presented by: grocery webinar: charting the tipping points john rand senior vice president september...
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Presented by:
GROCERY WEBINAR: CHARTING THE TIPPING POINTS
John RandSenior Vice President
September 12, 2013
Alida DestrempeAnalyst
© Copyright 2013 Kantar Retail
AGENDA
• The Growth of Kroger
• The Shrinking of Safeway
• The Physical vs. Digital World
2
© Copyright 2013 Kantar Retail
Kroger Will Be a $100B Company This Year
How?
•Expanding its footprint (new stores, new banners)
•Building on new opportunities, expanding capabilities.
•Keeping existing stores productive & profitable.
•…plus a few more reasons
Source: Kantar Retail analysis 3
© Copyright 2013 Kantar Retail
Kroger Store Growth has Been Steady
• Slight store growth spurt during 2003-2004 as a result of its supermarket format expanding its footprint in existing operating areas.
• Post-recession, Kroger had kept building growth minimal
Source: Kantar Retail analysis; company reports 4
© Copyright 2013 Kantar Retail
Spending: Past & Outlook
Source: Kantar Retail analysis; company reports 5
$1,778
$2,126 $2,149 $2,150
$1,919 $1,898
$2,064
$1,700$1,900 $2,000 $1,900 $1,964
$1,764
$2,000
$2,400
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
2006 2007 2008 2009 2010 2011 2012
Capex Actual Capex Guidance
2013
US
D m
illi
on
$1,778
$2,126 $2,149 $2,150
$1,919 $1,898
$2,064
$1,700$1,900 $2,000 $1,900 $1,964
$1,764
$2,000
$2,400
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
2006 2007 2008 2009 2010 2011 2012
Capex Actual Capex Guidance
Capital Spend Allocation
© Copyright 2013 Kantar Retail
A Shift in Kroger’s Capex Spend
Source: Kantar Retail analysis; Kroger 2013 Fact Book 6
Supermarket Support = technology & logisticsOther Retail = c-stores & jewelryOther = Mfg, lease buyouts, other
Clues to Future Investment?Major supermarkets shrinking since ‘10
Minor supermarkets relatively stable
C-stores stableReal Estate
Development Growing
Sh
are
of
ca
pe
x s
pe
nd
© Copyright 2013 Kantar Retail
Where are the Growth Opportunities for Kroger?Small and Discounter Formats Seem Promising
Source: Kantar Retail analysis; company website 7
SmallerLarger
“Small Stores” Discount Format Price Impact Warehouse
© Copyright 2013 Kantar Retail
As Kroger Grows, Choices are LimitedHarris Teeter was a Great Option
Source: Kantar Retail analysis; Kroger 2013 Fact Book 8
Why?•Acquisition that is beneficial for all parties involved.•Will help strengthen both Harris Teeter & Kroger’s brand•Enables both to quickly become larger •Helps both maintain their leading positions while merging / blending capabilities.
New States for Kroger: DE, FL, MD
Expansion Opportunities: NC, VA, SC, TN, GA, DC.
© Copyright 2013 Kantar Retail
Kroger is Familiar with AcquisitionCorporate History Full But Its Been A While
Source: Kantar Retail analysis; kroger.com
1883-1925 1928-1955 1959-1970 1978-1990 1991-20032004-
Present
Sales growth
•1883: first store•1902: $1.7 million in sales
•1952: $1 billion in
sales
•1980: $10 billion in sales
•2005: $60 billion in sales
Acquisition/store growth
•1929: 5,575 stores
•1983: Dillon•1984: Tom
Thumb•1985: M&M
Super Markets
•1999: Purchases Fred Meyer
for $13 billion
Innovation•1930: Kroger
Food Foundation
•1972: experimental
scanner checkout system
•2004: dunnhumby
USA
Executive changes
•1930: Albert Morrill named Pres. & CEO
•1942: Charles
Robertson named head
•1964: Jacob Davis named Pres. & CEO
•1970: Herring named Pres. &
CEO
•1978: Everingham
named Pres. & CEO
•2003: David Dillon named
CEO
9
© Copyright 2013 Kantar Retail
Acquisition Creates Complexity
Source: Kantar Retail analysis; kroger.com 10
© Copyright 2013 Kantar Retail
Yet Creates New OpportunitiesA Good Kick to Move Out of Pilot Stage
Source: Kantar Retail analysis 11
VS.
Kroger’s digital initiatives have been in pilot mode for some time, though it is encouraging that the retailer brought on a
number of new hires to support its digital efforts.
• In-store kiosks
• Checkout scan systems
• In-store handheld scanners
• King Sooper’s HomeShop grocery delivery
•Testing grocery pick-up
VS.
© Copyright 2013 Kantar Retail
Blurring the Line Between Online & Store
12
Harris Teeter has one of the stronger models
Source: Kantar Retail analysis; retailer websites & store visits
© Copyright 2013 Kantar Retail
Still Won’t Lose Sight on its Existing StoresSales Per Square Foot
Source: Kantar Retail analysis; company reports 13
© Copyright 2013 Kantar Retail
Remodels Part of the EquationHistorically, Kroger has relied more on its existing stores
Source: Kantar Retail analysis; Kroger Investor Site and Store Visits 14
Local initiatives, entrance of new categories, better solution sets, use of digital, etc.
© Copyright 2013 Kantar Retail
Strategic Merchandising Efforts Get Involved!!
Source: Kantar Retail analysis; store visits 15
Mixing in GM
Solution
Brand Names Leveraged
© Copyright 2013 Kantar Retail
Implications for Suppliers: • Kroger’s scale has other consequences for suppliers:
– Leverage its bargaining power
– Increasing demands
– Cost to serve will go up
• Growth through New Formats
– Different format = different strategies (possibly different shopper)
– Pressure on suppliers to cut/change t assortment
• Harris Teeter Merger will Create New Opportunities, but New Challenges
– Transition of private label, pricing, shopper analytics
– Differences between Kroger and Harris Teeter shoppers.
– Digital will be a major part of merger
• Growth from Existing Stores
– New strategies underway… get involved!
Source: Kantar Retail analysis 16
© Copyright 2013 Kantar Retail
Shrinking of Safeway
17
© Copyright 2013 Kantar Retail
First: Understanding Safeway’s Financial Focus
• Safeway remains a financially driven company–Robert Edwards also has a strong financial background. He joined Safeway from Maxtor Corporation, where he served as EVP and CFO. Edwards also held executive leadership positions at Imation Corporation and Santa Fe Pacific Corporation.
Robert Edwards seems to be following Steve Burd
Source: Kantar Retail analysis 18
© Copyright 2013 Kantar Retail
Signs Safeway was Ready to Sell
Source: Kantar Retail analysis; company reports 19
• Heightened competition in the market may have a dampening effect on Safeway’s store performance.
• As years progressed, the attention toward non-core markets (non West Coast) took a back seat.
• Safeway has always been a financially driven company.
• Stock price trending downward.
• The selling of assets allow any retailer to lower its overall operating costs (on a total company basis) and help Safeway’s bottom line.
• Cash position was on a downward trend, selling of assets may help improve this metric.
Safeway’s Stock Price
Safeway’s Operating Cash Flow
© Copyright 2013 Kantar Retail
The Aftermath: Opportunities for Growth Yet the transition phase will be challenging
Source: Kantar Retail analysis 20
The Challenges
The opportunities
Though we are starting to see Safeway investing in it stores (through recent remodels), the
retailer continues to value shareholder opinions more than
operations.
Safeway may continue to struggle to widen its focus in the US, where
markets further from California are still struggling to compete amidst growing
competition.
Cash to Invest Narrow Focus
The U.S. operations will be even more dominant now that its Canada operations are no
longer in the picture.
Safeway generated a fair amount of cash from the sale of its Canada
operations (as well as Genuardi’s) which it can invest back in its stores.
© Copyright 2013 Kantar Retail
Narrow Focus May Be Good… We Are Starting to See Safeway Make Improvements
Source: Kantar Retail analysis; store visits 21
We can’t predict the future, but Safeway is shedding light on strategies that seem promising for its remaining US operations:
• Remodels, or “Lifestyle Enhancements”
• Aiming to fix center store issues
• Personalization
• Health & Wellness provider (coincides with private label)
• The “other” non-core grocery businesses
© Copyright 2013 Kantar Retail
Lifestyle EnhancementsDubbed “Next Gen Retail”
Source: Kantar Retail analysis; store visits 22
Center Store
Project
Center Store
Project
Living HealthyLiving
Healthy
Everyday EssentialsEveryday Essentials
Meals & Ingredients
Baby next to Pet
“Often families with babies generally have pets.”
– Robert A GordonSafeway VP & General Counsel
© Copyright 2013 Kantar Retail
May Help Solve an Industry Problem
23 Source: Kantar Retail ShopperScape®, February 2013
*Read as: Among suburban shoppers, 12% said they mainly shop the center store of the supermarket.Note: Arrows indicate significant difference between suburban and urban shoppers 90% confidence level)
• Making “wow” merchandising• Guiding,
directing, leading the shopper down
the aisle
© Copyright 2013 Kantar Retail
This is “MY” Trip Personalizing the Experience
24
The shopper’s expectation of tailored price, promotion, and product.
Source: Kantar Retail analysis; Safeway.com
© Copyright 2013 Kantar Retail
My SimpleNutrition Will Challenge SuppliersPush Shoppers Elsewhere
Source: Kantar Retail analysis; Safeway.com & Company Reports 25
Substitute items can be Safeway brands, as Safeway’s top branded
items fall in the “nutrition” bucket.
Developments:
•Plans on expanding Open Nature into 11 new categories in 2013. The retailer recently rolled out new items in cereal, meat, crackers, and dip.
•Continues to re-invent O Organics. More specifically, Safeway either revamped items in the dairy, baby, and produce categories in 2012 and will continue to do so in 2013.
•Made changes to Eating Right’s branding and packaging to better reach and speak to specific shopper groups.
© Copyright 2013 Kantar Retail
How Many People Affected?•In 2014, about 14 million people gain coverage—about 4% of population. About half covered via government (e.g., Medicaid)
•By 2022, about 30 million gain coverage—nearly 9% of population. More than one-third covered by government programs.
How Many People Affected?•In 2014, about 14 million people gain coverage—about 4% of population. About half covered via government (e.g., Medicaid)
•By 2022, about 30 million gain coverage—nearly 9% of population. More than one-third covered by government programs.
Health Care Reform: Key FactsImpact will be most felt in 2014
Sources: National Health Expenditure Projections, Centers for Medicare & Medicaid Services, U.S. Congressional Budget Office, and Kantar Retail 26
What is Profile of Newly Insured?•Tend to be healthier, younger and lower income than average population.
•About 57% are between 18 and 44 years old compared with 37% of overall population
•About 63% have annual household income of less than $50,000, compared with 43% of overall population.
What is Profile of Newly Insured?•Tend to be healthier, younger and lower income than average population.
•About 57% are between 18 and 44 years old compared with 37% of overall population
•About 63% have annual household income of less than $50,000, compared with 43% of overall population.
How Will Their Needs Differ?•Their spending is expected to skew toward prescription drugs, physician/clinical services.
How Will Their Needs Differ?•Their spending is expected to skew toward prescription drugs, physician/clinical services.
What is Overall Growth Impact?•Growth impact will be most evident in 2014, when there is biggest single-year addition of newly insured.
•Expected to add 2.1 percentage points to growth in U.S. health care spending in 2014
•In longer term, the newly insured will add marginally to growth in health spending, which primarily will be fed by an aging population and demand that improves amid a recovering economy.
What is Overall Growth Impact?•Growth impact will be most evident in 2014, when there is biggest single-year addition of newly insured.
•Expected to add 2.1 percentage points to growth in U.S. health care spending in 2014
•In longer term, the newly insured will add marginally to growth in health spending, which primarily will be fed by an aging population and demand that improves amid a recovering economy.
What is Category Growth Impact?•Growth in prescription drug spending that is 4 to 5 percentage points higher in 2014 than without health care reform.
•Growth in physician, clinical services that is at least 3 points higher in 2014 than without health care reform.
What is Category Growth Impact?•Growth in prescription drug spending that is 4 to 5 percentage points higher in 2014 than without health care reform.
•Growth in physician, clinical services that is at least 3 points higher in 2014 than without health care reform.
© Copyright 2013 Kantar Retail
Health & Wellness Store Within-A-Store Concept
27Source: Kantar Retail analysis; store visits & Flickr.com
Tying in pharmacyTying in pharmacy
Display signage that
ties to overall H&W
message
Display signage that
ties to overall H&W
message
Self-service station
Self-service station
Shelf /marketing signage lighting Shelf /marketing signage lighting
Extending Pharmacy Business Across the
Store
Extending Pharmacy Business Across the
Store
© Copyright 2013 Kantar Retail
Can Safeway Capture A Share of This?• Safeway did remarkably well in capturing Rx during the Walgreen’s /
Express Script stand-off last year
• Shoppers can discover the convenience of having Safeway prepare their ‘scripts while they shopped for grocery – and Safeway can gain a lot of traffic and basket
• Safeway has shown a lot of interest in health-care related programs in the past
Source: Kantar Retail analysis 28
© Copyright 2013 Kantar Retail
PharmacyThree Key Directions
Source: Kantar Retail analysis 29
Competition Investment Resources
Competition Investment Resources
Technology Staffing Availability
Technology Staffing Availability
Portability Information Empowerment
Portability Information Empowerment
© Copyright 2013 Kantar Retail
Alternative Revenue Growth EnginesBlackhawk, fuel growth continue to accelerate
Source: Kantar Retail analysis, company reports 30
Both are playing a larger role at the store levelBoth are playing a larger role at the store level
The expansion of its fuel program from 23% to 93% (343 stations to 2200) will help Safeway
build top line sales and enhance its value proposition. Safeway’s partner fuel rollout is on
track and in most of its U.S. divisions. The launch of Texas should be complete in the early
part of the fourth quarter.
Gift cards are being tied to more promotions.
Safeway’s newly remodeled stores
now feature gift card centers as a focal
point.
© Copyright 2013 Kantar Retail
For Now… Wait & SeeSupplier Implications
31
• Safeway’s past and present behavior are closely tied to its financially driven mindset
–Remodels vs. store expansion (focused on “premium stores”)
–Alternative revenue sources ( Fuel, Blackhawk, Property Development Centers (PDC))
– Private label penetration; higher-than-industry-average margins
• Know your item’s role in the new developments and enhancements of the Lifestyle format
• Help build basket size, increase trip frequency, and drive overall traffic as Safeway redesigns its center store strategy
• Assess your opportunities to participate in alterative resource programs: leverage gift card promotions, fuel promotions, etc.
• Align your brand to the Safeway “healthy living” brand it wants to create
• Know your item’s role in the new developments and enhancements of the Lifestyle format
• Help build basket size, increase trip frequency, and drive overall traffic as Safeway redesigns its center store strategy
• Assess your opportunities to participate in alterative resource programs: leverage gift card promotions, fuel promotions, etc.
• Align your brand to the Safeway “healthy living” brand it wants to create
© Copyright 2013 Kantar Retail
The Physical vs. Digital World
32
© Copyright 2013 Kantar Retail
Grocery Shoppers Leverage Digital Along PathFrom Digital shoppers to eCommerce purchasers, multiple planning activities
33
Create Demand
Navigate Store/Site
Select & Buy
Choose Channel
User Satisfaction
Advocate Community
Source: Kantar Retail analysis
Choose Trusted Source
© Copyright 2013 Kantar Retail
Off the Path: Impact of the Digital Shift
34
Much more digital activity in pre-trip planning for grocery
Trusted Source
(Zero-MOT)
FMOT SMOTMedia/ Awarene
ss
Source: Kantar Retail research and analysis
Shoppers more actively creating value
© Copyright 2013 Kantar RetailSource: Kantar Retail ShopperScape® June/Dec 2010, Sept 2011, March 2012, Sept /Dec 2012, March 2013
Smartphone Ownership(among primary household shoppers)
Digital Divide Difference between Gen Y and Boomer
Smartphone Ownership Incidence
June 2010: +18 pptDec 2010: +24 pptSept 2011: +32 ppt
March 2012: +34 pptSept 2012: +35 pptDec 2012: +31 ppt
March 2013: +38 ppt
35
All Primary Household Shoppers, March 2013:
Mobile is Now MandatoryAbout Half of U.S. Shoppers Have Smartphones(highest among youngest shopper cohorts)
© Copyright 2013 Kantar Retail
Mobile Creates New Promotional (& Pricing) Opportunities
Source: Kantar Retail ShopperScape®, November 2012 36
87% have accessed account via Web site on a computer
19% have accessed account via smartphone app
3% have accessed account via iPad app
Program has improved Safeway’s price perception
Program has improved Safeway’s price perception
© Copyright 2013 Kantar Retail
Promotion and Pricing Can Improve with Mobile
Source: Kantar Retail analysis; mysupermarket.com 37
Scours promotional offers to find better value across the same item:
-different pack configurations -find comparable substitutes between
private label and branded items
Scours promotional offers to find better value across the same item:
-different pack configurations -find comparable substitutes between
private label and branded items
© Copyright 2013 Kantar Retail
“Omni Transparent Pricing”
Source: Kantar Retail analysis 38
• Preferential pricing for specific retailers or channels is on the cusp of being unsustainable
• Diverting style behavior will absorb your entire price strategy by diverting your whole price list
– Implies a level of internal communication and alignment between customer teams and channels that rarely exists today
• Shoppers with smartphones can see retail pricing everywhere all the time
• Retailers also have smartphones – and more
© Copyright 2013 Kantar Retail
Taking Promotions to Digital Space
39
…Still Room for Improvement vs. Competitors
Source: Kantar Retail analysis; company reports & Kroger.com
“We’ve seen a gradual interest by our customers in connecting with this, both in traditional ways that continue to be strong, but also in digital ways. The
more we improve, the more we see those customers engaged.”
- David B. DillonChairman, CEO Kroger
“We’ve seen a gradual interest by our customers in connecting with this, both in traditional ways that continue to be strong, but also in digital ways. The
more we improve, the more we see those customers engaged.”
- David B. DillonChairman, CEO Kroger
Remember: Kroger was one of the first large US grocers to embrace ecoupons…
How Far Kroger Has Come:
Today: Kroger has recently updated its website and rolled out a second version of its mobile app.
Access coupons via website, social networks, and mobile.
© Copyright 2013 Kantar RetailSource: Kantar Retail analysis
Online•Unlimited space•Timeless• Accessible…
In-store•Experiential•Immediate•Involving…
“We don't want to be the leader in simply e-commerce, we want to be the leader in multi-channel commerce. We want to develop new ways for the customer to shop...”
-Former Walmart.com CEO Raul Vasquez, Oct. ‘09
Opportunity to build your category’s integration of communication tech for an
enhanced shopping experience
The Store Experience - New Directions
40
Leveraging Each Medium to Reach Customers
© Copyright 2013 Kantar Retail
Bridging the Gap Between Online & StoreA Cohesive Marketing Message Improves Experience
Source: Kantar Retail analysis; Pinterest.com & Store Visits 41
Making General Merchandise Important -Solution Selling:• Connecting to young shoppers through the use of popular social platforms. •Enhancing the shopping experience.• Providing solutions for dorm room ideas through clever merchandising displays.
© Copyright 2013 Kantar Retail
Average #
of
activities
that are
appealing:
2.4
Strong Desire to Use Retailer Apps While Grocery Shopping
42
None of these:46%
Would Ideally Like to Be Able to Use Primary Grocery Store's Smartphone App While Shopping in Store to …
(among shoppers with a smartphone)
Source: Kantar Retail ShopperScape®, May 2013
And Opportunities in Store
© Copyright 2013 Kantar Retail
From Home to Store
43
Leveraging Digital During the Shopping Experience
Source: Kantar Retail analysis; retailer websites
Simplifying the Grocery Trip:
• In-store navigation•Scan products to add
coupon/promo• Scan to purchase
© Copyright 2013 Kantar Retail
But There are Risks…Kinks in the System
Source: Kantar Retail analysis; store visits 44
© Copyright 2013 Kantar Retail
Gen X Participation More Retail Oriented
45
NOTE: Asterisk indicates significant difference between columns (95% confidence level); i.e., Gen X shoppers are significantly more likely than Gen Y shoppers to have purchased a product online in the past six months.
Source: Kantar Retail ShopperScape®, January 2013
Differences in Digital Activity Between Gen Y and Gen X Shoppers(digital activity during the past 6 months)
© Copyright 2013 Kantar Retail
Line Between Online & Store Blurring
46
Regional Retailers Put the Two Together
Source: Kantar Retail analysis; retailer websites & store visits
3
Store
Fulfillment of online orders through picking from the
shelves of existing stores
Shopper Picks Up
Fulfilment2
1 Website
Pick up in-store at dedicated kiosk
Drive
Fulfillment from dedicated warehouse
Pick up at warehouse from dedicated pick up points
© Copyright 2013 Kantar Retail 47Source: Kantar Retail analysis
Amazon-led Market- Item-based- Mail-based delivery- Non-grocery categories
Grocery-led Market- Basket-based
- Van delivery- Driven by grocers
“Mixed” Market- Item based
- “Self-service”- Driven by hyper
retailers
Globally, Despite Starting with Different ModelsAll models are moving towards Click & Collect innovation
© Copyright 2013 Kantar Retail
What Types of Drive Models are There?
The drive format can be rolled-out in two different ways:
48
Standalone Drive: e.g. Chronodrive, Casinoexpress
Attached to a store: e.g. Leclercdrive, Auchandrive, Intermarché, Tesco
Sub-types:
• Next to a store: same location, but specific supply system for a limited assortment.
• Store Picking: the assortment is usually larger, the same assortment as the hypermarket or supermarket alongside.
Drive store Drive store
Store
Example of store picking
Source: olivierdauvers.fr
© Copyright 2013 Kantar Retail
In US, Peapod is Testing the Drive Model,
Peapod to open 3 suburban sites for grocery pick-upSeptember 10, 2012 | Chicago Tribune
Peapod, the Internet-based grocery retailer, will open three locations in the Chicago area this year where customers can pick up their orders rather than waiting for home delivery.
“Customers who live within a 10-mile radius of the three locations will be allowed to choose to pick up their orders in 1 hour time slots, 7 days a week”
Chicago area: Palatine, Schaumburg & Deerfield
49
Pick-up fees:•Free at first,
eventually $2.95 per order
•Compares with $6.95+ for home
delivery
Pick-up fees:•Free at first,
eventually $2.95 per order
•Compares with $6.95+ for home
delivery
Source: Kantar Retail analysis
© Copyright 2013 Kantar Retail
Online Grocery… Is HereCompetitive dynamics will accelerate response
Source: US Dept. of Commerce, Kantar Retail analysis, photo cred: splendidmarket
Online Share of Food, Drugs, HBA
26% CAGR
© Copyright 2013 Kantar Retail
Multichannel is the Future…
–While retailers have been “talking” multichannel, actions are only just beginning to catch up• Culture still revolves around the Store• Significant investment in infrastructure required – time & $• Leading retailers like Walgreens are making great strides
–For grocery, Europe offers interesting precidence• Granted geographic density differences will lead to different solutions
due to profitability, concepts like Auchan Drive could be the future (starting to see it with Peapod)
–Be flexible, willing to test & learn to grow partnership• Technology evolving in half-lives; experimentation mindset key• Leverage the best of each channel to meet the shopper’s needs
51Source: Kantar Retail analysis
© Copyright 2013 Kantar Retail
501 Boylston StreetSuite 6101Boston, MA02116
F +1 630 245 5647
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585 S. Front StreetSuite 50Columbus, Ohio43215
F +1 630 245 5647
www.KantarRetailiq.com
John Rand
Senior Vice President
John.Rand@kantarretail.com
P +1 617 912 2860
Alida Destrempe
Analyst
Alida.Destrempe@kantarretail.com
P +1 614 355 4030
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