Category Management and Its Affect on Suppliers

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Category Management and Its Affect on
Suppliers

• Prepared for
• 2006 Potato Industry Outlook Summit
• December 7, 2006

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Table of Contents

• What is driving the importance of category
  management in perishables?
• Consumer trends
• Channels trends
• Product development trends
• New information and tools
• What are the required changes for a supplier?
• Business model
• Capabilities
• Case study
• What does it all mean to produce suppliers?

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Consumer Outlook
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Consumer Outlook Macrotrends

• Beauty Mark
• Passion for the pleasures of personal beauty and
  physical health based on the belief that looking
  good and feeling good go hand in hand.

Source Flair Communications 2006
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Consumer Outlook Macrotrends

• Friends Family
• Even though the structure of family has shifted,
  our need for all it provides is constant

Source Flair Communications 2006
6
Consumer Outlook Macrotrends

• Hyperlife
• Life as multitasking, multisensory barrage.
• If youre not doing more than one thing at a
  time, youre probably bored.

Source Flair Communications 2006
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Consumer Outlook Macrotrends

• Merit Badges
• The shift in values to collect experiences rather
  than things the recasting of social status from
  what one has to what one does.

Source Flair Communications 2006
8
Consumer Outlook Macrotrends

• Ready, Set, Go
• Innovation plus convenience The seamless
  combination is the ultimate answer to soothing
  the roaring demands of stressed-out consumers.

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Consumer Outlook Macrotrends

• Technomorphing
• The effects of warp-speed technological change
  transforming jobs, lives, and the world, and the
  translation of that change into human terms.

Source Flair Communications 2006
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Consumer Outlook Macrotrends

• Mass Affluence
• Excess or bigness outsize houses, outsize cars,
  jewelry (bling) Starbucks, premium tier food

Source Flair Communications 2006
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Channel Activity
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Channel Trends

• Where Shoppers Buy Produce
• 98 of US households buy fresh produce in grocery
  
• 57 of fresh produce buyers that shop in super
  centers or warehouse club stores purchased fresh
  produce in those channels.
• One out of three trips made to super centers or
  warehouse club included fresh produce.

Source ACNielsen Homescan Panel Data 2004
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Channel Trends

• Competition Increases as Alternative Channels
  Continue Growth

Trade Dimensions Chg in store count 03 to 04
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Channel Trends
For non-food, national buying power is
translating to local market share leadership
too
Grocery The Last Fragmented Channel
Food
Drug
Club
Mass
Dollar

• Kroger
• Albertsons
• Safeway
• Ahold
• Publix
• Delhaize America
• Meijer
• HEB

Sams Costco
Dollar General Family Dollar
Wal-Mart
Walgreens CVS
Regional players have best local market share
consistency holding 1 or 2 rank in 70
markets (vs. 51 for others)
FDM is based on 50 ACV Club/Dollar est. based
on store count
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Retail Response New Formats

• Food Lion
• Bloom Concept
• Wal-Mart
• Urban 99 and Rural 98, Neighborhood Markets
• Green format
• Marsh Supermarkets
• Lifestyle/solution stores
• Costco
• Expanded perishables
• Safeway
• Lifestyle stores
• Whole Foods
• Spa store

• Hannaford
• Sweet Bay
• Sears
• Sears Grand (2004) and Sears Essential
• Best Buy
• EQ Life
• Kroger
• Food 4 Less, Frys, Smiths
• Albertsons
• Super Saver
• SuperValu
• Sunflower Markets
• H.E.B
• Central Market w/ café an playground

Goal is the same Differentiation
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More New ProductsThan Ever
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The Evolving Produce Department

• More value added items
• More branding
• More items

More options More decisions
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New Products

• New Product Explosion
• The standard practice in grocery for years
• More than 30,000 new items introduced each year
• 75 percent failure rate
• Represent a high percentage of total category
  sales and category growth
• Already impacting produce but on a smaller scale
• Average item count has doubled in the last five
  years
• Proliferation of new items in categories such as
  packaged salads and fresh cut fruit
• This trend is likely to explode in the next two
  to five years

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New Packaging

• Produce industry is continuing to transition from
  bulk to packaged items
• Packaged products are driving the sales of more
  and more produce categories, e.g., mushrooms,
  grapes
• New types of packaging are having a major impact
• Clamshells (strawberries, grapes, tomatoes)
• Re-sealable bags (potatoes, spinach, lettuce)
• Microwavable bags and trays (corn, green beans)
• Package sizes are getting smaller
• Single use offerings (salads, fresh-cut fruit,
  potatoes)
• Packaging creates new opportunities for branding
• Move from sticker/PLU to package/UPC

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Growth of Organic Foods

• Sales of organic foods will reach 18 billion by
  2008 up from 10 billion in 2003
• Branded, packaged items accounts for 49.2 of the
  market for organic food and beverages
  perishables for 40, with fresh vegetable sales
  reaching 1.6 billion and fresh fruit 913
  million prepared deli and foodservice organic
  foods account for 2.3 percent
• Among organic food buyers, 79 buy produce, 35
  bread and bakery items, 33 non-dairy beverages,
  and 30 dairy products
• Among people who buy some organic products on a
  regular basis, dairy ranks second, with 63 of
  regular buyers using organic dairy products
• Sales of organic private-label products is new
  but is expected to grow as retailers begin to
  offer their own private-label organic products in
  response to consumer demand
• Safeway launched its O line
• Sources USDA Natural Marketing Institute
  Whole Foods

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New Tools to Gather Information
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New Information Tools

• The focus on fresh will continue
• Retailers will increasingly highlight fresh
  choices to create value and differentiation with
  consumers
• Fresh food suppliers have tremendous
  opportunities in the new competitive landscape
• However
• In a sea of choices, retailers are calling on
  suppliers to identify performance drivers
• Knowing what drives shelf success is critical
• Suppliers will be expected to apply the approach
  common to CPG categories to fresh categories
• Merge consumer research with other data resources
  to aid chain/store level performance planning

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Integrated Approach

• Tools to gain a comprehensive understanding of
  the consumer opportunity

Consumer Purchase Intent and Triggers
Internet Surveys Topline View
Store Audits Market View
Consumer Intercepts Store Level View
POS (Topline, Market, Store Level results)
CONSUMER Opportunity
Consumer Purchase History
Clustering Store Level View
Segmentation Market View
Homescan Panel Data Topline View
Predictive Consumer Behavior
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Required Changes for Produce Suppliers
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Traditional Retail Sales Model
Distribution-Based Have it-Sell it Approach
CommodityApproach
Uniform offers. Focus short-term sales, respond
to inventory issues.
Relationship selling. Bid for contracts. Exploit
seasonality.
Retailer/ Wholesaler
Fax Machine Marketing
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New Business Model
New Business Model

• Expect suppliers
• to know consumers
• Right product
• Right stores
• Right time
• Right price

Fresh Supplier
KeyPartner
KeyPartner
KeyPartner
1
2
3
4
Strategy--Focus on key accounts
TRADITIONAL RETAILERS Bid for orders.
NEW MODEL RETAILERS WANT To identify key
consumers Know how an item builds category
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New Business Model

• Retailers are asking for more from their fresh
  suppliers
• Consumer information/knowledge
• Category Management/development expertise
• Supply chain management

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Supplier Case Study

• What are the leaders doing?
• Creating relationships with key retailers that
  extend far beyond product and logistics
• Using consumer insights to drive innovation in
  the category
• Documenting how their products add value to the
  category
• Helping retailers create optimal
  product/price/assortment programs
• Identifying new product or segment opportunities
• Creating account-specific category plans
• Integrating trade activities, marketing, research
  and product development
• Creating new/incremental category value

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Supplier Case Study
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Sara Lee Deli Category Leadership
Platform Winning In The Deli Through Consumer
Understanding And Targeted Strategies Executive
Summary IDDBA June 2006
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Sara Lee Deli Category Leadership Platform

• Consumer Understanding
• Extensive Research (Proprietary and Syndicated)
• Industry and Category Specific
• Blended Formats of Qualitative, Quantitative
• Focus Groups, Shopalongs, Intercepts, Surveys
• Market and Retailer Understanding
• Extensive Analysis Across Consumer, Market
  Retailer
• Category and Brand Specific
• Blended Formats of Proprietary and Syndicated

Deli Industry and Deli Meat and Cheese Category
Context and Recommendations
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Dynamics Provide Challenges..
Consumer Dynamics
Market Dynamics
Demand for Fast, Fresh Convenient
Importance of Deli for Total Store
Retailer Dynamics
Competition
Away From Home Alternate Channel Incursion
Deli Drives Shoppers, Trips and Baskets
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Consumer Dynamics Provide Challenges and
Opportunities

• Consumers Eating Habits are Changing

• Fewer Meals in Total (-13) and More Skipped Meals
  (12)
• Shift of Meals from AT HOME to AWAY FROM HOME

Consumers are Busier than Ever

• More Women Working OUTSIDE and INSIDE of Home
• 1 Reason to Eat Away From Home So, I dont
  have to Cook!

• Consumers Seek Convenience, Fresh and Fast Meal
  Solutions

• HALF Agree Im so busy hurry all day, I am
  too worn out to fix meals requiring
  much time and effort
• 75 of Dinners are Decided SAME Day

Retailers Can Focus On Providing Fast, Fresh,
High Quality Meal Solutions While Driving Sales
Sources NPD National Eating Trends Survey, NPD
Nutritional Survey
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Away From Home Retailers Anxious to Meet
Consumer Needs

• Consumers Putting Their Feet and Dollars Where
  Their Mouth is
• In 2005, 5 of Top 10 Fastest Growing Restaurants
  by Customer Count and Dollar Sales

Growth 30 ales 2.8 Billion
Sandwich Type Formats
and Others Getting IN on the Share of Stomach
More and More Choices to Consider Going TO and
FROM Your Store Deli!
And, In Home..
Sources QSR Magazine Top 50 Ranking 2005 Survey
Spectra/Trade Dimensions
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Food Retailers Face Increasing CompetitionSome
KEY Channels are WinningSome Will AwakenSome
Need to Move !
Midpoints Avg. Number of Trips 23.3 Avg.
Basket Size 39.30 HH Penetration Bubble Size
Critical to Identify and Leverage Categories that
Can Drive Impact
Source AC Nielsen Home Scan Channel Blurring
2006 Study
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In Summary, Integrate These Strategies for
Maximum Category and Consumer Effects

• Focus These Activities Particularly on Occasions
  and Extended Usage to Consume MOREMore often!
• Improve the Mix of What They Buy to Produce a
  Higher Transaction Value
• While They are in Store, Convert a Greater
  Percentage of Shoppers to Buy Now

Net Results Profitable Growth with Smart
Shoppers and Competitive Advantage
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Implications for Produce Suppliers
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Implications for Produce Suppliers

• The suppliers closest to the consumer will win
• Understanding performance drivers is key
• Many suppliers will discover KNOWLEDGE IS POWER
• Most traditional produce companies are not in a
  position to make the transition, e.g., supply
  orientation vs. consumer-driven marketplace,
  cost-based marketing, etc.

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Implications for Produce Suppliers

• Channel Blurring New Strategies
• Broader customer relationships
• Produce available everywhere
• New competition will be share of relationship
• A premium on new alliances and partnerships
• Consumer information critical to marketing
  strategy
• Driving customer value means know why
  consumers buy
• More than knowing what consumers bought last
  its knowing what they might buy next in the
  right situation

Winning in a Converging World Mike Hamilton
Geoff Green Price,Waterhouse, Coopers
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Implications for Produce Suppliers

• The opportunity exists to create solution-focused
  products and marketing
• Solutions beat products, products beat
  commodities
• Garden salad blend w. fat free dressing 2.99
• Cut lettuce package 1.99
• Head lettuce .99
• Cross-merchandising opportunities
• Meal solution centers
• Consumer-focused solutions in store
• Consumers are looking for new ideas
• Consumers need help with produce
• Handling/storage instructions
• Recipes/cooking instructions
• Nutrition information

Commodity
Product
Solution
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Implications for Produce Suppliers
Focus On Innovation
Innovation is the difference between category
management and category development