1

“Listening to the Boss”

Stephen Schueler

Procter and Gamble

June’2’ 2010

Key for business is to

keep the BOSS happy!

Meet Our Bosses,The Ivanovs: Olga and Igor…

Olga is 35 y.o

Igor is 37 y.o.

They have one child

P&G is focused to build full understanding

of consumer, shopper and environment

Talk to people

Visit people at

their homesObserve people

In-store

Register and

analyze

purchases

Conduct

Quantitative

studies

Model and predict

consumer and

market behavior

Life in Moscow • Moscow drives the trends for Russia!• Incomes are the highest here• They can afford to buy premium products• They like to try novelties in the market

• In the regions lower income per capita• So they use mid-tier products• They lag behind some aspects (lower ownership of

durables, PC etc.)

Russians are highly educated, doing skilled work vs. other countries

% Russia Poland USA

High education - urban women- urban male

3238

119

2526

Employment - urban women- urban male

5875

3652

5770

Source: TGI, 2005, age 15+

USA NCS 05/06, age 18+

Key Russian consumer trends

Getting more and more demanding, rational and smart

Increasing importance of traditional human values “love-home-family”

Investing in future and experiences

Highly involved in Health & Beauty

Getting more demanding, rational and smart

• Rely only on personal budget

• Quality, reliability and customization

• Shopping is planning and value

0

10

20

30

40

50

60

70

Shopping there is

cheaper

Prod I want are

consistently available

Shopping there is easy

and fast

Is a store which I trust

2002 2007 2009

Increasing role of traditional values

• Love-home-family, safety and well-being

• Help others & charity

TOP 5 VALUES

Russians, % 2007 2009

HOME 80% 86%

FAMILY 75% 81%

LOVE 60% 78%

WELL-BEING 70% 75%

SAFETY 63% 73%

Invest in future and experiences

• Appearance, health maintenance and preventive measures

• Personal and children education

• Thirst for experiences

# 2009 vs. 2007

FITNESS CLUBS 140

BEAUTY SALONS 125

TOP 5 CONCERNS OF RUSSIANS

ECONOMY

JOB SECURITY

WORK/LIFE BALANCE

HEALTH

CHILDREN EDUCATION AND WELLFARE

She is highly involved in Health and Beauty

2009 – She purchases more cosmetics and skin care products.

Shopping for beauty is considered as “time for myself” and isexpected to be a pleasurable experience.

Usage of cosmetics (%), 2000-2009

0

10

20

30

40

50

60

70

80

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Anti wrinkle cream Cream for eye-lids Day cream

Women 45+ Moscow

Source: TGI Russia, 2009

FOM fact-book 2009, MCA 2003

Russians are heavily beauty focused

5789Being well dressed is important, %

4190Be attractive for men is important, %

WERussia

What did we learn regarding

Crisis Impact on Russian

Consumer?

2008 Crisis Hit

84

101106

8488

112 110 111115

110 112 113 111

97.7102.9

$103

$145$162 $166

$67$81

$106$126

$168

$223

$287

$375$395

$491

$514

0

20

40

60

80

100

120

140

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Real

inco

me c

han

ge,

IYA

$0

$100

$200

$300

$400

$500

$600

Avera

ge m

on

thly

in

co

me p

er

cap

ita,

US

D

2008-09 economic changes have affected Ivanovs’ welfare

Novosibirsk

KrasnoyarskVladivostok

EkaterinburgVolgograd

Saratov

Moscow

St.Petersburg

Kazan

Samara

Izhevsk

Omsk

Chelyabinsk

Perm

Ufa

Purchasing Power in Moscow, St Petersburg and the topcities won’t decline significantly:

– Absolute income level is high.

– Unemployment risk is lower.

– Consumers have alternative sources of income.

– Share of FMCG in consumption basket is lower to save on.

While small cities are more strongly affected by the crisis:

– Township enterprises are suffering financial difficulties.leading to consumption crisis in regions.

– Retailers are revising their plans in regions.

Families living in big cities are not as affected by crisis

as their friends in smaller cities of Russia

The Ivanovs reflected financial constraints in their spending

behavior

• Cut down on out of home entertainment

• Postpone some home improvements

• Cut travelling

• Started saving on non-essential food and clothes

• Shopping behavior became more rational

Source: Crisis Tracker consumer research

The Ivanovs are stressed,

more than ever before

Russian consumers saved on:

Eating out 38%

Leisure, travels 24%

Hobby, sport 23%

0

5

10

15

20

25

30

35

40

45

Time is worth more than

money

2000

2008

1) Life is very busy

2) Now they have less

possibilities to pay for

free time and retreat

Source: TGI and Crisis Tracker (COMCON)

The Ivanovs changed their shopping

behavior:

% consumers

Changes In Product Usage

Russia Ukraine

2009 2009

Switched to cheaper stores 18 24

Switched to cheaper brands 16 16

Up-sized9 10

Down-sized3 4

P&G crisis tracker JFM’2009

How could we together improve the

lives of Russian Consumers post-

crisis?

Forced to change store

Looks for information on news and promotions

Expects to find the right product for her

Expects to be treated like a valued customer

Meet the shopper needs in-store

• Consumers are lost in front of the shelves:

Opportunity for joint collaboration between

Retailers and Suppliers to improve in-store

experience:

1. Help to organize departments & categories according to SHOPPER NEEDS

2. Drive PRODUCT AVAILABILITY on-shelf

Shopper behavior differs by trade channel

She does BIG time-consuming

shopping for WHOLE

FAMILY in Hypermarkets

She EXPECTS

PROFESSIONAL

HELP in baby Stores

She BROWSES AND LOOKS FOR

INFO/EXPERIENCES in

Perfumery

She COMES TO SOCIALIZE to Open

Market

She makes ROUTINE purchases

at BEST PRICE in Discounter

She is ready to

PAY MORE for

BEST QUALITY

in Pharmacy

Design right Shopping Experience for each

channel•

• Relevant Assortment

• Right Shelf based on Shopper Decision Tree

• Right Category Adjacency within the Department

• Right Navigation

• Right Promotional Strategy

EXAMPLE: Grooming Category Re-design in KARUSEL

Male Grooming Category Shoppers

• 70% of shoppers buy Blades & Razors from the main shelf

• Highly planned purchase - above 70%

• High level of loyalty on Blades&Razors (retailer loses 66% if OOS)

Key Actions

• Blades & Razors in Open Access

• Shelving according to Shopper Decision Tree

• Loss prevention procedures implemented

Results1. Growth index:

• Blades & Razors +89%

• Shave Category Total +50%

2. Shrinkage decreased 2 times

Improving Product Availability In-Store

•• Shelf OOS reduction

– Joint Root Cause Analysis

– Category-specific approach

• Leverage technology to optimize Supply

– Advanced EDI;

– GDSN

• Reduce Shrinkage

– Focus on high pilferage items/ implement “Roadmap”

Improving Shelf Availability:

Win/Win opportunity between Suppliers and Retailers

0%

5%

10%

15%

20%

Aug.2007 Aug.2008 Aug.2009 Mar.2010

Shelf Out of Stock progress

Target < 5%

0%

5%

10%

15%

20%

25%

November'2007 March'2010

SOOS Baby Diapers, %

Baby Diapers

Total P&G

Focus on Baby Diapers. Key Actions:

• Improving service ex-P&G via by-customer

volume forecasting

• Assortment alignment/ non-active EAN codes

in Retailer/P&G database clean-up

• Joint work with retailers to improve category

planograms based on SKU turnover

• Test Category Space Extension

Enabling Technologies in

Joint Integration Areas

P&G and METRO: Integration of advanced EDI into daily business

procedures

3 full-time employees work-reduction

(Joint value for P&G and METRO);

Assured data accuracy in invoicing

documents

Service level increase by 14 points

Implementation of advanced

electronic data flow

Switch to Direct Deliveries

via MGL

Information flow optimization

and automation of core

logistics processes

Reducing Shrinkage

ECR approach

Traditional approach

Mistakes in

processes

Mistakes during goods acceptance

Internal theft

External

Theft

(30%)

Losses/

shrinkage

In Summary:

• It starts with deep understanding of the Russian consumer and environment

• Suppliers and Retailers should partner to turn this knowledge into winning in-store solutions;

•Those who collaborate most effectively will best meet the needs of their consumers

THANK YOU