McKinsey Value Management Final

7/26/2019 McKinsey Value Management Final

http://slidepdf.com/reader/full/mckinsey-value-management-final 1/20

Value Management:

Winning in a Value- Driven World

November 9, 2010

GMA Presentation

CONFIDENTIAL AND PROPRIETARYAny use of this material without specific permission of McKinsey & Company is strictly prohibited



2|Copyright 2010 McKinsey & Company

Consumers perceive value in many different ways

Comparison to other options

Quality Price

3

What is the

consumer’scomparisonset?

Experience across the purchase cycle1

…during …Before …… and after apurchase

Quality for the price2

ILLUSTRATIVE




Value

Today, we’d like to discuss “value” through all three lenses:

consumers, retailers, and manufacturersHow is consumer behaviorrelated to value evolving in thecurrent economic environment?

What strategiesand tactics shouldmanufacturers bepursuing to capturethe value segment?

What strategies andtactics are retailers pursuing to capture

the value segment?

Consumers

Retailers Manufacturers




U.S. consumers have changed the way they shop and claim to be stickingwith new purchasing behaviour as the economy improves

Percent intending tokeep behavior1

Sep 2010Behavior

Percentchangingbehavior

SOURCE: McKinsey Consumer Sentiment Survey V (Sep 2010)

Purchase private label/store brand products more 50

Purchase high-enddesigner/luxury brands less 45

Shop at mass merchantsmore

50

Go out to eat less 60

Shop at Club stores more 35

Shop at dollar stores more 40

1. CONSUMERS

Change sinceFeb’09

76

86

85

88

89

86 +

+

+

+

+

NA




Overall, U.S. consumers are purchasing more

private label

18.918.718.2

17.1

16.416.516.116.116.016.215.715.915.615.415.114.314.0

14.914.613.613.7

11.6

201010908070605040302012000999897969594939291901989

Recession

3x faster growth thanbranded products

U.S. private label value share, in supermarket channel

Percent, 1989-2009

1 2010 data for 52 weeks ending 4/19/2010

SOURCE: PLMA; Nielsen; IRI; McKinsey analysis

1. CONSUMERS




0.09

1.91

1.19

2009-102007-092005-07 avg.

Growth in private label market shareHighly penetrated categories MS points

0.31

0.41

0.17

2009-102007-09 (av.)2005-07 avg.

Growth in private label market share“Lower penetrated categories, MS points

While signs of recovery in 2010 slowed private label growth in highlypenetrated categories, lower penetrated ones continued growing

SOURCE: IRI, McKinsey analysis

1. CONSUMERS

Recession may havecause a lasting change

for the categoriestraditionally seen as

“brand-heavy”




Banquet Brand—Delivering value for

consumers everyday

Banquet brand

▪

Products include single- and family-serve entrées, prepared chicken, pot pies,fruit pies, breakfast sausage and Homestyle Bakes

▪ Targets the “value” segment and has become the clear leader in the single-serve economy segment

1. CONSUMERS




Big Brands —Delivering value for consumers

everyday

1. CONSUMERS

+22% Unit Growth




Value



What strategiesand tactics shouldmanufacturers bepursuing to capturethe value segment?

What strategiesand tactics areretailers pursuing

to capture thevalue segment?

Consumers





Traditional grocers are facing pressure from value and specialty

players CAGR07-09/09-12E

4.1%/4.5%

7.2%/8.3%

2.0%/0%

3.5%/6.6%

U.S. grocery sales$ Billion, Percent Examples of players

26 25 27

32 33 37

Differentiated

Traditional

100% = 909

2003

43

1,124

2008

984,368

3641

Value

2013E

2. RETAILERS

SOURCE: McKinsey Retail Practice, Willard Bishop




Even Walmart is rethinking its strategy in response to recent

consumer and economic trends

▪ Include advertising / in-storemerchandising support tomatch manufacturer dollars

to share of sales

▪ Great Value remains largestPL brand in the U.S.

▪ Take over the delivery ofproduct from the manufacturer

2. RETAILERS

▪ Take over purchase ofraw materials forsuppliers to ensure betterprice

▪ Shifting investment to smallerformat to extend its valueproposition to newconsumer

▪ Recommitting to every daylow price

▪ Restocking some itemsdropped earlier to provide fullrange of choices at best

price

Assortment

Every DayLow Price

Small formats

On-line

Pay-for-growth (CSI)

FOB pricing

PrivateLabel

Rawmaterialspooling

Consumer-focused strategies Supplier-focused strategies

▪ On-line orderingwith FedExshipping

▪ Site-to-storesolution




Grocers are also sharpening their focus on value

SOURCE: McKinsey

2. RETAILERS

Getting credit forvalue

▪ Devoted a complete section in some storeto Valu Time products to showcase low-priced items

▪

Hurricane promotiontargeting single- and family-serve entrées and ran at thebeginning of the hurricaneseason (see next page)

Operating expense reductionprogram has saved in excess of $1 billionsince 2002

▪

Has dedicated product strategy anddevelopment resources to determinewhere private brands should play based oncategory economics

Targetedexpansion ofprivate brands

Driving down SG&Aand COGS to fundprice investments

Promotionseffectiveness




Value



What strategiesand tactics should

manufacturers bepursuing to

capture the valuesegment?

What strategies andtactics are retailerspursuing to capture

the value segment?

Consumers





Collaborating to deliver value with effective

promotion

Hurricane Promotion

▪ Variety of hurricane-related ‘stock up’products on one pallet

▪ Combined with $10Publix gift certificate

▪ Provides ‘value’ withright products at theright time

2. RETAILERS




Winning manufacturers are Collaborating with retail partners todrive growth and value

Are strategic about selecting the right partners

… how Winners do it

Are bold in their ambition

Set the execution team up for success

2 Make hard choices to prioritize and invest with aselect subset of potential partners

“Plant more seeds” for future efforts1

Set clear goals on day one; hold both organizationsaccountable

5

Think about the totality of the business in designingthe scope of the effort4

Proactively seek to collaborate on win/winopportunities – not just a reaction to performanceissues

3

Establish how gains will be shared and drive benefitfor both sides

6

Are willing to invest and invest broadly7

Staff the team with a broad mix of cross-functionaltalent

8

SOURCE: 2010 McKinsey CCM survey

What Winners do…

Are more than 2x more likely tofocus collaboration on supplychain costs (in addition togrowth)

▪ 30% more likely to experienceoperating margin increases

▪ 30% more likely to deliverinventory reductions

3. MANUFACTURERS




Winners increased trade more thanothers to offset price increases…Percent of respondents

Winning manufacturers1 have responded to value pressure withhigher trade spend which has driven more lift for the top

performers


9

9

Decreased by

more than 1percentage point

Stayed about thesame 30

Increased bymore than 1percentage point

15

82

56

Others

Winners

3. MANUFACTURERS

Lift per point ofprice reduction2

Median 08-09Percent

Lift frommerchandising2

Median 08-09Percent

4.3

18.5

-1.4

10.8

…and drove higher lift frompromotionsPercent of respondents


1 CPGs with above category growth rates2 Indexed to category



17|Copyright 2010 McKinsey & CompanySOURCE: 2010 McKinsey CCM survey

3. MANUFACTURERS

Manufacturers are working aggressively to address the growing

“value” segment

Percent of survey respondentsmanaging private label price gap

▪ Winners are disproportionatelyincreasing customer-facingresources in

– Discount/dollar channels

– Wal-Mart

– Club channels

Winning manufacturers1 areadding resources to drivegrowth with value channels …

… and are nearly twice as likelyto actively manage the pricegap versus private label

34

57

Others

Winners

BASED ON MCKINSEY CCM SURVEY


1 CPGs with above category growth rates



18|Copyright 2010 McKinsey & CompanySOURCE: 2010 McKinsey CCM survey

…while others arefocused on ‘the basics’

VS.

Winners are focused on‘next-level’ capabilities …

Focus areas for winners Focus areas for others

Customer P&L leadership Financial analysis andreporting

Strategic collaboration Consumer/shopper insights

Pricing/trade analyticsMarketing/branding

understanding

Finally, winning manufacturers are building “next-level”capabilities to ensure profitability

3. MANUFACTURERS




In summary, a winning Value Management approach will require answersto these key questions:

▪ What drives consumer value perception in your categories?

– How do those drivers vary across categories and channels?

– How will they evolve in the next 3-5 years?

▪How can you influence value perception beyond changingprice?

– Can you influence which way consumers view value in yourcategories

▫

Experience across purchase cycle▫ Quality for price

▫ Comparison to other options

– What messages and product offers will be most compelling?

– How can you collaborate with your customers to win in the value-driven world?

In coming months, we will share results from upcoming McKinsey-GMA consumer research that will help address these questions

McKinsey Value Management Final

Documents

Transcript of McKinsey Value Management Final