Are Traditional Retailers Turning the Corner?
Moderator:
Brian Todd, The Food Institute
Speakers:
Jim Hertel, Willard Bishop
Bill Bishop, Willard Bishop
Webinar:
June 27, 2007
2:00 – 3:00 PM EDT
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
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Format for today’s event
By now you should have received “The Future of Food Retailing Report” via email. This report provides an indepth 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
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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.
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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.
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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.
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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.
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Who are the players?
Traditional Retailers
Traditional Supermarket
Fresh Format
Limited-Assortment
Super Warehouse
Other (Small Grocery)
Non-Traditional Retailers
Wholesale Club
Supercenters
Dollar Stores
Drug
Mass
Military
Convenience
With Gas
Without Gas
Traditional Retailers see two-thirds or more of their sales coming from food and consumable products
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While traditional retailers comprise the largest channel, non-traditional retailers are a major force
Traditional
Retailers
Non-Traditional
Retailers
Convenience
Sales by Segment
(Billions)
$138.9
$292.4
$427.6
Share by Segment
Convenience
16.2%
Non-Traditional
Retailers
34.0%
Traditional
Retailers
49.8%
Source: Willard Bishop, 2007 Source: Willard Bishop, 2007
2006 total industry sales grew 4% to $859 Billion.
Nontraditional 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.
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Over the past two decades, traditional retailers have lost significant ground
Market Share by Segment
89.6%
49.8%
43.5%
40.3%
42.8%
41.2%
42.2%
42.2%
34.0%
16.2%
7.9%
2.5%
1988
16.2%
2011(e)
15.9%
2012(e)
15.7%
2013(e) 2006
Traditional
Source: Willard Bishop, 2007
Non-Traditional Convenience
By 2013, non-traditional retailers will equal traditional retailers in food and consumables sales.
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Traditional Supermarket sales show signs of recovery
…Still, they are projected to lose share over the next five years.
Sales Growth Rate
2.6%
0.2%
-2.0%
2004 2005
Source: Willard Bishop, 2007
2006
Sales were up 2.6% ($9.6 billion), compared to a 2.0% decline in 2005.
Current and Projected Market Share
Traditional
Supermarket
Other (Small
Grocery)
Super
Warehouse
Limited-
Assortment
Fresh Format
1.3%
1.1%
1.7%
1.6%
2.0%
2.5%
0.8%
1.0%
37.3%
44.1%
Source: Willard Bishop, 2007
2006
2011(e)
Despite resurgent sales, Traditional
Supermarkets will continue to lose share.
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NonTraditional retailers’ sales growth is slowing
…While their long term market shares projected to grow.
9.7%
Sales Growth Rate
6.9%
6.1%
2004 2005
Source: Willard Bishop, 2007
2006
Sales for Non-traditional retailers were up
6.1% ($16.7 billion) in 2006, compared to
6.9% growth ($17.7 billion) in 2005.
Supercenter
Current and Projected Market Share
14.5%
20.3%
Club
7.4%
8.2%
Mass
Drug
5.0%
4.6%
4.9%
4.8%
2006
2011(e)
Dollar
1.7%
2.0%
Source: Willard Bishop, 2007
Supercenters continue to pace nontraditionals’ growth through 2011.
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Convenience Store sales continue to grow
Sales Growth Rate
2.4%
4.0%
2005
Source: Willard Bishop, 2007
2006
C-store sales increased 4% ($5.3 billion) in 2006, compared to 2.4%
($3.2 billion) in 2005
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Current and Projected Market Share
With Gas
Without Gas
2.4%
2.2%
2006
2011(e)
Source: Willard Bishop, 2007
While C-store sales will increase over the next five years, market share will remain flat.
13.8%
14.0%
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Non-traditional formats will continue to have the advantage in real sales growth rates
Expected Compound Annual Sales Growth Rate vs. Inflation: 2006-2011
(Grocery & Consumables)
10.7%
Supercenter
Limited-Assortment
Dollar
Fresh Format
Wholesale Club
Convenience (with Gas)
Drug
Super Warehouse
Mass
Military
Convenience (without Gas)
Traditional Supermarkets
Other (Small) Grocery
0.9%
2.0%
1.8%
1.4%
2.1%
3.0%
2.9%
3.9%
5.8%
7.3%
7.9%
9.0%
Inflation Compound
Annual Rate: 2.9%
Source: Willard Bishop, 2007;
USDA, Economic Research Service
Supercenter, Dollar, Wholesale Club, and Drug are non-traditional formats positioned to grow at a rate that outpaces inflation.
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Price
Image
Traditional Supermarkets have been challenged on two fronts
High
Fresh
Format
$$
$$
Traditional
Supermarkets
Supercenters
Low
Low High
Quality Image
A “one-size-fits-all” approach left many Traditional Supermarkets in unsustainable middle ground.
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Successful Traditional Supermarkets have responded on both fronts…
…And strengthened their shopper value propositions against both price-oriented and premium competitors.
High
Fresh
Format
$$
Price
Image
Traditional
Supermarkets
Increased emphasis on “fresh”
Credible natural and organic offerings
Enhanced shopping experiences
$$
Supercenters
New pricing strategies
Increasing reliance on Private Label
High impact promotions
Low
Low High
Quality Image
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Grocers’ shopper value propositions must be multi-dimensional
V = (Price x Quality x Variety x Service x Facility)
Price
Quality
Variety =
Service =
=
=
Facilities =
Maintaining Parity
Fresh is the Word
Unique/Different Products/Services
People & Systems
Bright, Clean, Fun
Price is critical when other elements of a grocer’s value proposition are equal to or at a disadvantage compared to competitors.
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Shelf price is only one dimension of price image…
Comparing Chain B Shopper Value vs.
Typical Supercenter
5 Price Image Dimensions
Chain B
Advantage While Supercenters may beat
Supermarket shelf pricing by 20% or more, Traditional Supermarkets can win on other dimensions of pricing.
Chain B
Disadvantage
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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”
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Hy-Vee manages price image in part through private brands
Multiple price tiers Specialty food items
Cobranded “hit” items
They are able to differentiate and improve price image simultaneously.
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Ingles does a superior job with price communication
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Same-store sales growth exceeds 5%
Well-entrenched Supercenter competition
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Chain B
Advantage
Chain B
Disadvantage
…And pricing is only one element of the value equation
Comparing Chain B Shopper Value vs.
Typical Supercenter
Other Shopper Value Equation Elements
5 Price Image Dimensions
High
Importance
Medium
Importance
Low
Importance
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Innovative Traditional Supermarkets are meeting
“Fresh Format” competition head-on
…In shopping environment
Safeway
Lifestyle store
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Innovative Traditional Supermarkets are meeting
“Fresh Format” competition head-on
…And, in Private Label, too.
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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
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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
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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.
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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.
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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.
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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 valueadded products
Targeting Hispanics
Projected to spend $400 million over 5 years
Large DC built for scale beyond announced stores
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What’s next? New formats meet shoppers’ lifestyle needs
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What’s next? Meal assembly centers attract shoppers 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.
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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.
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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.
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Questions & Answers
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 jim.hertel@willardbishop.com
847-756-3712
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