscape analysis

71%

58%

58%

51%

43%

42%

41%

29%

42%

42%

49%

57%

58%

59%

0% 20% 40% 60% 80% 100%

USA

France

UK

Spain

Germany

Canada

Italy

Trade Promotions that DON'T Break Even

Trade Promotions that Make Money



4Retailing Environment Globally is Evolving Rapidly…

Source: Kantar Retail



5Current Retailing Environment Resembles a ‘Perfect Storm’

Source: Kantar Retail analysis

CountryC

Channel

Customer

ConsumerC

C

C



“Insanity is doing the same thing over and over again and expecting different results.”

Albert Einstein

6Riding Through the ‘Perfect Storm’ Needs a New Approach





CountryC

Channel

Customer

ConsumerC

C

C



8Shift in ‘Balance of Power’ in Search of the Next Incremental € (Sales and Profitability)…


Modern Trade Sales CAGR 2014-19e

<3%

3-5%

5-9%

>9%

LFL driven growth SQFT driven growth



9Increased Promotional Reliance to Drive LFL Sales and Market Share Improvement…

Source: Kantar Worldpanel, and Kantar Retail research

% spend on dealsJan 2014 Jan 2015

Tesco 43% 46%ASDA 41% 47%Sainsbury’s 43% 46%Morrisons 46% 44%Waitrose 38% 44%


1. Alcoholic drinks 69%2. Confectionery 67%3. Non-alcoholic drinks 66%4. Personal care 64%5. Household goods 58%6. Chilled and fresh food 50%7. Frozen foods 50%8. Ambient foods 50%9. Pet care 40%10. Pet food 40%


10Increased Promotional Spending Across Europe – But is it Helping???

Source: IRI

In Europe, level of Trade Promotions increased by 0.8% but Volume Sales decreased 0.7%

0,2%

8,2%

3,6%

0,7%

-0,6%

1,2%0,8%

-2,9%-1,8%

-0,5%-1,6%

-0,5%

-4%

-2%

0%

2%

4%

6%

8%

10%France Netherlands Italy Spain UK Germany

Change in Sales Volume (Food) on Promotion

Change in Volume Sales (Food)



11Capabilities Needed - Trade Promotion Management and Optimisation – What & How Promotions Work?

Source: Gartner and Kantar Retail research

High

Retailer Growth

Mutual Growth

Subsidization ManufacturerGrowth

Hig

hLo

wR

etai

ler B

enef

it

Low Manufacturer Benefit

24%

27%

17%

32%



10,0%5,0%

-1,0%3,0%

7,0%

8,0%

6,0%

-3,5%

2009 2010 2011 2012

LFL - Traffic Growth % LFL - Basket Growth %17.0%

13.0%

5.0%

-0.5%

- Total LFL Growth %

The retailer managed to fix the issue with declining traffic but its actions proved counter-

productive as the basket value dropped.

12Capabilities Needed - When Planning Promotional Activity do Evaluate all Possible Impacts…

Source: X5 Retail, and Kantar Retail analysis


Drive Traffic Build Basket

Promotions




CountryC

Channel

Customer

ConsumerC

C

C



14Rapidly Changing Consumer Profile…

Source: Kantar Retail research


In 1998, 21% of Europeans were aged 65 or older

By 2025, this proportion will have

grown to 33%

By 2050, it will

be 47%

Ginni Coefficient in Bulgaria has increased from 25 (2009) to 35.4 (2013)

Bulgaria Romania Europe Avg.

Internet Penetration 56% 50% 68%

Mobile SubscriptionPenetration 154% 104% 139%


15Changing Consumer Profile Influencing Shopper Expectations, Behaviour and Definition of VALUE…

Source: Kantar Retail research and analysis

SHOPPER DECISION TREE



16Shoppers in Quest for Value are Increasingly Open to Store/Brand Switching…

Source: Nielsen Shopper Trends

16% 19%25% 23%

14% 18% 15%

42%

25%

8%

35%

16%

30%19% 20% 20%

29%24% 27%

17%

22%22%

21%20%

20%20%

19%

18%

18%

18%

17%

16%

16%

16% 14% 13%

12%12% 10%

10%

0%

10%

20%

30%

40%

50%

60%

70%

I change stores based on which one I think has the best promotions that trip

I regularly buy different brands because of promotions

Promotion Sensitivity (%)


High Sensitivity Medium Sensitivity Low Sensitivity


17However, Shopper Definition of VALUE No Longer Limited to Price…


Real Value = Price + Time + Quality + Experience



18Time has Become One of the Most Prized Investment for Shoppers…


2.73.63.83.8

5.610.0

12.718.5

23.329.2

52.3

0 10 20 30 40 50 60

Offers

Lay-out

Quality fresh

Habit

Parking

Service

Private label

Variety

Prices & offers

Value for money

Proximity

Reasons for Store Selection



19Time Starved Shoppers Looking for Clear and Consistent Price Offer and Messaging…

Source: Etude TNS Distrivision GMS 2013

46%

44%

41%

54%60% 61%

2005 20052008 2011 20112008

40%

2013

61%

2013

“Grocery shopping is fun” “Grocery shopping takes too long”% Agree % Agree



20Capabilities Needed – Category & Brand Plans Need to be Based on Shopper-First Principle…


• Different strokes for different folks – EDLP vs Hi-Low pricing for different shopping missions and categories

• Pricing as an enabler for time saving –Clear, simple, consistent, clutter-free pricing and promotional mechanics

• Get ready for the new digital age - connect, engage, trigger purchase, and stay connected with digitally enabled shoppers





CountryC

Channel

Customer

ConsumerC

C

C



22Channels Evolving to Cater to the Changing Shopper Needs…


Growth of DiCE (Discount, Convenience & Online)

Hypermarket Re-invention



23DiCE Gaining Momentum in the Balkans…


In Romania, Delhaize partnered with online consumer electronics retailer eMAG to use the latter’s platform to sell groceries online. Almost overnight the retailer went from having no eCommerce operations to selling online…

Market

Sales CAGR (2013-19e)

Discounter Market Share

Discounters Overall Grocery 2013 2019e

Romania 12.4% 7.5% 16.4% 21.4%

Greece 5.6% 2.5% 11.7% 14.0%

Croatia 9.8% 4.0% 6.2% 8.6%

Bulgaria 16.0% 9.1% 8.5% 12.3%

Growth of Discounters eCommerce = Everywhere Commerce…



24Channel Blurring Challenging the Traditional Operational & Commercial Models…




25Convergence of Pricing & Promotional Mechanics …


EDLP Hi-LowEDLP+ Medium-Low Premium



26Discounters are Using Weekly Promos to Tie Shopping Trips to Particular Days of the Week…

13% 12% 13% 11% 12% 16%10% 11% 10% 9% 4%

9%

19% 13% 19%13%

8%6%

17%17%

17%19% 31% 17%

13%15%

13%19% 8% 17%

18% 23% 18% 20%19% 24%

10% 9% 10% 9% 18% 12%

Monday Tuesday Wednesday Thursday Friday Saturday Sunday

Buy Certain Products You prefer

in discounters

Top up on fruit and

vegetables

Top up on staple items

Buy certain products You can ONLY get in

discounters

Buy Non food items

Do your main shopping trip

Day shoppers tend to conduct particular missions (excl. shoppers that state they had no regular day)

31% shoppers do their non-food shopping on the same day as Non-Food Weekly Specials begins

24% shoppers do their main Discounter shopping on Saturday (often the day

retailers such as Lidl have ‘Super Saturday’ – 50% Off on selected groceries



27Penny (CZ) has Used Newer and More Promotional Mechanics to Supplements its Core EDLP Offer…


Rounded Price Point Promotions

Promotions linked to competitions

Promotions Price

reductions

Promotions linked to loyalty card



28Increased Promo has Helped Penny (CZ) Stem the Decline in Basket Size…

Source: GfK



29But has Adversely Impacted Penny’s Price Perception…

Source: BrandZ

Lidl has done a better job of highlighting its quality credentials against price meaning more shoppers do not think the brand costs more than they are willing to payRanked in order of best

price perception

2008 2013Plus acquired by Penny

% of shoppers who think the brand doesn't’ cost more than they are willing to pay

12 3 12 3

12 3



30Capabilities Needed – Innovative Thinking and Assets Needed to Connect & Engage…

Source: Tesco.com and Kantar Retail analysis

???


https://www.google.co.uk/url?q=http://www.profitguide.com/industry-focus/retail/the-new-online-sales-model-62475&sa=U&ei=rkJyU6zpNsON0AXiy4HADg&ved=0CDQQ9QEwAw&usg=AFQjCNGqo1hZDOjXuTnk16KTf1u86Q3MBw

https://www.google.co.uk/url?q=http://www.exacttarget.com/blog/consumers-will-spend-13-4-billion-on-mobile-shopping-in-2013/&sa=U&ei=TW5yU82pIMqq0QWwu4DIAQ&ved=0CFAQ9QEwEQ&usg=AFQjCNFziCuAf9KUCz5V-RHhqWqbrkTLtg




CountryC

Channel

Customer

ConsumerC

C

C



Key Account Management – Growth will come from Uncomfortable Areas…

Choice 1b: “Uncomfortable Clusters” –Hard Place

– With larger more comfortable customers the wins are going to come from targets and clusters within those customer bases that have historically been underserved̶ Therefore shoppers should become the

center of your growth planning

Choice 1a: “Win with the Winners” –Rock

– Problem is, the winners are all deeply challenging customers that are hard for large suppliers to sustainably keep focus on:̶ “Too tiny”̶ “Too mean”̶ “Too dilutive”̶ “Too complicated”

32



33Key Customers – Who To Choose/Partner? Partnering with the ones we know, top sales volumes today

COMPANY % CAGR ‘14 – ‘19 € GROWTH (billions)

5.3% +23.4

1.8% +5.6

1.1% +3.5

1.5% +4.4

4.6% +12.9

2.4% +5.9

2.4% +5.6

4.5% +10.4

4.5% +9.4

5.3% +8.2

1

CHALLENGE:No matter which turtle you pick, not moving

quickly


http://www.google.com/url?url=http://logos.wikia.com/wiki/File:Aldi_present_logo.png&rct=j&frm=1&q=&esrc=s&sa=U&ei=WjjrU8KrJfOA7QbXxYHgBw&ved=0CBYQ9QEwAA&usg=AFQjCNG7dAVFYVANuCIYKfQOx6qh4T9_KA


34Key Customers – Who To Choose/Partner? Make bets on customers growing faster than the market

COMPANY % GROWTH ’14 –’19 € GROWTH (billions)

16.9% +22.4

5.3% +23.4

5.3% +8.2

4.6% +12.9

4.5% +10.4

4.5% +9.4

4.4% +5.1

3.9% +4.2

3.8% +4.3

2.6% +2.5

2

CHALLENGE:For the most part, we don’t

know and/or like these customers… and they might

not like or need us


http://www.google.com/url?url=http://logos.wikia.com/wiki/File:Aldi_present_logo.png&rct=j&frm=1&q=&esrc=s&sa=U&ei=WjjrU8KrJfOA7QbXxYHgBw&ved=0CBYQ9QEwAA&usg=AFQjCNG7dAVFYVANuCIYKfQOx6qh4T9_KA


35…and the interpretation of EDLP is fairly subjective!

-1

0

1

2

3

4

5

22 Ju

n 14

20 Ju

l 14

17 A

ug 1

4

14 S

ep 1

4

12 O

ct 1

4

09 N

ov 1

4

07 D

ec 1

4

04 Ja

n 15

01 F

eb 1

5

01 M

ar 1

5

29 M

ar 1

5

Chan

ge in

% S

ales

on

Prom

otio

n

Asda Moves from 42% to 47% on Deal Compared to 2014



36Despite Increased Pricing/Promotional Activity Retailer Margins Haven’t Really Seen Erosion…

Source: Company reports and Kantar Retail


19,319,9

16,8 16,7 16,8 17,0

22,4%

24,7%

22,1% 22,0%

22,5%

22,8%

20%

21%

22%

23%

24%

25%

15

16

17

18

19

20

21

2009 2010 2011 2012 2013 2014G

ross

Mar

gin

Gro

ss P

rofit

(EU

R b

illio

n)

Gross Profit Gross Margin Gross Margin in Recent Years Grew by:

Poland

4.7%Czech Rep.

1.6%

Germany 1.9%

UK 2.0%

Group 0.2%


37Suppliers Often Perceived and Treated as “Cash Cows” …

Source: Company Reports and Kantar Retail analysis

(EUR Million) Carrefour Nestle Coca-Cola CompanySales 74,706 76,153 34,650

Sales Growth (%) (0.2)% 1.3% (1.8)%Cost of Sales (59,207) (39,529) (13,476)

Gross Profit 15,436 36,624 21,175

Gross Margin (%) 20.7% 48.1% 61.1%Operating Expenses (9,777) (25,181) (13,861)

Operating Profits 2,387 11,443 7,313

Operating Margin (%) 3.2% 15.0% 21.1%Inventory 5,975 7,296 2,402

Trade Payables 7,724 13,109 2,089

Working Capital 1,749 5,813 (313)Inventory Turnover 9.9 5.4 5.6

Capital Expenses 2,411 3,914 2,406

Free Cash Flow 306 11,751 4,376

With an operating margin of 3.2% (versus your double digit margins) expect Carrefour to fight extremely hard, especially as their 3% margin comes under further pressure

Carrefour under growing pressure from shareholders for short-term ROI will look to generate higher Free Cash Flow by increased focus on Margin and Working Capital management



HighPROFIT

38Capabilities Needed – New Approach to Key Account Management Needed…


Sheila Gallagher —Trading Director, Tesco

"A best in class supplier must have a shopper focused growth agenda, understand the operational and commercial model of the retailer, have the ability to adapt quickly to changing market conditions and help us to differentiate. Its approach is fact-driven as opposed to brand-driven.”

FutureBets

Strategic Partners

ProblemSupplier

CashGenerators

Hig

hLo

wST

RAT

EGIC

FIT

Low



39Short-term ROI Mentality Taking Centre-Stage


Improving Free Cash Flows

— Improve Sales & Margin

— Improve EBIT (Op. Profits)

— Leverage Working Capital

— Reduce Capital Expenditure

— Sweat Own Assets / Ride Other’s Assets

Dalton Philips Philip Clarke Lars Oloffson



40Customers Adopting ‘Low Capital Intensive’ Models as Focus Shifts to Balance Sheet Economics…


REGIONSCOUNTRIESCURRENT

EXPANSION

Egypt, Saudi Arabia, Jordan, Iraq,Kuwait, Bahrain, Qatar, UAE, Oman, Iran, Pakistan. TURKEY (SABANCI)

Kazakhstan, Armenia, Azerbaijan, Georgia, Libya, Lebanon

Greece, Bulgaria, Cyprus, Macedonia (FYR).

Albania, Serbia, Montenegro, Bosnia & Herz.,

Middle East, North Africa, Southern Balkans

Central Asia, Western Balkans, West and Central Africa

Cameroon, Congo, Côte d'Ivoire, the Democratic Republic of the Congo, Gabon, Ghana, Nigeria & Senegal

+ 8 countries

West & CentralAfrica

+ 6 countries

Middle East, North AfricaCentral Asia

+ 4 countries

Southeast Europe(Balkans)

RapidEntry into

New Countries

SYNERGY MODEL1. Promotional designs2. Coordinated supply chain3. Property/franchise development4. Business philosophy (senior

managers ex-Carrefour)

+25 countries by 2015Potential of +40 in 5 to 10 years

In October 2013 Carrefour reorganized the Balkans and Turkey where Balkan expansion is managed from Cyprus



41EDLP vs Promo – What Helps the Retailer Optimise P&L and Balance Sheet Economics

Ease of Demand Forecasting

Ease of Inventory ManagementOperating Expense Reduction



42Conclusion – Some Food for Thought…

Targeted innovation in product and promotional execution is the best way to ensure a longer term weaning from promotional reliance

Possible/desirable to cede market share by steadily decreasing promotions? The upside could include enhanced margins and a shoring up of brand equity

Offer retailers something else aside from price promotions, such as exclusivity, differentiation, contests or engagement with CSR objectives

Initiatives such as limited edition SKUs, contests, social media and direct-to-consumer loyalty schemes could provide an alternative route to shopper engagement



43Kantar Retail – The Retail & Shopper Specialists



44Kantar Retail – The Retail & Shopper Specialists



For further information please refer to www.kantarretail.com

Contact:Himanshu Pal

Director of Retail Insights

T: +44 (0) 2074 502 613M: +44 (0) 7990 566 007

[email protected]

Himanshu_Pal

45

Promotions in the Age of EDLP – Lessons for Bulgarian ...conference.progressive.bg/archive/2015/assets/PDF... · But has Adversely Impacted Penny’s Price Perception… 29 Source:

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