Joint Value Creation Beyond Price
ECR Europe Advisory – May 24
BACKGROUND
• Market place increasingly challenged by deflation and
declining or stagnant market size.
• Manufacturers and retailers rely more and more on “price”
as the only value driver.
BOARD November 2004
• The current trading environment, shaped among others
by discounters, has emerged because ECR retailers and
manufacturers have not yet been able to totally fulfil
consumer wishes.
• Price is only one value driver. ECR Europe recognises
the role played by other value drivers (e.g. health,
convenience, proximity, changes in household profiles).
• Major roadblock to value creation, implementation of ECR
demand creation processes: the buyer-seller relationship
looking on quick return rather than looking to build
sustainable value for
o the consumers and shoppers
o for the companies
THE RECOMMENDATION
• ECR Europe shall set up a project to improve
Joint Value Creation Beyond Price.
The project aims at:
• Review: explain/understand the environment
• Encouraging a wider usage of Joint Business
Planning to increase shopper and consumer
attraction and loyalty
• Present innovative solutions in the shopping
experience and product offer which lead to
market growth by addressing other
consumer/shopper value than price.
1. THE ENVIRONMENT /
WHERE WE ARE TODAY
THE EUROPEAN YEARLY CONSUMER
BASKET SIZE
14000
EURO PER HABITANT
12200
11600
12000
10000
13000
14000
13400 13800
11100
9400 9700 10000
10500
8000
6000
4000
2000
0
1993
95
97
99
Source: Eurostat, Final Consumption Expenditure of Households, yearly spendings per inhabitant
O1
2003
THE EUROPEAN CONSUMER BASKET SIZE
24%
3.000
23%
2.500
23%
22%
2.000
22%
21%
1.500
FMCG spend
increasing but
we are losing
share of
household
consumption
FMCG Share
FMCG Spend
21%
1.000
20%
20%
500
19%
19%
0
1994
1998
2003
Source: Eurostat, Final Consumption Expenditure of Households, yearly spendings per inhabitant
FMCG: Food, Drinks, Household maintenance products, Personal care products
WHY ? - FOCUSING ON PRICE
PRICE
COMPARISON
How important is price to the
consumer?
Price identified as important issue
25
22
20
15
14
15
14
14
13
13
10
5
4
3
2
2
BE AT UK NL
S
DK
0
EU- IT
15
Source: Eurobarometer – Spring 2003
D
E
F
Focus Shift
Percentage of U.S. Marketing Expenditures
(2003 Total U.S. Marketing Expenditures - $1 Trillion)
100%
75%
47%
51%
54%
28%
25%
18%
Growing manufacturer
investment in in-store
marketing programs
50%
25%
Trade Marketing
25%
24%
28%
1990
1995
2003
Consumer Advertising
Consumer Promotion
0%
Sources: M.Sorrell – ECR Paris - Donnelley Marketing; PROMO, Veronis Suhler, Cannondale
Associates, PoP Insights (Losin’ that lovin’ feeling)
PLAYING ON PRICE DRIVE TO DISCOUNTERS
In total, 1% of customers
changed channel
Brand buyer
(28 %)*
23 %
Promotion buyer
(37 %)*
10 %
Private label
buyer
15 %
17 %
(17 %)*
15 %
ALDI-buyer
11 %
How to read the chart (example):
23% of 100 brand buyers in 2000 turned in 2001/2003 into promotion buyers
source: Analysis based on GfK consumer panels in Germany
(18 %)*
Leaders in communication
25
2004
2003
20
15
10
5
0
DIAGEO
P&G
VODAFONE TESCO
LIDL
WHY? - LACK OF INVESTMENT IN
INNOVATION
Eroding consumption can be linked to
eroding investment in innovation
8
6.2
6
5.4
4
2
2.8
4.8
3.0
2.8
1.9
0
0.1
1994
1995
1996
1997
1998
1999
2000
2001
-0.1
2002
-2
-4
-1.9
Private Consumption
Investments
Source: Eurostat, growth at constant prices. <The Economic portrait of the European Union »
2003
2. Results of Survey
Do you see more focus on
price than ever before?
Do you consider this price
focus an issue?
Do you consider this an issue?
…. 41% manufacturers and 47% retailers think it is the
biggest issue but only 16% of others (consultants).
70%
60%
50%
40%
Manufacturer
Retailer
Other
30%
20%
10%
0%
biggest issue
facing the
industry
significant
issue
small issue
Not an issue
What do you consider the most
important measure today?
Of the measures you use with your partner, which do you
think is most important
…. Manufacturers think it is gross margin, retailers total
profit
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Manufacturer
Retailer
Other
% Gross
Sales
Margin Revenue
Gross
Profit
Shopper
Measure
What do you consider should be
the most important measure
today?
How much time do we spend
talking together?
When you work with your partners how
much time do you spend talking about
consumer needs other than pricing and
promotion?
How long is our current business model sustainable ?
…. 50% of retailers do not think their business model
will last more than 2 years
60%
50%
40%
Manufacturer
Retailer
Other
30%
20%
10%
0%
1-2 years
3-10 years
indefinitely
Do we have a good executable
ECR framework to drive value
beyond price?
3. Encouraging a wider usage
of Joint Business Planning to
increase shopper and
consumer attraction and
loyalty
Implementation
NEW
Strategic
Understanding
Shopper
Understanding
JBP
Execute
Scorecard
Companies’ position, business
objectives and KPI
CRM
POS
Management
Promotion
Category Tactics
Using
Management
Traceability
Shrinkage
Shelf
Availability
Consumer Direct
Logistics
ECR Scorecard
Efficient Assortment
Basis for Value
Creation
Value Creation beyond price
Strategic Understanding
Retailer Strategy
Supplier Strategy
Identifies potential to grow by
Customer/category
Identifies a strategy by
department/consumption occasion
CUSTOMER STRATEGIC REVIEW
category strategic plan
Tune potential by Customer/category to
get target feasibility
Internal budget fine tuning, match of category/ customer plans with
resources allocation
Fix customer budget and set customer plans
CHANNEL STRATEGY
Look for consistency in categories/
point of sales
Define category objective on:
• Competitiveness
• Offer segmentation
• Own brand share
Internal budget for sales and margin
CHANNEL MARKETING PLAN
CATEGORY/CUSTOMER PLAN
IMPLEMENTATION
QUARTERLY REVIEW
Strategic Value Creation Options
OPTIMIZE
Volume
IMPROVE
• Supply
• Category
•Joined business
process
•Price
•Shelf space
• assortment/range
SOLUTIONS
Innovate
Efficiency
ECR
•Customer
specific
•Time specific
Effectiveness •Location
specific 31
JBP template - opportunity
joint business plan 2005
2005 plan
2004 sales
What?
%
How?
When?
Who?






Agreed by (Manufacturer)……………………………………………………………. Agreed by (Retailer)………………………………………………………………….
Position ………………………………………………………………. Position
………………………………………………………………...
Working together beyond price
•
Category Definition
Category Review
Category Role
Category Assessment
Category Performance Measurement
Category Strategies
Category Tactics
Plan Implementation
New levels for co-operation
Co-operation is in all levels:
Strategic planning
• KPI’s and targets
• New Solutions/Innovations
Processes
• Insights: consumer, shopper,
market…
• Category Management
• Category Role
• Category Assessment
• Category Tactics:
– Assortment
– Promotions
– Pricing
• New Product Introductions
• Supply Management
• Integrated systems and
information
4. Present innovative
solutions in the shopping
experience and product offer
which lead to market growth
by addressing other
consumer/shopper value than
price.
Conference
Consumption driven trends
Tassimo: Café quality beverages with
convenience delivered with new technology
Ferrero: Easier to use & added-value
chocolate snacks combinations
Retail Innovation
Heinz: Different range for different time of the day
Veropoulos: Shelf-space innovation
NOW LOOKING FORWARD….
….to drive sustainable sales and value growth we need to
• Go back to basics – understand shopper and consumer
needs
• Collaborate on joint business plans and broader
measures to impact ALL value creation drivers
• Provide genuine innovations beyond price that improve
the shopping experience and the product offering
…… Then we can deliver a win for our industry and a win
for our shopper.
Value creation beyond price Program
Framing the issue:
– Deflation, commoditisation, reduce share of wallet for grocery
– Definition of different values (consumer, manufacturer, retailer)
– Roadblock: buyer-seller/cash/margin culture
– The creation of long term value: economist and financial
perspectives, benchmark with other sectors, benchmark across
categories
Process
• Strategic alignment (roadmap of joint value creation collaboration)
• Principles of Joint Business Planning
• Business Planning: how to integrate various business processes
within your company and with your trade partners (Organisational
design)
• Scorecard (measurement of value created and return )
Value Creation
• Case studies - Shifting money from price to other value drivers
• Benchmark categories: which are growing and how/what is driving
their growth. A contrario : categories destruction by price strategy