Speed: The Consumer is Changing Faster than the Food Industry can change

Richard Kochersperger

Summer 2012

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Industry Gurus

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Tell Me and I Forget

Teach Me and I Remember

Involve me and I Learn

Ben Franklin

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Goals/Objectives

• Reality Check: An American Economic Perspective

• View of the Food Industry: Retail/Foodservice Competitive Landscape?–Winners and Losers

– Impact Players

– New Developments

• Speed: Key Issues and Opportunities

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Reality Check

Federal Spending

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Reality Check

American Employment???• Available Workforce: 155 million• Unemployed/underemployed: 29.7 million• Real Rate: 19%• Rutgers Study: 2006-2011– 27% of the graduating students have full time jobs– 33% are unemployed

• The median family income dropped 39% since 2007

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8.2

Reality Check

Reality Check

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Reality Check

• 1 in 7 Americans; 1/10 Canadians are challenged to feed themselves

• 2 Billion people worldwide do not have enough food to eat!

• 40% of global food resources are wasted– Not harvested– Spoils– Thrown away

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The “Have” and “Have Nots”

Food Inflation

6.6%14

Industry Performance• Whole Foods: 9.5%

• Fresh Market 8.2%

• Costco 7.1%

• Dollar Tree 5.6%

• Target: 5.3%

• Food Inflation 5.2%

• Publix: 4.2%

• Fresh and Easy: 3.6%

• Ahold: 2.9%

• Wal-Mart:2.6%

• Safeway: 1.0%

• Weis Markets: 0.9%

• Delhaize: Food Lion/Hannaford: 0.6%

• Ingles: 0.1%

• Tops: 1.8%

• Roundy’s: 2.1%

• Supervalu: 5.1%15

Closing Thought

Excellence is not a skill.

It is an attitude. ~Ralph Marston

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10 Food Companies Dominate

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Food Retail Industry Graveyard

Food Retail Industry Graveyard

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Food Industry E R

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Food Industry E R

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Food Industry Winners

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Foodservice Industry Winners

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Big Moves• Target goes to Canada: 130+ stores; rolls out P-

fresh format across the US: 436/200+• Wegman’s moves into Boston/King of Prussia• 7-11 Targets the Big Apple• Wawa goes South to Florida• Agro Trade shows up in Miami• America runs on Dunkin’• Family Dollar opens 500 new stores; Partners

with McLane• Supervalu to Close Ohio DC

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Big Moves• Shop Rite grows in Baltimore• Harris-Teeter moves into Washington DC• Bottom Dollar to Eastern Ohio• Spartan intros Valuland• Aldi comes to Houston• Price Chopper Limited• Fresh Market opens in California• Couche-Tard acquires Statoil Fuel & Retail• Dollar General: 625 stores/40 DG Market• PFG buy Institutional Food House• US Food buys New City Packing

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Consumer Reports 2012

• 33% changed primary store

• 43% looking for lower prices

• 25% poor selection, long lines

• 17% employee rudeness• Not enough checkouts

• Wegmans 88• Trader Joe’s 86• Publix 85• Fareway 84• Costco 83• Harris Teeter 83• Raley’s 82• Hy Vee 82• Stater Bros 81• Winco 81• Whole Foods 81

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2011 Retail Market ShareNumber of

StoresDollar Share Annual Millions

Traditional Grocery 40,333 46.8% $480,138

Total C Stores 152,513 15.4% $158,546

Total Non Traditional Grocery

54,325 37.8% $387,529

Dollar Stores 23,418 2.1% $21,492

Total All Formats 247,081 100% $1,026,215

Future of Food Retailing, 2011 Willard Bishop

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Future Growth

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Food Service Marketplace

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Closing Thought

• FMI2012: Supermarkets Must Adapt to 'Stunning Changes,' Sarasin Says

• The store as we have known it for the last half a century is being redefined.

• "No one is safe from the vicissitudes of change that continually rock this industry, in which technological earthquakes alter the landscape daily and sometimes even hourly.“

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Amazon.com

• Sales: $48 Billion

• 55% North America

• 45% International

• Profits: $862 million

• Inventory Turnover 11/33 days

• Accounts Payable 72 days

• More e-books than hardcover and paperback

• Wide variety of products: clothing, shoes, sporting

goods, FOOD!

Amazon Supply

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Amazon Supply

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Amazon: My Habit

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Amazon: Zappos

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Amazon Quidsi

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Amazon: Kiva

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2015: 3rd largest in the World

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Continuous Innovation, 2020+

World’s Largest E-Commerce Co

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• Walmart serves customers more than 200 million times per week at more than 10,231 retail units in 27 countries through 69 banners

• WalMart employs 2.2 million associates globally, including almost 1.4 million in the United States.

• Walmart is one of the largest private employers in the U.S., the largest in Mexico and one of the largest in Canada as well.

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Wal-Mart Financials

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Source: A.C. Nielsen Channel Service

Over 75% of Walmart Supercenter volume is being captured from retailers in other major channels.

Each new Walmart Supercenter averages $1.7million in sales per week (roughly $900,000 in supermarket item volume).

If Walmart takes 5% to 7% of the $710 billion grocery industry in 2012, Walmart will add $35 - $50 billion

SupercenterSource of Volume

33%All

Other

32%GroceryChains

22%WalmartDiscount

Stores

13%OtherMass

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69 different banners through out the World

Wal-Mart Growth

Format Actual Projected Projected

2012 2013

Large Format

>60,000 sq.ft.

153* 120 130

Medium/Small

<60,000 sq.ft.

1 30 90

Sam’s Club 9 9 15

Total 163 159 235

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*43 remodels to Supercenters

Walmart Innovations

• Experimenting with grocery home delivery– San Jose, San Francisco, Chicago.

• Introduced ‘Goodies’ – Subscription service for new products not carried

in inventory

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Farmers Markets

2011: 7,175

Target• 462/200 stores P Fresh

• 5% Redcards Rewards

• Move into Canada

• City Target: Chicago, NY, Seattle, SF, LA

• Shopping on the GO

• 5% of profits to back to communities

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Target Move to Food

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Which Food Store?

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Walgreens

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Walgreens

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Walgreens

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Trader Joe’s

• 370 stores

• $8.5 Billion sales

• 4,000 sku’s

• $1750 sales/per sq foot

• Eclectic mix/Treasure Hunt

• Hawaiian Shirts

• Great Customer Service

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Dollar Stores

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Tesco

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Tesco

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Lost $1.2 billion

Wegmans

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W h e n t h e r e

I s n o v i s i o n ,

t h e p e o p l e

p e r i s h !

The Consumer Drives the Food Supply Chain

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Customer’s Perspective

•Anytime: 24/7/365•Any Place: Format•Anywhere: geography•My Way! 65

Future Food Shopping

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Self Checkout

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Scan-Bag-Go!

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Scan IT!

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Robot Shopping

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Next Generation of Shopping

Try on clothes in 3D, share photos with friends, and store wish-listed items on smart phones

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Next Generation of Shopping

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QR Quick Response Barcode

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A QR code (abbreviation for Quick Response code) is a specific matrix barcode (or two-dimensional code) that is readable by dedicated QR barcode readers and camera phones.

Virtual Stores

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Automatic Shelf Replenishment

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Edeka/Witron: Germany

Drive Through: Europe

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Drive Through: Auchan

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Food Comes to U!

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Everyone wants a piece of your business!

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Substitution: Big Box for SmallDigital for Both

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Evolution of E/M/F Commerce

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E/M/F Commerce

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Evolving Marketplace

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E Commerce: Segmented

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Free Shipping: E Commerce

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% of Total Category Sales Online

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On Line Food Sales

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Social Media

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Social Media

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Mobile Ecommerce

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Social media marketing is going to blow the shingles off the roof once people really figure out how to use it

Megan O’Connor, Levi Strauss

• Mobile Stats:

• 5.9 Billion subscribers

• 8 Trillion SMS messages sent in 2011

• 11+ Billion apps downloaded, 1 in 4 never used again

• The number of mobile searches quadrupled in the last year

• 8.49% of global web site hits come from mobile

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Mobile Ecommerce

FCommerce

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F Commerce

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Ipad/Tablet Changes the World

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Future Connectivity

95http://www.youtube.com/v/uIzNmVMOYm0&fs=1&source=uds&autoplay=1

Key Observation

• “Insanity: doing the same thing over and over again and expecting different results.”

Albert Einstein

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Complexity

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Food Logistics Issues

• Shortage of Human Resources• Energy • Environmental/Sustainability• Technology• Urbanization• Ethnic Demographics• Speed: the ability to react to make decisions,

quicker, faster, more effectively than your competition!

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Work Force Shortage

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Driver Shortage

• Estimates: As high as 400,000 by 2015

• Government regulations will eliminate at least 5% of the drivers

• Increase in freight rates at 5%/yr for inbound products

• Increase in inventories to prevent outs due to shortage of drivers

• Outsourcing will not solve the problem!

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DC: Automation

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Take Fingerprints off the Box!

Transportation

• Improve driver performance through education and training

• Intermodal/Rail

• Collaboration/Consolidation

• DSD strategy

• Customer Incentives

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Energy

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Energy

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Alternative Fuels

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Electric

Natural Gas

Green Supply Chains

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Smart Way Transportation

• Aerodynamics

• Super Singles

• Auto Tire Inflation

• Low Viscosity Lube

• Hybrid Power

• Automatic Transmission

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Technology

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Expanded Bar Codes

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Temperature Sensors

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RF-IDAlive and well!!

Developments:

– Eliminate the check out process at the store

– Improve inventory management

– Reduce mistakes unloading products inbound/outbound

– Monitor temperatures throughout supply chain

– Minimize paperwork

Control Towers

• Proctor/Gamble, Sysco, Walmart, Supervalu• Centralized Traffic and Transportation• Incorporates sophisticated software to analyze/see

all routes/equipment; inbound and outbound• Optimize entire supply chain: Visibility and

Control• National Bids• Convert to customer pick up• Full Trucks/Balance workload

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Satellite Communications

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V to V: Cars, Trucks,Airplanes, Trains

Nanotechnology

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Contamination Sensors Pesticide ReductionAnti microbial Packaging Tracking, Tracing, Brand ProtectionImproved Food Storage TextureEnhanced Nutrient Delivery FlavorGreen Packaging Bacteria Identification and Elimination

Urbanization

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Urbanization

• Traffic

• Smaller Stores/Trucks

• Road Restrictions

• Parking

• Noise Levels

• No Docks

• Security

• Congestion

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Urbanization

U. S. Demographics

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U. S. Demographics

Rise of the Ethnic Focused Retailer

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Speed: The Consumer is Changing Faster than the Food Industry can change

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Future FCPG Industry Supply Chain

Command CenterControl Tower

Strategic HubRetailers ??????

The Consumer

DistributorsThird PartyAlliances,Partners

ManufacturingNetwork

Regional, global plantsBulk, Semi-finished,Filling Finishing,

Suppliers

Information Information

InformationInformation

Information

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Closing Thought

• It’s not the strongest companies

that survive,

nor the most intelligent,

but the ones most responsive to change!

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