Beverage Retailing Summit, 2002
Managing The Partnership
To A Strategic Level
March 12, 2002
Amelia Island, Florida
www.hoytnet.com
8912 E. Pinnacle Peak Rd. #650 • Scottsdale, AZ 85255
Phone (480) 513-0547 • Fax (480) 513-0548 • E-Mail: chrishoyt@hoytnet.com • nancyswift@hoytnet.com
Today:



Core issues facing both manufacturers and retailers
The opportunity for both to put new meaning into the
partnership model
Implementation – where to start:
 For retailers
 For manufacturers
2
“Problems vs. Opportunities”
There is a convergence of factors in the marketplace today that
calls for both manufacturers and retailers to change the way they
go to market.


Those who view this as an “opportunity” and move to change
NOW will survive and thrive
Those who view this as a “problem” and spend a lot of time
“thinking about it” will get passed-by
This talk is to review these factors and offer suggestions to both
manufacturers and retailers on how to capitalize on the
opportunities.
3
Core Issues

Retailers

Manufacturers
4
Outlet Saturation
1950’s
Today

No Fast Food
120K Convenience Stores

No Mass Merchandisers
32K Supermarkets

No Clubs
6K Mass Merchandisers

No Supercenters
20K Drug Stores
Independents Dominated
Drug
1K Club Stores




6K Dollar Stores
A&P Dominated Food
McDonalds
Burger King
Wendy’s
Jack-in-The-Box
Most CPG-type Products
Sold Through Supermarkets
Most Meals Prepared and
Eaten at Home
45% of Food Dollars
Spent Away From Home
5
SKU Proliferation
SKU Growth: 1945 - 1995
60,000
50,000
40,000
30,000
20,000
10,000
0
1945-1964
Source: Insight Out of Chaos, 2001
1981-1995
1965-1980
6
1995+
Mass Availability Of Same Items In Different Channels
% Buyers In
Grocery
Non-Choc. Candy
Chocolate Candy
Artificial Sweeteners
Ground Coffee
Dried Fruit Snacks
HH Cleaners
Toilet Tissue
Paper Towels
Liquid Soap
Soft Drinks
Source: Scarborough Research, 1999-2000
79.4%
83.6%
80.2%
90.2%
83.2%
78.6%
86.4%
77.8%
55.4%
97.5%
Super
Centers
Mass
62.0%
58.0%
21.8%
30.0%
22.8%
42.9%
50.3%
25.1%
45.0%
44.7%
18.0%
16.6%
8.1%
11.3%
7.2%
12.1%
16.5%
6.6%
11.6%
16.9%
7
Clubs
Drug
12.6%
10.4%
11.9%
15.5%
12.7%
11.4%
10.4%
10.0%
10.3%
9.2%
43.5%
5.1%
5.2%
7.7%
4.2%
14.7%
19.8%
9.5%
9.9%
24.1%
C-Stores
9.5%
1.5%
0.4%
1.0%
0.8%
0.8%
1.6%
0.6%
0.2%
20.4%
Price-Based Competition
Channel Pricing Index on Selected Consumables
(Scottsdale, AZ, 8/7/2001)
Formula 409
Pine Sol
Pledge
Lysol Disinfecting Spray
Windex
Arrowhead Water
Tea Bags
Maxwell House Coffee
Sweet ‘n Low
Equal
Hershey’s Kisses
M&M’s
Bath Tissue – 36-48 Roll
Bath Tissue – 12-24 Roll
Napkins
Towels (roll)
Food
Drug Super Center Club
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
117
100
100
120
70
100
80
121
86
78
94
100
N/A
108
99
114
Source: Hoyt & Company Store Checks w/o 8/7/2001.
Largest sizes carried indexed to Food on a per unit (oz/sheet/count) basis.
8
61
92
68
66
59
92
49
71
92
72
66
65
54
73
60
77
53
58
57
54
37
65
45
N/A
43
48
67
54
41
57
39
73
Category Hijacking
Dry Grocery Sales Trends In Drug Chains vs. Food Stores
Food
‘95 to ‘99
Snacks - Health Bars & Sticks
Spaghetti - Canned
Water - Bottled
Cereal – Ready-to-Eat
Ravioli – Canned
Soup - Canned
Snacks – Potato Chips
Coffee - Ground
Soft Drinks - Carbonated
Dry Dinners - Pasta
Jelly
Dog Food - Dry Type
Cat Food - Dry Type
Granola & Yogurt Bars
Source: AC Nielsen
387%
6%
77%
-8%
35%
13%
16%
-16%
30%
21%
-2%
24%
16%
-9%
9
Drug
‘95 to ‘99
681%
183%
160%
159%
128%
119%
68%
60%
59%
58%
50%
48%
41%
29%
Store Disloyalty
In 2000:







100% of U.S. HH shopped Supermarkets 1.7x’s per week and spent
an average of $32.00 per trip.
94% of HH shopped Mass Merchandisers every other week and spent
about $36.00 per trip.
86% of HHs shopped a Drug chain a little more than 1x per month
and spent an average of $18.00 per trip.
52% shopped a Convenience store about 1x per month and spent
about $8.00 per trip.
49% shopped a Club about once every 6 weeks and spent $82.00 per
trip.
47% shopped a Dollar Store once every 5 weeks and spent about
$10.00 per trip.
And now – the internet!
10
Trip Loss In Core Channels
Shopper Trips By Channel (1996 – 2000)
(Avg. # Trips/Channel/Year)
100
90
80
70
60
50
40
30
20
10
0
95
87
Total Trips
1996
2000
29
25
16 15
Grocery
Source: AC Nielsen Homescan
Drug
180
177
8 10
Discount
Clubs
11
13 15
6
C&G
10
Dollar
Stores
13 15
Supercenter
For Most Food Is Now A “Low Involvement” Purchase…
Food As A % of Personal Consumption $
30
25
20
15
10
5
0
1960
Food
BLS, 2002
1970
1980
Food at Home
1990
2000
Purchased Meals & Beverages
12
And A Similar Pattern Applies To Beverages
Beverage Categories as a % of Personal Consumption Spending
2.0
1.5
1.0
0.5
0.0
1960
1970
Fresh Milk & Cream
Beer & Ale at home
1980
Juices & Nonalcoholic drinks
Wine & Brandy at home
Alcohol in purchased meals
BLS, 2002
1990
13
2000
Coffee, Tea & Accessories
Distilled spirits at home
On Top Of This, We Have…
Time-Pressured, Fickle Consumers
Shopper’s Decision Time
Percent of Total Shoppers
More than 15
seconds
5 seconds or less
25%
42%
33%
6-15 seconds
Source: Price Knowledge and Search of Supermarket Shoppers – P Dickson and A. Sawyer
14
Consumer Dissatisfaction With The “Shopping Experience”
Is Shopping Fun? (10 = Highest)
2000 Ranking
Source:
1999
2000
1. Wholesale Clubs
7.17 (C-)
6.96 (D)
2. Mass Merchandisers
6.49 (D-)
6.83 (D)
3. Specialty Food Stores
6.90 (D)
6.76 (D)
4. Supermarkets
6.30 (D-)
6.46 (D-)
5. Chain Drug Stores
6.05 (D-)
6.08 (D-)
6. Fast Food Restaurants
6.02 (D-)
5.81 (F)
7. Convenience Stores
5.12 (F)
5.21 (F)
Progressive Grocer: 67th and 68th Annual Report of the Grocery
Industry, April, 2000 and 2001
15
Sideways Or Inconsistent Retailer Margin Performance
CPG Retailer Gross And Net Margin Performance: FY2000 vs. FY1990
Retailers
Grocery
Gross Margin
1990
2000
%∆
25.4
28.4
Net Profits
1990
2000
%∆
12% 1.3
1.9
Drug
28.8
24.3
-16% 2.6
.6
Wal-Mart
22.8
23.0
1% 4.0
3.3
Target
27.7
31.5
14% 2.8
3.4
Costco
11.0
12.6
15% 1.6
1.2
Walgreens
29.1
28.2
-3% 2.9
3.6
Safeway
26.7
31.9
19% .3
3.4
Source: Value Line, 1991 and 2001
16
Manufacturer Issues
17
Media Fragmentation –
Reaching The Consumer Cost Effectively
TV Timeline:
 1954 - TV Revenue @ $593MM surpasses radio revenue
 1960 – 90% of US homes have TV
 1972 – HBO debuts – first pay cable network
 1980 – CNN launches
 1986 – Fox Network debuts
 1988 – TNT debuts – TV’s 98% household penetration
Network Growth:
 1971 = 3 networks
 2001 = 93 networks
3 Network News Viewership (ABC, NBC, CBS)
1980 = 75%
2002 = 43%
Viewership:
 1983 – Last episode of M*A*S*H draws more than 125MM viewers
 1998 – Last episode of Seinfeld draws 76MM viewers
Cable/VCR Penetration – 2001:
 Total TV households = 98M
 Total cable TV households = 56MM
 Household penetration of VCRs (1998) = 84.6%
18
Through-The-Roof Trade Promotion Spending
% CPG Manufacturer A&P Spending Trends: 1978-2001
1978
1985
1995
2001
% vs ‘78
Trade Promotion
33%
38%
51%
61%
+85%
Consumer Promotion
27%
27%
24%
15%
-44%
Advertising
40%
35%
25%
24%
-41%
100%
100%
100%
100%
N/A
% A&P/Total Sales
13%
N/A
22%
27%
107%
% Trade/Total Sales
5%
N/A
13%
16%
220%
Totals
Source: Carol Wright, Accenture, Cannondale, Donnelly, 1980 - 2002
19
Manufacturer Dissatisfaction With Results
Industry Issue Importance - 2001
(% Rating Very/Extremely Important)
Pt. Change vs. Year Ago
Retailers
Manufacturers
Trade Promotion Inefficiency
85%
63%
New Products
70%
Category Management
+2
+3
80%
-7
-4
+16
+2
58%
67%
74%
Technology
47%
45%
Private Label Growth
37%
Activity Based Management
52%
20
-11
-5
-13
-7
64%
Consolidation
Source: Cannondale Associates, 2001
80%
84%
68%
Frequent Shopper Cards
-5
-6
77%
-7
-7
-10
+9
Splintering Population Along Ethnic Lines
Projected Population Growth by Segment, 2000 - 2050
2000
Pop. Segment
White non-Hispanic
MM
2050
%
MM
%
Index vs. 2000
194
70.5
213
50.7
110
Hispanic
32
11.6
98
23.3
306
Black
35
12.7
59
14.0
168
Asian/So. Pacific
11
4.0
38
9.0
345
3
1.2
12
2.8
400
257
100.0
420
100.0
152
Other
Totals
Source: U.S.B.L.S., 2000. 2050 numbers are BLS estimates
21
Splintering Along Economic Lines
2000 Distribution of Total U.S. Income By Population Fifths
I
Quintile
20%
II
20%
III
20%
14.8%
IV
20%
8.9%
V
20%
% Distribution of Income
49.6%
40%
40%
23.0%
3.6%
Source: U.S. Census Bureau, 2000; Dept of Commerce
22
72.6%
Mean Income
$141.6K
$65.7K
Middle
Class
$42.4K
$25.3K
12.5%
$10.2K
No Relief In Sight
Mean Income Trends By Population Fifths, 1967 - 2000
(2000 Dollars - Per Household $K)
Top 20%
$160.0
$141.6 79.5%
$140.0
$120.0
$100.0
$80.0
$60.0
$40.0
$20.0
$78.9
$45.5
$31.1
$19.5
$7.1
$65.7
44.4%
$42.4
36.3%
$25.3
$10.2
$0.0
1967
29.7%
43.7%
2000
Source: US Census, Bureau of Labor Statistics, 2000. All data adjusted for inflation.
23
Emerging Elderly
Growth of 55+ Population Between 2000 and 2020
(As a % of total pop.)
120
100
80
60
30% of
total pop.
22% of
total pop.
97.5MM
60.5MM
+61% vs. 2000
40
20
0
2000 (275M Base)
Source: U.S. Census Bureau
2020 (325MM Base)
24
+18% vs. 2000
Net:


Consumers are becoming more “self-loyal” than store loyal or brand
loyal
Driven by:
 Price pressures
 Time pressures
 Ethnic or lifestyle preferences
 General indifference to or even dissatisfaction with shopping
experience

Exacerbated by “choice confusion” due to:
 Outlet saturation
 SKU proliferation

Food purchasing no longer a big deal
25
Sorting It Out…
The opportunity for both manufacturers
and retailers to put new meaning into the
“partnership” model
26
Consolidation Has Compressed The Entire CPG Marketplace To A
Manageable Configuration of Approximately 30 Accounts
Y2000
Channel Vol ($M)
# Leading
Accounts/Channel
Share
Channel %
Total HH
Avg. Annual
Trip Freq.
Grocery
$494
5/42%
100%
87
Discount
$157
3/65%
94%
25
Drug
$131
4/66%
86%
15
Club
$60
3/100%
49%
10
Supercenter
$31
4/92%
47%
15
Convenience/Gas
$30
7/100%
52%
14
Dollar Stores
$12
4/85%
47%
10
$915
30/57%
100%
N/A
Source: Progressive Grocer, Drug Store News, AC Nielsen, Discount Store News and Hoyt & Company Records 2001 - 2002
27
Suppliers Have Responded By Creating Their Own World of
Giants:
Over the past three years:

Unilever bought Best Foods

Philip Morris bought Nabisco

General Mills bought Pillsbury

Nestle bought Ralston Purina

Kellogg’s bought Keebler

ConAgra bought International Home Foods

Pepsi bought Quaker

P&G bought Clairol

Coke bought Odwalla

Cadbury bought Snapple

Smucker’s bought Jif and Crisco

Danone bought McKesson
28
Moreover, Technology Has Made It Possible For Both
Manufacturers and Retailers To Target Heavy Shoppers
Heavy Channel Shopper Importance
100
90
80
70
60
50
40
30
20
10
0
% Shoppers
% Dollars
80
78
72
91
56
33
33
Grocery
Discount
Source: AC Nielsen
33
Drug
29
33
Warehouse
33
Conv/Gas
The Key To Making This Work For Both Parties Is The
Willingness To Break Down Traditional Thought Barriers



Retailers – Differentiate on a basis other than price and build store
equity as “brands”
Manufacturers – Acknowledge retailers’ strategic potential in helping
build brand equity via retailer-developed consumer communications
vehicles and promotion devices
Focus resources to help achieve individual strategic objectives:
 Retailers – store equity
 Manufactures – brand equity

Some have begun but the majority has yet to catch on
30
Traditional Retailer Mind-Set Changes Required

“Build it and they will come”

Deal-driven versus consumer-driven buying mentality

Push as many costs of doing business as possible onto the supplier
community:
 Category management analyses and recommendations
 Promotion ideation and execution

“Get more/spend less” risk adverse approach

Financial objectives first, customers second:
 Limiting selection because it does not meet category management
criteria
31
Traditional Manufacturer Mind-Set Changes Required

Direct-to-consumer advertising and promotion is the only way to
build brand equity:
 Now 40% of A&P versus 60% trade
 Trade spend is now over 16% of net sales



Shotgun versus rifle
Brand-centric/geographic versus account-centric structure and
process
“Our teams are already empowered”
32
Why Sales Teams Are Not Empowered (Most, Not All):
Mega Retailer
1
Manufacturer
Account Team
Manufacturer
Trade Promotion/
Customer Development
2
3
No Contact
33
Brand Groups
$
4
Taking The Partnership To A Strategic Level – The Key Areas
of Focus For The Next 10 Years
Retailer

Objectives



Strategy
Manufacturer
Build store equity
Build share
Increase profitability
Build store “brand
equity” via non-price
based differentiation
leveraged off core
strengths





Implementation

Tap key supplier
marketing expertise


34
Build brand equity
Build share
Increase profitability
Build brand equity via
BOTH direct-toconsumer and trade-toconsumer advertising and
promotion vehicles
Make Brand Managers
“TradeSmart”
Make KAMs “Consumer
Smart”
Cross-pollinate at the
point of sale
Implementation


What is “equity” from a retailer’s POV?
How do I “empower” my account teams
without blowing-up my organization?
35
Equity:



The reason why shoppers will drive 100 miles RT from NYC to
Norwalk every week to shop at Stew Leonard's
The reason why consumers will pay a 10-15% premium for a Coke or
an Evian versus NBE private label
Sets one retailer apart from another on a basis other than price:
 Once one builds equity in a store, price then becomes secondary




Is total corporate driven, not category driven
Can be continually leveraged in different ways to attract and hold
new consumers while retaining current customers
Provides a strategic framework for all advertising and promotion
activities
Your signature – your core reason for being
36
Building Equity:

Define core strengths

Roll-up into a strategy that forces your competitors to react to you



Communicate via a three word position statement:
 “Quality for value”
 “The Time Savers”
 “The Solution Providers”
 “Fresher, Better, Faster”
Never deviate/react to competition – persistence and consistency
through the dark days is everything
Focus entire organization on implementation:
 Align standards with strategy
 Change incentives
 Reward execution excellence loudly and frequently
37
Empowering Account Teams



Train brand management and agency executives to become
“TradeSmart”:
 Top 10 accounts (20/80)
 ROI/equity potential of retailers’ communication vehicles and
promotion devices
 1X per year personal account calls to get direct input
Add a new budget line to annual brand plan
 “Co-Marketing” – Refers to “through-trade-to-consumer” equitybuilding advertising and promotion activities
 Fund commensurate with potential return – do NOT siphon from
current trade promotion allocations
Train KAMs/Team Leaders to become “ConsumerSmart”:
 Also want these people to be able to identify equity opportunities
and convince account to convert/invest trade promotion funds
commensurate with opportunities
38
Is This Real?
Co-Marketing As A % of Total Advertising & Promotion Spending, 1997 - 2001
Advertising
23%
25%
23%
Consumer
Promotion
24%
19%
17%
Co-Marketing
Trade
Promotion
Total
Customer $
9%
9%
7%
24%
16%
15%
11%
10% Through Trade-toConsumer $
44%
47%
43%
49%
51%
1997
1998
1999
2000
2001
53%
56%
60%
60%
61%
Source: Cannondale Associates, 2001 Trade Spending and Merchandising Industry Study
39
Direct to
consumer
dollars
24%
In-store
promotion
activities feature,
display,
TPR
Change Is Tough But The Bright Side Is The Progress We Have
Made Over The Last 100 Years:
In 1900:

Life expectancy was 47

Only 14% of homes had bathtubs

Only 8% had a telephone

There were only 8,000 cars and 144 miles of paved roads

Maximum speed limit was 10 mph

Average wage was 22¢ per hour and the average worker made
between $200 and $400 per year

95% of all births occurred at home

Sugar cost 4¢/lb, eggs were 14¢/dozen and coffee 15¢/lb

Marijuana, heroin and morphine were all available over the
counter in corner drug stores
40
Thank You…
If you want to help your Brand Managers become
“TradeSmart” and your Sales Managers to become
“ConsumerSmart”, please contact us or visit our
website and we will tell you how to do this (and much
more!) in 3 days at a cost that everyone can afford.
www.hoytnet.com
8912 E. Pinnacle Peak Rd. #650 • Scottsdale, AZ 85255
Phone (480) 513-0547 • Fax (480) 513-0548 • E-Mail: chrishoyt@hoytnet.com • nancyswift@hoytnet.com