Disruptive Forces:

Are U prepared?

Richard H. Kochersperger
June, 2014
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Industry Gurus
8/10/2014
2
Tell Me and I Forget
Teach Me and I Remember
Involve me and I Learn
Ben Franklin
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Previous Presentations
2014: Disruptive Forces: Are U Prepared?
2013: Value Chain Strategy in a VUCA world
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)?
The REAL Economic Situation
Food Industry Perspective
Winners and Losers
New Developments
A review of Key Players/Concepts
Logistics Strategy: Key Issues and Opportunities
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Disruptive Forces
Decline in the Fertility Rate
No Growth Economy/Income Disparity
Speed of Change
Technology Influences/Transparency
The Amazon Effect
Rise of New Competition
Government Regulations
Globalization

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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
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U. S. Demographics
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11
U. S. Demographics
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Who Are My Consumers?
Generation Age Millions of
People
Young ones (Generation Alpha 0 10 11
Digital Natives (Generation Z) 10 - 17 21
Millennials (Generation Y) 18 - 24 91
Generation X (Busters) 25 - 35 41
Younger Boomers 35 - 50 48
Mature Boomers 50 - 65 40
Depression / WWII 67 - 80 35
G.I. - Pre 1928 Over 80 26
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Observations about the Consumer
Consumer behavior is changing faster
than our abilities to change the FCPG
supply chain (OMNI-Channel) !!
Consumer is complex!!
Demographics dont work!!!
5 Ws: Who, What Where, When, Why?
Different drivers affect decision making

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Future FCPG Industry
Supply Value Chain
Command Center
Control Tower
Roles can not
be defined
Retailers
Google
Microsoft
Amazon
The Consumer
Distributors
Third Party
Alliances,
Partners
Manufacturing
Network
Regional, global plants
Bulk, Semi-finished,
Filling Finishing,
Suppliers
I nformation
I nformation
I nformation
I nformation
I nformation
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Thought for the day!
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Perspective
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Reality Check
American Employment???
Available Workforce: 155 million
Unemployed/underemployed: 23.7 million
102 million working age Americans do not work
Real Rate: 17+%
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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6.3
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% working in the US
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Labor Force Participation: Men
Businesses Are Being Destroyed
Faster Than They Are Being Created

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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
Fertility Rates: rapidly declining
Food Prices: Rapid increases due to drought, disease
Healthcare: Rising premiums will continue to funnel
consumer spending to healthcare rather than to food &
retail consumption (48 million no insurance)
Energy Costs: Significantly impacts consumer
budgets
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US Fertility Rate
Fertility Trends
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Fertility Trends
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Food Industry Prices
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Food Prices
Bacon: 55% increase since 2010
Ground beef: 35%
Oranges: 35%
Coffee: 31%
Peanut Butter: 30%
Margarine: 30%
Wine: 25%
Turkey: 24%
Chicken: 22%
Pork: 15% 2014
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Protein Pricing
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Independent Food Retail Sales
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Financial Performance
UNFI 13.9%
Sprouts 13.8%
AWG 6.8%
Delhaize 4.6%
Whole Foods 4.3%
Spartan/Nash 4.3%
Publix 4.0%
Inflation Rate: 3%+
Costco 3.0%
Ingles 2.5%
Supervalu 2.1%
Walmart 2.0%
Safeway 1.8%
Unified Grocers 1.4%
Stater Bros 1.0%
Loblaws 0.9%
Ahold 0.1%
Weis Mkts 1.3%
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Foodservice Economic Performance
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Current Issues
Number of People financially struggling
$20 trillion spent on poverty programs
13 million on welfare
35 states welfare pays more than minimum wage
49 million live in poverty: $23,550
49 million on SNAP
11 million disability
47% have given up looking for a job

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Thought for the Day
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Food Retail Industry Graveyard
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Food Retail Industry Graveyard
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Food Retail Industry Graveyard: 2014
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Food Industry E R
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Food Industry E R
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Consumer Reports 2014

33% changed primary
store
58% looking for lower
prices
26%Long wait Checkout
25% poor selection, long
lines
20% Cleanliness
17% employee rudeness
Not enough checkouts
Wegmans 88
Trader Joes 87
Publix 85
Costco 84
Sprouts 84
Fareway 83
Marketbasket 83
Raleys 83
Stater Bros 82
Winco 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 Losers
25% of new restaurants go out of business the first year
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Foodservice Industry Winners
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Thought for the Day
May -2.09%
April -5.15%
March +2.53%
February -0.67%
January +1.67%


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December - -0.94%
November -0.26%
October +0.58%
September -0.88%
August -0.81%
July +0.85%
June -2.01%
May +1.17%
April +1.84%
Inflation Rate: 1+% At Home
2.3% Away
Foodies: Green, Natural, Organic
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Clean Food
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Real Food
Real Food is food which truly nourishes producers, consumers, communities and the
earth. It is a food system--from seed to plate--that fundamentally respects human
dignity and health, animal welfare, social justice and environmental
sustainability. Some people call it "local," "green," "slow," or "fair." We use "Real
Food" as a holistic term to bring together many of these diverse ideas people have
about a values-based food economy
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Farmers Markets
2013: 8,000+
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Food to the Neighborhood
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Urban Agriculture
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Vertical Farms
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Thought for the Day
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US Developments
Roundys for sale: Invest in Marianos
Kroger buys Harris Teeter
Fresh n Easy sold to Yucaipa investment group
Susser purchased by Sunoco
Okey-Dokey closes Florida
Spartan-Nash merger
Bozzutos supplies Mars/Baltimore
Winco opens in Phoenix and Dallas
Wegmans moves into Richmond
Albertsons purchases United Stores/TX
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Aldi to open DC in Houston
Aldi to open DC in LA
Mi Pueblo looks at liquidation
Savalot to open Colorado DC
Family Dollar closes 370 stores
Caseys to build DC in Indiana
Giant Eagle moves into Indianapolis
Publix enters Charlotte


US Developments
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Peapod to open DC Jersey City, NJ
Ahold to open 100,000 sq ft greenhouse
Lidl to open 100 stores by 2018; office in VA
Grocers Supply to build Dallas DC
Fresh Grocer switches to Wakefern Coop
Belle Foods closes all stores/AWG picks up pieces
Safeway Sells off Dominicks/Chicago
Bi-Lo buys Piggly Wiggly stores/Scarolina
Tops purchased by management team


US Developments
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Meijer moves into Milwaukee
Gelsons purchased by TPG investment group
Gordon Foods purchases Glazier Foods
UNFI to build DC in Prescott Wisconsin
UNFI purchases Tonys Finer Foods
US Developments
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Canada Developments
Sobeys purchases Safeway/Canada
Sells 30 stores to Overwaitea
Loblaws purchases Shoppers Drug Mart
Walmart ramps up supercenters
Target fails to get traction
Loblaw to build DC in Cornwall
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One Thing Is Clear

Retailers with a clear brand outgrow the market
Source: Kantar Retail analysis

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Natural/
Organic
Value
Premium Clubs
13E-18E
CAGR =
9.2%
13E-18E
CAGR =
5.4%
13E-18E
CAGR =
7.5%
13E-18E
CAGR =
6.3%
#1 #2
#3 #4
Amazon
Clearly, Amazon is
teaching the world
whats possible,
He doesnt know
exactly which
geographies where it
will work, but
Walmart is focused on
delivery in London
and possible Shanghai.
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Amazon
96 D Cs: 7
th
generation design (Kiva)
10,000 robots to be installed
Amazon deliveries in UK, India, China (bike)
Fulfillment by Amazon: 65% +
Sunday Delivery with USPS
New Corporate Offices
Phone rumor
App Store: 200,000 apps/games
AWS: software as a service
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Amazon Smile
Amazon donates 0.5% of the price of your eligible
AmazonSmile purchases to the charitable
organization of your choice.
AmazonSmile is the same Amazon you know. Same
products, same prices, same service.
Support your charitable organization by starting
your shopping at smile.amazon.com.

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Estimated 22+ million customers @ $79/year
20 million products
No minimum orders
Free Shipping-2 days
Free Video/TV Streaming
Free Kindle Books
Free Music Downloads
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Amazon Fire TV
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Amazon: Pantry
Prime Pantry is a new shopping experience on Amazon.com. Prime members can
shop popular household essentials and have them conveniently delivered.
Adding your first Prime Pantry item to Cart starts a Prime Pantry box. As you
shop, you see that each Pantry item tells you what percentage of a Pantry box it
fills based on its size and weight. Pantry boxes are large and can hold up to 45
pounds or four cubic feet of household products. As you check items off your list,
we continuously track and show you how full your box is.
You can buy as much or as little as you want for a flat $5.99 delivery fee per Prime
Pantry box. Save gas, save money, save time. 8/10/2014 76
Amazon
Welcome to Amazon School Lists, a new way for K-12 teachers to create
and share online back-to-school supply lists with parents. With everything
from pencils and rulers to calculators and binders, parents can complete
back-to-school shopping in just a few clicks. They can also copy, save or
print the list. When Kindergarten, elementary school, middle school, and
high school teachers and parents are on the same page about supplies,
kids get off to a great start.
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Amazon Dash
Dash connects to your
home Wi-Fi network
and works directly with
your AmazonFresh
account. Say or scan
items into your Dash,
and then view the list
on your desktop or
mobile device to
purchase and schedule
delivery.
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Amazon Fresh
Seattle
S Cal
Nor Cal
Partnering with other
Food retailers
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Amazon May Day
Mayday: 9 second response time
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Experimenting with Drones
85% of orders weigh 5
lbs or less
Waiting on FAA to
determine guidelines
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Amazon Performance
2010 2011 2012 2013
Sales 34.2B 48.1B 61.1B 74.4B
Inventory
Turns
11 10 9 9
Accounts
Payable
72 74 75

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Cash Flow 3.5B 3.9B 4.2B 5.4B
Cap Ex 979M 1.9B 3.8B 3.4B
Shipping
Revenue
3.5% 3.2% 3.7% 4.1%
Outbound <7.5%> <8.3%> <8.4%> <8.9%>
Fulfillment <8.5%> <9.5%> <10.5%> <11.5%>
Gross
Margin
22.3% 22.4% 24.8% 27.2%
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Walmart serves customers more than 250+ million
times per week at more than 11,000+ 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.
Sales: $473 Billion
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How to compete with Amazon
Focus on small stores: Multiple Formats
Convenience store
Market store
Order online pick up at the store.
Drive in-Pick up centers
Savings Catcher: checks competitor ads for items purchased at Walmart, and provides
e-gift cards for the difference in price when a competitors price for eligible items is lower.
Wild Oats partnership
Expansion of organics
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Walmart Innovations
Experimenting with grocery home delivery
San Jose, San Francisco, Chicago.
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
Express/Convenience Store program
E-commerce sales $13 Billion
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Net sales
~$279.4B
Increase of 2% or $5B
Operating
expenses
18 bps of leverage
4 consecutive years
Operating
income
~$22.4B
Increase of 4% or $860M
Grew profit faster than sales
Gross profit rate
-1 bps
Price
investment
Walmart U.S. delivered a strong FY 14
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Net sales
~$50.6B
Increase of 1.6% or $785M
Operating
expenses
14 bps of deleverage
Operating
income
~$2.0B
Increase of 5.0%
Grew profit faster than sales
Gross profit rate
-1 bps
Price
investment
Membership income

5.9%
Sams Club increased membership income
Note: All data is without fuel
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Net sales
~$136.5B
Increase of 1.3% or $1.8B
Operating
expenses
18 bps of deleverage
Operating
income
~$6.3B
decrease of 4.7%
Gross profit
rate -10 bps
Price
investment
Walmart International invested in price
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69 different banners
through out the World
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Walmart Transportation
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8
th
largest food retailer
7 million customers visit 375 stores each week
Opened 32 stores last year
Fortune one hundred best companies: 16 years
Gross Margin: 35.8%
Net Income: 4.3%
94 stores in development
Goal: 1200 stores
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418 stores: $11 billion
4,000 items: 80% private label
Stores: 8-12,000 sq. ft.
Sales per sq ft: $1750
Top ranked supermarket by Consumer Reports
Outsourced transportation
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150 stores/26 states
34% margin/7% ops
Sales: $1.6 Billion
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Deep Discount Stores
$16. B

$9.3 B

$7.4 B

$5.3 B
Price Rite: Shop Rite
Savalot: Supervalu
Aldi: Albrecht
Ruler Foods: Kroger
Bottom Dollar: Delhaize
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Dollar Stores
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Sales $73 Billion
Net Profit: $2.4 Billion
2016: $130 Billion
2020: Healthcare to be
20% of GDP
8,200 locations
70,000 associates
10,000 Americans turn
65 every day
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Makes wrong decision about credit card technology
Data breach which impacts millions
Sales go down
Makes major acquisition to invade Canada
Rolls out 100+ stores
Didnt understand supply chain issues
Wrong prices
High out of stocks
CEO gets fired!!
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Perspective
All of these retailing concepts were not viewed as
competition to food retailers 20 years ago.
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Makes an investment into Albertsons
Albertsons buys United Supermarkets
Acquires the 5 Supervalu divisions
ACME
Shaws
Jewel
Albertsons/West Coast
Shoppers/Farm Fresh
Saves Safeway/US
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Cerberus saves the retail segment
Supervalu goes back to its roots
Sales: $18 Billion /Profit: 1%
Purchases the Rainbow stores in MPS
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Sales: $20 Billion
Multiple Formats
HEB
Central Mkt
Mi Tienda
Joe V
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Ahold/
167 pick up points
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Seattle
Philadelphia
Los Angeles
NYC
Chicago
Austin
Washington DC
San Francisco
Boston
San Jose
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Sysco dominates
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Global Battle
Company Banner Sales,
2011 (USD bn)
5-year CAGR,
2006-2011
1 Walmart 483.1 +5.6
2 Carrefour 150.4 +4.1
3 Tesco 116.3 +6.0
4 AEON 107.7 +12.8
5 Metro Group 106.3 +4.0
6 Seven & I 98.8 +9.6
7 Schwarz Group 97.5 +10.9
8 Kroger 93.7 +6.3
9 Costco 93.5 +7.4
10 Casino 86.3 +10.1
Company Banner Sales,
2017f (USD bn)
5-year CAGR,
2012-2017f
1 Walmart 637.7 +4.8
2 Amazon 199.4 +24.8
3 Carrefour 169.6 +4.8
4 AEON 158.6 +5.9
5 Tesco 156.9 +5.2
6 Costco 151.7 +7.8
7 Seven & I 140.2 +5.8
8 Schwarz Group 130.1 +6.4
9 Metro Group 118.5 +3.6
10 Auchan 113.3 +6.7
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Complexity in Supply Chain
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Battle of Value Chains
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Going Forward
1. Eliminate the Black Holes
2. Embrace Technology
3. Develop an OmniChannel Strategy
4. Transportation/Traffic Opportunities
5. Collaboration in the Network



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1. Eliminate the Black Holes!!!
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Map the Value Network
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Sources
Products
Routes
Costs
Pricing
Inventory

Value Chain Mapping: Product
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Procurement is a supply chain function!
Product Visibility
Track and trace from source to your operation
Assume RFID will not happen?
Ensure integrity of the product
Identify opportunities to improve in-stock
performance throughout the supply chain
Temperature
Quality
On-time
Lowest Cost
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Food Safety Modernization Act
Foreign Supplier Verification Program
All levels
Original source
Visit facilities
Major story: Prawns Supply Chain
Traceability of products through the network
RFID required to make it work
Life to Death accountability

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Food Safety Action Plan
Court recently ruled all parties involved in a
supply chain contamination problem can be held
liable.
Jenson Farms, CO
CDC-reported total of 147 infected persons from 28
states, including 33 deaths and one miscarriage.
Lawyers will sue all companies!!!
Focus on the potential problem products/companies
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Reduce deliveries to the store!
Traditional DSD products (15-25% cost of goods)
Specialty Food Products (GM: 17%+ Net: 2%)
11% US food sales
Growth: 14%
Foodservice Products ( GM: 15-25%+)

Cross Dock from supplier/distributor
Flow Through Pallet Build
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2. Technology Opportunities
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Embrace Technology:
Automation
Paperless Systems
Supply Chain Cloud
Ariba: The worlds business commerce
network
IBM ecommerce platform
DC: Automation
147
Take Fingerprints
off the Box!
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3-D Printing
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Internet of Things
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Internet of Things
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Video: SAP Glass
Going Paperless in the supply chain
https://www.youtube.com/watch?v=9Wv9k_ssLcI
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Technology Tools
Brands go online direct to consumer
On-line food shopping continues to grow
significantly: 6% in Europe; 15% during
holidays
An explosion of mobile shopping/scanning
apps
Digital dialogue widens/expands
Front end checkouts are eliminated


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3. Omni Channel Opportunities
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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Peapod/Ahold: $570 million
Fresh Direct: $450 million
Amazon Fresh: $100 million


Picking from the store is not
an ideal solution!!!
On Line Food Sales
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FMI: 11%
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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4. Transportation Opportunities
5. Collaboration in the Network
Share Groups
Educational Programs: 600 colleges/universities
now offer degrees in Supply Chain Management
Logistics Institute (Canada)
Consultants
Blogs
Road Trips
Association local meetings
CSCMP, APICS, WERC, ASM
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Blogs:
Food: valuenetworkissues.blogspot.com
Marketing: haccmarketing.blogspot.com

Richard2496@comcast.net
610-256-6636

Post on www.slideshare.com
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Thought for the Day
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