Value Chain Strategy in a VUCA world

Richard Kochersperger Summer 2013

Volatile Uncertain Complex Ambiguous

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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Previous Presentations
2013: The Consumer will change your business whether you like it or not! 2012: Speed: The Consumer is Changing Faster than the Food Industry can change! 2011: Seek to stay out in front and dont look back! 2010: The World is Changing Faster than you are!
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Goals/Objectives
Whos Driving the Bus (food industry)? Economic Impact of a leaderless nation. Food Industry Perspective
Winners and Losers New Developments

A review of Key Players/Concepts Strategy: Key Issues and Opportunities

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Consumers are becoming more demanding and retail/foodservice operations face tougher questions.
I want that NOW Where does my food come from? I want quality How will we cope with restrictive legislation around unhealthy food? What technology will work best? How can we cope with rising costs?

I want value

I want convenience

Can online work alongside our outlets?

How can our menus/products best reflect ethnic and ethical trends?

CONSUMER

MARKET

Uncertainty over economy

Ageing population

Single households

Rising commodity prices

Saturation

Urbanisation

Increasingly fastpaced lifestyles

Tech-savvy

Legislation

Rise of e-commerce

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The Consumer Drives the Food Supply Chain

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Customers Perspective

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

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The Have and Have Nots

$140,000 $120,000 $100,000 $80,000 $60,000 $40,000 $20,000

$0
1970 1975 1980 1985 1990 1995 2000 2005 2010

Bottom 20%
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Top 20%
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U. S. Demographics

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U. S. Demographics

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Who Are My Consumers?

Generation Age Millions of People
??? 35 71 41 48 40 35 26

Generation Alpha (google kids) under 6 Generation Z (digital natives 6 - 18 Millennials (Generation Y) Generation X (Busters) Younger Boomers Mature Boomers Depression / WWII G.I. - Pre 1928 18 - 24 25 - 35 35 - 50 50 - 65 67 - 80 Over 80

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Generational Evolution

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Speed of Adoption

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Observations about the Consumer

Consumer behavior is changing faster than our abilities to change the FCPG supply chain (OMNI-Channel) !! Demographics dont work!!!
5 Ws: Who, What Where, When, Why?

Different drivers affect decision making

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5 Ws

Who? What? Where? When? Why?

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As consumers we are diverse in thought, purchase behaviors, and the use of technology. We are individuals. The successful marketer understands the weaknesses of labeling people; therefore, they keep a record of purchases, responses to promotions, emails, feedback etc to build customized shopping suggestions. IE., Amazon
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Thought for Today

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Reality Check
American Employment???

7.7

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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Reality Check
90 million dont work 23 million claim disability 48 million on SNAP

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Job Opportunities

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Reality Check
1 in 6 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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4 Biggest Economic Factors

Payroll tax increases: The expiration of payroll
tax cuts on January 1 hit lower- and middle-income consumers especially hard. Housing recovery is not real: Many of the purchases are speculators: Investment Groups Healthcare: Rising premiums will continue to funnel consumer spending to healthcare rather than to food & retail consumption Energy Costs: Significantly impacts consumer budgets
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Future FCPG Industry Supply Value Chain

Command Center Control Tower
Roles can not be defined
Information Information

Retailers The Consumer

Google Microsoft Amazon

Information

Suppliers Manufacturing Network

Information
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Distributors
Third Party Alliances, Partners

Regional, global plants Bulk, Semi-finished, Filling Finishing,

Information
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Thought for Today

Insanity is doing the same thing, over and over again, but expecting different results. Albert Einstein

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10 Food Companies Dominate

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Food Retail Industry Graveyard

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Food Retail Industry Graveyard

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Food Industry E R

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Food Industry E R

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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 Trader Joes Publix Fareway Costco Harris Teeter Raleys Hy Vee Stater Bros Winco Whole Foods 88 86 85 84 83 83 82 82 81 81 81
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Food Retail Winners

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Food Retail Winners

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Rise of the Ethnic Focused Retailer

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Foodservice Industry Winners

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Same Store Sales % Change from last year

May April March February January -2.09% -5.15% +2.53% -0.67% +1.67%
December November October September August July June May April -0.94% -0.26% +0.58% -0.88% -0.81% +0.85% -2.01% +1.17% +1.84%

Inflation Rate: 1+% At Home 2.3% Away

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2013 Retail Market Share

Number of Stores Dollar Share Annual Millions

Traditional Grocery
Total C Stores Total Non Traditional Grocery Dollar Stores

40,333
152,513 54,325 23,418

42.9%
15.6% 39.1% 2.4%

$480,138
$158,546 $387,529 $21,492

Total All Formats

247,081

100%

$1,026,215

Future of Food Retailing, 2012 Willard Bishop

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Foodservice Performance

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Key Developments
McDonalds Seen Overhauling U.S. Menu From 145 Choices Kroger Powers DC with Food Waste Six Food Recalls a Day in the U.S. and Counting Whole Foods Mulls Larger Stores, Acquisitions Bright Farms to Build Greenhouse in DC Food Desert Loblaw Rolls Out Digital Loyalty Program Fresh and Easy TBD Walgreens Energy Free Store
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Retail Developments
Supervalu returns to its roots C&S supplies Winn Dixie Target opens in Canada KROGER Turkey Hill signs distribution deal with CORE-MARK TARGET and other US Retailers test Google same-day delivery 7-Eleven Owner to More Than Double North America Stores Costco to open 150 more warehouses Sweet Bay/Harveys goes to Bi Lo Wal-Mart Neighborhood Market to expand
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Retail Developments
WAWA goes to Florida: 100 stores America runs on Dunkin Deep Discount Stores (Family Dollar, Dollar General: 500 stores+

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Available Kroger Ahold Publix Cerebus

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New Discount Formats

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New Fresh Formats

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Farmers Markets

2013: 8,000+
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Tops: Orchard Fresh

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Deep Discount Stores

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Dollar Stores

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Global Battle
Company Banner Sales, 2011 (USD bn) 483.1 150.4 116.3 107.7 106.3 98.8 97.5 93.7 93.5 86.3 5-year CAGR, 2006-2011 +5.6 +4.1 +6.0 +12.8 +4.0 +9.6 +10.9 +6.3 +7.4 +10.1 1 2 3 4 5 6 7 8 9 10 Company Banner Sales, 2017f (USD bn) 637.7 199.4 169.6 158.6 156.9 151.7 140.2 130.1 118.5 113.3 5-year CAGR, 2012-2017f +4.8 +24.8 +4.8 +5.9 +5.2 +7.8 +5.8 +6.4 +3.6 +6.7 1 2 3 4 5 6 7 8 9 10 Walmart Carrefour Tesco AEON Metro Group Seven & I Schwarz Group Kroger Costco Casino Walmart Amazon Carrefour AEON Tesco Costco Seven & I Schwarz Group Metro Group Auchan

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US chains dominate, holding all spots in the top 10.

McDonalds and Yum! Brands will extend their leadership through penetration of international markets and adapting to local consumer behaviour.
Total Banner Sales 2011-2016
120,000 Retail Banner Sales (USD mn) 100,000 80,000 60,000 40,000 20,000 0 McDonald's
Source: Planet Retail

2011 2016

Yum! Brands

Burger King Subway

Starbucks

Wendy's

Dunkin' Brands

Darden

DineEquity Domino's Pizza

McDonalds will remain the market leader, as it continues to enhance its brand image and adapt product ranges to local tastes.

Burger King is currently playing catch-up after suffering during the downturn, but is forecast to drop to fifth by 2016.

Dunkin Brands is set to move up to sixth by 2016 with the Dunkin Donuts banner focusing on expansion in Europe and BaskinRobbins concentrating on the US.

Dominos Pizza will retain its position through international growth and e-commerce drives.

US Food

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US Food

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Gordon Food Service

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Bricks-NA
WINCO FOODS plans new DC in Phoenix ALDI NORD Trader Joes to build DC in Pennsylvania ALDI NORD'S Trader Joe's chooses Texan DC site ALDI SD to start work on south Florida DC soon Grocers Supply to build in Dallas
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Bricks
SCHWARZ GROUP Lidl builds new DC in France TESCO One Stop DC for northern England CP ALL to expand distribution network MERCADONA equips new DC with Witron automation CARREFOUR plans new DC near Marseille DIA to open new warehouse in Argentina DELHAIZE GROUP begins construction of Serbian DC
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Pick Up Sites: Peapod

Chevy Chase, Columbia, Clarksville, MD Amazon partnerships: Rite Aid, Staples, 7-11 Walmart: a retail store. Europe: click and pick common at store level

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Clicks
MARKS & SPENCER opens new multichannel DC AMAZON to open Czech Republic DC WAKEFERN introduces online case ordering SEARS offers fulfilment service for other retailers TESCO plans new dotcom warehouse in Didcot Peapod building new DC in North Jersey Fresh Direct new DC in the Bronx
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Social Media
Facebook buys Instagram Google purchases Wildfire Salesforce buys Buddy media Yahoo purchases Tumbler Oracle buys Involver and Virtue

Over $3 billion was spent to access social media.

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Thought for Today A mind is like a parachute. It doesnt work if it is not open.

~ Frank Zappa
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Battle of Value Chains

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#1 Earths Biggest Selection

Amazons Grocery category expansion:
January 2012
Grocery items Sold/Fulfilled by Amazon 620,000 169

January 2013
1,703,527 75,000

Increase
174% +74,831

January 2012 Grocery items Sold/Fulfilled by Amazon 155,000 17,925

January 2013 229,000 39,000

Increase 48% +21,075

January 2012 Grocery items 13,869

January 2013 31,700

Increase 128%

Sold/Fulfilled by Amazon
Source: Planet Retail

8,238

10,174

+1,936

% of Total Category Sales Online

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Amazon Lockers Staples 7-11 Rite Aid

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Amazon Performance
2010 Sales Inventory Turns 34.2B 11 2011 48.1B 10 2012 61.1B 9 2013

Accounts Payable
Cash Flow Cap Ex Shipping Revenue Outbound Fulfillment Gross Margin
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3.5B 979M 3.5% <7.5%> <8.5%> 22.3%

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3.9B 1.9B 3.2% <8.3%> <9.5%> 22.4%

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4.2B 3.8B 3.7% <8.4%> <10.5%> 24.8%
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 Walmart serves customers more than 245 million times per week at more than 10,857 retail units in 27 countries 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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Wal*mart Formats

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Supercenter Source of Volume

13% Other Mass 33% All Other 22% Walmart Discount Stores 32% Grocery Chains

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 $750 billion grocery industry in 2013, Walmart will add $35 - $50 billion

Over 75% of Walmart Supercenter volume is being captured from retailers in other major channels.
Source: A.C. Nielsen Channel Service

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69 different banners through out the World

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WalMart Growth
Format 2013 2014

Large Format >60,000 sq.ft. 125 Medium/ Small Sams Club <60,000 sq.ft. 90-100 12

125 90-100 15

Total
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237

240
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Walmart Innovations
Experimenting with grocery home delivery
San Jose, San Francisco, Chicago.

Introduced Goodies
Subscription service for new products not carried in inventory

Offering same-day deliveries via internet Offering click and pick with in-store lockers Partnership with American Express Cards Offering Scan and go via smartphone
95

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Walgreens

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Walgreens

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Walgreens

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Walgreens

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When there Is no vision, the people perish!

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Evolving Marketplace

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Social Media

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Mobile Ecommerce

Social media marketing is going to blow the shingles off the roof once people really figure out how to use it
Megan OConnor, Levi Strauss
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Online grocery shopping is most prevalent among shoppers in the Asia region. Growth is being spurred by retailers embracing e-commerce as young, affluent, tech-savvy consumers opt to shop via the channel.

Proportion of web shoppers who have made grocery purchases online.

27%

8%

11%

10%

10%

7% 13%

33%

31%

7%

Source: Planet Retails Online Shopper Survey data.

On Line Food Sales

FMI: 11%

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Advertising Expenditures

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Smart Phone Users Reach for Phone 150 X/Day

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The Move to Wearables

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Technology Cycles

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Drivables

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Flyables

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Scanables

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Ecommerce $$

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Worlds Largest E-Commerce Co

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Same Day Delivery

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Closing Thought

Excellence is not a skill. It is an attitude.

~Ralph Marston

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Complexity

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Strategy

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Value Chain Initiatives

1. Develop an Omni Channel Strategy:
Pick from a DC; Direct to Consumer Pick from a DDC; Direct to Consumer Pick from a DC; Pick up at the store Pick from a DC; Pick up via a locker Pick from retail store; direct to consumer Pick from retail store; pick up at the store

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Value Chain Initiatives

2. Take fingerprints off the box Remove the number of touches in the value chain
Collaboration Flow Through Cross Dock Reduce back door receiving

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DC: Automation

Take Fingerprints off the Box!

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Value Chain Initiatives

3. Effectively manage transportation services
Professional traffic team to control all purchase orders. Audit team to review freight bills. Move to intermodal where appropriate Review energy resources: Natural Gas, Electric Hedge your energy commitment Black box/satellite connections with all assets Balance the work load : Offer incentives for slow days'
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Urbanization

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Traffic Smaller Stores/Trucks Road Restrictions Parking Noise Levels No Docks Security Congestion
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Value Chain Initiatives

4. Invest in Technology: Goal is to go paperless; immediate response time
Internet of things:
Wearables Scannables Flyables

Traceability of products, support equipment, people. Big Data: capture; analyze; manage Cloud: SaaS
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Satellite Communications

V to V: Cars, Trucks, Airplanes, Trains

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Technology
Outside IN: Respond to the market
Social Media Industry Resources Trend Watching Utilize the Digital Natives

Demand Shaping Customer Relationship Marketing (CRM)

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Technology Tools
Brands go online direct to consumer On-line food shopping continues to grow significantly An explosion of mobile shopping/scanning apps Digital dialogue widens/expands Front end checkouts are eliminated

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Value Chain Initiatives

What value does your company? Your team? bring to the
Consumer? Customers? Neighborhood? Industry?

If your contribution is strictly moving product, your role will be diminished and/or eliminated!
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Closing Thought
Its not the strongest companies that survive, nor the most intelligent, but the ones most responsive to change!

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Global GDP

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