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BACKGROUND • Market place increasingly challenged by deflation and
declining or stagnant market size. • Manufacturers and retailers rely more and more on “price”
as the only value driver.BOARD November 2004• The current trading environment, shaped among others
by discounters, has emerged because ECR retailers and manufacturers have not yet been able to totally fulfil consumer wishes.
• Price is only one value driver. ECR Europe recognises the role played by other value drivers (e.g. health, convenience, proximity, changes in household profiles).
• Major roadblock to value creation, implementation of ECR demand creation processes: the buyer-seller relationship looking on quick return rather than looking to build sustainable value foro the consumers and shopperso for the companies
THE RECOMMENDATION
• ECR Europe shall set up a project to improve Joint Value Creation Beyond Price.
The project aims at: • Review: explain/understand the environment• Encouraging a wider usage of Joint Business
Planning to increase shopper and consumer attraction and loyalty
• Present innovative solutions in the shopping experience and product offer which lead to market growth by addressing other consumer/shopper value than price.
THE EUROPEAN YEARLY CONSUMER BASKET SIZE
9400 9700 1000010500
1110011600
1220013000
13400 13800 14000
0
2000
4000
6000
8000
10000
12000
14000
1993 95 97 99 O1 2003Source: Eurostat, Final Consumption Expenditure of Households, yearly spendings per inhabitant
EURO PER HABITANT
THE EUROPEAN CONSUMER BASKET SIZE
Source: Eurostat, Final Consumption Expenditure of Households, yearly spendings per inhabitant
19%
19%
20%
20%
21%
21%
22%
22%
23%
23%
24%
1994 1998 2003
0
500
1.000
1.500
2.000
2.500
3.000
FMCG Share
FMCG Spend
FMCG: Food, Drinks, Household maintenance products, Personal care products
FMCG spend increasing but we are losing
share of household
consumption
How important is price to the consumer?
Price identified as important issue
Source: Eurobarometer – Spring 2003
14
22
15 14 14 13 13
4 3 2 20
5
10
15
20
25
EU-15
IT D E F BE AT UK NL S DK
Trade Marketing
Consumer Advertising
Consumer Promotion
Percentage of U.S. Marketing Expenditures
(2003 Total U.S. Marketing Expenditures - $1 Trillion)
Sources: M.Sorrell – ECR Paris - Donnelley Marketing; PROMO, Veronis Suhler, Cannondale Associates, PoP Insights (Losin’ that lovin’ feeling)
0%
25%
50%
75%
100%
1990 1995 2003
47% 51% 54%
28% 25% 18%
25% 24% 28%
Growing manufacturer investment in in-store marketing programs
Focus Shift
Brand buyer
Promotion buyer
Private labelbuyer
ALDI-buyer
23 %
15 % 17 %
11 %
10 %
15 %
(28 %)*
(37 %)*
(17 %)*
(18 %)*
How to read the chart (example): 23% of 100 brand buyers in 2000 turned in 2001/2003 into promotion buyers
source: Analysis based on GfK consumer panels in Germany
In total, 1% of customers changed channel
PLAYING ON PRICE DRIVE TO DISCOUNTERS
WHY? - LACK OF INVESTMENT IN INNOVATION
Source: Eurostat, growth at constant prices. <The Economic portrait of the European Union »
2.8 2.81.9
3.0
6.25.4
4.8
0.1
-1.9
-0.1
-4
-2
0
2
4
6
8
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Private Consumption Investments
Eroding consumption can be linked to eroding investment in innovation
Do you consider this an issue?
…. 41% manufacturers and 47% retailers think it is the biggest issue but only 16% of others (consultants).
0%
10%
20%
30%
40%
50%
60%
70%
biggest issuefacing theindustry
significantissue
small issue Not an issue
Manufacturer
Retailer
Other
Of the measures you use with your partner, which do you think is most important
…. Manufacturers think it is gross margin, retailers total profit
0%5%
10%15%20%25%
30%35%40%45%
% GrossMargin
SalesRevenue
GrossProfit
ShopperMeasure
Manufacturer
Retailer
Other
When you work with your partners how much time do you spend talking about consumer needs other than pricing and
promotion?
How long is our current business model sustainable ?
…. 50% of retailers do not think their business model will last more than 2 years
0%
10%
20%
30%
40%
50%
60%
1-2 years 3-10 years indefinitely
Manufacturer
Retailer
Other
3. Encouraging a wider usage of Joint Business Planning to
increase shopper and consumer attraction and
loyalty
Value Creation beyond price
Strategic Understanding
Shopper Understanding
JBP
Execute
Scorecard
Bas
is f
or V
alue
C
reat
ion
Impl
emen
tati
on
CRM
ECR Scorecard
Category Management
Promotion Tactics
Shelf Availability
NEW
POS Management
Using Traceability
Shrinkage
Consumer Direct Logistics
Efficient A
ssortment
Companies’ position, business objectives and KPI
Internal budget for sales and margin
Internal budget fine tuning, match of category/ customer plans with resources allocation
Tune potential by Customer/category to get target feasibility
Fix customer budget and set customer plans
Identifies potential to grow by Customer/category
Supplier Strategy
IMPLEMENTATION
QUARTERLY REVIEW
CUSTOMER STRATEGIC REVIEW
CATEGORY/CUSTOMER PLAN
Retailer Strategy
Look for consistency in categories/ point of sales Define category objective on: • Competitiveness• Offer segmentation• Own brand share
CHANNEL STRATEGY
Identifies a strategy by department/consumption occasion
CHANNEL MARKETING PLAN
category strategic plan
Strategic Understanding
ECR 31
Strategic Value Creation Options
Innovate
Effectiveness
•Customer specific
•Time specific•Location specific
SOLUTIONS
Efficiency
• Supply • Category •Joined business process
IMPROVE
Volume•Price•Shelf space• assortment/range
OPTIMIZE
JBP template - opportunityjoint business plan 2005
2004 sales 2005 plan %
What? When? How? Who?
Agreed by (Manufacturer)……………………………………………………………. Agreed by (Retailer)………………………………………………………………….
Position ………………………………………………………………. Position ………………………………………………………………...
• Co-operation is in all levels:Strategic planning• KPI’s and targets• New Solutions/InnovationsProcesses• Insights: consumer, shopper,
market…• Category Management
• Category Role• Category Assessment• Category Tactics:– Assortment– Promotions
– Pricing
• New Product Introductions• Supply Management• Integrated systems and
information
Category DefinitionCategory Definition
Category RoleCategory Role
Category AssessmentCategory Assessment
Category Performance MeasurementCategory Performance Measurement
Category StrategiesCategory Strategies
Category TacticsCategory Tactics
Plan ImplementationPlan Implementation
Cat
ego
ry R
evie
wC
ateg
ory
Rev
iew
New levels for co-operation
Working together beyond price
4. Present innovative solutions in the shopping experience and product offer which lead to market growth by addressing other consumer/shopper value than price.
Conference
Consumption driven trendsTassimo: Café quality beverages
with convenience delivered with new technologyFerrero: Easier to use & added-value
chocolate snacks combinations
Retail Innovation
Heinz: Different range for different time of the day Veropoulos: Shelf-space innovation
….to drive sustainable sales and value growth we need to
• Go back to basics – understand shopper and consumer needs
• Collaborate on joint business plans and broader measures to impact ALL value creation drivers
• Provide genuine innovations beyond price that improve the shopping experience and the product offering
…… Then we can deliver a win for our industry and a win for our shopper.
NOW LOOKING FORWARD….
Value creation beyond price Program
Framing the issue: – Deflation, commoditisation, reduce share of wallet for grocery – Definition of different values (consumer, manufacturer, retailer)– Roadblock: buyer-seller/cash/margin culture– The creation of long term value: economist and financial
perspectives, benchmark with other sectors, benchmark across categories
Process• Strategic alignment (roadmap of joint value creation collaboration)• Principles of Joint Business Planning• Business Planning: how to integrate various business processes
within your company and with your trade partners (Organisational design)
• Scorecard (measurement of value created and return )
Value Creation• Case studies - Shifting money from price to other value drivers • Benchmark categories: which are growing and how/what is driving
their growth. A contrario : categories destruction by price strategy