Marketing Trends and their Implications
Transcript of Marketing Trends and their Implications
Marketing Trends andtheir Implications
Marketing Trends andtheir Implications
Dr. Roberta CookDept. of Agricultural and Resource
EconomicsUC Davis
January 2004January 2004
Overview of Presentation
• Industry size and structure• Retail consolidation andchanging procurementpatterns
• Major challenges and futuretrends
$485.152 billion food retailing (excluding non-food grocery store sales)
54% of total32,981 supermarkets127,000 total stores selling food including83,500 convenience stores; 1148 membershipclub stores; and 1777 SupercentersSupercenters contributed 11% of retail foodsales
$414.957 billion food service46% of total844,000 outlets
TOTAL 2002 U.S. FOOD SYSTEM*:$900.109 BILLION
*Excludes alcoholic beveragesSources: ERS/USDA and The FoodInstitute
The Revealing PercentagesConven’l Super Disc. ClubGrocery Center Drug Store
Gross 25.3 25.0 20.0 11.0Oper Exp 21.8 17.5 16.0 7.5
Net Margin 3.5 7.5 4.0 3.5 (Before taxes)
Source: Glen Terbeek
• Mass Merchandisers, especiallySupercenters, led by Wal-Mart:Driving non-value-adding costs out ofthe systemContracting with preferred suppliersCo-Vendor-managed AutomaticInventory Replenishment – sharedresponsibility for growing the category
New players playing by new rulesdrove retail acquisition trend
Percentof U.S.grocery
storesales
010203040506070
1987 1993 1995 1997 1999 2001
Top 4Top 8Top 20
U.S. Food Retail ConcentrationTwenty largest food retailers captured 57%of total grocery store sales in 2002P
P PreliminarySource: ERS/USDA and Census, modified by Cook
314557
2002P
LARGEST U.S. FOOD RETAILERS,2002
1Groceries only; Italics=foreign-ownedSource: Supermarket News, March 2003
rank company # stores sales ($B)1 Kroger Co. 2,461 $51.82 Albertson’s 1,346 $35.73 Safeway 1,793 $32.44 Wal-Mart Supercenters 1,243 $29.31
5 Ahold USA 1,633 $25.16 Publix 739 $15.9
LARGEST U.S. FOOD RETAILERS, 2002
Source: Supermarket News, March 2003
rank company # stores sales ($ B)7 Del Haize America 1,485 $15.08 Winn-Dixie 1,073 $12.29 Supervalu1 1,395 $9.81
10 Great A & P2 626 $8.311 H.E. Butt2 284 $9.012 Meijer3 156 $5.0
1Corporate and licensed stores only; italics=foreign-owned2Excludes Canada or Mexico 3Groceries only
2002 Market Share of the Top 5 Retail Chains Per Selected Country, % of Supermarket Sales
Top 20 Europe-wide share about 60% in 2002
99%97%
93%87%
85%81%80%
77%76%
73%67%
64%
36%47%
USABrazilUnited KingdomSpainGermanyArgentinaHungaryMexicoFranceBelgiumNetherlandsSwitzerlandNorwayGuatemala
USABrazilUKSpainGermanyArgentina and PortugalHungaryMexicoFranceBelgiumNetherlandsSwitzerlandNorwayGuatemala and Sweden
Source: M+MPlanetRetail andReardon
Source: M+MPlanetRetail andReardon
• Operates in 10 countries, largest retailer inworld, $244.5 billion in 2002 sales
• Wal-Mart has 75% share of US 2002supercenter sales
• Over 1333 supercenters in US in 2003• Opening 200/yr supercenters.; projected to
reach 2000 by 2006 in the US• Plus 52 neighborhood markets• Opening 40 supercenters in Ca. over the
next 4 to 6 years
Wal-Mart plays a Dominant Rolein Global Grocery Industry
Bottom LineWal-Mart will dominate mainstreamretailing for years to come, but newformats will emerge and competesuccessfully. Successful formats willdefine their opportunities in contrastto Wal-Mart, finding “white space”where they can out-price or out-differentiate it.
Source: Bishop Consulting
Wal-Mart Effects• On the up-side:
– Many suppliers have seen profitable volumegrowth working with Wal-Mart, making ittheir most profitable customer.
– They have developed supply chain bestpractices that have been leveraged acrossmany other customers.
– They’ve created blueprints for customerbusiness team success.
Source: Bishop Consulting
Wal-Mart Effects• On the down-side:• Some suppliers have come to rely heavily on this
massive customer, generating financial risk. Manylarge CPG manufacturers sell Wal-Mart 25% ormore of their total volume.
• Plus, many of Wal-Mart’s major retail competitorsare struggling, placing volume and margin pressureson CPG suppliers who depend on other customersthriving over the long-term.
Source: Bishop Consulting
Future WinnersLimited assortment stores (LAS) aretotally integrated from procurement throughmerchandising. They are optimized for lowestcost, and can offer consumer prices 10-15%below Wal-Mart’s. They have effectivelycompeted because they maintain total controlover every operational aspect, relying verylittle on suppliers in direct contrast to Wal-Mart.
Source: Bishop Consulting
Future WinnersDollar stores also compete effectively withWal-Mart on price. In an effort to generatetrip frequency, expect to see more regularly-stocked items, especially food, and likelyeventually fresh produce. Also expect suppliersto create product specifically to meet dollarstore price points. Recognizing, then investingin growth formats is critical to CPGmanufacturer share positions.
Source: Bishop Consulting
Future WinnersTrader Joe’s creates unique foodproducts under their own brand. Thecombination of convenient, high-quality, great-tasting products withoutstanding value results in a highlydifferentiated offering with broadconsumer appeal: upscale and down.
Source: Bishop Consulting
Future WinnersWhole Foods features organicsincluding fresh produce and meat andpoultry that appeals to health-consciousconsumers. They combine “natural”with premium, differentiated offeringsin all categories.
Source: Bishop Consulting
US Fresh-cut Produce Sales Trend,All Marketing Channels, $ Billion
Source: DoleSource: Dole
6.03.3
15.011.0
9.07.1
02468
10121416
1994 1997 1998 1999 2000 200560% sold via foodservice channels vs. 40% via retail Source: IFPA
$ billion
Median Company Identical Store SalesMedian Company Identical Store SalesGrowth Growth (Food Marketing Institute Speaks 2003)(Food Marketing Institute Speaks 2003)
*Real dollars are computed using annual percent increase of CPI*Real dollars are computed using annual percent increase of CPIfor food-at-home.for food-at-home.
2.6%
0.7%
2.7%
0.8%
1.8%
-0.5%
2.2%
-1.1%
2.4%
1.1%
-2%
-1%
0%
1%
2%
3%
1998 1999 2000 2001 2002
Current Dollars Real Dollars*
The consumer shift to value– Consumers no longer view
supermarkets as the “One StopShopping” outlet for groceries.
– Now even Value Retailers like clubstores and supercenters havebecome frequented as more thanstock-up shopping opportunities.
The consumer shift to value– Value retailers have out-executed
their competition and moved beyondprice as the sole point ofdifferentiation.
– Value retailers (including dollarstores) now represent 17% of theentire US retailing sector, excludingautos, the fastest growing part of allretailing.
Competing in a Value-Driven Market
• Channel blurring has caused the retaillandscape to be overstored.
• Plus, foodservice channels compete withall forms of food retailing which tend tooffer ingredients to prepare instead ofmeals to eat.
• Retail Home Meal Replacement helpingsomewhat and fresh produce value-addedproducts benefiting.
Competing in a Value-Driven Market• Grocery retailers have been losing share to
foodservice for decades, now to value retailers• Conventional grocery retailers must identify
value propositions they can own if they are toremain competitive! (fresh produce can be apoint of differentiation)
• Bottom line: more structural change expectedin the US grocery industry and more pressureon suppliers!
US Chains: Impact of RetailConsolidation on The Buying Process
• Multiple buying offices now merginginto fewer or one– Purchase from shipper without seeingthe product
– More emphasis on standards, less onprice
– Synergy contract buying– More emphasis on forward planning– Buy more directly from shippers
Sources: PMA Fresh Track 2001; Cook and misc.
-Ahold – ending Division buying, centralizing to 2 or 3 preferred suppliers chain wide
-Safeway – centralized merchandising to Pleasanton, Ca.,
buying to Phoenix-Kroger – consolidating divisions and centralizing buying to Cincinnati
US Chains: Impact of RetailConsolidation on The Buying Process
Key Trends in the FreshProduce Industry
• Supply chain management (SCM) isbeginning to replace thetraditional, fragmented, dailysales orientation of the freshproduce business with partnershipsfocusing on year-end net results
Produce Business Model 1960 tomid-90s: “Distribution-Based
Strategy”Commodity Approach
Retailer orWholesaler
1 2 3 4 5 100...
Uniformoffers.Focus on foodads to boostshort-termsales, respondto inventoryissues.
Relationship selling.Fight for bestposition.Exploit seasonality.
Fax Machine MarketingSource: Adapted from The Perishables Group
New Produce Business Model, 1998…Suppliers Retailers know the
value of ads, space, location, etc. Expect suppliers to know consumers:•Right product•Right stores•Right time•Right price
NEW MODEL “B” RETAILERSConsumer Information.Category Expertise.Category Development.
New Strategy--Cover Both
TRADITIONAL “A” RETAILERSBid for orders.Buy ads, fight for space.Tactical approach.
1 KeyPartner
KeyPartner
KeyPartner2
Source: Adapted from The Perishables Group
… …
Shippers becoming the buying agentsfor retailers
•Offering year-round supply, including via directimports where necessary.•This is posing new competitive challenges togrowers and shippers in smaller early seasonareas, like the case of the California apple andpear industries. Small volume late seasonsuppliers may become even more redundant –unless they add value!•May also affect conventional importers.
Percent of US Retailers with ProduceCategory Managers by Firm SizePercent of US Retailers with ProduceCategory Managers by Firm Size
Source: PMA Fresh Track 2001
23.5
83.358.5
020406080
100
up to $1.5 B > $1.5 B all retailersup to $1.5 B > $1.5 B all retailers
%
Sources of Produce (% of purchases), USRetailers with Sales over $1.5 billionSources of Produce (% of purchases), USRetailers with Sales over $1.5 billion
Source: PMA Fresh Track 2001
4.1
29.5
54.2
0.7
3.2
7.7
24.7
63.6
1.0
3.711.7
0.6
7.1
20.8
67.5
200620011996
Direct fromgrowers/shippers
Brokers
Producewholesaler
General-linegrocery
wholesaler
Other
Direct fromgrowers/shippers
Brokers
Producewholesaler
General-linegrocery
wholesaler
Otherpercent of produce purchasespercent of produce purchases
Sources of Produce (% of purchases), USRetailers with Sales up to $1.5 BillionSources of Produce (% of purchases), USRetailers with Sales up to $1.5 Billion
Source: PMA Fresh Track 2001
1.1
27.4
24.7
2.9
43.1
20.2
33.8
2.946.8
40.3
15.5
41.3
200620011996
Direct fromgrowers/Shippers
BrokersProduce
wholesaler
General-linegrocery
wholesaler
Direct fromgrowers/Shippers
BrokersProduce
wholesaler
General-linegrocery
wholesalerpercent of produce purchasespercent of produce purchases
Sales mechanisms for eachmarketing channel –1994 & 1999 - %Grapes, oranges, grapefruit and CA/FLtomatoes
Mass MassAll All Retail Retail Merch Merch
1994 1999 1994 1999 1994 1999
Mass MassAll All Retail Retail Merch Merch
1994 1999 1994 1999 1994 1999
Daily Sales 72 58 57 43 20 7
Advance Sale 19 24 30 42 19 23
Sht-t. Contract 7 11 12 11 48 41
Lng-t. Contract 2 7 1 4 13 29
Source: Economic Research Service, Produce Marketing Study Interviews1999-2000
Sale Type
Source: PMA Fresh Track 2001
smaller inventory fewer invoice disputes reduced transaction
costs better delivery
scheduling more targeted customer
promotions
smaller inventory fewer invoice disputes reduced transaction
costs better delivery
scheduling more targeted customer
promotions
For RetailersFor Retailers For SuppliersFor Suppliers
Supply Chain of the Future: Benefitsof Scan-Based Trading in ProduceSupply Chain of the Future: Benefitsof Scan-Based Trading in Produce
smaller inventory fewer disputes, quicker
payment reduced transaction
costs
smaller inventory fewer disputes, quicker
payment reduced transaction
costs
How to handle shrink?!
Demand Based Management(DBM)
• Understanding consumer demand isthe only untapped resource left
• DBM is enabling retailers to tap thisresource
• The rate of adoption of DBM ispredicted to be rapid, however, asalways, produce will lag itsintroduction in the rest of the store– random weight remains a barrier
Types of Fees & Services Requested
Slotting EDI
Volume Rebates Displays
Non-volume Rebates Private Labels
Promotional Ads Returnable Containers
E-commerce fees Special Packs
Capital Improvements Food SafetyCertification
Fees are increasing for all fresh produce butcommodities are still differentCommodities
• No slotting fees• Other fees well under 2 percent of sales• Volume incentives, promotional allowances and rebates
Fresh-Cut• All fees approximately 1 to 8 percent of sales• Slotting fees, promotional allowances, volume
incentives, and rebates – firms offer options• Can cost up to $2 million to acquire the business of a
national chain; $500,000/division
U.S. Market Shares of Fresh Cut SaladFirms, Dollar Sales
*Private label share ranked third in 1999 vs. 6th in 1994. Source: IRI
Top 5 firms91.2%
Top 5 firms87.6%
Private labelshare 2.4%
Private label share 9.7%
Other share 6.4% Other share 2.7%
1994 1999
SHELF CAPTAINS• Leading, technologically savvy
vendors—sometimes brokers• Take category interface
responsibility for section• May work in retailers’ headquarters• Recommend shelf sets, product
placement• Very influential to category
management
Building Retail Partnerships
Effective TacticsShopper Savvy
Loyalty Card Better Systems
Results-driven Tracking Focus
Dept. ProfitabilityStrategic Approach
CategoryDevelopment
Best PracticesStore-level
ResearchPurchase TriggersConsumer DriversLong view
Fact-based SellingInnovativeMarketing/MerchandisingEfficient Practices“Category” vs.“Item” Perspective
Retailer/ Wholesaler Grower/Shipper Boards/Commissions
• Roles and Responsibilities
Source: Adapted from The Perishables Group
•Low-cost producer/shipper•Differentiated producer/shippermarketing a premium product orproduct with identifiable preferredcharacteristics that are commerciallyperceived and valued•First strategy increasingly difficult asbuyers push more demands and servicesupstream to suppliers
Two Basic Strategies
Conclusions• Adoption of SCM is not uniform acrossthe vertical fresh produce distributionsystem: Both the new and old businessmodels exist side-by-side with manyfirms in-transition
• So mixed short-term signals but clearlong-term trends!
• Smaller seasonal players will need tofind niche markets.
• Strategic alliances and joint venturesare being explored as alternatives
• Supply side consolidation and year-round marketing presence may makelarge shippers more susceptible tofees, including slotting fees. Thiswill depend in part on shipperstrategies, which are influenced byinter-firm rivalry and market shareissues. It also depends on whetherthe Wal-Mart procurement modelbecomes the norm.
CONCLUSIONS: The Future?