2011-h2 breakthrough insights

Second Half 2011

Focus on the Horizon

/ DesignJennifer Zipp Lisa Weiderman

/ Research TeamSara Al-Tukhaim Frank Badillo Jessica Campbell Wilson Chen Alida Destrempe Karolina Fiedler Ray Gaul Bryan Gildenberg Kaina Hamed Doug Hermanson Yi Ting Hu Rema Iyer Simon Johnstone Laura Kennedy Vadim Khetsuriani Amy Koo Jim Leonard Stephen Mader David Marcotte Alexandra Mansfield Rachel McGuire Leon Nicholas Ivana Nikolic Mike Paglia Himanshu Pal John Rand Bryan Roberts Kate Senzamici Robin Sherk Steve Spiwak Xue Fei Sun Lynne Vantassel Mary Brett Whitfield Lisa Wiltshire Fan Zhang Anne Zybowski

2011 Kantar Retail LLC. All Rights Reserved. Disclaimer: The analyses and conclusions presented herein represent the opinions of Kantar Retail. The views expressed in this publication do not necessarily reflect the views of the companies covered by this publication. This publication is not endorsed, or otherwise supported, by the management of any of the companies covered herein. Copyright Notice: No part of this publication may be reproduced in any form or by any means without the express written permission of the copyright owner.

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Breakthrough Insights

/ In This IssueForeword 2

Retail InsightsUK Online Grocery: Comparison Shopping Trips Online Retail in China: Getting Ahead of the Curve Adding Clarity or Clutter? A First Look at Walgreens and CVSs New Private Brands, Nice! and Nuance What Targets Suppliers Need to Know about Walmart Canada Getting it Right: Anticipating Amazons Growth Trajectory Tesco Price Drop: Seismic Shift or Smoke and Mirrors? Safeways Strategic In-Store Marketing Beyond the Box: Costcos Digital Dive 5 14 20 24 34 39 44 49

Shopper InsightsValue Discounters Continue to Attract More Shoppers Where the Men Are/Arent Shopping Through the Eyes of a Low-Income Shopper 59 67 73

Economic InsightsThe Global Macroeconomic Outlook for Retail: Danger from Europe to China The Macroeconomic Outlook for U.S. Retail: Pushed Toward Recession 80 88

FOREWORDWelcome to Kantar Retails semi-annual collection of Breakthrough Insightsour recent research pieces that we feel best reflect the key issues in the rapidly changing retail landscape.Figure 1: The 5 Shares Map

Many years ago, my father took me deep-sea fishing for the first time, Share of Wallet and during the voyage I began to feel more than a little queasy. My Share of Share of Dad looked down at me at one point and saw me closing my eyes, Real Growth Engagement hoping that the swells rocking the boat would pass. His simple instruction to me at the time is something that has stuck with me ever Retailer/ Shopper since:The only way youll feel better is if you keep your eyes open and Landscape Post-Recession focused on the horizon. Your eyes will see the movement you feel in Market Evolution Digital Shopper and Conditions your head, and youll stop feeling sick. Ive thought of that advice many times over the years, and quite freInformation quently recently as the queasiness has come back with a vengeance Post-Desktop in the second half of 2011. Those of us in the northeastern United Information Share of Share of States have experienced hurricanes, earthquakes, tornadoes, floods, Solution Decision and a freak late autumn blizzard in this six-month period, and thats even before we think about the turbulent global economic and retail Source: Kantar Retail landscape! Ive written many times in the last six months about the need to cope more effectively in uncertain and volatile times, but I have gradually come to realize a simple point that to some degree contradicts that characterization of the world today: only infrequent volatility is uncertain. What we are faced with today, and what Kantar Retail believes will be the modus operandi for the global retail marketplace in 2012 and beyond, is a sort of perpetual volatilityat which point volatility becomes a known that needs to be planned for, not an unknown that surprises. Management guru Jim Collins builds on this idea in his writings on why formerly great companies fail. Great companies are rarely derailed by the unknown, as the unknown tends to relatively evenly impact all companies and their competitors. Great companies that avoid failure do so with one simple skill: the ability to sift through the known to find the truly important, and to plan and act in a way that deals with and capitalizes on that known. In pursuit of that theme, what you will find in Kantar Retails H2 Breakthrough Insights collection is a series of works that define the major factors that are shaping the retail landscape and what the strategies should be that surround those great big knowns. To establish the case for this more permanent volatility, our Chief Economist Frank Badillo has contributed two pieces that highlight its root causes and effects: the first on the uncertainty associated with many of the major retail markets around the world and the second focusing on the continued troubled outlook for the U.S. retail environment.

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Two framing perspectives provide a lens to view the remaining articles. The first is Kantar Retails proprietary 5 Shares framework, and the second is those shares married with the fundamental questions companies will need to grapple with in order to thrive in this era of perpetual volatility.

Share of Real Growth: Where Will I Grow?Fans of Kantar Retails analysis will be familiar with our oft-repeated phrase that growth is going to continue to come from less comfortable places. Phil Smiley and Justin Cook profile one of those uncomfortable knowns: online retail/e-commerce in China and how digital commerce today is going to make the Chinese retail landscape of tomorrow look foundationally different than other major global markets. We also know that U.S. retailers are increasingly going to be pushed to intensify international expansion as U.S. retail market growth sputters, and Robin Sherk maps out the showdown we expect to see as Walmart and Target square off against one another in the Canadian market. Where will I grow also is a relevant question even for U.S.-centric companies. There are unexplored channels, segments, and niches that though unfamiliar can be sources of real growth. Mary Brett Whitfield previews our findings about arguably the largest under-served shopping population in the United States todaymenby drawing conclusions from our recently augmented ShopperScape monthly U.S. shopper panel that has been expanded to more precisely analyze male shopping behavior. For the first time, channels such as home improvement, consumer electronics, and convenience get a fair shake from our analysis as the male voice is heard more clearly. Gen Xers redefining gender roles at home and marriage-delayed Gen Ys are responsible for the dramatically increased mens involvement in shopping and shopping decisions. Kantar Retails work here can help our clients develop strategies to capitalize on this key known.

Share of Engagement: How Will I Cut Through the Clutter and Connect to Shoppers?The risk of focusing on the known is in resorting to lazy clich or not challenging conventional ideas, and nowhere is this risk greater in a known which needs more dimension: the idea that retailers need to make their stores more experiential to compete with online competitors. Some retailers do, but in fact, some may compete by making their stores simpler and faster to shop instead of more interesting and engaging. Retailers that are enhancing their store experience need to do so with a firm eye on how that improved experience causes sales increases. As our Kantar brethren at TNS are fond of reminding us, keeping people in the store longer doesnt necessarily sell moremost retailers that are successful sell and close quickly and effectively. With that screen in place, Alida Destrempe evaluates Safeways attempts to re-invigorate its store experience and value communication in a photo-based study.

Share of Decision: Why Will Shoppers Choose Outlets and Brands?Price today remains a cornerstone of shopper outlet choice, and there is no concept more fundamental to the relationship between retailers, suppliers, and shoppers than price. To a casual reader of the newspaper, a short-duration extreme discounting concept like Groupon having a market capitalization of more than USD10 billion should highlight one simple known: list price and average selling price are going to become increasingly disassociated from one another. The implications of this known are massive and impact virtually every core retail industry processpricing strategy, promotion, placement, product availability, branding, and new item strategy. Our price-based analysis this month takes us to the United Kingdom, where Bryan Roberts highlights the offline grocery price battle that has turned into an Orwellian state of permanent total war, and to the United States, where Leon Nicholas investigates how low-income shoppers are getting price signals from retailer opening price point (OPP) assortments and pricing models.Breakthrough Insights 3

Share of Wallet: How Much Will Shoppers Spend?Building on the OPP theme, the rise of discount formats in various retail markets around the world is another key known. The United States in particular is susceptible to this, as it by far the largest retail market in the world and one with a relatively large disparity of income (otherwise known as a Gini coefficient). To understand this phenomena in much more detail Dave Marcotte profiles the rise of discounters in the United States and shares insights on both who is shopping in these stores and what is driving them there. A few key categoriessuch as party, occasions and greeting cardsare responsible for a surprisingly high amount of destination traffic. Understanding this is key to understanding this channel in the United States, Walmarts continued attempts to respond to it, and to understanding low-income shoppers in general. U.S. shoppers making less than the median household income would be the third-largest retail market in the world (behind only the wealthy U.S. shoppers and China) if they were a standalone country.

Share of Solution: What Will We Sell Shoppers?Share of wallets long-term cousin is really share of solution:what can our share of wallet be over time? Brendan Langan takes this discount phenomenon on from a different angle and investigates the increased competitive intensity as the value channel continues to expand into areas traditionally dominated by drug. In particular, this overlap is now exacerbated by the senior leadership at both major U.S. non-food discount operators being veterans of the drugstore industry. In this case, the major known is that low-income shoppers are increasingly looking to alternative vehicles to stay healthy or cure ailments in an economically challenging environment, and the value channel will almost certainly play a critical role in this adaptation by the bottom tiers of the economic pyramid. Another retailer seeking to aggressively expand its footprint from a solution perspective is Amazon.com, and our final article for this period is Anne Zybowskis overview of how Amazon.com used its 2010 acquisition of Quidsi (soap.com, diapers.com, and yoyo.com) to expand its footprint into conventional replenishment categories. There is no thinking observer of shopper behavior who would deny that a massive amount of volume in categories that have predictable replenishment, low shopper engagement, and high shopper benefit for their household being in-stock on those items (diapers, toilet paper, etc.) increasingly is going to move to some sort of online-facilitated auto-replenishment model. Today, it remains somewhat surprising how few retailers, suppliers, or agencies have addressed this fundamental known with specific action steps to compete with or leverage this inexorable sea change in shopping behavior. We hope that these articles motivate you to attack these specific issues of course, but more importantly perhaps we hope that this overview gives you the confidence to act, convincingly and boldly, in this world of perpetual volatility. Closing your eyes or pretending that the seas arent rough is only going to make you sick. Vision firmly focused on the horizon of the Great Big Knowns and a dedication to turning insights around those knowns into action appear to be the core survival skills for the bumpy ocean of 2012 and beyond. Best of luck, and hope to see you somewhere soon,

Bryan Gildenberg Chief Knowledge Officer, Kantar Retail4 Breakthrough Insights

UK Online Grocery: Comparison Shopping TripsBy: Bryan Roberts / Originally published: September 19, 2011

While it is relatively easy to complete comparison shopping trips at bricks & mortar stores, a comparison of online grocery retailers (all the way from browsing online to receiving the products) is a slightly more complex, not to mention expensive, affair. To conduct a genuine comparison, we felt it was necessary to actually complete a series of shopping trips with all of the major online grocers in the UK. Here we present the findings from our experience shopping all of the major online grocers, covering issues such as the online shopping experience, pricing, delivery, and accuracy.

Survey backgroundOur survey comprised a series of online shopping trips conducted over a two-week period, at Tesco, Asda, Sainsburys, Waitrose, and Ocado. We selected 15 SKUs (Figure 1) across a variety of categories that we assumed would be available through all of the retailers e-commerce sites. For the sake of price comparability we selected only branded items and avoided categories such as fresh produce where product weights and pack sizes are significantly variable and/or where branded penetration is low. We registered as a first-time customer at all of the sites, so, in effect, these were all first-time shops with the online retailers. During the shopping process, we timed how long it took to find and

Tesco App Enables Shoppers to Scan Ads and Add Them to Online Shopping Lists

Source: Tesco Breakthrough Insights 5

Figure 1: Selected 15 SKUS Across Variety of Categories

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Shower gel Dishwasher tabs Kitchen roll Laundry tabs Tea Water Fruit Squash Baked beans Brown sauce Cider Bread Cheese Wine Sausages Toothpaste

Original Source Lime Shower Gel 250ml Finish All In 1 Regular 28 Pack Plenty Kitchen Towel White 2 Roll Ariel Liquitabs Colour 23s Yorkshire 80 Teabags 250g Highland Spring Sparkling Water 6x500ml Squash Robinsons No Added Sugar Orange Drink 1l Heinz Baked Bean In Tomato Sauce 415g HP Brown Sauce 425g Strongbow Cider 4x440ml Warburtons Wholemeal Bread Medium Sliced 400g Cathedral City Extra Mature 350g Wolf Blass Yellow Label Chardonnay 75cl Walls Classic 8 Pork Sausages 454g Colgate Max White Toothpaste 100mlSource:Kantar Retail

In terms of price comparisons, the fact that some of the SKUs were not stocked by some of the retailers meant that exact comparisons across all retailers was not possible. But in order to achieve comparability, we made the assumption that when a retailer did not carry a particular item, the item would be included in that retailers basket at the lowest non-promotional price offered by one of the other retailers. While we acknowledge that this methodology is not strictly watertight, it was preferable to simply deleting four SKUs from our 15-SKU basket. Throughout, we have ranked the retailers on the various criteria featured, with 5 as the best score, and 1 as the worst.

AvailabilityThe 15 SKUs were selected Availability scores with the assumption that Asda 4 as well-known brands and Ocado 4 routine pack sizes, they Sainsburys 3 would be available through Tesco 5 all of the retailers. Alas, this Waitrose 5 was not to be, creating the aforementioned complication in price comparisons. Waitrose and Tesco offered all 15 products; there was one SKU missing from the Asda shop (Highland Spring water was available in a 9-pack rather than a 6 pack); Ocado did not sell the 80-pack Yorkshire Tea bags; and Sainsburys did not offer Finish dishwash tabs in the required pack-size and Walls sausages were simply unavailable in a category dominated by brand leader Richmond, private label, and more upscale gourmet ranges.

select the 15 SKUs and kept separate timings of the check-out process. Throughout the process, we were keeping an eye out for features such as the hierarchy of brands/private labels as they appeared in each category, product suggestions or recommendations, special offers and multi-buys, any evidence of vendor investment in terms of space on shelf, availability of the 15 SKUs, and any hints or reminders that were intended to prompt us to exploit special offers.

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Shopping trip durationThe relative navigability of Shopping trip stores clearly had an impact duration scores on the length of time each Asda 3 shopping trip took. We Ocado 5 expect subsequent trips to Sainsburys 5 be faster as we get the hang Tesco 4 of the vagaries and quirks Waitrose 2 of navigating each site. That said, there were clear disparities in shopping trip duration. Sainsburys and Ocado came out on top as the easiest/fastest sites to shop, with Tesco and then Asda offering the next fastest sites to navigate. Rounding out the pack is Waitrose, a site where we believe there is still a huge amount of work to be done to improve the shopper experience.

Delivery time-slots: ProximityWhile not necessarily Time-slots: something that is within proximity scores a retailers control (a Asda 5 successful service will be Ocado 4 heavily booked up), there Sainsburys 4 were some real differences Tesco 4 in terms of how quickly Waitrose 3 the retailers were able to provide delivery. Asda was able to offer us a delivery later in the day of our order, while Ocado, Tesco, and Sainsburys were all able to fit our delivery on the following day. The biggest lag was for Waitrose, where the nearest available timeslot was two days from the time of order. A useful feature offered by Asda allows shoppers to choose a timeslot (indicated by a van symbol on the scheduling tool) for when a van is already scheduled to be in your area enabling shoppers to coordinate their deliveries with other shoppers in their area, minimising the environmental impact of their deliveries and increasing efficiencies for Asda. A similar feature also is offered by Ocado.

CheckoutThe next stage of the Checkout scores shopping process was Asda 5 checkout and, again, there Ocado 3 was a marked variation in Sainsburys 2 the speed of this process. Tesco 3 Coming in last was Waitrose 4 Sainsburys, with around five minutes needed to complete our order. The Tesco experience was marred by the site crashing midway through checkout, although we were quickly able to log back in and thankfully retrieve the shopping basket and restart checkout. Asda was the clear winner, offering a rapid and effective checkout process that took just two minutes.

Delivery Timeslots: DurationOne of the inconveniences associated with any sort of home shopping is the requirement for someone to be in at the delivery address to receive the order. Indeed, this is one of the key drivers behind the growth Time-slots: duration scores Asda 4 Ocado 5 Sainsburys 5 Tesco 4 Waitrose 4


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of the drive-thru grocery ecommerce model in markets as diverse as the US, Germany, France, the UK, and Spain; such services provide all of the convenience of online shopping without the burden of being housebound. In ranking timeslot duration, higher scores have been awarded for the shortest timeslots, the logic being that these shorter slots are more convenient for time-pressed shoppers. Sainsburys and Ocado triumphed thanks to the availabilityof one-hour slots as opposed to the two hours offered by the alternative services.

sent a reminder SMS on the day before delivery. The clear winner here was Ocadowe were fully informed throughout the process and were left confident that our delivery would be timely and accurate.

PricingAs referenced above, the Pricing scores fact that not all of the Asda 4 retailers stocked all of the Ocado 5 SKUs meant that we had to Sainsburys 3 improvise slightly in order Tesco 2 to construct comparable Waitrose 1 baskets. We accept that this might not be the most scientifically rigorous piece of analysis, but it was either this solution or disregarding the SKU for all of the retailers. The instances of unavailability are highlighted in red in the Figure 2, while promotions are highlighted in green. Where products were replaced by items of a different value, we have included the original price of the item, again for the sake of comparability. And finally, as was the case with Tesco, when a retailer ended up not processing/delivering an item, we have included that items price as though it were delivered. Surprisingly, perhaps, the clear winner in terms of basket pricing was Ocado. This is a clear result of its brand price-matching with Tesco plus a couple of fortuitous promotions (on wine and dishwash tabs) that brought its basket in at the lowest price by far. Without the promotions, Ocado would have been beaten on price by Asdaits EDLP strategy coming throughas well as by Tesco and Sainsburys.

CommunicationsA common theme with Communication home shopping in general scores is the need for confirmation Asda 3 and reassurance on Ocado 5 orders and deliveries. The Sainsburys 4 supermarkets in question Tesco 4 here varied enormously Waitrose 3 in the way that they communicated between the time the order was placed and the time the delivery was received. All of the supermarkets issued a confirmation email upon receipt of the order. This is where Waitrose and Asda both stopped: the next time we heard from them was when our groceries were delivered. Ocado was much more active in communicating with us: as well as the confirmation e-mail, we received a reminder SMS message the day before delivery. On the day of delivery, we received an SMS telling us of changes to the order and another SMS on the day to remind us of the delivery time and to assure us that there were no unavailable items. Both Tesco and Sainsburys

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Figure 2: Price Comparisons

Product Original Source Lime Shower Gel 250ml Finish All In 1 Regular 28 Pack Plenty Kitchen Towel White 2 Roll Ariel Liquitabs Colour 23S Yorkshire 80 Teabags 250g Highland Spring Sparkling Water 6X500ml Robinsons No Added Sugar Orange Drink 1l Heinz Baked Bean In Tomato Sauce 415g HP Brown Sauce 425g Strongbow Cider 4x440ml Warburtons Wholemeal Bread Medium Sliced 400g Cathedral City Extra Mature 350g Wolf Blass Yellow Label Chardonnay 75cl Walls Classic 8 Pork Sausages 454g Colgate Max White Toothpaste 100ml Total basketKey: Unavailable; Promotion

Waitrose 1.94 7.65 1.87 7.09 2.28 2.39 1.25 0.69 1.99 3.83 0.70 4.50 9.99 2.28 2.00 50.45

Asda 1.94 5.00 1.86 6.79 2.28 2.34 1.10 0.69 1.68 3.50 0.70 3.98 7.98 2.28 2.00 44.12

Tesco 1.94 6.00 1.87 6.79 2.28 1.99 1.25 0.50 1.69 3.99 0.70 3.98 9.99 1.14 2.00 46.11

Ocado 1.94 3.83 1.87 6.79 2.28 2.34 1.25 0.69 1.50 4.79 0.70 3.98 6.66 2.28 2.00 42.90

Sainsburys 2.00 5.00 2.00 7.09 2.28 2.39 1.25 0.69 1.69 3.99 0.70 4.48 7.49 2.28 2.00 45.33

Source:Kantar Retail

The most expensive by far was Waitrose, which comes as a surprise as it also price matches Tesco on 1,000 branded SKUs. This price matching was claimed by the Waitrose website to apply to baked beans, squash, tea, sausages, bread, shower gel, and sauce, but it became clear when we shopped Tesco that Waitrose was 19p more expensive on baked beans and 30p more expensive on brown sauce. For sausages, Tescos half-price offer meant that Waitrose was really off the mark. It might be the case that we shopped Waitrose at a time when it was in between Tesco price comparisons (although it claims to check prices twice per week), but even so, we are not left with a huge sense of confidence in Waitroses price matching claims.

Delivery chargesThe issue of delivery charges Deliver charges can be a complex one, as scores many of the retailers have Asda 3 a sliding scale of delivery Ocado 4 charges depending on size of Sainsburys 1 shopping basket, day of the Tesco 2 week, and time of day. We Waitrose 5 therefore acknowledge that, if we had spent more money, or chosen another day/ time, then some of these charges might have been lower or not have existed at all. Its clear that online retailing is more economical for larger trolley-style shops than it is for the relatively small basket such as ours. A larger basket will often avoid delivery


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charges, or at least reduce them in terms of cost per item. Waitroses approach is much simpler (free delivery for shops of over 50), while the other retailers have a sliding scale depending on order value and schedule of delivery. Asda charges between 3 and 5. Ocado deliveries can be free (in the graveyard slot of 10:3011:30 p.m.) but usual charges vary from 49p to 4.99. Tescos scale ranges from 3.00 to 6.00, while Sainsburys has a similar range of 3.50 to 6.00. What our shopping experience revealed is that there are a number of trade-offs available to online shoppers. The Waitrose delivery is free, but we are likely to pay a higher price for our groceries. Similarly, a higher delivery charge will be levied for those times of day that are convenient for most shoppers: we must trade off between low cost and convenience. One trade-off becomes very clear: for online grocery to be at its most economical from the shoppers perspective, shoppers must purchase high-value, large-basket orders. Funnily enough, we suspect that the same logic holds from the retailers perspectiveby baking in delivery charges based on basket size and schedule, shopper behaviour is being shepherded in the direction desired by the retailers.

and Tesco all arrived within Timeliness their allotted time slots. scores Ocado demonstrated some Asda typically elegant customer Ocado service: our driver (James in Sainsburys the Odette Onion Van) called Tesco to say that he was in the Waitrose area and asked if we were willing to accept an early delivery. We answered in the affirmative, and he arrived 30 minutes ahead of schedule.

5 5 5 5 5

Delivery serviceThe basic distinction here Service scores is: will the driver offer to Asda 4 take groceries into the Ocado 5 customers kitchen, and Sainsburys 5 possibly even offer to help Tesco 3 unpack? The experience Waitrose 5 here varied from extremely good (Waitrose, Ocado, and Sainsburys all delivered the bags into the kitchen), to the moderate (Asda dumped our bags on the front door mat) to the less than ideal (we had to unpack our own bags from a Tesco crate on the front step). While we appreciate that there might be certain legal/insurance/safety concerns with delivery staff entering customers homes, the delivery experience actually can have a significant effect on the entire process.

TimelinessClearly, a key performance attribute for grocery e-commerce operators is timeliness, and none of the providers let us down here. Sainsburys was actually a few minutes early, while Asda, Waitrose,

BagsThe UK press has periodically had a field day over the excessive bagging perpetrated by online

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grocers. We certainly had a mixed experience. The second-best performer here was Ocado, which used four bags for 15 items. The delivery, from the main Hatfield fulfilment centre, came in four colour-coded bags (purple for ambient and red for fridge) and our excellent Ocado driver was keen to point out the bag recycling service that the company offered. Asda was the worst for baggingusing seven bags for 14 SKUs. One bag was dedicated to a single substitute product (Substitutions are easy to spot theyre always delivered in a separate bag and are clearly marked on your delivery note), although, as there was no bag colour-coding, this was not immensely helpful. Tescos bags were colour coded: green for chilled products; white for ambient, and blue for substitutions. Some of the bagging was faintly ridiculous, obviously based on the picking regimen in the Greenford dark store: baked beans and brown sauce came in their own bags, while some products were loose in the crate. A total of five bags were used. Waitrose did very well here: four bags were used for 15 items. They were colour-coded (blue for fridge and green for ambient) and the driver reminded us of the bag recycling service offered by the retailer.

our email confirmation Accuracy from Tesco, the delivery scores receipt omitted the wine Asda 5 and, indeed, the wine was Ocado 5 nowhere to be found in the Sainsburys 5 delivery. For the purposes Tesco 4 of the pricing comparison, Waitrose 5 we have assumed it was delivered at the same price, but this explains Tescos poor standing in the accuracy scores. The only consolation was that we were not charged for the missing item.

SubstitutionsProduct substitutions have Substitutions been another contentious scores issue for online grocers, Asda 4 with assorted inappropriate Ocado 5 and/or comedic substitutions Sainsburys 5 making the press. Ocado Tesco 4 and Sainsburys were Waitrose 3 the only two retailers to escape unscathed in this way, delivering exactly the products as ordered. Waitrose made two substitutions for out of stock items, replacing Plenty kitchen towels at 1.87 with Thirst Pockets at 1.22 and the 350g Cathedral City Extra Mature with a Mature 600g pack (charging the lower price of 4.50 rather than 5.29), slightly compensating us for the wrong flavour of cheese with extra volume. A nice touch here was that the substitutions brought us below the free delivery threshold of 50, but we were still given free delivery. Asdas one substitution saw them replace the dishwasher tabs with Finishs Lemon variant

AccuracyAside from the issue of substitutions (see next section), we only had one example of poor accuracy. Despite ordering a bottle of wine on Tesco.com, and despite this bottle of wine being featured in


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at same price, while Tesco also substituted this product. The 6.00 28 pack was unavailable, so (according to the delivery receipt) we were given two 15 packs for 7.76, the 1.76 difference being refunded. One problem here is that we were actually given two packs of 14.

Final scoresHaving judged the various Final services on 14 criteria, scores Ocado , the only onlineAsda 52 only specialist under Ocado 62 consideration, emerges as Sainsburys 52 the clear winner. All three Tesco 52 of the Big Three retailers Waitrose 54 scored level points, with Waitrose pipping them at the post in second place. Asda was let down by a poor show in terms of bagging and shelf-life; Ocados only real weakness was the checkout experience; Tesco was undermined by pricing, delivery charges, and accuracy; Sainsburys fared badly on the cost of delivery and availability; and Waitrose has work to do on improving its website and sharpening its pricing. The good news for all operators is that not one of them had an absolute shocker; most were let down by one or two facets of their online operations.

Shelf-life

Shelf-Life The final criteria the scores retailers were judged on Asda 2 was shelf-life. Some of the Ocado 3 retailers (e.g. Waitrose) use Sainsburys 3 the longest possible shelf Tesco 5 lives as one of their selling Waitrose 4 points, while others have been castigated for using online shopping as a complex stock rotation system, foisting near-expired products on the unsuspecting public. In this basket, this criteria boils down to the sausages, as the cheese ordered lasted a couple of months from all of the retailers. Sainsburys did not stock the sausages, so they get the benefit of the doubt here, while Asda was the only retailer with an issue here. A use-by date of August 20, with the delivery occurring on the evening of the August 18, meant that an enforced change of menu planning was in order. Only two days shelf life compared poorly to the eight from Tesco, seven from Waitrose and five from Ocado. We have arbitrarily given Sainsburys the same average score as Ocado as they did not stock the item in question.

Implications for suppliers:There was not a great deal of evidence throughout our shopping trips that suppliers are currently able (or perhaps willing) to secure a more prominent place on shelf in the online shopping experience. Indeed, most of the sites/categories we shopped were in alphabetical order or were front-loaded with private brand.

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There are clearly some ways of bolstering a presence in these retailers online stores. Securing space to announce new products or promotions is commonplace, and we encountered several sticky product advertisements that followed us around a shopping trip, even into different categories. In terms of the alphabetical-order issue, and this might sounds like something of a fatuous recommendation, ensuring that brands (or rebrands) are named with an early letter in the alphabet might be a relatively simple way of ensuring online prominence. Another way of securing prominence will be to ensure a brands participation in online features such as recipe-based shopping lists and pre-made shopping lists. At the moment, these pre-made features are extraordinarily skewed toward private brands. Sampling is an opportunity with online. Rather than relying on the hit and miss approach of instore sampling, which is untargeted and dependent on traffic flow in the store, delivering free product

or product miniatures alongside e-commerce deliveries enables manufacturers to send samples directly into shoppers homes, often targeted by shopper group or by geography. Impulse, contrary to popular belief, can still be achieved online, such as with Tescos Goes Nicely With feature that can lead shoppers into new categories and new adjacencies. This appears to be a currently underutilised function by both retailers and suppliers. Online also appears to be a more favourable arena for multi-brand or multi-category suppliers to implement cross-brand or cross-category promotions. These win favour with retailers through basket-building but are often difficult/expensive to achieve instore as space constraints mean that displaying the participating SKUS in close proximity is often problematic, meaning that shoppers might have to visit four or five different aisles. By displaying these promotions during the online shopping trip or at check-out, shoppers, retailers, and brands should be able to more readily benefit from trans-category promotional programmes.


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Online Retail in China: Getting Ahead of the CurveBy: Phil Smiley and Justin Cook / Originally published: August 2, 2011

Rapid growth in Chinas fledgling modern retail market will drive companiesboth retailers and manufacturersto invest heavily in gaining market share. Online retailing still represents a fraction of total retail sales in China. However, online retailing represents a very large and fast growing portion of modern retailing in China. Kantar Retail predicts that many executives will learn that investing heavily in online business platforms will be a requirement for retailers wishing to dominate share in Chinas rapidly evolving modern trade. The result will be a modern trade environment the likes of which weve never seen before.When Walmart had just 300 stores in the United States, the Internet didnt exist. Today, Walmart operates 338 stores in China, a country with more than 400 million Internet users and one where the online shopping bug is spreading fast. Online retail is going to play a major role in the development of Chinas retail market. It will likely occupy a larger share of transactions than

in Western markets. Online shopping in China is already gaining adoption faster than we have seen in Western markets. Consequently, online retail will play a disruptive role in the development of modern retailing in China. Many Chinese cities dont have a modern retail store and are unlikely to get one soon, but they do have extensive Internet access. These cities also have millions of consumers with a desire for convenience and value. Online retail can and will deliver for these consumers.

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Could it be that offline store networks of the size we see in other markets, such as the US or European markets, will not materialize in China due to the early and fast penetration of online retail? Judging by recent events, Walmart China along with other leading local and global retailers may already be thinking this way. Walmart operates more than 4,300 stores in the US and 338 stores in China. But will Walmart build more than 4,000 stores in China? It is more likely that Walmart and other leading retailers will operate a two-tier strategy. First, they will develop an online retail network that can reach all 400 million modern trade consumers. Second, they will invest in growing and connecting this network to online-integrated brick-and-mortar stores. Theyll grow both businesses at the same speed. The result is a very different business model from what is seen in Western markets. Because the business model is different from models weve seen before, it is hard to visualize. For example, recently, Walmart acquired a stake of Chinas largest online hypermarket called Yihaodian, which means No.1 store. Yihaodian is a promising company with a promising online platform. Yihaodian has grown online sales from USD 0.64 million (RMB 4.17 million) in 2008 to USD 125 million (RMB 805 million) in 2010. They have recently set up an online retail team in Shanghai to handle online operations in China. This move indicates Walmart Chinas plans to focus on ecommerce operations in the future. This ecommerce center joins Walmarts original center, located in New York.

Other leading retailers are setting up and expanding their online businesses. In addition to Walmart, Tesco and Carrefour also have announced plans to expand their online retail operations in China. Taobao, the leading online retail site which hosts B2C and C2C transactions, has experienced rapid growth in recent years. Taobao revenues in 2010 were estimated to be USD 60 billion. In fact, if we classed Taobao as a retailer it would be by far the largest retailer in China, dwarfing the sales of high profile retailers such as Walmart, Carrefour, and Tesco.

Chinas Online ConsumersChina has a huge base of Internet users, and it is still growing at an amazing speed. Retailers in China are finding it easier to reach remote consumers via clicks and ship retail modelsFigure 1: Penetration of Shopping Online (% HHs) - Personal Care18% 16% 14% 12% 10% 8% 6% 4% 2% 0% National Urban China 4 Key Cities A Cities B Cities C Cities D Cities 12% 10% 16% 13% 11% 8%

Source: Kantar Worldpanel China: 52 weeks ended 25 March 2011


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rather than by building new stores. Chinas Internet-savvy consumers are willing to accept new technology and innovation in their life and are already accustomed to Internet shopping. In some categories, such as Baby, it is estimated that up to 15% of sales are taking place through online channels. Kantar Worldpanel reported that 17% of National Urban Chinese households have used the Internet to purchase grocery products online with sales growing at 59% year-on-year. Personal care products are more sought after online compared with food and household cleaning items (Figure 1). The proportion of households who shop online for personal care items is actually higher in the C cities compared with A cities (13% vs. 10%). This is because shoppers in the lower tier cities may struggle to find the products they want to buy in traditional brick and mortar stores, so as an alternative, seek them out through online stores. Kantar Worldpanel identifies two key motivations for purchasing FMCG products online: price and convenience. The key personal care categories, which are more likely to be sought after, are the more expensive ones, such as cosmetics, facial skincare, perfume, and hair colorants. Within these categories, shoppers are opting for more premium brands, but are actually paying a much lower price per item. Therefore, shoppers want premium but at a value price. Convenience also plays a key role, particularly for categories which are heavy or bulky in their nature. For categories such as soft drinks, laundry powder, and instant coffee, shoppers are purchasing much

bigger pack sizes to take advantage of the items being delivered to their home. For example, the average pack size for soft drinks is 2.3 liters in traditional stores but 3.5 liters online.

Making Sense of the Online Retail MarketThe online market can be a confusing place, littered with different terminology and jargon. Kantar Retail analysts break the online retail market in China into four segments, as illustrated in Figure 2. The first segment is B2C key accounts which would include internet retailers such as Amazon.cn, Buy 360, Dang Dang, and the online operations of retailers such as Tesco, Carrefour, and Walmart. In this segment products are selected by the retailer who then takes full control of assortment, price, promotion, website design, and the user experience. The second segment is what we call the online B2C General Trade. This segment is effectively the small, independent business traders operating and selling directly to consumers via the Taobao exchange.Figure 2: Online Retail Market Segmentation

ONLINE RETAILB2C Key Acc Amazon.cn Buy 360 Dang Dang Tesco.com Carrefour.com B2C GT Taobao Small Business Trader B2C FLAGSHIP C2C

Eg LOreal Flagship Store, Wyeth Flagship Store

Taobao Exchange

Source: Kantar Retail Analysis

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The third segment is B2C Flagship. These are online stores that are generally operated by manufacturers and hosted on Taobao Mall. In this case, manufacturers are selling their brands directly to the consumer via proprietary online stores. As such, Taobao is effectively operating as an online broker between manufacturers and consumers. The fourth segment is online retail from Consumer to Consumer. This is most prevalent through the Taobao exchange where consumers sell goods and services to each other, much in the same way that eBay operates in other markets.

Consumer-to-Consumer platform designed for consumers and small businesses; Taobao Mall, a business-to-consumer marketplace; and eTao, which will target the shopping search market. All three companies will continue under the Alibaba Group. In an e-mail to Alibaba employees, company CEO Jack Ma said the company is making the move as e-commerce has faced disruptive changes, pointing to social trends and the entrance of new companies in the market. He stated that significant change has taken place in customer demand we need to offer consumers more sophisticated and customized services.

How Will Chinas Online Channel Evolve?There is no doubt that Taobao leads the game at the moment, yet B2C online retailers such as Amazon and Dang Dang and the online operations of retailers such as Tesco, Carrefour, and Walmart are making strong progress in the market. Kantar Retail forecasts that while Taobao will retain its dominant position, online retailers such as Amazon and the major hypermarket retailers will grow faster in coming years and wrestle business away from Taobao. Taobao, Chinas largest online retailer, has already recognized the threat from growing B2C Online retailers such as Amazon and Dang Dang and has taken steps to restructure its business model. Taobao has recently split into three separate companies to better address its target markets, according to parent company Alibaba Group. The restructuring creates Taobao Marketplace, a

Online Can Change the Rules of the GameTraditional marketing models dont necessarily apply in online retail. An example of this is the diapers category in China, where Procter & Gamble dominates the offline market with its Pampers brand. P&G has gained its position through heavy marketing expenditure alongside strong in-store presence and promotion. Yet for certain online retailers, the Mamy Poko brand challenges the dominance of Pampers. This is due to two reasons. First, Mamy Pokos lower price point appeals to value-seeking online shoppers. Second, Mamy Poko receives online consumer reviews and ratings that are equal to or better than Pampers ratings (Figure 3). Consumer recommendations go a long way to helping sell the brand.


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Figure 3: Diaper Wars on Amazon

Source: Amazon.com

What Are the Prospects for Online Retail in China?Online retail is set to continue its exponential growth in China with little in the way to stop it. The potential introduction of taxes and the lack of infrastructure in some parts of the country may inhibit the speed of growth. However, these potential changes pale in comparison to some factors driving growth such as:

Growing consumer desire for convenience andvalue

Poor access to offline retail stores in ruralareas

Rapidly improving national infrastructure Improving online payment systemsThese factors will ensure that online retail will enjoy a strong and enduring growth trajectory.

High Internet usage and rapidly expandingbroadband network

Supplier ImplicationsAll suppliers need to form a point of view on how their category fits with Chinas online retail market. This will help frame up the potential opportunity of

High mobile phone penetrationit is estimatedthat 300 million consumers go online via their phones in China

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doing business online. This can be done in three steps. First, suppliers need to consider which products are best suited to the servicing the needs of online shoppers. Within personal care, for example, shoppers are seeking more premium products at a value price. Also, shoppers will look to take advantage of the convenience of delivery and purchase larger pack size which is particularly important for drink and baby categories. Second, suppliers need a plan to develop their business in this fast-growing and unfamiliar channel. Without one, they risk getting left behind or missing the opportunity to convert offline brand share to online brand share. Developing a plan means figuring out where to play and how to win in the online retail market. Third, companies need to learn before moving ahead in online brand promotion. In many ways online brand promotion is unchartered territory. Most suppliers have mastered the art of brand promotion via key customers using the annual joint business planning process. However, most online retailers do not even conduct annual planning.

The business is much more spontaneous and fast moving. As a result, no manufacturer has built an institutional understanding of how to drive business with online retailers. Manufacturers struggle to build visibility and meet the dissimilar needs of online retailers. This third activity is critical. Online retailers operate differently from offline retailers and have different requirements from suppliers. A good pack shot and product description can be the difference between success and failure. Yet many suppliers fail to provide adequate support to online retailers. By the same token, some online retailers, such as Amazon, offer a national distribution service to the consumer (i.e., if the product they order in Shanghai from the Shanghai fulfillment center is not available, Amazon will ship to the consumer from another city such as Beijing). In this case, the product may be handled many times in the supply chain and without special packaging to protect it the chances of it arriving at the consumer damaged are greatly increased.

Kantar Retail Point of ViewA Checklist for Suppliers

Prepare a strategy for online retail Identify which sectors of online retail you want to focus on Get to know the B2C retailers early Prepare a learning plan for online retailunderstand what drives sales in online retail, understandshopper needs and drivers

Figure out how to drive demand for your brands in an online retail environment


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Adding Clarity or Clutter? A First Look at Walgreens and CVSs New Private Brands, Nice! and NuanceBy: Brendan Langan / Conversation originally published: August 2, 2011

Conversations

Walgreens and CVS have stepped up the pace of private brand development over the past few months, cutting-in hundreds of new items across the store. Recent additions to the shelf have included new economy brands (Nice! and Just the Basics) as well as more fully developed proprietary brands (Good & DeLish and Nuance Salma Hayek). For now, it remains to be seen whether these brands will add useful choice and clarity to the merchandising ladder, or merely add to the clutter on the shelf. Either way, neither Walgreens nor CVS intend to take their foot off the accelerator anytime soon, with aggressive plans to increase private brand share of sales and shelf space.Figure 1. Chain Drug Private Label Comparison Walgreens Front Store Sales (billions) National Brand Sales (billions) Private Brand Sales (billions) Private Brand % Front Store Sales Est. Private Brand SKUs Priate Brand % Front Store SKUs Front Store Sales National Brand Sales Private Brand Sales Primary Private BrandsWalgreens, W, Good & Delish, Pet Shoppe, Caf W, Deerfield Farms, Big Roll, Casual Gear, Penway, Pure American, Big Flatts 1901, Mens Zone, Xcel, Details, Bioinfusion, Studio 35 Duane Reade, DR, DR Delish, Good & Delish, Apt. 5, Apt. 5 Goes Green, Pet Shoppe, Prevail CVS, Gold Emblem, Just the Basics, Essence of Beauty, BIG CHILL, Nuance Salma Hayek, Absolutely Divinie, Blade, Fuel, Earth Essentials, Pet Central, Caliber, 24.7, skineffects, Christophe, Ellin Lavar, Fruitopia, Bioluxe Rite Aid, Simplify, Pantry, HOME, Renewal, tugaboos, Pure Spring, PharmaAssure, Thrify, Rx Suncare

Duane Reade $979.4 $866.8 $112.6 11.5% 2,000 N/A CAGR 20052009 4.4% 3.3% 14.7%

CVS $18,350.4 $15,230.8 $3,119.6 17.0% 5,100 26.2% CAGR 20052010 12.6% 11.5% 18.8%

Rite Aid $8.1 $6.8 $1.3 16.0% 3,300 13.2% CAGR 20052010 5.0% 4.0% 11.6%

$21,995.6 $17,486.5 $4,509.1 20.5% N/A N/A CAGR 20052010 8.2% 7.3% 12.4%

Source: Kantar Retail research and analysis, company reports 20 Breakthrough Insights

Increased Focus on the Bottom of the LadderRecent efforts to establish a more consistent opening price point (OPP) value proposition have been apparent across the Big 3 drugstores, beginning with the introduction of Rite Aids new private brand architecture in 2010, featuring its new price fighter brand, Simplify. In February 2011, CVS rolled out approximately 100 new items under the Just the Basics name, spanning various categories and departments across the store. The range was positioned as a functional, value-priced, opening price point offering, with a smart simplicity appeal, priced at a discount between 40% to 70% vs. the national brand. In early August, Walgreens threw its hat into the OPP ring, cutting-in a dozen items under the Nice! brand in dry grocery as part of a broader department reset. The new brand replaced tertiary brands and select Deerfield Farms items. Packaging has been revamped, featuring a stripped-down and cleaner look and feel. In-store signage and packaging have been designed to position the brand as smart. quality. everyday.Figure 2. Walgreens Introduces Nice! Dry Grocery Brand

Source: Kantar Retail store visit


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Walking Walgreens, Nice! Execution InconsistentAlthough still early, execution has been inconsistent and the shelf crowded with Nice! positioned alongside other private brands (W, Caf W, Deerfield Farms, Good & Delish, etc.). It may stand out on the shelf, but its value proposition is not immediately clear. Further, operational execution and presentation at the half dozen locations visited were all over the place. While this is not that uncommon in the early weeks of a launch, these issues were compounded by this weeks circular that featured a coupon for Nice! Macaroni & Cheese for 49 (with a 3 piece limit) versus the $1.29 shelf price (a 62% discount). With one facing and a Figure 3. Walgreens Introduces Nice! Dry Grocery Brand, Early Execution Mixed very deep discount, it was not surprising to see numerous out of stocks on the first day of the ad. Addtionally, the store visited indicated they would not receive a shipment until Friday, resulting in a poor first impression and lost sales. Several other stores did not yet have the item in stock and were instead offering a branded equivalent. When asked about the new brand, most store associates had not heard of it (despite the radio loop) or were not aware that it was a Walgreens item. Outside of spotty in-store signage, radio, and the one coupon in this weeks ad, Walgreens has yet to invest in marketing or online resources to build awareness, which leaves customers and associates ill-informed. For now, it remains to be seen whether Walgreens is adding clarity or clutter, but in the interim, it looks like the latter. That being said, I do not feel this will be the case for long as they leverage learnings from Duane Reade and work to significantly rationalize their portfolio of private labels while building standalone brands and accelerating private label sales growth.

Source: Kantar Retail store visit

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CVS Introduces Holistic Beauty Solution: Nuance Selma HayekOn the other end of the continuum, CVS has introduced a holistic beauty solution and integrated campaign with the launch of its Nuance Salma Hayek product range. CVS has invited its shoppers and beauty bloggers to Discover Nuance Salma Hayek, a unique collection of products designed for women who seek high-quality, efficacious beauty products customized to address their personal needs. The line includes approximately 100 items spanning skincare, body care, hair care, and cosmetics, and features reasonable pricing ranging from $7.99 to $19.99. This line is one of the most comprehensive for CVS to date, and has been in development for the past three years. The launch has been supported with a comprehensive campaign leveraging online, social media, beauty advocates, in-store signage, and sampling. Conversations Is Your Personal Connection to Kantar Retails Experts ... Online To join the Conversation, visit Kantar Retail iQ and click on the Conversations tab. All Kantar Retail iQ members have full access to Conversations.

Figure 4. Introducing Nuance Salma Hayek

Source: cvs.comFigure 5. CVS Begins Cutting-In Nuance

Source: Kantar Retail store visits


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What Targets Suppliers Need to Know about Walmart Canada: The OverviewBy: Robin Sherk / Originally published: September 19, 2011Although Walmart Canada may be familiar to Target teams, Walmarts Canadian operations are distinct from its U.S. counterpart. Overall, Walmart Canada will be a formidable competitor to Target across grocery, consumables, and general merchandise. It has a wide reach in the market in terms of stores and audience penetration, and its footprint is expanding as a one-stop grocery shop. Moreover, Walmart Canada is investing in insights and leveraging Wal-Mart Stores, Inc.s best practices, particularly from the U.K. and the U.S. Although Walmart Canada presents challenges for Target, its positioning also allows Target opportunity to gain traction in the market.

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Store Locations and FormatsWalmart entered Canada in 1994 with the acquisition of 122 Woolco locations from Woolworth Canada. The chain comprised only discount stores until 2006, when Walmart Canada began adding Supercentres. By mid 2011, the retailer had stores (190 discount stores and 135 Supercentres) in every province and territory except the far northern territory of Nunavut. Figure 1 illustrates that its overall store presence is concentrated in Ontario, though there also is a significant presence in Quebec, Alberta, and British Columbia. Its Supercentres are primarily in Ontario, Alberta, British Columbia, and Saskatchewan, with recent introductions in Manitoba and Quebec as well. Unlike in the U.S., Walmart does not operate any supermarket or convenience formats in Canada. In terms of format expansion, Walmart Canada is focused on the Supercentre. The retailer continues to convert its discount stores into Supercentres, as Walmart

Canadas Chief Executive, David Cheesewright asserted in June 2011, other than a handful we think every store can be converted to Supercentre. As a result, over the last five years, though Walmart Canada added 36 net new stores in total, it added over 135 Supercentres due to conversions. In short, Walmart Canada is leveraging its store base to better serve onestop, stock-up shopping trips.

Walmart Canadas stores are smaller than in the U.S. In 2010, they averaged 129,000 square feet, with a range of 70,000 to 200,000 square feet. Comparatively, Walmart US discount and Supercentres average 169,000 square feet. Its Canadian stores accordingly tend to carry fewer items, averaging 100,000 SKUs, with a range from 65,000 to 120,000 SKUs.

Figure 1: Walmart Canadas Store Presence

325 Stores: 190 Discounts 135 Supercentres

Note: Walmart has stores in Yukon and the Northwest Territories, but it does not have enough locations to reach 1% of the store base. Source: Walmart.ca, June 2011, Company reports


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In Canada, Walmart operates Supercentres across the spectrum of urban, suburban, and rural areas. Though the majority of Walmart Canadas stores are in areas analogous to the U.S., such as in shopping plazas and on the outskirts of smaller towns, it has an urban presence across a number of cities, including Toronto, Vancouver, Calgary, Winnipeg, Halifax, Ottawa, and Quebec City. Walmart, therefore, has a proven ability to serve urban customers in Canada, a key difference compared with its U.S. counterpart.

Walmarts services and the proportion of stores with each offering. A key difference between Walmarts U.S. and Canadian stores is the latters bank. Launched last year, it currently offers only a credit card that is mainly promoted in stores; 90% of new applications are taken through its cashiers. This year, Walmart Canada is looking to expand its offering to other products such as insurance, but its first priority is to develop the credit cards penetration among shoppers. The retailer also offers gift cards and money transfer services. Walmart USs efforts to start a bank have long been thwarted by regulatory authorities, leading it to expand its MoneyCenter services. As Walmart Canadas credit card expands, it also gives the retailer a tool to offer shoppers rewards for their loyalty. Currently, Walmart Canadas credit card gives Walmart Rewards that amount to 1.25% for every purchase at its stores and 1% wherever else the card

is used. As more shoppers adopt the card, the retailer may also gain insights into its shoppers spending behaviors. Overall, Walmart Canada has an added tool to contend with Targets practices should Target bring a 5% REDcard Rewards program to Canada.Figure 2: Online Retail Market Segmentation% of Walmart # of Canada Stores Stores 321 314 305 228 217 201 133 66 55 35 27 26 24 19 16 12 10 8 3 2 1 99% 97% 94% 71% 67% 62% 41% 20% 17% 11% 8% 8% 7% 6% 5% 4% 3% 2% 1% 1% 0%

Service Pharmacy PhotoCentre McDonalds Portrait Studio Tire & Lube Express Centre Vision Centre Connection Centre SmartStyle Hair Salon Magic Cuts Lotto (Good to Go!) Marlin Travel Hear at Last Regal nails Medical Clinic Tim Hortons Wine Rack Fun Factory Cadet Cleaners Sussex Insurance Dental Office Bubble Tea

Store ServicesAs in the U.S., additional store services offered by Walmart Canada include the Pharmacy, PhotoCentre, and McDonalds. Many of the retailers stores also offer a Portrait Studio, Tire & Lube Express service for cars, and Vision Centre. Services targeted to local needs and tastes also are prominent, including hair salons, wine shops, Tim Hortons coffee and doughnuts, travel services, and dry cleaners. Figure 2 outlines

Source: Walmart.co, June 2011

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Of the differences in services between Canada and the U.S., the most striking is the lack of a website-to-store pick-up option in Canada. In the U.S., this service, called Site to Store, accounts for 60% of Walmart.coms orders. Online ordering through Walmart.ca only began in mid 2011, and the retailers website currently offers a limited selection of general merchandise for home delivery only. Accordingly, the multichannel experiences advancing at Walmart US are not (yet) reflected in the Canadian market.

Assortment and Private LabelsLast year, just under half of Walmart Canadas sales were in Grocery and Health & Wellness (including Baby) categories. While this is a smaller proportion than in the U.S., consumables share of sales will rise due to Supercentres continued expansion in Canada. Walmart Canadas general merchandise assortment, which is analogous to the U.S. in covering apparel, home, entertainment, and hardlines, will accordingly comprise a smaller proportion of Walmart Canadas sales over time. Though Target is increasing its focus on consumables

(currently at 41% of sales in the U.S.), its emphasis remains on discretionary items. Its focus on consumables in Canada remains unclear at this time, but Walmarts proportion will likely allow it a point of differentiation compared to Targets customary discount store offerings (even if PFresh is introduced in Canada). While maintaining a house of brands proposition, Walmart Canada leverages best practices in private label from both its U.S. and U.K. operations. In grocery and consumables, Canadian shoppers can purchase Walmart US biggest private

Figure 3: Collage of Walmarts Fresh, Prepared Food Options

Source: Kantar Retail Store Visits


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lines, including Great Value, Equate, Ol Roy, and Parents Choice. Walmart Canadas private grocery lines generally maintain opening price point (OPP) propositions. It does not have the Marketside, Prima Della, or World Table offerings that are available in the U.S. However, the retailer does carry select grocery items from ASDAs Extra Special line, and it is adding a more premium, Our Finest line in frozen (shown in Figure 3, left-hand side), fresh prepared foods, and non-edible grocery. In fresh, prepared meal options, Walmart Canada also takes a lead from ASDA, offering options appealing to Canadian tastes (Figure 3, middle and right photos). Looking at other key categories, its apparel positioning is anchored by an expansive George brand. Launched as a monobrand in the fall of 2010, it now covers junior fashions, mainstream, and more traditional clothing offerings for men, women, and children. Walmart Canada works closely with Walmart US for sourcing and ASDA

for its styles. In June 2011, Cheesewright explained that in preparation for Targets entry into Canada they have stepchanged the fashionability of our core ladies [apparel] as they want to be ready for when Target arrives. Supported with mass media advertisements and a noticeable placement on Walmart.cas landing page, its awareness with shoppers is rising. Walmart Canada reports that recognition of its George brand is now over 60% of Canadian consumers. The private label Home category offering also establishes a unique position. Similar to the U.S., its range includes Mainstays, Better Homes and Gardens, and the more stylish Home Trends line. However, instead of featuring Canopy, Walmart Canada emphasizes George brand home items, ranging from desk lamps to kitchen mitts. In this way, the home department leverages the equity of its lead apparel brand while refining its assortment to match the styles of its audience.

Audience Reach and Shopper AnalyticsIn June 2011, Cheesewright explained that about 80% of Canadians shopped its stores last year. He added that everyone shops at Walmart Canada, stating, Its a bit of a myth that we only have low affluent [lower income] customers. Brandzs 2010 Brand Equity Study adds detail about the Supercentre shopper, explaining that 65% of primary household grocery shoppers report having shopped at a Walmart Supercentre. Though below Walmart USs levels, Walmart Canada nonetheless has wide shopper penetration. Regarding target audiences, Walmart Canada segments its shoppers similarly to the U.S. In 2011, the retailer reports that 57% of Canadian consumers fall into one of its three target clusters; in the U.S. this proportion is comparable at 59% (Figure 4). Examining these segments further though, Walmart Canada has more Price Sensitive Affluents (higher income shoppers that like receiving deals) and fewer

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Price Value Shoppers (lower income shoppers that need the deal) relative to the U.S. This difference likely reflects the two countries varied economic conditions, as Canada never experienced the severity of the U.S. housing crisis, and its unemployment rate is currently lower than in the U.S. Canadas relatively more affluent audience is noteworthy because recent Kantar Retail ShopperScape data indicatesFigure 4: Shopper Segment ComparisonsWalmart CanadaWalmart Canadas Shopper SegmentsLower % of Price Value Shoppers than in Walmart US

that higher income Walmart US shoppers who are shopping the retailer less favor moving to Target vs.other retailers. If this tendency parallels across markets, then Target Canada should anticipate greater head-on competition for its more affluent, price sensitive audience. Looking broadly, Walmart Canada is advancing its use of analytics. Over the past three years, Cheesewright has made it a priority to develop the retailers insights capabilities, establishing metrics to analyze everything from the store experience to the companys image. Wal-Mart Stores, Inc.s Executive Vice President of Global Consumer Insights, Cindy Davis, also is working with Walmart Canada to evaluate its metrics and develop best practices across countries.

Shopper Segment: Proportion of Audience

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Walmart USOther Price Value Shoppers Price Sensitive Affluents Brand Aspirationals

in Figure 5) illustrates how Walmart Canadas approach mixes Walmart USs light blue imagery, low price, and Ad Match assertions with stark red and yellow text and a unique, slanted Rollback arrow. The Walmart Canada cover also replaces the tagline, Save Money, Live Better with the functional subhead of Supercentre. The in-store messaging (Figure 6) similarly includes modifications. For instance, the Everyday Low Price sign shown in Canada puts a greater emphasis on the word Everyday. There are also different signs in Canada, such as Limited Time Only promotions and shelf tags to highlight specific price points. Viewed broadly, Walmart Canadas marketing materials tend to have a relatively stark presentation around price, reinforcing the notion that its items are inexpensive.Moreover, its marketing does not facilitate online social communities and engagement around its brand to the same extent as in the U.S. For instance, in recent years both Walmart US and Wal-Mart

Marketing MessageWalmart Canada

Source: June 2011, Company Presentation and Kantar Retail Analysis

Walmart Canada tailors Wal-Mart Stores, Inc.s marketing themes to fit its audience. A comparison of recent circular covers (shown


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Figure 5: Circular Cover Comparison: Walmart US versus Walmart Canada Walmart US Circular Cover Walmart Canada Circular Cover

Stores, Inc.s Sams Club have held online campaigns to let Facebook fans vote for which American communities and charities will receive grants for causes related to its Live Better brand message. Comparatively, Walmart Canada does not even have an established social media presence on Facebook outside of its U.S. counterparts umbrella. In this way, Walmart Canadas leverage of social media is relatively under developed, allowing Target Canada a means to develop a rapport with Canadian audiences distinct from Walmart Canada.

Source: WalmartFigure 6: In-Store Signage: Walmart US versus Walmart Canada Walmart US, Promotional Signage (July 2011) Walmart Canada, Promotional Signage (August 2011)

Implications for Target CanadaOverall, Walmart Canada will be a formidable competitor to Target across grocery, consumables, and general merchandise. It has a wide reach in the market in terms of stores and audience penetration, and its footprint is expanding as a one-stop grocery shop. Moreover, Walmart Canada is investing

Source: Kantar Retail Store Visit

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Locations

in insights and leveraging Wal-Mart, Stores, Inc.s best practices, particularly from the U.K. and the U.S. Although Walmart Canada presents challenges for Target, its positioning also allows Target opportunity to gain traction in the market.

Walmart Canada vs. Walmart USWalmart US 77% are Supercenters, as of 2010. Store formats: Walmart Canada 58% are Discount stores, as of 2010. Store formats:

FormatsStores almost exclusively in Rural and Suburban markets

Stores present across Rural, Suburban, and Urban markets

Services

Walmart Canadas Advantages vs. Target:

Unique services include: Site to Store MoneyCenter

Unique services include: Bank and credit card product with Walmart Rewards

Tailored Services,AssortmentsThe ethnic profile of Canadian audiences is quite different from the U.S., and the diversity of both its services and assortment at Walmart Canada is increasingly accommodating its markets. Accordingly, suppliers that can offer advice around what tailored assortments mean at Canadian sites will be valuable as Target looks to meet the needs of its new guest.

Newer lines include

Newer lines include

Private LabelExamples:

Examples:

In-Store Messaging140 million shoppers a week, which is 45% of the population* 8 million shoppers a week, which is 24% of the population*

Target Audience

Established GroceryPresenceAlready, nearly half of Walmart Canadas sales come from grocery; as the Supercentre

Segments: Price Value Shoppers = 20% Brand Aspirationals = 26% Price Sensitive Affluents = 13%

Segments: Price Value Shoppers = 13% Brand Aspirationals = 28% Price Sensitive Affluents = 16%

*population of the country from the CIA factbook, 2011 estimates


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expands, this proportion is set to rise. For Target to assert its position in this space, it must consider that Canadians familiarity with Target might be limited to mass media advertisements that focus on discretionary goods or cross-border shopping that would restrain a grocery trip. Accordingly, Targets messaging in Canada must acknowledge the audiences perception of the retailer and seek to shape it.

Walmart Canadas Relative Weakness and Targets Opportunties:

Lack of Private BrandEquity in Apparel, Home Though Walmarts George brand has widespread awareness, this does not ensure the brands appeal. Given the recent repositioning of the line as a monobrand, it hasnt had the time to establish a position with shoppers. Targets strong apparel and home lines have an opportunity to develop affinity with Canadian guests, especially those guests familiar with their U.S. offering. Target has trumpeted research indicating that 70% of Canadians are already familiar with the Target brand, so Target has a foundation on which to build.

Coordinated DistributionNetworkIn market for nearly two decades prior to Targets entry, Walmart Canada has had time to establish a distribution network for both grocery and general merchandise, setting Targets inexperience (particularly in grocery) as a relative disadvantage in serving this audience.

example. Target Canada should evaluate developing a differentiated position in this space, building communication with its audience to advance its contact and loyalty with guests. Its recent relaunch of Target.com in the U.S. demonstrates its ability to tailor its online presence to guests needs. Target may accordingly want to develop its online offering in tandem with its store offering, as Target has recently suggested that its .ca services will likely follow store openings in 2013.

Stark Message of CheapIn Canada, Walmarts messaging starkly emphasizes its inexpensive price, distracting from the live better side of its brand promise in the box. Target has an opportunity to balance its Expect More quality and service dimension, as well as its Pay Less assertion, thus differentiating itself in the market.

Underdeveloped Social,Online PresenceWalmart Canadas online presence is limited, lacking a distinct Facebook page from its U.S. counterparts, for

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2012 EMEA Events CalendarKantar Retail Events | Less Opinion, More Insight

Q1Digital Retailing SessionAmsterdam, NetherlandsNEW

Retailer Financial Models Session Istanbul, TurkeyNEW

Jan 26

Geographical Coverage - Europe

Feb 23

Geographical Coverage - Turkey

Carrefour Middle East SessionDubai, UAEFeb Geographical Coverage Middle East

Carrefour G5 SessionParis, FranceMar 20 Geographical Coverage G5 (Belgium, France, Greece, Italy and Spain)

Carrefour Turkey SessionIstanbul, TurkeyFeb 22 Geographical Coverage Turkey Mar 28

UK Retailing ForumLondon, UKGeographical Coverage UK

Q2Spanish Retailing ForumMadrid, SpainApr 24 Geographical Coverage Spain

Walmart Africa SessionJohannesburg, South AfricaMay 22 Geographical Coverage South Africa Geographical Coverage Europe

Tesco Global SessionLondon, UKApr 26NEW

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Getting it Right: Anticipating Amazons Growth TrajectoryBy: Anne Zybowski / Originally published: October 26, 2011One year ago on Nov. 8, 2010, Amazon announced its plans to acquire Quidsi (parent company of diapers. com and soap.com among newer sites), giving it another strong foothold in a specialty e-commerce business. In the Breaking News Insight article we wrote that day, we identified three moves that were significant about this acquisition: 1. 3. Driving penetration of key categories E-tailers: moving from online to bricks & mortar? expected due to high attachment rates. As of July 2011, HBC is one of the top categories shopped online by Amazon shoppers with 43% of monthly shoppers looking for HBC (vs. 23% across all primary shoppers) (Figure 1). While baby supplies is one of the lowest-ranked categories, with only 11% of Amazons monthly shoppers having shopped for the category, stay tuned for #2.

2. Targeting mom and the replenishment trip

A year later, its as if Amazon continues to work from our playbook and has made significant progress against each one of these plays. Lets take a look at the highlights:

1. Driving Penetration of Key CategoriesHeading into 2011, Amazon was trying to get its head around selling CPGhow could shipping anything less than a club pack make sense? Amazon started testing eaches (individual pack sizes) vs. club packs to see both the impact on sales and profitability. Results exceeded expectations as sales took off and handling costs were lower than

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2. Targeting Mom and the Replenishment TripWhile Subscribe & Save was launched in 2007 with grocery items, the program really took off in 2011 as more participating vendors means more eligible products online, and Mom became the gateway to new purchase behaviors. Mom, coveted by bricks & mortar retailers like Target and Babies R Us for the basket that comes with the frequent stock-up trip for diapers, is the lynchpin for the online basket as well. Launched in September 2010, the Amazon Mom program (which offers 30% off diapers and wipes and gives shoppers an Amazon Prime membership for up to a year based if monthly spending of USD25+ is maintained) has had a significant impact on shopping and purchasing behavior because of its tremendous value offer. By July 2011, 4% of all shoppers and 10.9% of monthly Amazon.com shoppers are members of the Amazon Mom program (Figure 2).

Figure 1. Products Amazon Shoppers Shop for Online: CPG Scores High on the List

All Primary Shoppers

Monthly Amazon.com Shoppers

Sample SizeWomens apparel/shoes HBC Hardcover or paperback books DVD or Blu-ray movies Consumer electronics (e.g., digital camera, television, DVD player) Mens apparel/shoes E-books Grocery Non-Food items Laptop/desktop/netbook computer Furniture (assembled or ready-toassemble) Video games Prescription drugs Toys/dolls/games Infants/toddlers/kids apparel School/home office supplies Tablet computer (e.g., iPad, Galaxy Tab, PlayBook) Grocery Food items Home textiles Building products (e.g., paint, flooring, cabinets, plumbing supplies, etc.) Baby supplies (e.g., diapers, wipes, etc.) Hand tools or power tools None of these

406133% 23% 21% 15% 13% 12% 12% 11% 11% 9% 9% 9% 8% 8% 7% 6% 6% 5% 5% 5% 4% 35%

81450% 43% 42% 34% 26% 23% 27% 20% 22% 17% 20% 11% 18% 17% 14% 15% 13% 11% 8% 11% 9% 9%

Bolding/highlighting indicates a significant difference between column percentages (96% CL) Source: Kantar Retail ShopperScape, July 2011


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And in case you are wondering if membership changes shopping behavior:

49% of Gen X women who are Amazon programmembers shop weekly, as compared with only 16% of Gen X women females who are NOT membersFigure 2. Monthly Amazon Shoppers Who Are Members of Amazon Mom/Subscribe & Save All Shoppers Monthly Amazon Shoppers

From the perspective of shoppers who purchase key consumables categories, the highlighted areas in Figure 3 indicate the category purchaser groups that over-index with Amazon program members.

19% of shoppers who purchased babysupplies in the past four weeks and 15% of toy purchasers are Amazon Mom members strong penetration in a short time.

Shoppers of personal care and householdcleaning products over-index with Subscribe & Save membership at 6% and 5%, respectively.

Sample sizeAmazon Mom Amazon Subscribe & Save BOTH Amazon Mom Subscribe & Save Neither of these

40614.0% 4.7% 1.6% 92.9%

81510.9% 13.5% 6.3% 81.9%

Given the digital nature of Amazon as well asthe instant access to movies via Amazon Prime, it is no surprise that 10% of all shoppers who purchased video games and 9% of those who purchased DVDs/movies also are members of Subscribe & Save.

Source: Kantar Retail ShopperScape, July 2011Figure 3: Amazon is Penetrating Trip-driving Categories

Purchased Category in the Past 4 Weeks All Shoppers Baby food and supplies Video games DVD / Blu-Ray Movies Sweet snacks Color cosmetics Personal care products

Toys*

Sample SizeAmazon Mom Amazon Subscribe & Save

40614% 5%

32019% 14%

32215% 9%

2887% 10%

4917% 9%

23915% 5%

9714% 5%

22684% 6%

Purchased Category in the Past 4 Weeks All Shoppers Pet supplies Household cleaning products Dry / canned groceries Salty snacks Household paper goods Non prescription drugs

Pet food

Sample SizeAmazon Mom Amazon Subscribe & Save

40614% 5%

9134% 5%

25744% 5%

29854% 5%

28414% 5%

26164% 5%

18503% 4%

15613% 4%

Source: Kantar Retail ShopperScape, July 2011

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3. E-tailers: Moving from Online to Bricks & Mortar?Far-fetched, right? Amazon is a pure-play, onlineonly retailer, but there is something to be said for physical proximity. Multi-channel is often (lazily) used to describe a store-based retailer that also runs an e-commerce business to drive growth, but the same works in reverse. True multi-channel is about leveraging the best of each channel to meet the shopper where they want to interact with the brand. Our initial speculation was that Amazons initial physical presence would be a drive-thru location. That may yet materialize, but until then Figure 4 shows the locker presence that Amazon is testing in the US (via 7-Eleven) and the UK (in shopping centres). These lockers began testing in September 2011 and heres how it works:

Figure 4. Amazon lockers coming soon to a shopping mall (UK) or 7-Eleven (US) near you

Choose a locker location at checkout (vs. ahome address)

Your package is delivered to one ofapproximately 40 PO boxstyle lockers centered around a monitor resembling an ATM interface

Scan an emailed barcode at the locker to get apin and locker #

If rumors are true, potential US rollout to7-Eleven locations nationwide could be summer 2012



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Kantar Retail Point of ViewOur coverage of Amazon will continue to evolve as this retailer continues to test, learn, implement, and then iterate again. Remember, as Jeff Bezos reminds shareholders every year by attaching the 1994 Letter to Shareholders to the annual report Its still Day 1. As we head into 2012, our online coverage (beginning with the December Year-End Forum event) will increasingly explore the implications of Amazons growth and changes in both technology and shopper behavior on bricks and mortar retailers. These customers are increasingly looking to their suppliers to help stop the leakage to online. Smart suppliers will recognize that competing against Amazon as well as other e-commerce business models isnt just about helping your customers sell online, but is more importantly about adapting existing business models, integrating digital presence with physical presence, and highlighting unique and differentiated value propositions. Digital represents a huge opportunity to lead in partnership with your bricks and mortar customers.

Source: Amazon.com

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Tesco Price Drop: Seismic Shift or Smoke and Mirrors?By: Bryan Roberts / Originally published: September 28, 2011Never has a major pricing offensive by a leading retailer been so badly kept under wraps or so widely documented. A combination of ill-advised comments on an unofficial Tesco employee forum (concerning managers leave being cancelled on Sunday 25th September plus inordinate amounts of point of sale being delivered) and some mischievous social media activity meant that Tescos planned reveal of its Big Price Drop campaign was brought forward from Monday, September 26, to Friday, September 24 (Figure 1 and 2). Despite fevered speculation for the best part of the week that Tesco was poised to unleash a seismic EDLP-led price war that would destabilise its competitors and tip the playing field back in its favour, what was actually revealed by beleaguered Tesco UK CEO Richard Brasher was 3,000 price cuts across a mix of branded and private label SKUs. The UK business press, full of talk of a price war, has since recast the move as a price skirmish. Why was anticipation so fevered and expectations so high over Tescos move? Simply put, the UK business has been underperforming competitors in terms of like-for-like sales growth and marketSource: Kantar Retail store visitsFigure 1. Price Drop Campaign Signage


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share performance: Morrisons has been making steady progress with an excellent reputation for fresh, value and service; Sainsburys has retained a combination of quality and strong promotions; and Waitrose has augmented its undoubted quality credentials with those of value and affordability through private label innovation and price-matching Tesco on brands. Asda, which has not been setting the world on fire in performance terms either, still trumps everyone else on pricedue to both its EDLP stance and its 10% Asda Price Guarantee. While modest in scale if not in influence, Aldi and Lidl have also been gaining share at a mercurial rate as British shoppers continue their flight to value. The Tesco model is not broken (it is still growing, it still has a virtually unassailable lead in the UK grocery market, and it makes double the operating margins of everyone else), but it is not where it used to be. It has lost its place at the vanguard of innovation and best practice, it has let the pricing lead slip to Asda, and the industry is awash with talk of falling in-store standards and overcentralisation. All of these have combined to see a gradual, but steady, erosion in the retailers market share and the unfamiliar and uncomfortable experience of like-for-like sales declines (excluding VAT and petrol). There have already been some efforts to regain momentum in 2011. Tesco has invested in some potentially successful innovation in private brands it has continued to improve its already world-leading grocery e-commerce business and, now, it has sought to re-establish its pricing credentials.

Figure 2. Price Drop Campaign Signage


Its relative stagnation led many to believe that Tesco was readying itself for a dramatic and potentially redefining moment of pricing action. At a time when consumer spending is weak (particularly in nonfood), the major supermarkets continue to open new space at a record rate, leading us to believe that the net effect has been a cannibalisation of each other and themselves. While like-for-like sales in the UK market have been surprisingly buoyant compared with other mature markets such as France, Germany, and the US, there is a sense that the UK might start flattening and perhaps even declining in general terms as turgid consumer demand combines with increasing overcapacity. The current environment was seen as one in which Tesco could launch a hugely aggressive price offensive that would be difficult for its competitors to equal. With industry-leading buying power and margins, Tesco would be uniquely placed to be able

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to unleash a fierce price campaign that would be unable to be matched by its competitors without them devastating their already razor-thin margins. Instead, what we have seen has been something of an underwhelming halfway house that has already been dismissed by Sainsburys as smoke and mirrors and by Asda as spin, the latter hitting back at Tescos Big Price Drop newspaper ads with its own full-page ads proclaiming that only one supermarket is always 10% cheaper. The three main thrusts of the Big Price Drop are: 1. Shoppers want more help with the cost of their weekly shopping. Tesco therefore reduced the prices of more than 3,000 products that customers need to buy every daysuch as milk, bread, fruit and vegetables. Future cuts will also focus on products that families need most.

prices changing too often. Tesco stated that, We are going to simplify promotions, reducing the number of multi-buys particularly in fresh foods where customers have said they can drive waste. Having given it a day to let the dust settle and to get out and see the Big Price Drop in a variety of Tesco store concepts, heres our take on the initiative and some of the related issues. The first assertion that Tesco will be saving shoppers money on the items they buy every day is a noble one and one that is hard to argue about, at least for existing Tesco shoppers who will continue to shop at the retailer. There are plenty of examples where the branded price cuts mean that Tesco is now cheaper than Asda on some branded SKUS, but there also are examples of whereeven after the cutsTesco remains more expensive.Figure 3. Price Cuts on Custard

2. Shoppers are turning away from expensive brands to more affordable own label ranges. Tesco will focus most of the investment in the Big Price Drop on reducing prices on more than 1,000 Tesco brand products. Tesco branded products are already considerably cheaper than comparable brands. As a result of this move they will be even better value, in many cases more than 50% cheaper than the brands. Buying Tesco brand can significantly reduce the rate of inflation that customers are currently experiencing in their

2011-h2 breakthrough insights

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