Farmer Cooperatives 2001
Positioning for Performance
“Meeting the Needs of our Food Customers”
October 30, 2001
Steve Dunphy, VP Sales
Land O’Lakes Dairy Foods
2
Introduction
My background
 New to Land O’Lakes
– V.P. of Sales
 20 years consumer products experience
– Kellogg, Pillsbury, Procter & Gamble
 6 years grocery retail experience
3
Introduction
 Very exciting time to be in the Food
Industry
There will be clear winners and losers in
the near future based on decisions we
make as leaders in the food industry.
Not a “business as usual” industry
4
Introduction
 Consolidating Industry
– Fragmented/Inefficient  Efficient
 What Should That Mean to Us?
– Many familiar food companies will cease to exist
• Autos, brewing, retailing, etc.
• “Whatever happened to Strohs, Nabisco, Quaker,
Pillsbury?”
– Superior financial performance is an imperative
 Tremendous opportunity or tremendous threat
5
Retailer Consolidation
Customer
Kroger/Fred Meyer
Wal*Mart Super Centers
Albertson’s
Safeway
Ahold
Delhaize America
Loblaws
Winn-Dixie
Publix
A&P
Sub-Total “Top 10” Retail Chains
SuperValu
Fleming
Sub-Total “Top 2” Wholesalers
Total Top Customers
Total Grocery ACV
(Source: 2000 Supermarket News)
2000 Sales
($ billions)
45.4
45.0
37.5
28.9
20.3
14.4
13.3
13.3
12.9
10.0
241.0
20.3
14.6
34.9
275.9
460.6
Grocery
% ACV
9.8
9.8
8.1
6.3
4.4
3.1
2.9
2.9
2.8
2.2
52.3%
4.4
3.2
7.6
59.9%
100.0%
6
Retailer Consolidation
Drug (60+% ACV)
Mass (70+% ACV)
Clubs (99% ACV)
 CVS
 Wal*Mart
 Sam’s
 Walgreen’s
 Kmart
 Costco
 Rite Aid
 Target
 BJ’s
 Eckerd
7
Retailer Consolidation
 Is Driving Dramatic Manufacturer Consolidation
1.
2.
3.
4.
5.
6.
7.
8.
Acquisition
Unilever/Bestfoods
Kraft/Nabisco
General Mills/Pillsbury
Pepsi/Quaker
Kellogg’s/Keebler
Campbell’s/?
Heinz/?
Hershey/?
Combined Sales
$8 B/$8 B
$31 B/$8 B
$6 B/$6 B
$12 B/$ 4 B
$6 B/$ 3 B
$7 B/ ?
$9 B/ ?
$4 B/ ?
8
Retailer Consolidation
 Is driving dramatic food broker consolidation
– 3 National Brokers
Sales Agencies
• Acosta
• Advantage
• Crossmark
2300
500
1988
Source:ASMC
 But why is this important?
2000
9
It’s Important because...
 Retailer Consolidation is resulting in lower returns for
food manufacturers/marketers
– Cost of doing business is up
– Pricing power is down
% Return on Capital S&P Food Group
16%
15.3%
15%
14.0%
14%
13.7%
13.2%
13%
12%
11%
10%
1991
2000e
2001e
2002e
Source: Sandford C. Bernstein & Co.
10
It’s Important Because...
 Manufacturer Consolidation will continue
into the “Mid Cap” arena
“I think there needs to be more consolidation
among the mid-tier in order to do a better job
of competing with the big boys”
-- Ellen Baras, Analyst
Biard and Company
11
How to Survive and Prosper?
 Low cost supplier
 Value Added brands
 Customer relevance
12
Brands
 Why Are Brands Important?
– Brands Provide Superior Returns & Profit Growth
Median ROS
(1999)
Median Operating Profit Growth
(1994 - 1999 CAGR)
10.5%
8.3%
1.7%
-1.9%
Unbranded
Branded
Source: Swander Pace & Co. Study; GMA data base
Unbranded
Branded
13
Brands
 “Leading” brands are of the most value
#1 brand earns 20% ROS
#2 brand approximately 5%
Source: PIMS Study
14
Customer Relevance
Ultimate Question
 Can you help a retailer increase some store
sales and profits?
15
Customer Relevance
Sales Force Capability:
Partner with top customer toward a common goal
 Best Practice Sales Organization - P&G
– High performance multi-functional teams
• Relationships at all levels
• Close to customer
• Shared risks/commitment
• Fully integrated plans
50.3%
39.8%
Which Manufacturer Has the Best
Sales Force/Customer Team?
19.8%
19.4%
11.2%
Pt.Change vs YAG
10.9%
9.3%
7.5%
PG
Kraft
Coca-Cola
Gen.Mills
ConAgra
Nestle
Pepsi
Unilever
-0.3
+10.3
+2.2
+0.6
+2.9
-0.9
-1.3
+1.3
Note: Scores based on % of retailers ranking in top 3
Source: Cannondale Survey 2000 and 2001 Power Ranking
7.1%
Pillsbury
-1.1
6.7%
Nabisco
-2.7
16
Customer Relevance
Sales Force Capability:
Understanding and utilizing joint profitability models
 Best Practice Sales Organization - Kraft: offered best
combination of growth and profitability
– Basic profitability models to include:
• Promotion analysis
30.1%
• Pricing
• Product mix
26.0%
20.5%
Which Manufacturers offer the best
combination of growth and profitability?
17.8%
15.1%
11.0%
Kraft
Frito-Lay
P&G
Nabisco
Note: Scores based on % of retailers ranking in top 3
Source: Cannondale Survey 2000 and 2001 Power Ranking
Gen.Mills
Pepsi
8.2%
8.2%
AnheuserBush
Coca-Cola
8.2%
ConAgra
8.2%
Nestle
17
Customer Relevance
Sales Force Capability:
Ability to understand and sell value added supply
services and link business and customers strategies
 Best Practice Sales Organization - General Mills & Kraft
– Top customers are demanding value added services, I.e. Supply
Chain Management
57.6%
Which Manufacturer Has the Best
Supply Chain Management?
34.6%
18.2%
12.0%
PG
Pt.Chg vs YAG
--3.1
Kraft
+10.4
Ge n.Mills
+2.3
Note: Scores based on % of retailers ranking in top 3
Source: Cannondale Survey 2000 and 2001 Power Ranking
9.4%
Coca-Cola
Unile ve r
+1.8
+2.5
8.9%
Ralston
Purina
-1.8
8.7%
Campbe ll's
-0.4
8.2%
Ne stle
+2.0
6.8%
6.6%
Kimbe rlyClark
Conagra
-2.1
-2.6
18
Customer Relevance
Sales Force Capability:
Ability to analyze and interpret data and translate into actual customer strategies
 Best Practice Sales Organization - Kraft
– Understand how consumers shop, translates into winning
strategies for customers (Kraft Plus program). Understand
33.9%
data linkages innovation and approach
27.8%
22.9%
Which Manufacturer Has the Most
Innovative Programs and Approach?
17.1%
12.5%
9.7%
Pt.Chg, vs YAG
PG
Kraft
+2.3
+6.3
Gen.Mills
+2.6
8.9%
Coca-Cola
Frito-Lay
Pepsi
ConAgra
-4.4
-4.0
-5.5
-2.5
Note: Scores based on % of retailers ranking in top 3
Source: Cannondale Survey 2000 and 2001 Power Ranking
8.9%
Nestle
-2.5
8.1%
Campbell's
+0.5
7.2%
6.8%
Nabisco
Pillsbury
-2.9
+1.7
19
Customer Relevance
Sales Force Capability:
Knowledge of customers and local markets that translates
back to consumer insights and new products
 Best Practice Sales Organization - P&G and Kraft
– Collaborative customer/manufacturer new product
57.6%
development and insight development (consumer info)
34.6%
Which Manufacturer Has the Best
Customer Information and Insights?
18.2%
12.0%
9.3%
Pt.Chg, vs YAG
PG
Kraft
-0.8
+11.2
Coca-Cola
-1.6
8.9%
8.7%
Gen.Mills
Unilever
Frito-Lay
Pillsbury
+4.6
+3.3
-4.7
-2.4
Note: Scores based on % of retailers ranking in top 3
Source: Cannondale Survey 2000 and 2001 Power Ranking
8.2%
Nabisco
-4.1
6.8%
6.6%
6.6%
Nestle
Kellogg's
Quaker
-0.6
+1.7
-4.5
20
Customer Relevance
Key Indicators
 Do your brands draw consumers into my store?
 Are your business systems and structures aligned
with me?
 Can you help me differentiate myself from the store
across the street? Can you build my brand equity?
 Do you provide “intellectual capital?”
– Consumer/shopper insights
– Profitability analytics
– Value chain best practices
 Do you have scale?
21
Customer Focus
 WAS:
Buy well
 IS:
Merchandise well
 BECOMING: Market well
22
Summary
 Consumers
 Customers
 Competitors
DO NOT CARE
THAT WE ARE
CO-OPS
23
Summary
 Low-cost supplier
 Value Added brands
 Customer relevance