The great big global knowns: - Konferenza

The great big global knowns: - Konferenza

PUSH-ME/PULL-YOU FOR CLEVER RETAIL MODELS IN A CHALLENGING AND CHANGING WORLD Presented by: Vadim Khetsuriani Retail Insights Director June 2013 Agenda Clever retailers The future of global retail The growth forecast Copyright 2013 Kantar Retail 2 Copyright 2013 Kantar Retail 3 C.L.E.V.E.R Retailers need to address each component Retailers are facing a massive period of uncertainty

& shopper volatility, forcing them to re-evaluate: Convenience (Proximity) Loyalty Experience Value Execution ROI Source: Kantar Retail Copyright 2013 Kantar Retail 4 Convenience is a Mix of Speed & Ease: The Inconvenient Truth: The Middle Is No-Mans Land Speed-Based An Inconvenient Truth Convenience Getting To The Store Ease-Based Convenience Shopping Destination Easy Access Walking In The Store

Quick In /Out One-Stop Shop Merchandise Mix At The Shelf Stock Up Impulse Product Usage Immediate Planned All four factors are present at all times different retailers balance them differently; the mix defines the store model Source: Kantar Retail analysis Copyright 2013 Kantar Retail 5 Evolution of convenience retailing - Typical strategies adopted STAGE 1 Race for space STAGE 2 Race for footfalls (traffic) STAGE 3 Race for bigger spend, localization and optimization Source: Kantar Retail

Copyright 2013 Kantar Retail 6 Race for spaceEasy Access Smaller lower volume distribution points will represent high growth Auchans A 2 Pas, France Sainsbury Fresh Kitchen, UK Source: Kantar Retail analysis Carrefour City Cafe, France Casino Chez Jean, France AH To Go ICA To Go, Sweden Metro Odido, Poland

Copyright 2013 Kantar Retail 7 Race for footfallsEasy Access + One Stop Shop 200 Coop stores in the UK have Amazon lockers Fnac has a large store network in France, which is being used to collect products ordered online. Source: Kantar Retail Copyright 2013 Kantar Retail 8 Race for footfalls in Russia where will some categories shift from traditional trade? Copyright 2013 Kantar Retail 9 Like for like store sales growth in Russia is an opportunity for modern trade : , Copyright 2013 Kantar Retail

10 Race for bigger spend, localization and optimization Charging a premium for convenience Provision of ancillary services in cstores across Asia Localised offers in 7-11 Japan Source: Kantar Retail where opportunity exists in Europe SKU optimisation Copyright 2013 Kantar Retail 11 Bigger spend, localization and optimization in Russia options to consider Categories and brands that build basket Cross category merchandising Capture loyalty of high spending shoppers Source: Kantar Retail analysis Copyright 2013 Kantar Retail

12 C.L.E.V.E.R Retailers need to address each component Retailers are facing a massive period of uncertainty & shopper volatility, forcing them to re-evaluate: Convenience (Proximity) Loyalty Experience Value Execution ROI Source: Kantar Retail Copyright 2013 Kantar Retail 13 According to Milward Brown Brandz Study in Moscow Only Two Retailers Had Increase in % of Loyal Shoppers 2012 2005 : Copyright 2013 Kantar Retail

Loyalty is not a Strategy but an Outcome of Brands that enjoy high loyalty from Specific Actions their shoppers should be used to its competitive advantage Cards work when used to its competitive maximum data analysis is key As Russian shoppers become more loyal to retail brands, private label will be an effective tool to sustain loyalty Copyright 2013 Kantar Retail 15 C.L.E.V.E.R Retailers need to address each component Retailers are facing a massive period of uncertainty & shopper volatility, forcing them to re-evaluate: Convenience (Proximity) Loyalty Experience Value Execution ROI Source: Kantar Retail

Copyright 2013 Kantar Retail 16 Value is not the same as low prices Value = Price + Quality + Service EDLP, promo, fixed price, private label Private label, brands, solutions, experience Source: Kantar Retail Price is what you pay. Value is what you get Assortment, customer service, availability, convenience Warren Buffet Copyright 2013 Kantar Retail

17 Redefining Value by offering solutionsBUT Sainsburys Kantar Retail analysis Aldi Copyright 2013 Kantar Retail 18 Colruyt: Our customers keep us sharp! Jean-Pierre Roelands, commercial director Colruyt Customer said: You say that you lower your prices immediately when a lower price is reported. I have called you twenty minutes ago and I am in your store now, but the price is still the same. 1.Before, we adapted our prices only the day after, but our ad said immediately. 2.Since then, we have installed printers in every store, so we can adapt our prices immediately all over the country. Source: Kantar Research

Copyright 2013 Kantar Retail 19 Price competitiveness is also a engagement China - excitement tactic The traditional trade shopper is usually very price sensitive on the most frequently purchased items Pricing statements here critical Price level may not be the key beyond thisshoppers respond to Modern trade retailer the goal of this engagement isnt excitement, but trust Source: Kantar Retail France - trust

, Copyright 2013 Kantar Retail 20 C.L.E.V.E.R Retailers need to address each component Retailers are facing a massive period of uncertainty & shopper volatility, forcing them to re-evaluate: Convenience (Proximity) Loyalty Experience Value Execution ROI Source: Kantar Retail Copyright 2013 Kantar Retail 21

How retailers work What will be the focus for the next two years? Sales Return (Operating Income) X Gross Margin Expenses ROCE/RONA (Return on Capital Employed) Net Inventory Asset Investment 220% + Fixed Assets 58% c u A n

ha M R U ro et C C R U L Weighted average ROCE over 3 years 31% 27% 26% 16% 10% 8% ta en Source: Kantar Retail analysis O

y ke M on ka et M a it n g X5 G up o r D R y ix

l ea H yp 18% 14% 14% 11% 8% 6% .R U W m al t ar G G ur o o n f

r et ha Te arre c M C Au o sc Copyright 2013 Kantar Retail 22 THE FUTURE OF RETAILNOT AS GOOD AS IT USED TO BE? Retailers will be brands? Smart Self-Cleaning Fridge Orders Food & Suggests Recipes? Presented by: 23 Tried to think of things that will be true almost everywhere 2012

Market Evolution Dynamics Connected Volatile Polarized 2014 2018 Portable All-in-one Flexible Targeted Dynamic Personal VOLATILE Planning processes, people, and information systems that allow resources to flow more naturally to the work POLARIZED Marketing and shopper connection becoming increasingly biased towards strategies that truly reflect the specific behaviors and attitudes of individuals CONNECTED Mobile is phase 1 of a new information and communication

paradigm by 2018 touch point should be more media-neutral and truly interconnected Source: Kantar Retail Copyright 2013 Kantar Retail 24 Managing volatility flexibility with purpose Kantar Retails definition flexibility with purpose Our mantra: Purpose without flexibility is irrelevant. Flexibility without purpose is chaos Paul Polman, Unilever Q2 2012 Earnings Call: Agility is key, as it is more and more difficult to predict what will happen next in an increasingly volatile external environment. It allows us to respond. It allows us to allocate resources quickly where they are most needed or where they can add most value. As Pier Luigi, our head of our product supply, always says, "Speed is the currency. Copyright 2013 Kantar Retail 25 Managing polarization of everything MASTER THE GREAT BIG KNOWS OF MODERN TRADE GROWTH Geography: Countries and

Cities 35% 30% Income: Haves vs. Have Nots Ethnicity: Nonmajority populations Generations: Diversity & Technology Retail growth: Channels & Categories BEYOND THE USA AND CHINA, GROWTH IS SPREAD ACROSS VERY DIFFERENT MARKETS Share of real growth 2009-12 Share of real growth 2013-16 25% 20% 15% 10% 5%

0% l A ina m sia lia zi an ce ny ico nd da ea nd ain ey taly wan sia ine hile nds den dia bia nes 128 I i US Ch Jap gdo us ran rma ex Bra ola ana stra Kor aila Sp urk In om C rla we pi ne kra l n R F P T h Ta do

ip her M u i e e C U l o h S i t T h A K G t C Ph In u ot d Ne So te i

Un Growth is scattered amongst markets that require creative clustering to tackle Source: Kantar Retail analysis Copyright 2013 Kantar Retail 26 Income polarization in fast growth markets is just one example Country Wealth Versus Income Equality in the G20 Nations $60,000 Understanding price point, value, shopping dynamics critical $50,000 GDP per Capita, 2010, $ USD High Income Countries $40,000 Distribution of Wealth Amongst All Income Classes Equal

$30,000 $20,000 Unequal Low Income Countries $10,000 $26 28 30 32 34 36 38 40 42 44 46

48 50 52 54 Most Recently Published Gini Coefficient Sources: IMF, World Bank, UNDP, Eurostat, OECD 56 58 60 62 64 66 68 *Saudi Arabia information not published recently Copyright 2013 Kantar Retail 70 27

Market differences can be described by STAGES 1-5, BUT Kantar Retail Insights Market Evolution Model 1 Exploration 2 Concentration 3 Penetration 4 Maturation 5 Post-Modern Source: Kantar Retail Chain retail < 20% total market share Top 5 share< 30% Chain retail Supermarkets and C&C drive modern trade Chain retail < 30% total market share Top 5 share < 40% Chain retail Minimarkets, soft discounters, hypermarkets drive modern trade : Chain retail <40% total market share Top 5 share < 50% Chain retail Multiformat is critical for growth New formats emerge Chain retail <50% total market share Top 5 share < 60% Chain retail

Growth comes from taking shoppers from other retailers New formats are key for growth Chain retail >50% total market share Top 5 share > 60% Chain retail Growth is limited to personalized approach Copyright 2013 Kantar Retail 28 We will experience generational skipping of market evolution stages in many places 50 45 40 Countries are the top 30 population countries = 80% world population Bubble size = # of people under 14 = 20MM people Japan, Germany, Italy Median Age 35

30 25 France, UK Russia, South Korea, Spain, Ukraine USA Thailand China Iran 20 15 Mexico, Vietnam, Turkey, Myanmar, Colombia (in South decreasing order of Africa bubble size) 10 5 0 10.0% 15.0%

20.0% 25.0% Indonesia, Brazil Egypt Bangladesh, Philippines Nigeria India Sudan Pakistan Ethiopia Congo 30.0% 35.0% 40.0% 45.0% 50.0% % of population under 14 Source: Kantar Retail analysis Copyright 2013 Kantar Retail

29 Fewer shoppers will enter stores Need understanding of relationship between mobile, commerce and logistics Source: Kantar Retail store visits Copyright 2013 Kantar Retail 30 In the Future. Retailers will be brands and brands will be retailers? In retailers quest for loyalty it is much more than just private label Services in many markets growing faster than goods Source: Kantar Retail Copyright 2013 Kantar Retail 31 BACK TO THE FUTURE: KANTAR RETAIL RETAILER GROWTH FORECAST Based on 1665 retailers forecasted by Kantar by banner, format, channel, market

6,000 SALES REVENUES (billions EUR) 5,000 4,000 3,000 2,000 CAGR 2013-2016 (organic forecast by retailer) 1,000 - Non Store Retail 14% Department 3% Cash and Carry 7% Drug 6% Convenience 6% Discounter 7%

Hyper/Supercentre 4% 2001 2002 2003 2004 2005 2000 Source: Kantar Retail database Category Specialist 5% 2007 2008 2009 2010 2011 2006 Supermarket 5% 2013 2014 2015 2016 2012 Copyright 2013 Kantar Retail 33 Share of total modern growth 2013-16 Growth outside of US and China Size of the bubble

25% =EUR 20 bill 20% Top 10 share of growth line 15% 10% 5% 0% 0% 5% 10% 15% 20% 25% CAGR 2013-16 Source: Kantar retail database Copyright 2013 Kantar Retail 34

Modern Trade in Russia Sales in EUR Bill C&C 6% Category specialist 18% Supermarket 10% CAGR 2013-16 Non-store 35% Hypermarket 19% 9 Discounter 12% 34 41 4 3 13 10 12 14 2008 Source: Kantar Retail database 7 10 21

19 23 38 2012 38 34 59 2016 Copyright 2013 Kantar Retail 35 THE NEW WORLD: Being CLEVER Convenience = Satisfaction Per Second Assortment must be optimized for trip type/neighborhood Loyalty = Managing Convenience Leakage Understanding shopper missions key to overcoming proximity Broader relationships with shoppers key Experience = Delight Per Euro Fun stores go broke stores that can close will win Value = The Changing Language of Price Execution & ROI/ROCE/RONA building processes and making decisions that can support doing more than one

thing well Source: Kantar Retail Copyright 2013 Kantar Retail 36 THANK YOU FOR LISTENING! Vadim Khetsuriani [email protected] , 10 , , , , , 5, . 5 , , , , , 7-11, . Vadim Khetsuriani, Kantar Retail

Vadim leads consulting practice in CEE as a retail insights and subject matter expert on FMCG selling and merchandising and commercial strategy planning with International retailers such as Auchan, Carrefour, Lidl, Metro C&C in the region as well as the local key accounts of X5 Retail Group, Magnit and BIM. With 10 years experience in Central Eastern Europe as well as in the Middle East and South East Asia Vadim has led many international projects on various aspects of selling to large multinational chains such as Carrefour, 7-11, Metro and Tesco and German discounters. Prior to that Vadim was responsible for Kantar Retail (MVI) retailer financial analysis used for international supplier account planning based in Boston, USA. Copyright 2013 Kantar Retail 37

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