Building Up Customer Management Skills To Improve Trade Spend Efficiency and Effectiveness

CONFIDENTIAL
Building up Customer Management

Skills to Improve Trade Spend
Efficiency and Effectiveness
DOCUMENT CONTENTS
• Project objectives and scope

• Overall confirmed profit potential
• Transparency phase
• Recommendations and potential for each key lever
• Implementation plan for each key lever

• Specific action plans by account
• Confirmed potential and required resources
• Implementation organization
1
PROJECT OBJECTIVES AND SCOPE
Project objectives • Profitability: Improving overall profitability by

1 - 2 percentage points
– Better pay for performance
– Improved promotions
– Improved product mix
– Lower cost to serve
Not: Reduction of Trade Spend only
• Skill building: Upgrading KAM skill profile from being

purely sales oriented to becoming more cross-functional
and customer contribution oriented
Project scope Nestlé Spain “Dirección Refrigerados“ and shared service

departments where necessary (e.g., Finanzas y Control,
Servicios Corporativos, Producción, Comercial
Corporativa)
Source: Team 2
REFRIGERADOS DEVELOPMENT OF TOTAL TRADE SPEND OLD ALLOCATION
VS. TOTAL PFME/MEDIA
Million pesetas, percent of net sales
30% of PFME 46.9

is not controlled by
marketing itself* 43.0 6.7
40.2
38.4 5.2
36.9
35.2 5.2
32.7 5.5
Total 4.6 5.8
PFME/Media 4.7
42.4
37.8
32.9 35.0
Total trade 30.6 31.1
28.0
spend**
1994 1995 1996 1997 1998 1999 2000

(Estimated)
Profitability*** 1.4 1.0 0.3 1.4 2.9 3.0 2.6
* Including corporative costs (Disney license, “Alimentaria”,…), merchandising, and actions negotiated by KAMs and trade marketing
** Trade spend is equal to the sum of rebates, periodic allowances and temporary price promotions
*** Before license fee
Source: Nestlé Refrigerados P&L 3
MA118054010119 Final Doc - Part1
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4
IMPROVEMENT POTENTIAL
Operating profit in million pesetas
200 to 260 555 to 730

• Improvement
potential between
555 and 730 million
pesetas could be
100 355 to 470 achieved
80 to 150 • This potential is
equivalent to an
increase in
105 to 120
operating profit
between 1.7 and
70 to 100
2.3% over net sales
(basis 1999 year)
Optimize Increase Improve Improve Potential Improve Total

trade promotion cost to product- without any existing potential
terms effecti- serve* mix change in distribution
veness the existing system*
distribution (“preventas”
system model)
** Footnote
Considering only the external distribution chain of “Refrigerados” Nestlé Spain (from Nestlé central warehouses to selling points)
Source:
Source: Sources
Team 5
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6
KEY TRANSPARENCY PHASE: ACCOUNT P&L
Findings
0.1 Account P&L There are structural differences in contribution by client cluster:
• Top 20 accounts: contribution varies heavily by account (variation

22 percentage-points); no correlation between size and
0. Transparency contribution. Contribution variations are explained mainly by trade
terms (variation 19 percentage-points) and cost to serve (variation
20 percentage-points)
• Other main accounts (21-40): contribution over net sales is almost

2.5 points above the Top 20 and 1 point above the total average
1. Trade terms due mainly to lower trade terms
• Direct sales to distributors: contribution over net sales is more than

10 points above average due to significantly lower trade terms
partially compensated by above average cost-to-serve
2. Cost to serve
• Small regional clients: contribution over net sales is about 1 point
below average due to higher cost-to-serve and product mix,
partially compensated by lower than average trade terms
• ATC-”colectividades”: contribution over gross sales is aligned with

3. Product mix the average, which is a more homogeneous comparison due to
specific pricing policy applied to this group. Trade terms are above
average and this gets compensated by lower product mix and
cost-to-serve
0.2 Brand P&L

4. Account plans
0.3 Market
Source: Team 7
0.1. PROFITABILITY DRIVERS BY CLIENT CLUSTER
Percent of net sales - EF 1999
Contribution Trade-terms Product-mix Cost-to-serve
Top 20 accounts 17.7 46.5 35.0 22.0
Other main accounts

20.1 38.3 35.3 23.0
(21-40)
Direct sales to
30.9 17.9 30.9 30.2
distributors
Direct sales to small
17.8 34.4 37.6 27.8
regional clients
ATC “Colectividades”* 26.2 70.7 42.8 24.5
Average 19.1% 43.0% 35.1% 23.8%
Areas of estimated • Non Quid-pro-Quo

• Cost-to-serve
potential trade terms of Top 40 • Product-mix of 21- of direct sales
accounts 40 accounts and
• Pricing policy for non- small regional
to distributors
reference products and small
clients
and small accounts regional clients
* Profitability drivers of ATC are not directly comparable to other client groups due to the different pricing policy applied. Comparison becomes
homogeneous in terms of gross sales, where the ATC contribution (16% over gross sales) gets aligned with the average (15.8 over gross sales)
Source: Nestlé Spain Refrigerados; Team 8
0.1 TO 20 ACCOUNTS SEPARATION OF PROFITABILITY DRIVERS

Percent - EF 1999
Key account Variation* = Trade terms + Product-mix + Cost-to-serve
2279 1.1 2.4 0.3 -1.6
0598 -2.2 -3.1 -1.5 2.4

0565 -2.3 -2.4 -0.2 0.3
0611 -1.2 -3.3 -0.2 2.3
2277 12.5 1.9 0.9 9.7

0385 -13.9 -7.1 1.4 -8.2
2404 0.9 4.2 -0.4 -2.9
1956 -0.3 -3.0 2.1 0.6
1958 1.7 0.7 0.2 0.8
0452 10.8 10.1 -0.7 1.4
2231 4.9 5.8 -5.8 4.9
2478 -4.1 0.0 2.4 -6.5
1959 11.6 5.4 0.3 5.9
0005 -12.6 -8.8 1.1 -4.9
2476 -2.0 4.2 -0.2 -6.0
2474 -2.7 -0.9 -0.5 -1.3
0213 -7.8 -3.2 1.2 -5.8
2225 -7.9 -3.2 2.8 -7.5
1419 -8.5 -2.7 -0.4 -5.4
2084 17.2 2.4 2.7 12.1
All other 5.0 7.7 -3.1 0.4
CUSTOMER TOTAL TRADE COST OF GOODS DISTRIBUTION COSTS

CONTRIBUTION TERMS SOLD SELLING EXPENSES
17.7 % 46.5 % 35.0 % 22.0 %
* Variation from weighted average of customer contribution as percent of net sales

TRANSPARENCY PHASE: BRAND P&L
Findings
0.1 Account P&L
0. Transparency
0.2 Brand P&L • The most value-adding products per category are the
most profitable
1. Trade terms
• Contribution varies significantly by brand (variation 29
percentage-points), mainly in yogurts subcategories
• Yogurts show the biggest contribution variations between

brands; LC1 and enriched La Lechera are the most
2. Cost to serve profitable brands within yogurts
• Flor de Esgueva is the brand with the biggest

contribution (16% of net sales and 22% of total category
contribution)
3. Product mix
0.3 Market
4. Account plans
Source: Team 10
TRANSPARENCY PHASE: MARKET
Findings
0.1. Account P&L
0.2. Brand P&L

0. Transparency
0.3. Market • Overall market growth has been driven mainly by private labels
• Danone has grown in line with the market
• Refrigerados Nestlé has grown slower than the market in each

1. Trade terms category
– Desserts and fresh cheese are categories with biggest growth
gap (more than 10 percentage points)
– In some subcategories Nestlé’s growth has been much higher
than market growth but from a low base (e.g. liquid yogurts)
– Nestlé is third player for yogurts and desserts after Danone and
2. Product mix
Private Labels. Only La Lechera and some other desserts hold
better positions.
– Nestlé is first in fresh pasta
• Numerical and weighted distribution follow market share trends

3. Cost to serve
• With regard to prices some products have potential to capture part
of the value between Nestlé’s and other competitors with lower
market shares (e.g. “natillas”)
• Nestlé stock-outs (numerical and weighted) are above competitors

4. Account plans for the majority to products
Source: Team 11
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12
PROJECT KEY LEVERS: TRADE TERMS Processes to implement

Potential
Recommendations (million pesetas)
1.1 Price discounts
0. Transparency – For small accounts reduce price discounts to defined ~40
range
– Establish process to monitor small accounts price
discounts, including follow-up of salesmen’s
behavior
1. Trade terms
1.2 “Quid pro Quo” trade terms
– For some of Top 20 accounts reallocate money from ~30 to 60
non “Quid pro Quo” discriminatory trade terms to
“Quid pro Quo”
2. Cost to serve – Establish process to monitor non “Quid pro Quo”
trade terms
1.3 Promotional effectiveness

– Shift promotions to products with higher contribution ~40
3. Product mix per promotion
– Improve the type of promotions to be used with 15 to 30
some clients
– Establish processes to improve promotion ~ 50
management
4. Account plans – Modify/launch promotion monitor process
– Establish process to determine regular and Not estimated
promotional mix and prices
Total 175 to 220
Source: Team 13
PROJECT KEY LEVERS: TRADE TERMS - PRICE DISCOUNTS TO Processes to

SMALL ACCOUNTS implement
Potential
(million
Findings Recommendations pesetas)
0. Transparency
1.1 Price • Significant range of price • For small accounts, ~40
discounts discounts variation for small reduce price discounts
accounts (around 30% for to defined ranges
reference products and 40%
1. Trade terms for non-reference products) • Establish process to
monitor small accounts
price discounts,
including follow-up of
salesmen’s behavior
2. Cost to serve
3. Product mix
4. Account plans
Source: Team 14
1.1 PRICE DISCOUNTS FOR SMALL ACCOUNTS AND REFERENCE PRODUCTS*

Example: Enriched yogurt with sugar or taste** Acceptable range
Percent of price discount on

gross sales***
35
30
25
• Range of price discount
variation for small accounts
20
and reference products
around 30%
15
• Reducing discounts to
10 acceptable range has
improvement potential of  32
million pesetas
5
0
0 10 20 30 40 50 60 70 80 90 100
Total gross sales by account
(Million pesetas)
* Regional clients with total growth sales of 100 million pesetas or below. Data from January/October 2000
** Reference products analyzed; yogurt natural, yogurt with taste (pack and tarrinas), Flanby, enriched yogurt with sugar or taste and Dalky standard
*** Price discounts not related with “Cadenas”. It includes discounts on regular and promotional prices and other trade allowances specific to the client
Source: Team 15
1.1 ACTIONS TO BE TAKEN TO REDUCE RANGE
OF PRICE DISCOUNTS FOR SMALL ACCOUNTS
1. Set ranges of • Define ranges of price discounts by category of

price discounts product and account size
Key actions
• Periodically (i.e., twice or three times a year)

monitor fulfillment of defined objectives at account
2. Establish level
monitoring
system • Regionally, follow-up salesmen’s fulfillment of
objectives, taking into account:
– Average discount for assigned clients by product
category and account size
– Variability of price discounts within portfolio of
assigned clients
Source: Team 16
PROJECT KEY LEVERS: TRADE TERMS - “QUID PRO QUO” TRADE
TERMS Processes to
implement
Recommendations/ Potential
Findings Issues moving forward (millon pesetas)
0. Transparency 1.2 “Quid pro • Non “Quid pro Quo” • Establish process to
Quo” trade concepts represent 68% monitor non “Quid pro
terms of total trade terms for Quo” Trade Terms
Top 20 accounts
• From this 68%, which
makes ~7,300 million
1. Trade terms pesetas, more than 65%
(~4,900 million) are
general pricing policies
and follow a fixed and
non-discriminatory
2. Cost to serve discount scale
• Finally, there are ~ 2.400 • For some of Top 20 ~30 to 60

millions pesetas which accounts reallocate
are non “Quid pro Quo” money from non “Quid
and that do not follow pro Quo” discriminatory
3. Product mix any specific rule, except trade terms to “Quid pro
for the need of building- Quo”
up an attractive net/net
price for retailers
4. Account plans
Source: Team 17
1.2 CLASSIFICATION OF TRADE TERMS COMPONENTS
STUDY
CLASSIFICATION
Percent of total trade
terms for Top 20
accounts Considerations Examples
• “Real trade terms” • Promotional

with substantial activities
“Quid pro 32% performance • Space
Quo” orientation • Volume target
incentives
• Non directly related • Sales and trade

Trade terms with a quantifiable relationship
target or objective allowances
Discriminatory 22% • Hidden price (“Colaboración
reductions needed comercial” and
to match higher “bonificaciones”)
mark ups given by
competitors
Non “Quid pro • Includes EDLP*
Quo”
• Historically driven, • General pricing

today little policy (“condiciones
Non performance de venta”)
discriminatory 46%
orientation • Non-discriminatory
• Follow a fixed price discount
discount model
* Everyday low prices to Nestlé customers, not always transferred to the final consumer
Source: Team 18
1.2 TRADE TERMS COMPONENTS - TOP 20 ACCOUNTS
Million pesetas, percent - EF 1999 QPQ
NQPQ (Discriminatory)
NQPQ (Non-Discriminatory)
65 127 10,703
136
754
734 155
31
2,779 3,423
703
1,589*
324 1,190**
270 2,383
3,034 462 169
293
1,863 4,897
General Non In store Sales Trade Discrimina- Promotion Trade Volume Cadena Sales targets, Interests Total
Price discrimina- displays allowances relation tory price advertise- promotions targets funds anniversary and early Top 20
allowances tory price shelf-space, (“Boni”) allowances discount ment and others (“Boni”) (“Prima openings payment
discounts listing fees, (“Colabo- (regular + colab. discounts
... ración promotio- Cadena”)
comercial”) nal) Financial
General Space
pricing policy Specific target incentives costs
Trade promotional activities
Percent over
8.1 13.2 2.0 1.2 1.4 12.1 3.2 0.6 3.3 0.6 0.3 0.5 46.5
net sales
* Price allowances to discount retailers with an everyday low price (Mercadona, Día, Continente, Eroski and Tengelmann) not always transferred
to the final consumer
** It also includes some discriminatory price discounts on regular prices that should be reclassified as NQPQ- discriminatory
1.2 POTENTIAL FROM NON QUID-PRO-QUO DISCRIMINATORY

TRADE TERMS - TOP 20 ACCOUNTS QPQ
NQPQ (Discriminatory)
• A total of ~800 million pesetas are non “Quid pro Quo” NQPQ (Non-Discriminatory)
discriminatory trade terms
• Estimated reallocation potential of 20% to 40% with total

contribution potential between 30 and 60 million pesetas
65 127 10,703
754 136
734 31 155
703 3,423
1,589
324 1,190
270 2,383
3,034 462 169
293
1,863 4,897
Total
General Space Trade promotional activities Specific target Financial Top 20
pricing policy incentives costs
Source: Team 20
PROJECT KEY LEVERS: TRADE TERMS - PROMOTIONAL Processes to

EFFECTIVENESS implement Potential
(million
Findings Recommendations pesetas)
1.3. Promo- Promotion volume by product

tional • Promotions area significant part of total • Shift promotions to products with higher
0. Transparency effecti- sales (>50% for most products and clients) contribution per promotion
veness • Promotion contribution and volume uplift • Check opportunities for promotion price
vary across products and accounts increases
• Weakest volume uplifts for products with • Renegotiate promotion costs ~40
strong brands. E.g. LC1, La Lechera • Shift promotions to more price sensitive
products (e.g. Dalky)
• Modify/launch promotion monitoring process
1. Trade terms
Promotion mix
• Cabecera promotions and “lotes” are less • Use cabecera promotions and lotes only to
profitable than simple leaflet promotion but generate volume, mainly in hypermarkets
show stronger volume uplift • Use present/lotteries only if requested by
• Present/lotteries do not show additional client 15 to 30
uplift • Implement “muebles” in 50 selected
2. Cost to serve • “Muebles” provide additional uplift and supermarkets
positive contribution especially when
additional placement
Promotion management
• Promotion agreements with customers • Negotiate all promotion parameters (time,
often too unspecific place, recommended price, scope) with all
3. Product mix • Poor data availability about promotion clients
compliance and performance • Establish processes to improve promotion ~50
• Promotion price control not working well management
• Mismatch of realized vs. invoiced
promotional sales
Regular and promotion mix and prices

4. Account plans
• High variability of regular and promotional • Establish a process to determine
sales mix and net/net prices across recommended ranges of regular and
accounts promotional mix and prices based on price- Not
• Final prices to consumer vary also elasticity estimated
significantly across clients • Adopt a “win-win” strategy to maximize profit
pool with the retailer by repositioning prices 21
1.3 VOLUME UPLIFT VERSUS PROMOTION CONTRIBUTION*

Percent versus million pesetas PRYCA
Volume uplift
(Percent of baseline volume)
Assumptions
Flan eggs
• Promotion costs spread over all
400 3 1 products including baseline sales

(method used today to calculate
“aportación neta”)
• One price (invoiced promotion price

300 equals regular price)
Yogurt natural
Potential
Recommendations (Million pesetas)
Bio Calcio firme
200 • Shift 4 promotions from
LC1 firme to:
Flanby Dalky – Dalky (+2) 1.0
– LC1 liquid (+2) 0.6
100
• Shift 2 promotions from 0.2
0
4 LC1 firme
LC1 liquid
2
Enriched
La Lechera
Yogurt natural to Flan eggs
or Bio Calcio Firme
-0.2 -0.1 0 0.1 0.2 0.3 0.4 0.5 0.6

• Net effect on number of
Promotion contribution per promotions: +/- 0
promotion* • Additional contribution
(Million pesetas) 1.8 million pesetas
* Contribution to client’s net contribution; leaflet promotions only

Source: Team 22
1.3 VOLUME UPLIFT VERSUS PROMOTION PRYCA CASE
CONTRIBUTION BY TYPE OF PROMOTION Leaflet + price reduction

Cabecera + leaflet + price reduction
Percent versus million pesetas Special promotion + cabecera +
leaflet
Volume uplift Findings and potential actions

2.000 • Cabeceras + price reduction

LC1 firme Flan eggs High cost of 2.5 million pesetas per
600
cabecera make these promotions
unprofitable in spite of high volume
uplifts
500
Flanby – Negotiate additional cabeceras for
cabecera payments (annual
negotiations)
400
3 1 – Consider shift to simple leaflet

promotions
300
Yogurt with taste • Special promotions (“lotes”) + price
reduction
200
Special promotions have the same
Enriched contribution as leaflet promotions
La Lechera without consideration of cabecera
100
costs. In spite of including cabecera
costs they become very unprofitable
0
4 2 – Negotiate additional benefits for
special promotions (e.g. additional
-3,5 -3 -2,5 -2 -1,5 -1 -0,5 0 0,5
cabeceras)
– Reduce costs for special promotions
Promotion contribution per by avoiding special packaging
promotion (Million pesetas) – Consider shift to simple leaflet
promotions
Source: Team 23
1.3 VOLUME UPLIFT VS. PROMOTION CONTRIBUTION ESTIMATES
OF PRESENTS/LOTTERIES Regular promotion

Percent versus million pesetas Special promotion
Volume uplift**
200
500
Findings
3 X 1 • Uplifts are not higher than those for

comparable promotion without present
/ lottery
Type • Bowl (present)
Client • El Corte Inglés • Promotions have negative
100
Products • Multipacks contributions
Yogurts Recommendations
Type • Entry Tickets
4 Client
Products
(Lottery)
• Tengelmann
• Enriched
La Lechera +
• Try “cheap” special promotions (i.e.
lottery to win tickets) as a pilot with
clients that show higher sensitivity to
promotions in general
• Car (Lottery)
4 2
Type Sveltesse
Client • GIGAE
0 Products • Bio Calcios X
-2 -1 0 1 2
Type • Trip to Paris Promotion contribution
(Lottery) per promotion*
Client • Tengelmann (Million pesetas)
Products • All products
Source: Team 24
1.3 SECOND PLACEMENT OF PRODUCTS IN SUPERMARKETS (“MUEBLES”)

Recommendation Identified potential (estimate)
Current After implementation

• Implement “muebles”
in 50 selected
supermarkets* Space (m) 254 554
• Make sure 6 meters of

shelf space per Sales
“mueble” are used for (Million 227 315-398
additional placement pesetas)
and not for
replacement of shelf
Contribution
space (implementation: ~34
(Million 51-69
assume only 1/3 - 2/3
pesetas)
of “muebles” space is
additional)
• Outsource ownership,
delivery, and
maintenance of • Additional product contribution of 18-35 million Final
“mueble” at costs of pesetas contribution
about 6,000 ~15-30 million
pesetas
pesetas/month • Renting costs of “muebles” 3-4 million pesetas
* Points of sale that have space for “muebles” and are visited at least once week by sales force
Source: Team 25
1.3 PROMOTION MANAGEMENT: INVOICED VERSUS REALIZED

ESTIMATE
PROMOTIONAL SALES ALCAMPO
Percent of volume - 1999 Payments without
Products sold at performance
promotional price
to end-consumer
Natillas vanilla
100
(74;97)
90 Multipack
Natural yogurt Explanations
(90;81)
80 LC1 La Lechera
liquid trufa Hidden discount:
70 (40;68) (63;70) • Application of promotion prices 5 to 7 days
Bio before start of promotion
La Lechera
60 Calcio Natural
Natural (74;56) Non-compliance:
50 (64;61) Bio Calcio • All products from one product group ("gama")
Frutas are invoiced at promotional price, but
40 Trufas (86;48)
Mousse (44;33)
promotion is only applied to selected products
chocolate LC1 (La Lechera, LC1, Bio Calcio)
30 (23;34) Flanby vanilla
yogurt
(75;35)
(64;38) • Promotion price simply not applied (Petit
20 Petit Nesquik Nesquik)
(47;16)
10
0 Total payments for

0 10 20 30 40 50 60 70 80 90 100 unrealized promotions equal~15
Products invoiced million pesetas
at promotional
price to customer
Source: Team 26
1.3 MIX OF PROMOTIONAL AND REGULAR SALES AND NET/NET PRICES

Enriched yogurt with sugar or taste (example of reference product) CHANNEL:
Percent of total sales volume*, pesetas per unit SUPERMARKETS
Regular sales
123 Promotional sales
117 Regular net/net price
113 112 Promotional net/net
108 108
105 price
99 101 99
98 97
95
93
88 89 89 88 89 88 89
85 85
81 81 82 81
79
9
16 21 25 28 29 31
• High variability
40 41 of regular and
43 44 47 48 promotional
sales mix and
prices across
87 accounts
91 • Develop a
84 79 75 72 71 system to
69
60 59 57 56 periodically
53 52 define and
monitor regular
and promotional
13 mix and prices
Alimerka Dialsur Uvesco Capra- Sabeco GIC El Corte Unigro Hnos. Ahorra- Gadisa Enaco Ahold Biscay
bo Inglés Martín más
* Estimated from January/October 2000 data

Source: Nestlé Refrigerados Spain; Team 27
1.3 VARIABILITY OF CONSUMER PRICES ACROSS CLIENTS CHANNEL

Enriched yogurt with sugar or taste - May/October 2000 SUPERMARKETS
Nestlé
Danone
Variation of consumer prices
across clients of about 12%
with a range of 56 pesetas
172
159 158
146 150 155 145 155 153
153
142 143 148
134 134 129 134 135 132 133 137 137
128
167 169
155 159 163 166
137 139 139 139 140 142 142 146 152
127 127 128
113 116 116 119 122 122 123
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Source: Nestlé Spain Refrigerados 28

1.3 PROCESS TO DETERMINE REGULAR/PROMOTIONAL MIX-DETAIL
Get Nielsen
Determine
report on Define Consider Summarizs
Define volume price range
regular/promotio contribution competitors regular/promotio
functions that maximizes
nal price functions prices nal price ranges
contribution
elasticities
Activities • Discuss • Using price • Based on • Find price • Adjust optimal • Summary
analysis with elasticities, get variable cost range that has price range analysis for all
Nielsen total volume by per product maximum considering products
representative product as a derive contribution competitors’
and monitor function of contribution as prices and
progress price a function of potential
price reactions
End Producto X V (P) para producto X  (P) = (P-C).V(P) Product X Product X Reg. Prom.
Prod. Price Price
Volume multipliers Optimal
products Volume Contribution Contribution range
Precio
99-115 80-90
A
Nestlé B
Compet. A C
Compet. B
5% 10%. . . Discount Price Price Precio
Frecuency:
once a year
29
1.3 PROCESS TO DETERMINE REGULAR/PROMOTIONAL MIX-DETAIL
Prepare summary
Forecast
Forecast regular Determine required report with
promotional sales
sales promotional sales regular/promotional
per promotion
mixes
Activities • Using volume • Repeat analysis • Determine percent of • Summarize

functions and for promotional time on promotion analysis for all
recommended sales and type of products
price range promotions to reach
calculate expected volume targets by
regular sales by product
product • Consider marketing
objectives
End product Product X Product X Product X Product % Reg. % Prom.

sales sales
Promotional
A 80% 20%
Regular volume volume Total Volume
B . .
C . .
Volume . . .
target .
.
Regular price Promotional price 0% 10% ... % Prom.

sales
Frequency:
once a year
Source: Team 30
PROJECT KEY LEVERS: COST TO SERVE
0. Transparency
Potential
Recommendations (million pesetas)
1. Trade terms
2.1 Nearby hypermarkets
– Improve efficiency of direct distribution to nearby 50 to 80
hypermarkets
2. Cost to serve 2.2 Central warehouses operators

– Improve delivery efficiency through modifying 30 to 70
contracts with central warehouses operators
2.3 “Preventas” model

3. Product mix – Modify external distributors’ current distribution 200 to 260
model
Total 280 to 410
4. Account plans
Source: Team 31
PROJECT KEY LEVERS: COST TO SERVE - NEARBY HYPERMARKETS
0. Transparency Potential
Findings Recomendations (million pesetas)
2.1 Nearby • Returns at • Improve the 50 to 80

hyper- hypermarkets quality of orders
1. Trade terms markets directly served by by developing
Nestlé are much skills of
bigger than when “reponedores”
served through
distributors • Improve delivery
2. Cost to serve efficiency
3. Product mix
4. Account plans
Source: Team 32
2.1 NEARBY HYPERMARKETS DIRECTLY SERVED BY NESTLÉ
Current situation Complication Recommendation

• More than 60 Percent of returns over gross sales* Reduce level of
hypermarkets 40,0%
returns through:
which are
close to • Incorporate
35,0%
central these
warehouses hypermarkets
30,0%
are served in external
directly by distributors
25,0%
Nestlé tours, or
through
external 20,0% Average of current • Improve
situation ~7%
operators current
Average when
15,0%
distributed through efficiency
• Orders are distributors ~3% through
realized by 10,0% increasing
carried out quality and
and 5,0% skills of
temporary merchandisers
people hired 0,0% and delivery
through 1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70
efficiency
agencies
* Total year 1999

Source: Team 33
PROJECT KEY LEVERS: COST TO SERVE - CENTRAL WAREHOUSES

OPERATORS
Potential
0. Transparency (million
Findings Recomendations pesetas)
2.2 Central • Stocks-outs at • Select delivery 30 to 70
warehouses distributors efficency KPI’s and
operators warehouses are measure them on an
1. Trade terms higher than at on-going basis
central warehouses
• Include KPI’s in
contracts with
current central
warehouses and
2. Cost to serve
transport operators
• If delivery efficiency
does not improve
change operators
3. Product mix
4. Account plans
Source: Team 34
PROJECT KEY LEVERS: COST TO SERVE
Potential
0. Transparency (million
Findings Recomendations pesetas)
2.3 “Preventas” • Three months ago a • Launch the new 200 to 260
model new distribution and model for two or
merchandising three distributors as
1. Trade terms model, which is fairly pilots
similar to the one of
Danone, was • Track results and
launched by two launch new model
Nestlé’s distributors for the rest of
distributors as soon
2. Cost to serve
• Results from new as possible
model are very
positive:
– Increments sales
– Improves product
3. Product mix mix
4. Account plans
Source: Team 35
2.3 “PREVENTAS” MODEL OF ESPLUGUES’ DISTRIBUTOR

CONCEPTUAL
Traditional model “Preventas” model

People involved Main activities People involved Main activities
3 “preventas” • Contact client
• Realize order
• Realize order
• Get products from
12 “autoventas” distributor’s • Get products from
warehouse distributor’s warehouse
9 “repartidores”
• Make the products’ • Make product picking
“picking” at client during distribution
site and distribute • Distribute products
them • Do merchandising*
• Do merchandising*
Other considerations
• In comparison with Cordoba model, this model does not imply an extra cost, even though there
is a cost reduction caused by using renting cars instead of trucks
• Key question is if product picking should be made or not by the “repartidor”
* Except in hypermarkets, where there are dedicated external people

Source: Interviews 36
2.3 PROS AND CONS OF “PREVENTAS” MODEL
Pros Cons
• Qualitative/process: • Could imply a reduction of

– Improve quality of the order numerical distribution if it is
– Improve contact (time and quality) applied to distributors/tours
with the client where breakeven cannot be
– Increase control of selling-point achieved for small doors
• Advantages of the new
model justify the need
– Better define roles to be played by
to apply the model as
each agent • Implies a possible investment in
soon as possible
systems (mainly mobile
• Quantitative/results: terminals for getting orders)
– Increase sales
• Extension of the
“preventas” model
– Improve product-mix
should be limited to
– Reduce stock-outs and returns
those
– Reduce distributors’ cost*
distributors/tours
which have similar
characteristics as
current Cordoba /
Esplugues model
* Model of Esplugues distributor

Source: Interviews; Team 37
KEY LEVERS OF THE PROJECT: PRODUCT MIX Processes to

implement
Potential
Recommendations/ (million
0. Transparency Findings Issues moving forward pesetas)
3.1. Improve • The gap between actual and • Improve product-mix for
current optimal product mix for total 13 accounts of Top 20
product - “Refrigerados” Nestlé is very group by:
mix large – Listing some SKU’s
1. Trade terms – Changing volume
weight between
products/ SKU’s ~100
– Setting target volume
growth by
products/SKU’s
2. Cost to serve
• Implement account
process to define and
monitor optimal product-
mix by channel/account
3. Product mix
Total ~100
4. Account plans
Source: Team 38
3.1 CHANGE OF PRODUCT MIX: WIN-WIN SITUATION

ESTIMATION
Example: Grupo Carrefour
HYPOTHESIS:
Million of pesetas and percent CONSTANT VOLUME
Impact on contribution
Proposed changes
(percent growth) Nestlé Retailer
Yogurt Natural, with 1.5 7,9

taste or sugar • -4%
Fruits + Yoco • 3 SKUs 4,0 10,6
Low fat yogurts • +10% 1,7 5,8
Liquids • +82% 1,0 6,4
Whipped cream • +5% 1,6 0,7
Mousse • +27% 8,0 5,6
Petit + Yoco • +20% 4,7 12,1
Fresh cheese
Mousse • +5% 0,5 1,2
~20 ~35
Total million pesetas million pesetas
Source: Team 39
3.1 KEY ACTIONS TO BE TAKEN TO IMPROVE PRODUCT MIX - 2000* Growth
Million pesetas and percent New SKU’s
Svel-
tesse Svel- Bio Bio Petit Net incremental
Yoco Fruits + natural tesse Lc1 Calcio calcio Mou- Especia- Petit contribution**
Account liquid Yoco + taste fruits Liquid natural low fat sses lity Yoco Others (million pesetas)
Carrefour 18% 36% 14% 7% 6% 10% 17% 15% 6% 25% 100% 17.5
(hipers) (Petit Classic)
Carrefour Reintro- 1 SKU 10% 14% 10% 10% 9% Reintro- 21% 3.9
(supers) duction 1 SKU duction (Petit Classic)
1 SKU
GIGAE 22% 3% 15% 10% 5% 5% 15% 15% 75% 3% 26.4

100% 1 SKU 1 SKU (Desserts Lechera)
Alcampo 9% 15% 10% 15% 10% 100% 15% (Bio Calcio 10,1
Liquid)
8%
Dia 1 SKU 2 SKU’s (Yogurt + 12.1
Desserts Lechera)
Ahold/ 44% 55% 25% 20% 19% 18% 20% 15% 10% 5.5
Supercliplo 300% 1 SKU (MousseSvelttesse)
GIC 68% 35% 15% 15% 10% 10% 35% 150% 15% 9.2
53% (Sveltesse liquid)
SABECO 40% 11% 5% 15% 25% 27% 97% - 5.0

20% 1 SKU
Unigro Reintro- Reintro- 15% 15% 35% 10% 100% 15% Reintro- 5% 8.9
duction duction duction (Yogurt Lechera)
Ahorramás 70% 20% 20% 15% 10% 10% 25% 60% 3.8
-
1 SKU
DASA 3% 35% 25% 15% 15% 15% 15% 5% 20% 20% 2.0
20% (Desserts Lechera)
Total
~100 million
* Improvement potential based on analysis of 2000 data pesetas
** Deducing contribution of products that reduce volume. Hypothesis: constant volume, except for Día (7% volume growth)
Source: Team 40
3.1 PRODUCT MIX OPTIMIZATION MONITORING PROCESS
Introduce clients’
Calculate theoretical Adjust theoretical
Define model’s current situation to
product mix by product mix by client
parameters and weights calculate theoretical
channel to get feasible target
product mix by client
What do we Theoretical product mix

get out of it? for Nestlé Spain Theoretical Product Mix Theoretical Product Targets by account:
Refrigerados by Channel Mix by Client
Discounts Dia • New listings

Sub-
category % Vol.
Contri-
bution
Supermarkets Carrefour
• Growth targets by
Hypermarkets
Sub- % % Vol. Contri- product
Natural
with taste
Sub- Contri- Fa-
category % Vol. bution cings
category Vol. Growth bution • Volume share by
. product
. . .
. . .
. .
100% Total 0%
100%
100% 206
Frequency:
twice a year
Source: Team 41
DOCUMENT CONTENTS


42
1.1 IMPLEMENTATION PLAN: PRICE DISCOUNTS
Activities Responsible
• Reduce price discounts for small accounts to defined range

– Group products into homogeneous clusters according to variable discount level
(approx. 10/15 clusters) Trade Marketing
– Classify product clusters as reference or non-reference
– Set variability allowed above average for reference and non-reference products
and by client size segment Trade Marketing
– Define target average discount and maximum discount allowed by product cluster
and client size segment Trade Marketing
– Revise assigned budget to sales regions according to new discount ranges
– Communicate to sales region new ranges of discounts and adjusted budget
– Implement/negotiate new discounts Trade Marketing
• Monitor periodically fulfillment of discount objectives (twice a year) as defined J. Urcola

process
J. Tronchoni
• Extend reduction of price discounts for small accounts to fresh pasta and cheese
Regional Sales Force
Trade Marketing
Trade Marketing
Source: Team 43
1.2 IMPLEMENTATION PLAN: “QUID PRO QUO” TRADE TERMS
Activities Responsible
• Reallocate non “Quid pro Quo” discriminatory trade terms to “Quid pro Quo”
– Confirm and negotiate concepts defined with the retailer
KAM’s
– Implement “Category Management” in selected retailers
Corporate Trade Marketing

Trade Marketing
– Monitor fulfillment of objectives defined and value results KAM’s / Sale force
• Launch trade terms monitoring process to measure periodically (once a year) the Trade Marketing
evolution of “Quid pro Quo” - non “Quid pro Quo” trade terms for top 20 accounts KAM’s
Controller
Source: Team 44
1. IMPLEMENTATION STATUS: TRADE TERMS BASIS FOR

ACTION
Financial benefits (Million pesetas) CONTROLLING
Implementation
Recommendations status Total Realized 1Q01 2Q01 3Q01 4Q01 Beyond KPI’s
• Reduce price • In execution by 40 10 10 10 10 • Average price

discounts for small Trade Marketing discount by product
accounts to defined and client segments
range • Percent of clients with
discount out of range
• Reallocate money • Not initiated 30-60 7.5-15 7.5-15 7.5-15 7.5-15 • Percent of space by
from non “Quid pro account
Quo” discriminatory • Percent share of
trade terms to “Quid space by level and
pro Quo” account
• Number of new SKU’s
• Shift promotions to • Not initiated 40 5 7.5 7.5 20 • Percent of
products with higher realized/planned
contribution/ promotions by type
promotion • Average contribution
of promotions by
account
• Improve type of • Not initiated 15-30 1.5-3 1.5-3 12-24 • Number of “muebles”
promotions by account
(“muebles”) • Sales for each store
with “muebles”
• Establish processes • Not initiated 50 6 6 38 • Qualitative KPI’s for
for improving reports:
promotion – Availability
management – Quality
– Completeness
Source: Team 45
1. SUMMARY OF KPI’S - TRADE TERMS
Measured in
Actions to monitor KPI Unit relation to Frequency Calendar
1.1 Reduce price • Average price discount by • Percent • Defined target average 2/ year Jan., Jul.
discounts for small product cluster and segment price discount by product
accounts to defined of client size cluster on client size
range • Percent of clients with price • Percent 2/ year Jan., Jul.
discount above maximum by
product cluster
1.2 Reallocate money • Number of facings by • Units • Target number of facings by 4/ year Jan., Apr., Jul., Oct.
from non “Quid pro account account
pro “ discriminatory • Share of space in each level • Percent • Target share of space in 4/ year Jan., Apr., Jul., Oct.
trade terms to “Quid by account each level by account
pro pro” • Number of new SKU’s by • Units • Defined objective of new monthly
account SKU’s by account
1.3 Shift promotions • Percent of realized • Percent • Number of planned 3/ year Jan., May, Sep.
to products with promotions versus planned promotions by type/
higher contribution/ by type/ product/ account product/ account
promotion • Average contribution of • Percent • Planned average 3/ year Jan., May, Sep.
realized promotions by contribution of planned
account promotions by account
1.4 Improve type of • Percent of “muebles” • Percent • Number for “muebles” Monthly
promotions installed versus planned by planned by account
(“muebles”) account
• Volume increase for each • Percent • Previous year Monthly
store with “muebles”
1.5 Establish • Qualitative KPI’s for reports:

processes for – Availability • Number of • Previous period 3/ year Jan., May, Sep.
improving promotion reports
management – Quality • Scale 1 to 5 • Previous period
– Completeness • Scale 1 to 5 • Previous period
Source: Team
46
2. IMPLEMENTATION STATUS: COST TO SERVE BASIS FOR

ACTION
Financial benefits (Million pesetas) CONTROLLING
Implementation
Recommendations status Total Realized 1Q01 2Q01 3Q01 4Q01 Beyond KPI’s
• Improve direct • Not initiated 50-80 3-5 18,5- 18,5- 10-20 • Percent of returns
distribution to nearby 27,5 27,5 over sales
hypermarkets • Product availability at
nearby hypermarkets
• Improve delivery • Not initiated 30-70 7,5- 7,5- 15-35 • Percent of stock-outs
efficiency of operators 17,5 17,5 at distributors
warehouses
• Modify external • In progress 200-260 1-2 13-18 25-34 161-206 • Percent of sales
distributors’ model growth by product
and distributor
• Number of new SKU’s
by distributor and
client
Source: Team 47
DOCUMENT CONTENTS


48
SPECIFIC ACTION PLANS BY ACCOUNT (1/5)

Non “Quid pro Quo” Promotional effectiveness Product mix improvement
Total
Potential Potential Potential potential
(million (million New Volume (million (million
Account Actions pesetas) Actions pesetas) Products SKU’s growth pesetas) pesetas)
2279 Improve Fruits + Yoco 100%

assortment in Sveltesse Natural + Taste 1 3%
supermarkets Sveltesse Fruits 1 15%
Sveltesse Liquid 40%
LC1 Liquid 10%
Biocalcio Firm 5%
Biocalcio low fat 5%
Biocalcio Liquid 5%
Liquid Nestlé 22%
Desserts La Lechera 3%
Mousse 15%
Petit specialities 15%
Petit Classic 200%
Petit Yoco 75%
Mousse Sveltesse 4% 35.4 -
9-18 26.4 44.4
0598-0565 Improve quantity Decrease 4 promotions of Fruits + Yoco 36%

of space LC1 firme Sveltesse Natural + Taste 14%
Improve quality Increase 2 promotions of Sveltesse Fruits 7%
of space Dalky Sveltesse Liquid 35%
Increase Increase 2 promotions of LC1 Liquid 6%
participation in LC1 Liquid Biocalcio Firm 10%
client's Decrease 2 promotions of Biocalcio low fat 17%
promotional natural yogurt Biocalcio Liquid 10%
activity Increase 2 promotions of Liquid Nestlé 18%
Egg Flan or Biocalcio Firme Mousse 15%
Petit specialities 6%
Petit Classic 111%
Petit Yoco 25%
Mousse Sveltesse 10% 29.4 -
8-16 3.9 17.5 37.4
Source:Team 49
MODIFICATION OF CURRENT ACCOUNT PLANS DEFINITION PROCESS

New vs. current
Promotion/regular prices and
mix
Promotion
effectiveness
Product mix
Definition
of
“dirección” Break-down of Presentation
Establish objective Preparation of Agree final
objectives objectives by of account
framework account plans account plans
by brand account plans
product
What do • Recommendation Account A • Strategy by account • Final action plan by • Overall agreement
we get and/or mandatory Net account
out of it? objectives by Pro-
Net
Volu- Share Re-
Net
Net
Avg.
Net • Historical performance • Action plan ready
brand/product/ ducts me (%) gular Prom. Net of the account for implemen-
channel: Regular 1000 35% 170 190 185 tation
– Ranges of regular/ with
• Detailed action plan by
taste
promotional prices ... account:
– Ranges of regular/ – Volume objectives
promotional sales – Product mix
mix – Regular and
– Global rules of promotional net/net
thumbs for prices
promotions – Promotional activity
– Optimal product – Space
mix by channel/
account
Frequency:
once a year
Source: Interviews; Team 50

DOCUMENT CONTENTS


51
IMPLEMENTATION ORGANIZATION
• E. Mestre
• E. López Roles
• A. Bricall
Steering committee • P. Folch • Provide resources
• J. Tronchoni • Ensure consistency/quality
Cooordinator* • M. Pedros • Take critical decisions
• J. Urcola • Review progress and results
M. Pedros
“Pure” trade Promotional Cost to

Text Text Product mix
terms** effectiveness serve
Sponsor J • Provide intellectual leadership

• Push for implementation,
eliminate bottlenecks
Responsible • Provide day-to-day leadership

• Elaborate work plan
• Coordinate actions
• Present end products
Team • Perform analyses

members • Execute tests
(Currently, 20% • Implement solution
allocation)
* Coordinate logistics and prepare KPI’s follow-up

** “Non Quid pro Quo” and small accounts discounts
Source: Team 52

Building Up Customer Management Skills To Improve Trade Spend Efficiency and Effectiveness

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Building up Customer Management

• Project objectives and scope

• Implementation plan for each key lever

Project objectives • Profitability: Improving overall profitability by

• Skill building: Upgrading KAM skill profile from being

Project scope Nestlé Spain “Dirección Refrigerados“ and shared service

30% of PFME 46.9

1994 1995 1996 1997 1998 1999 2000

• Project objectives and scope

• Implementation plan for each key lever

200 to 260 555 to 730

Optimize Increase Improve Improve Potential Improve Total

• Project objectives and scope

• Implementation plan for each key lever

• Top 20 accounts: contribution varies heavily by account (variation

• Other main accounts (21-40): contribution over net sales is almost

• Direct sales to distributors: contribution over net sales is more than

• ATC-”colectividades”: contribution over gross sales is aligned with

0.2 Brand P&L

Contribution Trade-terms Product-mix Cost-to-serve

Top 20 accounts 17.7 46.5 35.0 22.0

Other main accounts

ATC “Colectividades”* 26.2 70.7 42.8 24.5

Average 19.1% 43.0% 35.1% 23.8%

Areas of estimated • Non Quid-pro-Quo

0.1 TO 20 ACCOUNTS SEPARATION OF PROFITABILITY DRIVERS

2279 1.1 2.4 0.3 -1.6

0598 -2.2 -3.1 -1.5 2.4

2277 12.5 1.9 0.9 9.7

CUSTOMER TOTAL TRADE COST OF GOODS DISTRIBUTION COSTS

* Variation from weighted average of customer contribution as percent of net sales

0.1 Account P&L

• Yogurts show the biggest contribution variations between

• Flor de Esgueva is the brand with the biggest

TRANSPARENCY PHASE: MARKET

0.1. Account P&L

0.2. Brand P&L

• Refrigerados Nestlé has grown slower than the market in each

• Numerical and weighted distribution follow market share trends

• Nestlé stock-outs (numerical and weighted) are above competitors

• Project objectives and scope

• Implementation plan for each key lever

PROJECT KEY LEVERS: TRADE TERMS Processes to implement

1.3 Promotional effectiveness

PROJECT KEY LEVERS: TRADE TERMS - PRICE DISCOUNTS TO Processes to

1.1 PRICE DISCOUNTS FOR SMALL ACCOUNTS AND REFERENCE PRODUCTS*

Percent of price discount on

1. Set ranges of • Define ranges of price discounts by category of

• Periodically (i.e., twice or three times a year)

• Finally, there are ~ 2.400 • For some of Top 20 ~30 to 60

• “Real trade terms” • Promotional

• Non directly related • Sales and trade

• Historically driven, • General pricing

1.2 POTENTIAL FROM NON QUID-PRO-QUO DISCRIMINATORY

discriminatory trade terms

• Estimated reallocation potential of 20% to 40% with total

PROJECT KEY LEVERS: TRADE TERMS - PROMOTIONAL Processes to

1.3. Promo- Promotion volume by product

Regular and promotion mix and prices

1.3 VOLUME UPLIFT VERSUS PROMOTION CONTRIBUTION*

400 3 1 products including baseline sales