The Canadian Grocery Landscape Viewpoint from a Retail Executive

CMC PresentationApril 2009

• Agenda• The presentation will explore areas three sections:

1. What Canadian Retailers Do Well 2. What They Could do Better 3. How This Applies to the Meat Department

• It will focus on areas that, if improved, would enhance profit. • The views are not exhaustive - It is a macro view.

Presentation Summary: What to Expect Today

•Merchandising Executives

•The following comments are from two Canadian retail executives with 15 years and 22 years experience in ambient, frozen and fresh categories.

The Source of the Views

•International View • After working in Canada, she transitioned to the manufacturing sector, and is

now working for a leading UK chilled ready meals manufacturer.• 21 factories supplying biscuits to pizza to chilled foods.• Private label driven; owns the leading pizza brand. • Industry leaders in food safety; the only company the UK government solicited

to contribute to recent food safety legislation (BRC Version 5).• Canadian View• After working in retail in several provinces, he transitioned to distributor world,

and mow providing products and services to the retail industry.• Participated with George Morris Centre and Agri-culture for several project as

retail perspective, consumer data report, value chain management, etc.• Chaired as a participant in the Agriculture Summit of New Brunswick

representing retailers.• Assistant and collaborate in the Lamb round table in conjunction with CSC.• Certification in food safety and Prerequisite to build a HACCP plan from Guelph

university.

Price CompetitivenessRelative to Europe, Canada is price and promotion driven.

Merchandising Flair Perishables merchandising in produce and proteins.

LogisticsSeasoned navigators of the Canadian climate and distances.

HeritageTop 2 chains have combined two centuries of trading experience.

• Leaders. The market leaders have a long history, well developed internal resources, including a strong cash position.

• Competition. Given the Canadian consumer’s habits to shop at multiple chains, aggressive competitors keen to grow share keep the market price-driven. High barrier to entry.

Industry Competencies

IT IntegrationRetail time data delivers faster and wiser decisions.

Market RationalisationConsolidation allows chains to grow economies of scale.

Labour PoolEmployee base is generally healthy, willing and not fully unionised.

• Labour. While it is the habit to ‘complain about the employees’ Canadian employees have a good work ethic.

• Employee Benefits. Employee medical and pension benefits at the major chains are satisfactory and promote workforce stability.

• Internal IT Systems. Data is power, knowing how to use it - and quickly - is another thing!

Industry Competencies

Areas for Development

• NPD Cycle. Development is 12 – 24 months. UK is 2-4 mos. Innovation drives margin growth.

• Relationships. Retailers can benefit from being opened minded & supportive of manufacturer-led innovation.• Canadian retailer and manufacturing relationships are

not as symbiotic, compared to UK, where the relationship is a partnership that allows for innovation.

• Hierarchy. Some retailers operate decentralised/consensus style system that delays decision making and is more costly for manufacturers to service.

• Knowledge. New product development teams would benefit from understanding food development (and the impacts changes have on manufacturing, costs, shelf life etc).

Merchandising: Private Label Speed to Market

Innovation Speed

Manufacturing

• That Was Then. In the past, Britain served up bland, traditional food.

• This is Now. Britain is now a leader in food retail. The public’s palate has evolved considerably. Chicken Tikka Masala is on every pub menu. If conservative Britain can lead in food, what about Canada – what’s delaying us?

• Food Culture. Canadian retailers continue to promote a regional/traditional/safe view of food. One chain has made stronger efforts to explore creative prepared food options. However, a lack of chilled meal manufacturers limit options.

• Geography. Given Canada’s population density, innovative offers cannot reach each location.

Keeping an open mind.

Mindset

‘That Won’t Work Here!’

• Training Methods. Retailers tend to deliver training at the store level via tedious manuals. Minimal hours, if any, are assigned to training. Consistency of service delivery is generally inconsistent in fresh departments (deli, meat, seafood etc).

• The younger generation have embraced the internet, Flipcam home videos/You Tube/Twitter/Facebook. Retailers have yet to fully harness this avenue.

• Store Operations. It is not uncommon to see employees repackaging perishable stock to address over-stock inventory or in fewer cases, date coding infractions.

• Discipline at store level encourages and/or does not correct this behaviour.

Operations Discipline

Training

• Merchandising. Equipment is generally not retrofit to build the correct display for the product.

• Packaging. Manufacturers do not always provide fixture solutions for the product display in the chiller cabinets/shelf. When they do, execution is often the responsibility of the store. (Fixtures can then be broken, lost, discarded, which is costly).

• Execution. Displays and planograms are haphazard and built in the interest of using data and turns, (which are all important) but are less concerned with improving the dreaded shopping experience and visual appeal.

Fit for Purpose Merchandising

Packaging & Display

Disconnect

• RFID. Not widely yet available in Canada for the improvement of inventory tracking and stock management. (Retail Frequency Identification).

• Service Levels. Underperforming service levels affect everyone’s profitability.

• Lowest Cost, Best Cost. Retailers are a ‘lowest cost’ culture, which will affect at a minimum, quality and packaging performance. • Auction processes can terminate long term supply

relationships.

• Trade Funds. Allowance funds are addictive, are budgeted and do not account for other intangible efforts by suppliers.

Distribution & Procurement

RFID

Procurement

How Does this Apply to the Meat Department?

Freshness & RotationRetailers have strict rules for meat cases yet store practises can impact image of industry.

• Industry and Retail. The meat industry focuses on product freshness and rotation. Retail store employees may push the limits of the product without taking into account any negative impact it may have on the meat industry.

• Culling Rules. Retailers have strict rules for culling of cases. This applies to fresh and cold cut/cured meats.

• Reduced for Quick Sale! Retailers still sale meat at 30-50% reduction when inventory is heavy or product is close to date.

The Meat Department - Observations

Butcher on SiteRetailers believe the best way to show freshness is to have a butcher on site.

• The Butcher. Retailers expect great things from one of the most important departments in the store. Yet, butchers with limited skills are hired.

• Meat Manager. S/he is expected to reduce the amount of labour hours. S/he is expected to train new staff and offer exceptional service delivery.

• Cleaning. One of the most important tasks, properly cleaning the meat premises is often left to untrained employees.

The Meat Department - Observations

Preparation of Primals

• Adding Value. To help a meat manager who has reduced labour hours and under-trained employees, the industry must continue to look at different ways to cut and prepare primal products for retailers. Product could be ready-to-cut or pre-cut and packed.

• Cleaning. The industry can assist with improving the clarity about what is proper cleaning in a store and how to train employees to do a thorough cleaning of the meat shop.

What Changes Would Assist Retailers?

Cleaning Regimes

Food safety• Margin issues and cost cutting

• Master case to the retail pack

• Veterinarian syringes

• Local buying

Food safety

• Food illnesses reported to retailer

• Grind separation

• The attitude of older meat cutter

• Use of foam cleaners and sanitizers

Explore The Challenges

•Retail•Labour•Profit•Responsibility

•Based on last recalled retailer had to review address some of their policy and operation practice.

What do you really know about your customers

1) Their business, their customers and their market, their primary product.2) How big they are and their place within the market?3) Who does the real buying? Did they change their behaviour lately?4) Who and what has influence on those buying decisions?5) How often do they buy and in what quantity?6) What was their revenue last year? How much of that was spent on food?7) What’s their financial standing? Do they spend less in restaurant?8) What trend have they followed that might affect the sales and innovation?9) Do they value your company or your just convenience?10) What other problems do they have that you can sell the solution for?

Generations change and so do shopping habits

Baby boomer born 1945 to 1960 (Meaningful) Generation X born 1960 to 1982 (keep it real)

most importantly Millennial Generation Born 1982 until now. (The smart

generation)

Consumers aged 18 to 30 tends to be more immature in their decision versus consumers aged 30 to 65 who will look for healthier product.

Retailer are working hard to understand their consumers and the big change on how shopper are spending today.

•Used coupon’s wherever possible•Buy only what is needed•Switch from national brands to private label.•Buy items on sale

Today’s Generation

FMI Source March 2009

•Consumers are 25 - 39 •No or very minimal culinary skill.•High income smaller household category.

Focus on Ready to Eat

FMI Source March 2009

Does In-Store Signage Drive Sales?

FMI Source March 2009

Signage Drives Sales on Promotions

o

Survey: What Motivates You to Buy More Meat?

None of the Above

Info on Origin

Nutrition Info

Understanding the Cuts/Taste

Variety

Quality

% How Can We Help?

• Recipes

• Value – Added Product

• A Professional Butcher & Clean Environment

• Sales & Promotions

• Quality – No Deception

• Portion Sizes

CMC Presentation 2009

Naomi Matthews Michel PicardNorthern Foods plc C & C PackingLondon, UK Montreal QCNaomi.mattthews@yahoo.com mpicard@ccpacking.com011 44 780 959 5816 514 461 5221