reconfigured retail in europe€¦ · bulgaria 16.0% 9.1% 8.5% 12.3% growth of discounters...
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REconfigured REtail in Europe
Trade Promotion Management and Optimization
in the Midst of a Perfect Storm
Himanshu Pal
Director of Retail Insights - Kantar Retail
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Retailing Environment is Evolving Rapidly…
Source: Kantar Retail
POI Global promotion Optimization Summit - May 2015
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Current Retailing Environment Resembles a ‘Perfect Storm’
Source: Kantar Retail analysis
Country C
Channel
Customer
Consumer C
C
C
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“Insanity is doing the same thing over and over again and expecting different results.”
Albert Einstein
4
Riding Through the ‘Perfect Storm’ Needs a New Approach
POI Global promotion Optimization Summit - May 2015
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Riding Through the ‘Perfect Storm’ Needs a New Approach
Source: Kantar Retail
Understand the Current Retail
Landscape
Decode the Future Disruptions,
Challenges and Opportunities
Plan and Develop / Enhance Capabilities
Needed to Win in the Future
POI Global promotion Optimization Summit - May 2015
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Current Retailing Environment Resembles a ‘Perfect Storm’
Source: Kantar Retail analysis
Country C
Channel
Customer
Consumer C
C
C
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Shift in ‘Balance of Power’ in Search of the Next
Incremental € (Sales and Profitability)…
Source: Kantar Retail
Modern Trade Sales
CAGR 2014-19e
<3%
3-5%
5-9%
>9%
LFL driven growth SQFT driven growth
POI Global promotion Optimization Summit - May 2015
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Disruption - Mature Markets Becoming Cash Guzzlers…
Source: Kantar Retail research
POI Global promotion Optimization Summit - May 2015
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Emerging markets exited in
last 3 years by global retailers
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Disruption - Emerging Markets No Longer Shock Proof…
Source: Kantar Retail research
Inconsistent Execution
Brazil India Political & Economic Instability
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Capabilities Needed – ‘Different Strokes for Different Folks’
– Varied Skill Set Needed to Win Across Markets
Source: Kantar Retail analysis
Rethink your approach to Category
Management. Try and drive innovation
within the category to drive incrementality
to escape the vicious circle of Price &
Promotional wars…
Role of a ‘Consultant’ and not just a supplier. Help drive
profitable growth and expansion; and bring global best-
practices to local teams…
POI Global promotion Optimization Summit - May 2015
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Current Retailing Environment Resembles a ‘Perfect Storm’
Source: Kantar Retail analysis
Country C
Channel
Customer
Consumer C
C
C
POI Global promotion Optimization Summit - May 2015
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Rapidly Changing Consumer Profile…
Source: Kantar Retail research
Have vs Have Nots Ageing vs Youth
Multi-Ethnic Urban
Digitally
Dependent
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Changing Consumer Profile Influencing Shopper
Expectations, Behaviour and Definition of VALUE…
Source: Kantar Retail research and analysis
I need to reduce spend
Buy fewer things
Cheaper store
Buy cheaper things
Cheaper brands
PromotionsPrivate label
Shopper decision tree
The Economic Landscape
The Demographic Landscape
Technology Changes
Volumes down 3-6%
across Spain,
Portugal, Italy,
Greece
Carrefour France
hypermarket
transactions down 40
million versus 2007
Aldi, Biedronka, Lidl,
Kaufland, Mercadona
UK: Promotions 40%
of all sales
European PL %
2006: 22%
2012:27%
SHOPPER DECISION TREE
Quick & Easy Access
Optimised Assortment
Solutions (Snacking, Lunch Meal)
Optimum Pack Size
Value For Money
Service / Experience
SHOPPER NEEDS
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Disruption – Shopper Definition of VALUE No Longer
Limited to Price…
Source: Kantar Retail analysis
Real Value = Price + Time + Quality + Experience
POI Global promotion Optimization Summit - May 2015
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Capabilities Needed – Successful Retailers & Suppliers
will Deliver a Higher Returns on Shopper Investment…
Source: Kantar Retail
• Localisation
• Availability (OOS),
Clean & Efficient
stores
• Range
optimisation (in-
stores)
• Ease and speed of
shopping
• Price Comparison
• More EDLP and less
Promotions (mid-low
rather than high-
low), Digital
Clubcard
• Reduced cross-
channel pricing
variance
• Discounter model / £
zones
• Express, Online,
Self-scan, Click &
Collect (stores +
Tube stations +
Drive), Express
Zones
• Mobile Payments,
Scan-As-You-Go
• Departmental
Checkouts, Drone
Deliveries
MONEY ANGST TIME
POI Global promotion Optimization Summit - May 2015
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Capabilities Needed – Category & Brand Plans Need to be
Based on Shopper-First Principle…
Source: Kantar Retail
• Different strokes for different folks –
Premium brands vs Economy variants
of A-brands
• Age-specific products/packaging.
Collaborate with customers to enhance
shopping experience
• Target new purchase & consumption
occasions. Tailor pack size & format to
better service immediate consumption
and adapt to urban living. Make
products easier to identify in busier &
smaller store environment
• Get ready for the new digital age -
connect, engage, trigger purchase,
and stay connected
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Current Retailing Environment Resembles a ‘Perfect Storm’
Source: Kantar Retail analysis
Country C
Channel
Customer
Consumer C
C
C
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Austere (Time & Money) Shoppers Switching to Discounter,
Online and Convenience
Source: Kantar Worldpanel
Grocery - Net switching spend between channels by Mission
Supermarket
main shop
Hard discounters main shop
Hard discounters Top up
£233m
£199m
£135m
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Disruption – Channel Dynamics Evolving Rapidly Even in
Emerging Markets…
Source: Kantar Retail research
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…
POI Global promotion Optimization Summit - May 2015
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Disruption – Traditional Channel Boundaries are Blurring
Source: Kantar Retail
Rossmann Drugstore (Poland) Carrefour Hypermarket (Poland) Biedronka Discounter (Poland)
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Disruption – Role of the Store and What it Serves
Undergoing Change…
Source: Kantar Retail
POI Global promotion Optimization Summit - May 2015
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Implication – Channel Evolution to Trigger Unique Set of
Challenges…
Source: Kantar Retail analysis
Less Visual Space for your products,
Higher Focus on Shopper
Convenience
Location for Product Discovery
High Visual Space
Location for Product Delivery
Low Visual Space
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Implication – The Role of your Category and Brands within
the Store is Changing…
Source: Kantar Retail
Carrefour Express (Poland) has added
in–store Bistros in its Express Store
Over-Indexed
Category
Under-Indexed
Category
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Capabilities Needed – Innovative Thinking to Connect &
Engage with Shoppers in New Channel Environment…
Source: Tesco.com and Kantar Retail analysis
???
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Current Retailing Environment Resembles a ‘Perfect Storm’
Source: Kantar Retail analysis
Country C
Channel
Customer
Consumer C
C
C
POI Global promotion Optimization Summit - May 2015
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Disruption - Your Biggest Customers No Longer Your
Fastest Growing Customers…
Source: Kantar Retail
33.1%
32.6%
31.4%
30.8% 30.5%
30.1% 29.7%
29.3% 28.9%
28.5%
26%
27%
28%
29%
30%
31%
32%
33%
34%
2009 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E
Top-10 Retailers (as % of Total European Retail Sales)
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Implication – Greater Demand for Trade Spending Not
Necessarily Matched by Improved Returns…
Source: Kantar Worldpanel and Kantar Retail research
Spend on Deal - anuary
Last ear This ear
% spend on deals – January 2015
Promotion Centric EDLP Centric
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Jose Luis Duran
(0 /2005 ‒ 2/200 )
Lars Oloffson
(0 /2009 ‒ 03/2012)
George Plassat
(0 /20 2 ‒ Present)
Sales (EUR billions) including Franchises € 94.97bn € 83.54 bn € 90.02 bn
No. of Markets operated (at end of term) 32 33 33
No. of Stores (at end of term or March ‘ 5) 15,430 9,771 11,845
Operating Profit (EUR billions) 3,300 2,182 2,387
Sales growth (CAGR) 7.4% (7.5)% 2.6%
Avg. Gross Margin (%) 21.4% 20.6% 20.2%
Gross Profit growth (CAGR) 3.9% (1.7)% (1.9)%
Avg. Recurring Operating Margin (%) 4.2% 3.2% 3.0%
Recurring Operating Profit growth (CAGR) 0.3% (9.8)% 3.0%
Avg. Inventory (or Stock) Turns 9.9 10 10
Avg. Dividend Pay-out 1.01 0.94 0.62
Share Price (Movement) (21.5)% (36.0)% 86.0%
Market Capitalisation (EUR billions) € 19.4 bn € 11.9 bn € 24.0 bn
Change in Market Capitalisation (EUR billion) € 5.3 bn € 7.4 bn € 12.1 bn
Avg. Free Cash Flow (EUR bn) € 1.3 bn € 1.0 bn € 0.2 bn
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Disruption - Short-term Returns Mentality Taking Centre
Stage…
Source: Carrefour and Kantar Retail analysis
Opera
tio
ns
Scale
R
OI
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Implication - Customers Adopting ‘Low Capital Intensive’
Models as Focus Shifts to Balance Sheet Economics…
Source: Kantar Retail
REGIONS COUNTRIES CURRENT
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 & Central
Africa
+ 6 countries
Middle East, North Africa
Central Asia
+ 4 countries
Southeast Europe
(Balkans)
Rapid Entry into
New Countries
SYNERGY MODEL
1. Promotional designs
2. Coordinated supply chain
3. Property/franchise development
4. Business philosophy (senior
managers ex-Carrefour)
+25 countries by 2015
Potential of +40 in 5 to 10
years
In October 2013 Carrefour
reorganized the Balkans and Turkey
where Balkan expansion is managed
from Cyprus
POI Global promotion Optimization Summit - May 2015
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Implication - Suppliers Often Perceived and Treated as
“Cash Cows” …
Source: Company Reports and Kantar Retail analysis
(EUR Million) Carrefour Nestle Coca-Cola Company
Sales 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
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Capabilities Needed – New Approach to Key Account
Management to become Strategic Trade Partners…
Source: Kantar Retail
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.”
Future
Bets
Problem
Suppliers
Cash
Generators
Strategic
Partners
Str
ate
gic
F
it
Profit
High
High Low
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Capabilities Needed - New Rules of Commercial
Engagement …
Source: Kantar Retail
Volumes + Margins Volumes + Margins
+ Working Capital Volumes + Margins
+ Working Capital
+ Asset Management
Expectation
from
Suppliers
Retailer
Focus
• Price = Supplier led
• Assortment: Basic
• Focus on HM-HT
categories
• Price = Cost + Mark-up
• Assortment: Wide
• Focus on HM-HT + Back Margin
• But open to LM-HT (conditional to
back margin support)
• Price = Competitive Benchmark
• Assortment: Targeted
• Focus on HM-HT + Back Margin
• Increased focus on Returns (sales,
profit, cash) per SQFT
Category
Dynamics
BASIC
• Product & Service Quality
• Profit Delivery
• Logistics
• Promotions & Events
ADVANCED
• Category Range Advice & Merchandising
• Consumer Knowledge
• Multi-functional teams
INNOVATIVE
• Category Vision & Leadership
• Profit Engineering
• Tailored (mission/format) Solutions
• Joint Activity
Low High INTENSITY OF COMPETITION
Supplier
Focus
Category Management
• Margin better than competition
• Turns better than competition
Category Development
• Margin mix management
• Improved inventory and trade terms management
Category Innovation
• Defending Margin pressures
• Deliver on ROI metrics (RONA, ROCE, GMROI, GMROS)
• Maximise ROI across assets
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Conclusion – Some Food for Thought…
• Operating in a Polarised World: Where is the next incremental sales ($ / £)
going to come from?
• Understanding Changing Consumer Profile: Do we know them? Do we
understand where, what, when and how they shop?
• Embracing Real Value: Are we delivering Real Value (Time, Money and
Emotions) to shoppers? How do we collaborate with our customers to deliver
Real Value?
• Fundamental Change in Route-to-Market: What’s my strategy around Online, Discounters, and Convenience? How do we play in an Omni-channel
environment?
• Increased Complexity around Customer Planning: Have we identified
our rising stars? How are we going to work with our high-volume low-growth
customers? How are we going to deal with increased commercial complexity?
POI Global promotion Optimization Summit - May 2015
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Kantar Retail – Capability Areas
REconfrigured REtail in Europe: TPM-TPO in the Midst of a Perfect Storm
POI Global promotion Optimization Summit - May 2015
Shopper Insights
Retail & Channel
Insights
Retail & Shopper
Insights
Retail &
Purchase Data
Analytics
Sales Process
Automation
Retail Virtual Reality
Analytics, Tools
& Applications
Organizational
Performance
Category &
Shopper Solutions
Go to Market
Consulting Solutions
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Kantar Retail Powerful Connected Applications
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POI Global promotion Optimization Summit - May 2015
RichMix® is an
efficient assortment
tool that uses in-
depth analysis to
measure the
incremental impact of
changing the items
and facings in a
retailer’s mix
RichMix and Price
360 solutions to
understand, define
and optimize
assortment, range
and price
UNDERSTAND
End-to-end solutions
to enable planning,
investment
optimisation, retail
execution and
monitoring
processes.
OPTIMIZE,
PLAN,
EXECUTE
Solutions that use
virtual reality to bring
to life store,
marketing and
merchandising plans.
VIRTUALIZE
Solutions that
transform digital
images into actionable
data and insights to
more effectively and
speedily manage
activities with each
retail customer.
TRACK
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For further information please refer to
www.kantarretail.com
Contact:
Himanshu Pal
Director of Retail Insights
T: +44 (0) 2074 502 613
M: +44 (0) 7990 566 007
Himanshu_Pal
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