my brand, your brand, our brand: three keys to mutual value in supermarkets mike paglia principal...

MY BRAND, YOUR BRAND, OUR BRAND:THREE KEYS TO MUTUAL VALUE IN SUPERMARKETS

Mike PagliaPrincipal Analyst

Alida DestrempeAnalyst

21 November 2013

Grocery Webinar


Retailer Branding and the Role of the Supplier


• Strong sales growth

• High market share

• Clear, well known brand

• Strong internal culture

All These Retailers Have Something in Common

Source: Kantar Retail analysis 4


Setting Up in a New Market is a Challenge

• No share

• No messaging

• No familiarity with shoppers



The Work Starts Long Before the First Store Opens

Source: Kantar Retail analysis; company materials 6

Outreach and relationship building is an inherently slow process. Without it, a new

retailer is just that….another retailer

Outreach and relationship building is an inherently slow process. Without it, a new

retailer is just that….another retailer


Reach: The First Half of Right MessagingGet the vehicle right

Source: Kantar Retail analysis; Facebook, Twitter, Pinterest; company website; YouTube 7

Traditional

Transitional Transformative

Getting this right requires robust data analysis but also applied research and in-market, on the ground observation

Getting this right requires robust data analysis but also applied research and in-market, on the ground observation


Relevance: Other Half of Right MessagingContent is equally important


1. Enthusiasm

2. Clarity

3. AUTHENTICITY

1. Enthusiasm

2. Clarity

3. AUTHENTICITY


Authenticity – Keep it RealEmbrace the role of the “new guy in town”


1. Acknowledge newcomer status

2. Explain who you are

3. Show how happy you are to be here

4. DON’T pretend you’re a local

Regional retailers tend to be better at this than national players

1. Acknowledge newcomer status

2. Explain who you are

3. Show how happy you are to be here

4. DON’T pretend you’re a local

Regional retailers tend to be better at this than national players


Willingness to Stretch

• Fact: This may not be a familiar market yet

• Fact: Tried and true branding and engagement initiatives may be less effective

• Fact: Engaging with a new shopper base means adapting existing outreach efforts for a new environment or launching new initiatives

Intangible but essential


Be willing to take measured risks while staying true to your

brand

Be willing to take measured risks while staying true to your

brand


How Suppliers Can Help


Retailer Consideration How to Assist

ReachPartner with customer to:•Evaluate effectiveness of current efforts in a new market•Identify key media channels utilized by shopper segments•Ramp up new media capabilities

Relevance• Develop program to identify resonant themes across retailer

brand, supplier brand, and shopper expectations• Leverage existing shopper insights to educate retailer on key

points about new shopper base

Authenticity

• Work with customer to co-develop a campaign that educates shoppers about incoming retailer, what makes them different, and generate excitement about entering a new market

• Develop a list of “don’t do’s” in order to avoid creating negative impressions

Willingness to Stretch• Foster a collaborative relationship that includes a willingness to take

calculated risks• Establish a system for scenario planning in order to anticipate

potential outcomes


Private Label Predicament


Private Label as a % of Total 2012 SalesUS Average – 18.7% of Sales; 23.7% of Units

Source: Kantar Retail analysis

Note: dollar figures at WMT reflect grocery sales only

23% 24% 20% 18% 16% 16%

13


Almost All Retailers To Grow “Own Brands”

• Ahold announced a 40% target

• Kroger and Safeway both include growth of own brands in their earnings conferences

–And both act as contract manufacturers and suppliers of retailer brands to other retailers

• Growth of Aldi and Trader Joe’s set a standard of the possible

• Preferential shelf and positioning is endemic

• Branded marketing and product development talent is now common

Any Way They Can

14


A Component to Value PerceptionPrivate label plays a large role – but as expression

Source: Kantar Retail analysis; store visits & MyPBrand.com

2012: Ahold re-launched

Guaranteed Value

-Price 20%-25% below branded items

-60% of items $2 or less

-80+ items $1 or less

Heavily executed in value aisle

Rebranding value product lines to further push “quality” on top of “inexpensive”

2011 “My Essentials”

•Designed to beat competitors'

branded products and prices

•Tested to beat competitors’ taste

as well as performance

15


The Retailer’s Motivation Finance vs. Brand Orientation


• Gross Margin• OPP competition

• Sourcing flexibility• Merch ladder

•Banner image•Innovation

•Differentiation•Loyalty

Retailer’s Primary Motivation

BrandFinance


What is the Source of Power? Incandescent vs. Reflective Equity


Reflective

Incandescent

The source of thePrivate Label’s “power”

•Relies on national brand’s equity•Similar graphics, ingredients

•Invites price/value comparison

•Makes its own “light”•Unique ingredients, packaging

•Limits comparability•Often cross-category umbrella


A Clarifying Framework Private label’s 4 strategic quadrants


Trade Up

Trade Down

Leverage PL Image$

Leverage National ImageBanner

BrandFinance

Reflective

Incandescent

PO

WE

R

MOTIVATION


The Bottom Left Quadrant:

• Primary motivation is margin-driven.

• “Differentiation” is (honestly) non-existent.

– Positioning across retailers is more or less identical

– Brand equity still dictated by national brands

• This strategy frustrates branded manufacturers (and can rationalize weak brands off the shelf), but doesn’t threaten strong brands.

90% of retailer PL programs today


Finance

Ref

lect

ive

• “Knock-off” nature

• Price as the purchase driver

• Trade-down focus

H-E-B Meijer


Many Retailers Have Evolved the Model

• Several variations–Retailer intensifying their brand positioning

–Packaging innovation

–Masterbranding beyond the retailer name


Brand

Ref

lect

ive

• Strong branding features

• Still reliant on national brand equity


Finance

Inc

an

de

sc

en

tThe “Incandescent Finance” Model Is a Business Model as Much as a Brand

Source: Kantar Retail analysis, store visit 21

• “Model based” Private Label

–Retailer business models engineered at this outcome

–Typically limited assortment, high SKU velocity

–Typically predominantly private label

• Creates economic returns that are unique and highly lucrative when done right!

• Brand stands alone

• Gross margin-driven

Aldi’s private label


This Is Not Your Mother’s (Or Grandmother’s) Aldi Anymore…

Source: www.aldifoods.com 22


Bringing it Back…Where to Next?

Source: Kantar Retail analysis; store visits & retailer websites 23

BrandFinance

Reflective

Incandescent

PO

WE

R

MOTIVATION

Trade Up

Trade Down

Leverage PL Image$

Leverage National ImageBanner


Brand Message Outweighs Brand Structure

Source: Kantar Retail analysis; Safeway.com 24

A quick look at Safeway’s private label portfolio

BrandFinance

Reflective

Incandescent

PO

WE

R

MOTIVATION

Value

Nutrition

Convenience

Experiential


“The New Premium” Addresses Key Questions About How, What and Why?


Transparency

Preservation

Purpose

How

What

Why

Authenticity

Health

Community

Sustainability

Wellness

Personal Social


What Can Suppliers Do Today?

• Private label is intertwined with overall brand development

–And its level of sophistication is growing rapidly

• Retailers WILL differentiate. If national brands can’t find a way to help with that, they have little choice but to do so on their own

• Suppliers need to accept private label as part of the overall landscape on the shelf

–And understand how their items fit into this dynamic mix

• Private label is becoming more sophisticated, compelling suppliers to raise the bar

–For example, H-E-Buddy & Central Market, Safeway’s Open Nature



Industry Implications

• More systematic understanding of retail PL strategies critical

– Promotional strategy a big piece of this puzzle

• Assessing retailers by their private label “home quadrant” will enable better alignment with suppliers

– Be aware of where they might be seeking to migrate

• Retailers are increasingly taking innovation “in-house” in terms of product design, marketing, and graphics

– National brands will face mounting challenges

• Growth in the “new premium” arena will require values-based, two way conversations

– Technology-enabled dialogues favor retail brands

– Premium retail product brands difficult without a clear retail brand

• Private Label will be a vital pillar in shoppers’ sense that they have a relationship with their retailers of choice


It won’t be as important for shoppers to feel aligned with the retailer….it will be more important for shoppers to sense that the retailer is aligned with them.


Sources of Customer Error in Grocery


1. Lack of Internal IntegrationImpacts ROI of key capabilities


“dunnhumby has helped me reset my understanding of what the customer is after, and it helps replace intuition with actual data and actual facts. And it’s those facts that are driving our decision-making.”

- David B Dillon, Chairman and Chief Executive Officer at Kroger

“dunnhumby has helped me reset my understanding of what the customer is after, and it helps replace intuition with actual data and actual facts. And it’s those facts that are driving our decision-making.”

- David B Dillon, Chairman and Chief Executive Officer at Kroger

Data Capable

Data Averse

Data Integrated


Lack of Internal IntegrationCentralization is a balancing act


Centralization:Leveraging Scale

Localization: Leveraging local

relevance and expertise

Maximize Efficiencies

i.e., Assortment done centrally

i.e., CerealLittle variation by region, less flexibility for localized SKUs

Maximize Effectiveness

i.e., Local SKUs filled-inby individual banners

i.e., BBQ sauceVariation in taste from NC to TX; more

space allocated for local decision


No Integration = DisintegrationThe parts have to work together


SupervaluWholesale


28.4%

22.9%

28.6%

23.2%

28.3%

22.2%

27.0%

20.9%

26.5%

20.6%

10%

15%

20%

25%

30%

Safeway Kroger

2. Flawed Metrics Create Flawed Strategies

Source: Kantar Retail analysis; company reports; Kantar Retail Trade Promotion study 2012 32

2008

2009

2010

2011

2012

2008

2009

2010

2011

2012

Gross Margin

Sales CAGR‘08-’12


Better Metrics Move to the RightEvolved to be more holistic

33

Trade-off thinking begins – Margin vs. Velocity

C A T E G O R Y

C A T E G O R Y

ITEM

ITEMI

TEM

ITEM

Rebates

Trade Spend

% Margin

Sales

Margin $

InventoryTurns/GMROI

Return on Capital/

ABC

ITEM

Inventory

Property, Plantand Equipment

Gross Margin

OperatingExpenses

Source: Kantar Retail analysis


3. Failure to Adopt an Omni Channel ViewEveryone vulnerable to Amazon

Source: Kantar Retail ShopperScape®, January–December 2008 and 2012 34

*Read as: In 2012, 71% of monthly Nordstrom shoppers shopped Amazon.com during the past four weeks.Arrows indicate percentage point difference, 2008 v 2012.

Amazon became the most cross-shopped retailer in 2012 … replacing Walmart

Amazon became the most cross-shopped retailer in 2012 … replacing Walmart

2008

2012


Ominous Words?Online grocery is small….for now

Source: Kantar Retail analysis; company reports & materials; WSJ.com 35

“I understand some people like that … but there’s still a large percentage of customers that like to get out and have that interaction with friends and neighbors in their community as they walk through the store…I wouldn’t be too quick to assume that the leap to home delivery ends up replacing everything,”

-David Dillon, Kroger CEO 10/30/13

“We’re putting our focus where our customer is today … and when you look at our industry today, e-commerce makes up a tiny, tiny percentage of the food business.”

-Kroger spokesman to WSJ, 10/30/13


Amazon Fresh: Grocery DeliverySet to expand, testing new model in new markets

Source: Fresh.Amazon.com, Consumer Reports interview, Kantar Retail analysis 36

No immediate plans for AmazonFresh. It will stay

a pilot until Amazon is able to “figure out how to

do it economically.”

No immediate plans for AmazonFresh. It will stay

a pilot until Amazon is able to “figure out how to

do it economically.” - CEO Jeff Bezos, May 2011-> Los Angeles, May 2013-> San Francisco, Oct 2013

Featuring local businessesFeaturing local businesses

Order multiple ingredients with one click…aka solution

selling

Order multiple ingredients with one click…aka solution

selling


A Moment of SilenceFailure to Adapt



4. Taking An Eye Off of Non-Supermarket CompetitionEdible sales % by channel


Note: %s are Kantar Retail estimates

US

D B

illi

on

s


Clubs Have a Fundamentally Different ModelWhich many retailers and suppliers don’t fully grasp

Source: Kantar Retail analysis; company reports; store visits 39

2008

2009

2010

2011

2012

Gross Margin 2008 – 2012

Supermarkets take the “me too” approach to product but

miss the model


What So Many Miss:The fundamental club model

Source: Kantar Retail analysis; Company reports 40


Value Discounters Are a Common Shopping Destination among Supermarket Shoppers

*Read as: 28% of all past 4-week conventional supermarket shoppers also shopped Dollar TreeHighlighting indicates significant increase from same year-ago period

Supermarket Shoppers Cross-Shopping Into Value

2010 2011 2012

Dollar Tree 24% 26% 28%*

Dollar General 20% 22% 24%

Family Dollar 15% 17% 18%

ALDI 10% 11% 13%

Save-A-Lot 6% 6% 7%

Source: Kantar Retail ShopperScape®, January–December 2010, 2011, and 2012 41

Push to Brand Names

Push to Brand Names

Modifying the Existing Box: Making Room for Consumables


Suppliers Need to Understand the Retailer’s Core Brand Position

Source: Kantar Retail analysis; company reports; store visits 42

Value Convenience

Dollar stores makes it

easier for shoppers to save money


How Suppliers Can Help

• Initiate T2T conversations and make sure these points are on the agenda

• Teach, show, consult on how better metrics will foster growth for all parties

• Demonstrate the need for customers fully understand their own strategy, their competitors’ strategies, and how they intersect

• Help customers understand how non-supermarket business models work and how they differ from their own

Be a partner



Contact:

Mike PagliaPrincipal [email protected]

T: +1 617 912 2855www.kantarretailiq.com

John RandSenior Vice [email protected]

T: +1 617 912 2860M: +1 508 667 3321www.kantarretailiq.com

Alida [email protected]

T: +1 614 355 4030

www.kantarretailiq.com

my brand, your brand, our brand: three keys to mutual value in supermarkets mike paglia principal...

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