Let’s talk about Retail(your partner in conquering the Consumer)

Joaquim BretchaManaging Director Iberia

Netquest

Top 25 Europa. Ranking Forbes 2009

The Retail has built large fortunes

$ Bn Rk $ Bn

1 Ingvar Kamprad IKEA 22,2 1 312 Karl Albrecht ALDI SÜD 21,5 3 273 Theo Albrecht ALDI NORD 18,8 6 234 Amancio Ortega INDITEX 18,3 11 20,25 Bernard Arnault LVMH 16,5 4 25,56 Stefan Perrson H&M 14,5 15 17,77 Liliane Bettencourt L'OREAL 13,4 7 22,98 Michael Otto ECE 13,2 14 18,29 Gerald Cavendish

GrosvenorReal Estate 11

10 Susanne Klatten BMW 10

20082009

Fuente: Forbes

THE “SUPPLY CHAIN”

Manufacturer’s Concentration: x 4 in 20 years

Retailer’s Concentration: x 11 in 20 years

x32

x 4

x 12

x 20

0,5

0,6

0,6

0,7

0,7

0,9

0,9

0,9

0,9

1,2

1,2

1,5

1,8

2,2

3,5

4,1

4,3

4,4

11,6

12,1

20,2Año 2007 Año 2008

CoviranBon PreuDinosol GrupoLa SirenaCondisAlimerkaEl ArbolGadisaEl Corte InglésAhorramásHipercorSabecoConsum CoopCapraboHiper EroskiLidlAlcampoSuper G.EroskiDia (*)Hiper CarrefourMercadona

0,6

0,6

0,7

0,7

0,7

0,8

0,9

1,1

1,0

1,3

1,2

1,5

1,5

2,7

3,7

4,3

4,0

10,8

11,7

19,6

3,4

(*) Dia en 2008 incluye Plus

The Food Retail Concentration. Top 10 accounts for 66% of the total market

Fuente: TNS Worldpanel

The Role of “Retail”

Retail is the key toaccess the consumer

THE SPANISH RETAIL SECTOR

Store Outlets Universe

THE SPANISH RETAIL SECTOR

Channel’s Share of Market

� Manufacturer’s Power

� Marketing to the end-consumer

� Focus on “Sell-in” Manufacturer

THE POWER SHIFT

Yesterday

� New Retail Formats

� Speculative purchasing: Hard negotiations

� “Amateur” sector

� Aggressive Hi-Lo promotions Retailer

�Natural Growth and diversity of consumption spending

Consumer

THE POWER SHIFT

Today (some “hours” ago)

Retailer

� Concentration and International Expansion

� Focus on innovation and technological differentiation

� Consumer and Shopper Marketing

� From “sell-in” to “sell-out”

� Retail Concentration. Big competition

� Focus on “Efficient management” and “cost savings”

� Marketing seeks differentiation and Loyalty Building

� More demanding to Manufacturers (price / service) Manufacturer

�The “big spender”

�Huge amount of products and point-of-sales options

�Convenience: the key factor Consumer

THE POWER SHIFT

Tomorrow belongs to the Consumer

Physical Barriers are falling downThe Role of “Retail”

Conceptual barriers are falling down (too)The Role of “Retail”

Net Margin:1% - 4% while a manufacturer would never be satisfied with less than a 10%

It is a high volume & low marginbusiness

The high rotation is responsible for the“value”

The whisky effect: the great discovery of Gerard Mulliez

The Role of “Retail”

Some figures for an average Supermarket chain(200 stores):

The moment of truth: shopper face –to - face• 400 categories• + 8.000 sku’s• Constant evolution of prices and products• Different Price levels according to catch-up areas• + 1.200 providers• 200 stores• 8.000 employees managed in autonomous cells• Logistics: from long distance to “the last mile”• Warehouses managing +25.000 sku’s• Food Safety laws

The Role of “Retail”

It is a very “demanding” business

THE

4 MARKETINGP’s

in

Retailing

ProductThe Shop.

“The Shopping Experience”

The Value Offer is the CommercialOffer by itself: the “neverending”sum of multiple elements

TIENDA

SURTIDO

RELACIÓN CLIENTE

-80

-40

0

40

80Modernidad

Compras agradables

Diseño tienda

Rapidez

Localización prod.

Confianza del establec.

Surtido

Continuidad surtido

Roturas stock

Prod. nuevos

Calidad prod. frescosCalidad-precio marca propiaPrecio

Ofertas

Folletos

Publicidad

Amabilidad

Disponibilidad

Profesionalidad

Información al cliente

Servicios

Preocupación social

CARREFOUR'04

CARREFOUR'03

MERCADONA'04

MERCADONA'03

DIA'04

DIA'03

Product

STORE

ASSORTMENTPRICE

CUSTOMER RELATIONSHIP

* La cuota de mercado pesa el 60%, el numero de tickets pesa el 40%** El margen % pesa el 30%, las ventas/ m2 y las ventas pesan el 25% cada uno, la rotación pesa el 20%.

Nota: Punto caliente presente solo en 43 tiendas

0

50

100

150

200

50 100 150 160

COMIDA PREPARADA

Punto caliente

CONGELADOS

PERFUMERIA

CHARCUTERIA

PESCADERIA

DROGUERIAFRUTAS YVERDURAS

CARNICERIA

SALADO

DULCELIQUIDOS CREMERIA

€80,000,000Ventas

Shopper’sRole*

Supermarket’s Role**

Trafico

Oportunista Base

Liderazgo

Media 100

Media 100PF

PGC

Leche

It’s a “location, location, location” business….that needs to work the Differentiation axis

Price The market is the Owner. Theretailer is just a “follower”

“Promotion”Advertising

Events at Store level

Retailers seek to differentiate. They invest in communication

• At the point of sale: Spending Builder

• External communication : Traffic Builder

They want to be the "master" of their actionsand, increasingly, seek originality in promotionalcampaigns and its communication

We will see new approaches to businesscustomers through technology and greatersophistication of marketing departments

“Promotion” Winning shopper’s loyalty

Loyalty Card:

Customized promotions

Customized communication

Couponing

Fresh product Quality

Home delivery service

web2.0

Store commitments

Inherent coherence

Place The Business Lung

Increasing clients

Getting more from the current clients

In a “volumetrical business”,

growth is the key issue.

Companies can grow by:

In a “volumetrical business”,

growth is the key issue.Companies can grow by:

Increasing clients

• Store Openings

• Traffic Attraction

Increasing clients

Getting more from the current clients

Store Openings

Traffic Attraction

Loyalty

+ Spending per shopping Trip

In a “volumetrical business”,

growth is the key issue.

Companies can grow by:

•Increasing the Parking space

•Increasing the baskets and carts size

•Volume promotions

• Shelves headers

• Fresh Products counters (service)

• Check-out merchandise

• Personalized Discount coupons

• Special Fresh Food Day

• Special discounts

How do Retailers increment the Average Basket Trip?

WHAT IS THE RETAILER’SOBJECTIVE?

TO ACHIEVE THE EXPECTED

PROFITABILITY

The Retail Goal: To reach the expected profitability

¿Which are the means?

EFFECTIVENESS EFFICIENCY

2 BASIC FLOWS:

PRODUCT & INFORMATION

ASSETS

RETAIL MAIN FUNCTIONS

PURCHASES

MARKETING

SALES

OPERATIONS

IT

HR

FINANCE/ CONTROLLER

• Product negotiation: cost price control

• Global and local Agreements with suppliers

• Quality Control

• Client : strategy / shopper link: CRM/ Advertising

• Operational: Category – product management: assortment, pricing, merchandising, promotions, ECR

• Point of Sale Management, Client Service, Team Management

• Stock Management and Efficient Shelves Replenishment

• Stocks Management: Orders / replenishment / transport/ storage

TECHNICAL

• Client Solutions

• Internal Management

• Recruiting / Training/ Motivation / Management / Control

• Finance Statement

• Cost, margin and investments Control

• Openings, Construction, maintenance and security

PURCHASES AND MARKETING FUNCTIONS

THE MANUFACTURER’S &

RETAILER’S LINK

Why call itCOLLABORATION if they mean NEGOTIATION?

1 Pressure on the incomestatement

2. The Retailer calls for mostof the “Consumers’ Booty “

3. We are expiriencing a real Price War

1,42

16

9,1

4,9

16

25

42

78

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Manufacturers Retailer

Cost of good sold

Fixed expenses

Variable expenses

Taxes

Net Profit

2,6

Source: Journal of retailing and consumer services15 (2008) 224-236, table 6, Marakon and INSEADclient expertise

Stylised cost structurefor retailers andmanufacturers

1. Pressure on the income statement

2. The Retailer calls for most of the “Consumers’ Booty "

Operational margins, 2006

3,4%

4,3%

4,6%

4,7%

6,4%

6,9%

8,8%

11,6%

12,7%

15,1%

21,8%

24,6%

Kroger

Auchan France

Carrefour France

Casino France

Tesco UK

Walmart US

Target

Nestlé

Unilever

Danone

L'Oréal

Pernod

Source : NATIXIS, A. Casas & C. Raux - Marges distribution-industrie sur 10 ans - Septembre 2007

3. A real Price War

MAS MADERA. ES LA

GUERRA!!

ANOTHER 18th JULY. THIS TIME, 2007.

BEARN & STERN “TRASH FUNDS” FALL

THE PERFECT STORM SETTLED IN SPAIN

… AND YOU SUDDENLY DISCOVER THAT WE ARE NOT WHAT WE THOUGHT TO BE RICH

2 BIG WARS IN ONE START

2.The “Brands’ War”:Manufacturers against Retailers

1. Price War between Retailers: The Open War

'Esta crisis es la tercera guerra

mundial pero sin balas'

“Inventiveness” by importing

“best practices(?)”

Common goal: to offer a shopping cart cheaperFocus on the axle unit price + basket composition (PL)

+ Price- Price

+ Brands

- Brands

* Datos obtenidos en base a 8.000 hogaresFuente: Worldpanel% Parte de Mercado Valor Total España Marca Distribuidor.

Total Alimentación + Bebidas (sin Frescos) + Droguería + Perfumería Familiar

The amazing growth of the Private Label

7,710,2

12,613,9

18,6

22,424,4

26,5 27,5 28,329,5 29,9

32,5

1991 1993 1995 1998 2000 2001 2002 * 2003 2004 2005 2006 2007 2008

Creates

While the Brands live their own war due to thefall of Consumption

Could we think the Time for Consumer has arrived?

THE POWER SHIFT

WITH THIS SCENARIO,

WHAT CAN BE THE ROLE OF THE“BUYER” IN RETAILING?

EFFECTIVENESS CATEGORY MANAGEMENT

Sales

EFFICIENCY NEGOTIATION

Product Margin

The Retailer’s Goal: To reach the expectedprofitability

CIFRA DE VENTAS 100

COSTE DE LAS VENTAS 75

MARGEN BRUTO 25Aportaciones Fuera Factura

MARGEN GLOBAL 28Pérdida DesconocidaPérdida Conocida

MARGEN COMERCIAL 25,5Costes logísticosDepreciación de stocks

MARGEN DE MERCANCÍAS 19,5Gastos de personalGastos de PublicidadAlquileresEnergíaGastos informáticosSeguridadOtros

CASH FLOW BRUTO 3,75Gastos FinancierosAmortizaciones

RESULTADO ECONÓMICO NETO 1,5

CUENTA DE RESULTADOS RETAILER

Simulation

profitability getting harder to get…

CIFRA DE VENTAS 100

COSTE DE LAS VENTAS 75

MARGEN BRUTO 25Aportaciones Fuera Factura

MARGEN GLOBAL 28Pérdida DesconocidaPérdida Conocida

MARGEN COMERCIAL 25,5Costes logísticosDepreciación de stocks

MARGEN DE MERCANCÍAS 19,5Gastos de personalGastos de PublicidadAlquileresEnergíaGastos informáticosSeguridadOtros

CASH FLOW BRUTO 3,75Gastos FinancierosAmortizaciones

RESULTADO ECONÓMICO NETO 1,5

CUENTA DE RESULTADOS RETAILER

Simulation

EFFECTIVENESS

THE GREAT OPPORTUNITY FOR MANUFACTURERS &

RETAILERS:COLLABORATION

…becomes essential to maintain sales …

CIFRA DE VENTAS 100

COSTE DE LAS VENTAS 75

MARGEN BRUTO 25Aportaciones Fuera Factura

MARGEN GLOBAL 28Pérdida DesconocidaPérdida Conocida

MARGEN COMERCIAL 25,5Costes logísticosDepreciación de stocks

MARGEN DE MERCANCÍAS 19,5Gastos de personalGastos de PublicidadAlquileresEnergíaGastos informáticosSeguridadOtros

CASH FLOW BRUTO 3,75Gastos FinancierosAmortizaciones

RESULTADO ECONÓMICO NETO 1,5

CUENTA DE RESULTADOS RETAILER

Simulación

EFFICIENCY

…and minimize costs

THE GREAT OPPORTUNITY FOR MANUFACTURERS &

RETAILERS:OPERATIONS

COLLABORATION

NEGOTIATION

The price is a critical variable in productmanagement and marketing strategy

The manager pursues 2 goals:

1. Section Profitability

2. Positioning Objectives in prices compared tocompetition

1. Section profitability

Simulation

SECCIÓN PERFUMERÍA 2010

CIFRA DE VENTAS 36.350.000

PROGRESIÓN % 3,50

MARGEN S/ PRODUCTO 21,05

OTROS INGRESOS 5,12

MARGEN GLOBAL 26,17

2. “Competitiveness objective”

The Retailer can work a single rate but it is usual to work differentrates depending on the area of influence and the target

98 100 102 104

T.1 BASE T.2 T.3 T.4

MARCA NACIONAL - MERCADONA + + +

MARCA PROPIA - MERCADONA MERCADONA + + +

PRIMER PRECIO DIA LIDLLIDL +

+ +

COMPETIDOR ALCAMPO MERCADONA EROSKI CENTER CAPRABO

The comparison with respect to competition is constant

2. “Competitiveness objective”

211

536

697

1.547

1.657

2.232

5.573

0 1.000 2.000 3.000 4.000 5.000 6.000

Lidl

Schlecker

Maxi Día

Mercadona

Eroski Center

Caprabo

Alcampo

Tomas de precio en junio por competidor(Total surtido)

Total: 12.453 tomas de precios

The screenings are intensive and sustained

2. “Competitiveness objective”

13

2. “Competitiveness objective”Price positioning

• To the Customer

• Toward Teams

The benefits due to an EDLP Strategy are evident

But they can be much more if we use technology to ouradvantage and manage the variable with "intelligence"

Constant Price changes may have manyimplications

While the storm obliges everybody to firmlyreact, there is no doubt that we all should be

preparing for the “dawn”

The“Shopper Marketing”

new Era

� Reality Bites: Healthy food

� Local knowledge

� Sustainability

� Fair enough

� Seniors

� Discount and Value

� Online shopping

� Own label vs brand

� A time for change

� At your convenience (“eat out at home”)

We are facing a new consumer that isshaping new patterns

� Fit to compete

� A sustainable future

� Backing the winners

� Reformating for success

� Seizing the opportunity

And Retailers must face the newchallenges globally…

� Differentiation

� Innovation

� Adapt to new emerging Categories

� Health

� Conveniencie

� Pleasure

� Price

� “Smart” balance on National Brands and Private Labels

� The Shopper Comprehension

� Building new communication links with their shopper

� Manufacturers partnership

…and their Marketing strategy locally

� Link up the Chain

� Know your customers

� Know your end consumer

What role it should play a leading Manufacturer?

Thank youJoaquim Bretcha Boix

Managing Director Iberia

netquestEmail: jbretcha@netquest.eswww.solucionesnetquest.com