Mercadona:Private Label Strategy

and Performance

Focus: Detergenthdd, bleach, fabric cond, washingupliquid, shampoo

retailers: Dia, Carrefour, Eroski

Mercadona Success Story

Name Number of Stores Retail Sales (USD mn)

2002 2003 2004 2002 2003

Mercadona 681 770 850 5.444 8.141

Spain Retailer Market SharesYear ending December 2001 2002 2003

Mercadona 10.2 12.6 14.4

Dia 11.7 11.8 11.8

Carrefour Hiper 11.4 10.4 10.7

Eroski Super 4.8 4.7 4.7

Alcampo 3.9 4.2 4.4

Eroski Hiper 3.5 3.5 3.6

Lidl 3.2 3.5 3.6

Caprabo 2.5 3.2 3.3

Ahold 2.1 1.9 1.7

Retailer Loyalty(% Share of all outlet expenditure)

Mercadona 30.7

Dia 18.5

Hiper Carrefour 18.6

Super Eroski 13.5

Alcampo 17.2

Hiper Eroski 17.1

Lidl 7.7

Caprabo 14.6

Ahold 11.4

52 weeks ending Quarter 2 2003

Retailer Spend per Shopper(Euros per household per year)

Mercadona 601

Dia 340

Hiper Carrefour 373

Super Eroski 252

Alcampo 341

Hiper Eroski 335

Lidl 146

Caprabo 292

Ahold 22052 weeks ending Quarter 2 2003

Retailer Penetration(% Of Spanish Households Shopping in a year)

52 weeks ending Quarter 2 2003Mercadona 42.6

Dia 63.7

Hiper Carrefour 53.2

Super Eroski 33.8

Alcampo 24.6

Hiper Eroski 18.4

Lidl 46.0

Caprabo 20.9

Ahold 15.1

Formats

Formats Number of stores Retail salesUSD mn

Market share

Supermarkets 770 8,141 100%

Strategy Highlights

Openings:• 100 new stores a year for past 4 years• Continuing opening 75 new stores in 2004• Diversifying into new regions – North & North West Spain• Standardising store formats at 1000 to 1,300 square metres• New stores also must conform to quality of service and range of goods standards

Pricing:• EDLP pricing strategy• Price target 3% below the competition

Private labels:• 2,400 own label products, 49% of turnover (and increasing strongly).• Sub branding of PL by category sector, such as: Hacendado, for fresh and canned,

Deli Plus for body care, Compy for animal care.

Hacendado private label

Mercadona USP’s

• ‘Discount supermarket’ formatPositioned as the most relevant shop (1200-1500 sqm)Continuous customer meetings

• Quality-price formula (value): EDLP• Up market formula• Communicating strengths

– Quality Fresh Food– Friendly & professional staff– Good locations – local catchments– Good product range – no problems due to lack of National Brands

General operational Strategy

• Efficiency First

• Family owned, no shareholder pressure

• Approx 115 partnership suppliers– Long-term providers with a relationship based on trust.

– Supply Mercadona PL

– Long-term supplier agreements negotiated• Efficiency in buying and logistics

• Reduction of all the supply chain costs ongoing

• No-nonsense/no frills approach

Private Label TrendsYear ending 2000

41.7 %

2001 2002 2003

% PL - Mercadona 46.6 % 48%

% PL – all trade channels Spain 18.6 21.5 26.7

49%

Traderorientation

Classic supermarket

Chain orientation

Brand selling Stores35% of the market

Discount25% of the market

Quality Discount10% of the market

Branded Stores30% of the market

?

No value addOnly selling

Added ValueConcept oriented

HighPrice

LowPrice

Different segments need different approach!Different segments need different approach!

The image of Mercadona

Where is Mercadona’s PL strategy effective in Spain?

Mercadona Market Share

The PL share index shows whether Mercadona‘s PL share in a category is higher/lower relative to the country PL share in a category

Colas

Other Flavoured Carbonates

Pure Fruit Juice

Still Mineral Water

Instant Coffee

Bean & Ground Coffee

Tea

Instant Drinking Chocolate

Beer

Table Wine

Margarine & Spreads

Total Milk

Hard Cheese

Soft Cheese

Processed Cheese

Yoghurts

Frozen Fish

Frozen Pizza

Frozen Ready Cooked Meals

Frozen Vegetables

Total Ice Cream

Tinned Tomatos

Canned FishCooking Fats & Oils

Packet Soup

Pasta

Breakfast Cereals

Chocolate Tablets/Blocks

Jam Chocolate Spread

Potato Crisps

Sweet Biscuits

KetchupsMayonnaise

Wet Cat Food

Dry Cat Food

Wet Dog Food

Dry Dog Food

Bleach

Fab Cond

HDD

Household Cleaners

Light Duty Washing Powders

WashUpLiqu

Deodorants

Hair Conditioning Products

Tampons

PadsPantyliners

Shampoo

Shaving Foams & Soaps

0,5

1

1,5

2

2,5

3

3,5

4

4,5

5,0 7,5 10,0 12,5 15,0 17,5 20,0

PL focus ineffectivePL focus effective

NB focus effectiveNB focus ineffective

Mercadona‘s PL focus is not equally effective. Why?

PL strategy effectiveness

HDD

CARREFOUR

DIA

EROSKI

MERCADONA

0,5

1

1,5

2

2,5

3

0,75 1,00 1,25 1,50

Market Share Index

Fabric Conditioner

CARREFOUR

DIA

EROSKI

MERCADONA

0,50

0,75

1,00

1,25

1,50

1,75

2,00

2,25

0,50 0,75 1,00 1,25 1,50

Market Share Index

Break Down the DriversMercadona Shoppers vs Competition: PL attractiveness

MERCADONA

DIA

CARREFOUR

CONSUM

ALCAMPO

CAPRABO

LIDL

HIPERCOR

EROSKI

Above averageBelow average

Low trust gap

High value gap and PQ-Inference

PL category status in Spain

Colas

Other Flavoured Carbonates

Pure Fruit Juice

Still Mineral Water

Instant Coffee Bean & Ground Coffee

Tea

Instant Drinking Chocolate

Beer

Table Wine

Margarine & Spreads

Total Milk

Hard CheeseSoft Cheese

Processed Cheese

Yoghurts

Frozen Fish

Frozen Pizza

Frozen Ready Cooked Meals

Frozen Vegetables

Total Ice Cream

Tinned Tomatos

Canned Fish

Cooking Fats & Oils

Packet Soup

Pasta

Breakfast Cereals

Chocolate Tablets/Blocks

Jam

Chocolate SpreadPotato Crisps

Sweet Biscuits

Ketchups

Mayonnaise

Wet Cat Food

Dry Cat Food

Wet Dog Food

Dry Dog Food

Bleach

Fabric Conditioners

HDD Household Cleaners

Light Duty Washing Powders

Washing UpLiquids

Body Creams/Skin Care

Dentifrice/ToothpasteDeodorantsHair Colouring Products

Hair Conditioning Products

Hairsprays

Oral Care (Mouthwashes &

Floss)Razor Blades

Sanitary Protection – Tampons

Sanitary Protection – Pads

Sanitary Protection – Pantyliners

Shampoo

Shaving Foams & Soaps

Toothbrushes

0

10

20

30

40

50

60

70

0 0,2 0,4 0,6 0,8 1

PL Attractiveness Index

corr = 0,59

Brand Opportunity Brand Hell

Brand ThreatBrand Heaven

Top Category Drivers of PL in Spain

SMALL Trust Gap between National Brands and Private Labels

SMALL Quality Gap between National Brands and Private Labels

SMALL Value Gap between National Brands and Private Labels

HIGH Private Label look-alikes of NBs

LOW Price-Quality Inference

HIGH production of PL by National Brands manufacturers

* Based on consumer perceptions

Production of PL by NB Manufacturers

June 2002June 2003

“PL products are made by the same manufacturers as branded”

62,4%

58,3%

TNS LifeSTYLES

Totally agree + Agree

Production of PL by NB Manufacturers

Why Fabric Conditioner and Bleach are in brand hell

0

10

20

30

40

50

TrustG

ap

QualG

ap

ValueG

ap

Packa

ge

PriceQ

ualIn

fPLP

rodby

NB

WashingUpLiquidsFabricConditionerBleach

Works against

PL

Works for PL

Because brands don‘t perform well on any of the key drivers of PL success,

though bleach is in even worse condition.

Category rank out of all

categories

Why Detergents are in brand hell

0

10

20

30

40

50

TrustG

ap

QualG

ap

ValueG

ap

Packa

ge

PriceQ

ualIn

fPLP

rodby

NB

WashingUpLiquidsFabricConditionerBleachDetergent

Works against

PL

Works for PL

Because brands have two major issues: People believe PLs are produced by NB manufacturers and (therefore?) don‘t see

much quality gap.

Category rank out of all

categories

Mercadona PL Strategy in Detergent

1.9 m above

the ground

Conclusions

Heavy Duty Detergent:

Examine quality gap versus PL. If there is a quality gap, persuasivebenefits may require better communication. If there is none, invest in R&D.Don’t produce PL.

Fabric Conditioner:

Bleach:

In summary

Mercadona is growing market share at a tremendous pace and at the same time increasing its share of PL sales.

Mercadona is using its power to “align” consumer perceptions of its PLs to NBs by showing the manufacturer’s name on its PLs.

Mercadona shoppers are not much more attracted to PL than average.

Mercadona’s success with PL differs significantly between categories.

Opportunity for category- and brand-specific dialoguebased on country-specific category drivers of PL success (trust gap, quality gap, value gap, package similarity, PQ inference, PL production by NB manufacturers)