are traditional retailers turning the corner? bishop future of...channel, non-traditional retailers...

Moderator:Brian Todd, The Food Institute

Speakers:Jim Hertel, Willard BishopBill Bishop, Willard Bishop

Webinar:June 27, 2007

2:00 – 3:00 PM EDT

Are Traditional Retailers Turning the Corner?

Copyright © 2007. All Rights Reserved.1

Food Institute

Moderator: Brian Todd

The Food Institute strives to be the best, “single source” for current, timely, and relevant information about the food industry from “farm to fork.”

For 78 years, we have aided and informed food industry professionals.

Resources include the weekly FOOD INSTITUTE REPORT, daily email updates, informational publications, seminars, and webinars

Consider us as a new career center for the food industry.

We are privileged to collaborate with Willard Bishop on today’s webinar as part of our series.

For more on the Food Institute, go to www.foodinstitute.com.

http://www.foodinstitute.com/


Format for today’s event

By now you should have received “The Future of Food Retailing Report” via email. This report provides an in-depth look at the data covered in today’s presentation.

To access a copy of the report during the webinar, go to www.foodinstitute.com\futureoffood.pdf.

http://www.foodinstitute.com/futureoffood.pdf


Jim Hertel

Managing Partner, Willard Bishop

In addition to his role as managing partner, Jim leads the firm’s business development, client service, and strategy development practice.

Throughout his career, he has developed insight-based growth strategies for many of the top consumer-packaged goods companies in the industry.

Prior to joining Willard Bishop, Jim worked in brand management at Procter & Gamble and led the client service group at Spectra Marketing.

His B.A. degree in Economics is from Duke University.


Bill Bishop

Chairman, Willard Bishop

Bill has been involved in retail research and consulting for over 30 years.

In his new role as Chairman, Bill continues to provide strategic guidance and thought leadership to both the organization and the industry.

Throughout his career, he has led major studies on everything from pricing strategies, category management and new retail formats, to loyalty marketing and health and wellness at retail.

His education in Economics includes a Ph.D. from Cornell.


The grocery game is changing…again

Today, we’ll discuss:

The state of the industry—who’s doing well and what the future holds.

How supermarkets are fighting back and what it means to your business as a supplier.

How new players are changing the rules of the grocery game and what suppliers will need to do to keep up.


Five key takeaways from today’s presentation

Traditional supermarkets’ responses to the past decade’s competitive activity are taking hold.

Another round of format innovation is gathering momentum.

Retail growth results from strong shopper value propositions.

The implication for traditional retailers Even more productive responses will be required in the future; this is no time to rest.

The implication for suppliers The opportunity to collaborate for growth can be found in both traditional and non-traditional channels.


Who are the players?

Traditional Retailers

Traditional Supermarket

Fresh Format

Limited-Assortment

Super Warehouse

Other (Small Grocery)

Convenience

With Gas

Without Gas

Non-Traditional Retailers

Wholesale Club

Supercenters

Dollar Stores

Drug

Mass

Military

Traditional Retailers see twoTraditional Retailers see two--thirds or more of their sales thirds or more of their sales coming from food and consumable productscoming from food and consumable products


While traditional retailers comprise the largest channel, non-traditional retailers are a major force

2006 total industry sales grew 4% to $859 Billion.Non-traditional retailers’ grocery volume is equivalent to 68% of food and consumables sold in the traditional retailer channel.

Non-traditional retailers account for one-third of groceries sold in the US.

Source: Willard Bishop, 2007

Share by SegmentSales by Segment(Billions)

Convenience16.2%


49.8%Non-Traditional

Retailers34.0%

Convenience16.2%


49.8%Non-Traditional

Retailers34.0%

$138.9

$292.4

$427.6

Convenience

Non-TraditionalRetailers

TraditionalRetailers



Over the past two decades, traditional retailers have lost significant ground

By 2013, non-traditional retailers will equal traditional retailers in food and consumables sales.


Market Share by Segment89.6%

42.2%

42.8%43.5%49.8%

40.3% 41.2%34.0%

2.5%

42.2%

7.9%

16.2%

16.2% 15.9% 15.7%

1988 2006 2011(e) 2012(e) 2013(e)

Traditional Non-Traditional Convenience


Traditional Supermarket sales show signs of recovery

…Still, they are projected to lose share over the next five years.

0.2% -2.0%

2.6%

2004 2005 2006

Sales Growth Rate


1.0%0.8%

2.5%2.0%

1.6%1.7%

1.1%

1.3%

37.3%

44.1%

Fresh Format

Limited-Assortment

SuperWarehouse

Other (SmallGrocery)

TraditionalSupermarket

Current and Projected Market Share


Despite resurgent sales, Traditional Supermarkets will continue to lose share.

Sales were up 2.6% ($9.6 billion), compared to a 2.0% decline in 2005.


Non-Traditional retailers’ sales growth is slowing

…While their long term market shares projected to grow.

Sales Growth Rate


9.7%

6.9%6.1%

2004 2005 20062.0%1.7%

4.8%4.9%

4.6%5.0%

8.2%7.4%

20.3%

14.5%

Dollar

Drug

Mass

Club

Supercenter

20062011(e)


Supercenters continue to pace non-traditionals’ growth through 2011.


Sales for Non-traditional retailers were up 6.1% ($16.7 billion) in 2006, compared to 6.9% growth ($17.7 billion) in 2005.


Convenience Store sales continue to grow

2.4%

4.0%

2005 2006

Sales Growth Rate



2.2%

2.4%

14.0%

13.8%

Without Gas

With Gas

20062011(e)


C-store sales increased 4% ($5.3 billion) in 2006, compared to 2.4% ($3.2 billion) in 2005

While C-store sales will increase over the next five years, market share will remain flat.


0.9%

1.4%

1.8%

2.0%

2.1%

2.9%

3.0%

3.9%

5.8%

7.3%

7.9%

9.0%

10.7%

Other (Small) Grocery

Traditional Supermarkets

Convenience (without Gas)

Military

Mass

Super Warehouse

Drug

Convenience (with Gas)

Wholesale Club

Fresh Format

Dollar

Limited-Assortment

Supercenter

Supercenter, Dollar, Wholesale Club, and Drug are non-traditional formats positioned to grow at a rate that outpaces inflation.

Expected Compound Annual Sales Growth Rate vs. Inflation: 2006-2011(Grocery & Consumables)

Source: Willard Bishop, 2007; USDA, Economic Research Service

Inflation CompoundAnnual Rate: 2.9%

Non-traditional formats will continue to have the advantage in real sales growth rates


Traditional Supermarkets have been challenged on two fronts

A “one-size-fits-all” approach left many Traditional Supermarkets in unsustainable middle ground.

PriceImage

Low High

High

Low

Quality Image

SupercentersSupercenters

TraditionalTraditionalSupermarketsSupermarkets

Fresh Fresh FormatFormat

$$

$$


…And strengthened their shopper value propositions against both price-oriented and premium competitors.

SupercentersSupercenters

TraditionalTraditionalSupermarketsSupermarkets

Fresh Fresh FormatFormat

Successful Traditional Supermarkets have responded on both fronts…

PriceImage

$$

$$

High

Increased emphasis on “fresh”

Credible natural and organic offerings

Enhanced shopping experiences

New pricing strategies

Increasing reliance on Private Label

High impact promotions

Low

Low

HighQuality Image


Grocers’ shopper value propositions must be multi-dimensional

Price is critical when other elements of a grocer’s value proposition are equal to or at a disadvantage compared to competitors.

PricePrice == Maintaining ParityMaintaining ParityQualityQuality == Fresh is the WordFresh is the WordVarietyVariety == Unique/Different Products/ServicesUnique/Different Products/ServicesService Service == People & SystemsPeople & SystemsFacilitiesFacilities == Bright, Clean, FunBright, Clean, Fun

V = (Price x Quality x Variety x Service x Facility)V = (Price x Quality x Variety x Service x Facility)


Shelf price is only one dimension of price image…

Comparing Chain B Shopper Value vs. Typical Supercenter

Chain B Advantage

5 Price Image Dimensions

Chain B Disadvantage

While Supercenters may beat Supermarket shelf pricing by 20% or more, Traditional Supermarkets can win on other dimensions of pricing.

Mer

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Pric

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Per U

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Shel

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Prom

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Wegmans manages price image with “Hybrid EDLP”

Mix of national brands and strong private brands

Directly competitive with Hi/Lo merchandisers

“You can do real well on price there, and get great fresh items and service”


Hy-Vee manages price image in part through private brands

They are able to differentiate and improve price image simultaneously.

Multiple price tiers Specialty Co-branded “hit” itemsfood items


Ingles does a superior job with price communication

Same-store sales growth exceeds 5%

Well-entrenched Supercenter competition


…And pricing is only one element of the value equation

Chain B Advantage

5 Price Image Dimensions Other Shopper Value Equation Elements

Chain B Disadvantage

Comparing Chain B Shopper Value vs. Typical Supercenter

Cle

anlin

ess

Cus

tom

er S

ervi

ce

Prod

uce

Mea

t

Loca

tion

Faci

lity

Déc

or

Com

mun

ity S

uppo

rt

Del

i

Bak

ery

HB

C

Rx

HighImportance

LowImportance

MediumImportance

Mer

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Pric

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Per U

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Shel

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Innovative Traditional Supermarkets are meeting “Fresh Format” competition head-on

…In shopping environment

Safeway Lifestyle store


Innovative Traditional Supermarkets are meeting “Fresh Format” competition head-on

…And, in Private Label, too.


Kroger takes broad-based action to enhance their shopper value proposition

Known for their customer loyalty programs

40% of U.S. households have a Kroger Plus card

Customized offers

Three-tier private label program

Offer “Try it, Like it or Get National Brand Free”

They manufacture 55% of the private label items they sell

Committed to organics

Extensive perishables assortment

“Naturally Preferred” private label brand


Publix differentiates on customer service

Publix ranked number one in American Consumer Satisfaction Index* for supermarkets; Wal*Mart ranks last.

Motivated employees own 31% of Publix.

Same store sales +5.1%.

New GreenWise markets to offer product specialists in every department.

*Published by University of Michigan


Leading Convenience Retailers are refocusing their merchandising efforts

Convenience Retailers like 7-Eleven and Wawa are taking a more strategic approach to merchandising, by:

Rethinking the inside of the store:

Consumer purchasing behavior

Promotional effectiveness

Assortment

Increasing focus on foodservice.

Building perishable programs.

Building private label programs.


Thornton’s stands for fresh, high-quality food-to-go

Leading C-store and gasoline chain in Midwest.

Bringing fresh salads, sandwiches, fruit, and other high-quality items to the “one-stop shopping” experience.


What’s next? Web grocers are growing again

2006 Internet grocery sales are estimated at $2-3 billion/year.

Format advantages include:

Convenience.Quality and low prices.Personalized promotions.Servicing the “long-tail” profitably.


What’s next? Tesco’s move to the U.S. will intensify competition

Tesco’s U.S. expansion:

Identified under-served consumer segments

Compete with Trader Joe’s, Whole Foods and Safeway Lifestyle stores

Emphasis on fresh, private-label, and value-added products

Targeting Hispanics

Projected to spend $400 million over 5 years

Large DC built for scale beyond announced stores


What’s next? New formats meet shoppers’ lifestyle needs


What’s next? Meal assembly centers attractshoppers and branded good suppliers

There are over 850 meal assembly centers in the US, and sales are doubling every year.

Sales reached $270 million in 2006.

Food manufacturers and distributors are entering into partnerships to capitalize on this emerging format.

http://dinnerbydesignkitchen.com/dinner.aspx?f=home

http://www.reinhartfoodservice.com/

http://www.tysonfoodsinc.com/

http://www.kraft.com/


Implications for Suppliers

Traditional supermarkets can still be sources of growth.

The best are meeting the value challenge.

They are seeing healthy same-store sales increases.

New opportunities for collaboration are emerging.

Don’t overlook mid-tier and smaller traditional supermarkets.

Emerging formats are opportunities as well.

Successful collaboration will require suppliers to “raise their game.”

Above and beyond category perspectives.

Customer requirements impact internal organization and work flow.


Implications for Retailers

Traditional supermarkets must remain on offense.

Many have responded well to “extreme value” challenges.

New and emerging formats will pose additional challenges.

Growing retailers can attract incremental supplier resources.

Growing retailers help suppliers expand their shares.

“Intellectual property” is cited as the most valuable resource.

Enhancing shopper value propositions can drive innovation and growth.

Within existing formats.

Creation of new formats.


For over 30 years, Willard Bishop has been working with retail and foodservice companies to solve business problems and identify opportunities to drive

profitable growth.

To discuss today’s topic in more depth, or to arrange for us to present this in person, free of charge at your company, contact:

Jim Hertel, Managing Partner

[email protected]

mailto:[email protected]

are traditional retailers turning the corner? bishop future of...channel, non-traditional retailers...

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