Winning in GM: Trends, Insights & Strategies

AGENDA
1. Introduction and Overview 2. Research Study Preview 3. Next Steps 4. Closing Thoughts

Introduction and Overview

SECTION 1

BACKGROUND AND CONTEXT

GMDC remains committed to better serving

our members

Learnings from the Health & Wellness study Were Listening

New approach, new partnerships

THE GM RESEARCH STUDY

Why is GMDC commissioning this study?
RATIONALE
GMDC will take on an even more aggressive leadership position for analysis and insights Represent and Defend GM

APPROACH
Leverage existing data and research Prioritize the 10 to 15 most important categories Foundation for translating research and insights into action

MEMBER BENEFITS
Use internally and with other audiences (i.e., distributors, retailers and other industry trade partners ) Insights, strategies and solutions to grow your business

OUR RESEARCH PARTNER: RADIAN

A management consulting firm based in

Minneapolis, MN
Retail industries

Domains include the Manufacturing/CPG and Services: Strategy, Business Planning,

Implementation and Event Management significant and senior roles with Suppliers and Retailers

They know this business practitioners with

VALUE FOR RETAILERS

GM strategy and growth aligned with

SALES GROWTH

the total store

Resurgence of Center Store Define the role of GM categories

(space, promotion, etc.)

Pick the right categories to grow profits

PROFITABILITY

Compliments your pricing strategy Better evaluate category trade-offs Win in the categories consumers

LOYALTY

expect from you

Identify industry or consumer trends to

help you drive share and loyalty

VALUE FOR SUPPLIERS

Reinforce the value of your categories

RELEVANCE

and products to Grocery Retail

Identify the largest gaps and

opportunities

Which categories are growing or

BUSINESS DEVELOPMENT

declining -- and why

Where to invest resources Insights to ensure growing partnerships Support line extension and new
product development investments

OPERATING MODEL

Align sales, marketing and operations

FINAL PERSPECTIVES
Grow sales through facts, data and understanding Grow profits today and tomorrow Grow loyalty GM, store and channel Aligned organization and investment

Research Study Preview

SECTION 2

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TOTAL STORE VS. GM STRATEGY

GM DEPARTMENT STRATEGY
TOTAL STORE STRATEGY
Supports the retailers customer value proposition Linked to most important brand proposition themes Expected by the shopper Assortment Adjacencies and Space Allocation Fixtures and Equipment

GM OPTIMIZATION
Maximize GM sales and margin Best for me space, displays, promotions, etc. Tactics and investments vis-a-vis the competitive landscape

Price
Promotion Service

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Smaller Role

RANGE OF ALTERNATIVES
EXTENDED
Broader presence in many categories.

Larger Role

BASIC/CORE
Minimal set of basic GM categories.

DESTINATION
Broad deep in most GM categories.

Examples Whole Foods Lund's Aldi Central Market

Examples: Giant Eagle Kroger (Super Center) ShopRite Winn Dixie

Examples: HEB Plus Super Target Meijer

TRADITIONAL
Basic/Core + extend around Seasonal.

TARGETED GM
Focus in Signature categories

Examples: Dominick's Weis Markets SaveMart Stater Bros. BI-LO

Examples: Wegmans Byerlys HEB

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REAL WORLD IMPLICATIONS

Range of Linear Ft. Allocated by
Illustrative Categories Minimal Presence Traditional Presence Selectively Extended Destination Presence

Publishing Celebration Household Kitchenware Power (Batteries) Total Pet

2 to 4 30 to 40 30 to 40 8 to 10 8 to 10 2 to 4

16 to 24 80 to 120 80 to 120 80 to 120 12 to 16 12 to 20

80 to 100 150 to 180 80 to 120 200 + 8 to 10 10 to 16

100 to 120 200 + 400 + 300 + 40 to 50 60 to 80

RETAILERS Even a rationalized strategy requires enough space to be credible GM Space in focus or Signature categories is often doubled Destination 3X to 5X more space

SUPPLIERS Retailer strategy dictates space Performance also impacted by display, signage and pricing decisions

Chasing fewer facings through a range of tactics

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TYPES OF CATEGORIES AT RISK

Supermarkets 40% Supermarket Avg. Share Mass Supercenters Mass Avg. Share
42%

33% 33%

30%
27% 25% 25% 22% 20% 17% 16% 23%

26%

20%

- 10%

22%

15%

10%

+ 2%

- 2%

+ 1%

9%

- 3%
3%

7% 5%

0%

Canning, Freezing Supplies

Seasonal

Kitchen Gadgets

Pet Care

Batteries, Flashlights

Light Bulbs, Photographic Office, School Electric Goods Supplies Supplies

Automotive

Market Share Loss for Food Channel (2005 to 2009), Progressive Grocer Consumer Expenditures, 2010

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CATEGORY LEAKAGE
Primary Share of Wallet
Retailer X SVU Banner

Mass w/ Super Ctr

Drug

Grocery

Warehouse Club

Dollar

All Other Channels

Total

16%

22%

7%

22%

2%

33%

THEMES EXPLORED
Who do we compete with for this category?

IMW Region 1

12%

35%

0%

20%

0%

33%

Jewel Region 2

20%

16%

10%

20%

1%

33%

What channels are growing or shrinking? Why?

What does this suggest customers look for in this category?
90% 100%

SOCAL Competitor A

17%

19%

7%

24%

3%

30%

ACME Competitor B

13%

16%

9%

25%

3%

34%

0%

10%

20%

30%

40%

50%

60%

70%

80%

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SPACE - SALES ANALYSIS

ACME YOGURT ACME YOGURT Sales vs. vs. Linear Linear Feet Feet Category XXX Sales
$700,000 $700,000
Annual Sales$$per perStore Store Annual Sales

$600,000 $600,000 $500,000 $500,000 $400,000 $400,000 $300,000 $300,000 $200,000 $200,000 $100,000 $100,000 $0 $0 0 0 ft ft 5 5 ft ft 10 10 ft ft 15 20 25 30 15 ft ft 20 ft ft 25 ft ft 30 ft ft Linear Feet per Store Linear Feet per Store 35 35 ft ft 40 40 ft ft 45 45 ft ft

THEMES EXPLORED
How are different set sizes performing? Differences between types of retailers or stores? What (upper/lower) guidelines can we infer?

$700,000 $700,000 $600,000 $600,000

Annual Sales per Store Annual Sales $$ per Store

$500,000 $500,000 $400,000 $400,000 $300,000 $300,000 $200,000 $200,000 $100,000 $100,000 $0 $0

0 ft 0 ft

5 ft 5 ft

10 ft 10 ft

15 ft 20 ft 25 ft 30 ft 15 ft 20 ft 25 ft 30 ft Linear Feet per Store Linear Feet per Store

Thompson Thompson Linear (Thompson) Linear (Thompson)

35 ft 35 ft

40 ft 40 ft

45 ft 45 ft

Palmer Palmer Linear (Palmer) Linear (Palmer)

Vincent Vincent Linear (Vincent) Linear (Vincent)

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ROLE OF PRICE AND PROMOTION

Sales and Unit Trends
WEEKLY VOLUME (UNIT) vs. AVG PRICE and AVG. COST
Volume (Units)
20,000

Avg. Price / Unit

COGS / Unit
$3.00

18,000 $2.50 16,000

14,000 $2.00 12,000

10,000

$1.50

WEEKLY VOLUME, SALES AND MARGIN VS. AVG. PRICE/UNIT

4,000 $0.50 2,000

Trade-Offs

8,000 $1.00 6,000

Unit Volum e Sales Dollars

8 8 13 /0 27 /0 12 / 12 / 1/

25,000
$0.00
9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 14 /0 11 / 24 /0 7/ 0 21 /0 7/ 0 21 /0 4/ 0 18 /0 2/ 0 16 /0 30 /0 13 /0 27 /0 11 /0 25 /0 8/ 0 22 /0 5/ 0 19 /0 /3 /0 17 /0 31 /0 2/ 3/ 4/ 5/ 8/ 9/ 10 1/ 2/ 3/ 4/ 5/ 5/ 6/ 6/ 7/ 7/ 8/ 9/ 10 / 10 / 11 / 28 /0 9 10 /0

20,000

Margin Dollars Current Price

15,000

Price to Maximize Margin

Price Elasticities WEEKLY MOVEMENT (UNIT) VS. PRICE PER UNIT

800,000 700,000 600,000

10,000

5,000

500,000
0

.9 0

.1 0

.3 0

.5 0

.7 0

.9 0

.1 0

.3 0

.5 0

.7 0

.9 0

.1 0

.3 0

.5 0

.7 0

.9 0

.1 0

$0

$1

$1

$1

$1

$1

$2

$2

$2

$2

$2

$3

$3

$3

$3

$3

$4

$4

.3 0

400,000

300,000

200,000

100,000

$0.95

$1.10

$1.25

$1.40

$1.55

$1.70

$1.85

$2.00

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GM IMPACT TO TOTAL STORE

GM contributes between 1.7X to 1.9X of its fair share to net margin vs. sales.

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Next Steps

SECTION 3

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PHASE 1 OVERVIEW
Identify strategic themes, opportunities and

challenges for GM in the channel

Deep dive on 8 to 12 categories Timing: Summer 2011

Distributed through various GMDC venues

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PHASE 2
Deeper dive on additional 8 to 12 categories Follow-up on Phase 1 categories, insights,

best practices, etc.

Timing: Fall 2011

Distributed through various GMDC venues

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EXTENDING GMDC SERVICES

From Study to Execution: How to implement

recommendations, initiatives, etc.?

We explored a new service and support

model with a trusted group members

What We Learned: Our approach was validated and is being refined Focus on foundational services, exploring add ons Next Step: Pilot categories, suppliers at one

Retailer

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Closing Thoughts

SECTION 4

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GM MATTERS
To the Retailer ID sales down 0.6%* and Profit Margins Hit New Low*
- 2008: 1.80% - 2009: 1.62% - 2010: 1.57%

To the Customer GM is innovativefun! She likes the convenience of purchasing GM where she shops regularly To Suppliers/Manufacturers GM is under attackspace and value Stop the bleeding and then start to grow
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*FMI Future Connect 2011-Supermarket News, May 2011

SUMMARY
GM is under-represented Limited information and benchmarking leaves category vulnerable
- GM first area to be considered for reduction

GM is key towards the health of Retail GM is a major contributor to retailer financial results: Profit GM will help to drive relevance and revitalization of Center Store
GMDC is committed to your success!

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HERES HOW YOU CAN HELP.

Sponsorship 4 levels of participationcan be spread over 2 years
1.

2.

3.

4.

Thought Leadership Sponsorship $ 30,000 [$15,000/year] Access to all quantitative materials and data tables Private On Site Study Results Presentation Category Exclusivity at this level Foundation Underwriters Sponsorship - $20,000 [$10,00/year] Webinar Presentation of Study Results for Customers or Internal Teams Educational Support Sponsorship - $15,000 [$7,500/year] Name recognition and pre-release benefits Contributing Sponsor - $3,500 [$1,750/year] Name recognition + Sponsor: Must be data provider for major category + Sponsors will be offered the opportunity to provide category /consumer insights, merchandising/mix recommendation and other proven execution strategies (validated).
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HERES HOW YOU CAN HELP.

Data POS data (talk to us about the details) Other pertinent category research and data Additional Research and Insights Best Practices and proven approaches
- Merchandising - Promotions - Etc.

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THANK YOU

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