8912 East Pinnacle Peak Road Scottsdale, AZ 85255 Phone (480) 513-0547 Fax (480) 513-0548 E-Mail:...

8912 East Pinnacle Peak Road • Scottsdale, AZ 85255 Phone (480) 513-0547 • Fax (480) 513-0548 • E-Mail: [email protected] • [email protected]

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U.S. Supermarket TrendsU.S. Supermarket TrendsU.S. Supermarket TrendsU.S. Supermarket Trends

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TodayToday

Consumer TrendsConsumer Trends

Trade TrendsTrade Trends

Winning Business Models & Success PrinciplesWinning Business Models & Success Principles


Consumer Trends – Consumer Trends – Population & Lifestyle Changes Population & Lifestyle Changes

That Affect CPG Food Purchasing DecisionsThat Affect CPG Food Purchasing Decisions

Consumer Trends – Consumer Trends – Population & Lifestyle Changes Population & Lifestyle Changes

That Affect CPG Food Purchasing DecisionsThat Affect CPG Food Purchasing Decisions


Key TrendsKey Trends

Value ShoppingValue Shopping – Has become a national obsession – Has become a national obsession

Time PressuresTime Pressures – Have changed what we eat, how we eat – Have changed what we eat, how we eat and where we eat itand where we eat it

Population FragmentationPopulation Fragmentation – Is dictating the need to learn – Is dictating the need to learn how to market to different ethnic and age groupshow to market to different ethnic and age groups


Value ShoppingValue Shopping – Root Causes – Root Causes

QuintileQuintile % Distribution of Income% Distribution of Income Mean IncomeMean Income

II

IIII

IIIIII

IVIV

VV

20%20%

20%20%

20%20%

20%20%

20%20%

40%40%

40%40%

50.2%50.2%

23.0%23.0%

14.6%14.6%

8.7%8.7%

3.5%3.5%

73.2%73.2%

12.2%12.2%

Middle Middle ClassClass

$146.0$146.0

$66.8$66.8

$42.6$42.6

$25.5$25.5

$10.1$10.1

Source: U.S. Census Bureau, 2003; Dept of CommerceSource: U.S. Census Bureau, 2003; Dept of Commerce

2001 Distribution of Total U.S. Income By Population Fifths2001 Distribution of Total U.S. Income By Population Fifths

Total U.S. MeanTotal U.S. Mean $58.2$58.2


Value ShoppingValue Shopping – No Change In Sight – No Change In Sight

Mean Income Trends By Population Fifths, 1970-2001Mean Income Trends By Population Fifths, 1970-2001(2001 Dollars – Per Household)(2001 Dollars – Per Household)

$10.1$7.3

$25.5$19.9

35.9

58.2

$42.6

$31.8

$66.8

$44.5

$146.0

$80.6

$0.0

$20.0

$40.0

$60.0

$80.0

$100.0

$120.0

$140.0

1970 2001

(+81%) Top 20%

(+50%)

(+34%)

(+28%)

(+38%)

TOTAL US MEAN (+62%)2nd 20%

3rd 20%

4th 20%

5th 20%

Source: US Census, Bureau of Labor Statistics, 2003. All data adjusted for inflation.Source: US Census, Bureau of Labor Statistics, 2003. All data adjusted for inflation.

To p 20%


Time PressuresTime Pressures – Root Causes – Root Causes

75% of families now have two wage-earner incomes.75% of families now have two wage-earner incomes.

65% of married women with children under six are in the 65% of married women with children under six are in the workforce.workforce.

70% of working women say that the number of things 70% of working women say that the number of things they have to do in a day is a big cause of stress.they have to do in a day is a big cause of stress.

58% of consumers say convenience is a key determinant 58% of consumers say convenience is a key determinant of what they eat and where they eat it.of what they eat and where they eat it.

40% of the population say they have no idea of what they 40% of the population say they have no idea of what they are having for dinner at 4:00 pm.are having for dinner at 4:00 pm.


Source: National Eating Trends DataSource: National Eating Trends Data

Time PressuresTime Pressures – Impact On Family Meal – Impact On Family Meal Preparation and Eating Habits:Preparation and Eating Habits:

The average time spent in meal preparation these days is less The average time spent in meal preparation these days is less than 20 minutes per day – down from 2.5 hours in 1960.than 20 minutes per day – down from 2.5 hours in 1960.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

1960 1980 2000

Time Spent Preparing MealsTime Spent Preparing Meals

2.5 Hours2.5 Hours

1 Hour1 Hour

20 Minutes20 Minutes


For Most, Food is Now a “Low Involvement” For Most, Food is Now a “Low Involvement” PurchasePurchase

Food as a % of Personal Consumption $,1960-2000Food as a % of Personal Consumption $,1960-2000Food as a % of Personal Consumption $,1960-2000Food as a % of Personal Consumption $,1960-2000

0

5

10

15

20

25

30

1960 1970 1980 1990 2000

Food Food at Home Purchased Meals & Beverages


Net On Time PressuresNet On Time Pressures

“ “Quick, easy and convenient” now drives the Quick, easy and convenient” now drives the strategystrategy

Must not only include “with it” product Must not only include “with it” product assortments but store operations – how fast the assortments but store operations – how fast the customer can get out the doorcustomer can get out the door

Retailers must think of themselves as facilitators, Retailers must think of themselves as facilitators, not just conduits for productsnot just conduits for products


Population FragmentationPopulation Fragmentation Will Dictate The Need To Will Dictate The Need To Market Discreetly To Very Different Population SegmentsMarket Discreetly To Very Different Population Segments

Chief among these are:Chief among these are:

Young SinglesYoung Singles

HispanicsHispanics

SeniorsSeniors


Source: US Census, Bureau of Labor Statistics, 2003. All data adjusted for Source: US Census, Bureau of Labor Statistics, 2003. All data adjusted for inflation.inflation.

Young SinglesYoung Singles Have Emerged As A Force In Their Own Right : Have Emerged As A Force In Their Own Right :

Between 1970 and 2000:Between 1970 and 2000:

The average size of U.S. households shrank from 3.14 to 2.62 personsThe average size of U.S. households shrank from 3.14 to 2.62 persons

Households with 5 or more persons disintegrated from 21% to 10% (52% drop)Households with 5 or more persons disintegrated from 21% to 10% (52% drop)

At the same time, one person households (singles/divorced/widowed) catapulted At the same time, one person households (singles/divorced/widowed) catapulted from 17% to 31% (82% increase)from 17% to 31% (82% increase)

19702000

Total HHTotal HH(Millions)(Millions)

Family HHFamily HH(% of total HH)(% of total HH)

Married HH Married HH w/childw/child

(% of total HH)(% of total HH)

6363

105105

69%69%81%81%

24%24%

40%40%

2000 vs. 1970 Changing Household Size in the U.S.2000 vs. 1970 Changing Household Size in the U.S.


The Hispanic PopulationThe Hispanic Population Is Currently The Fastest Growing Is Currently The Fastest Growing Segment of the American Public and Is Expected To Double By 2050Segment of the American Public and Is Expected To Double By 2050

Projected Population Growth by Segment, 2000 - 2050Projected Population Growth by Segment, 2000 - 2050

MMMMPop. SegmentPop. Segment %% MMMM %% Index vs. 2000Index vs. 200020002000 20502050

194194

32

3535

1111

33

257257

White non-HispanicWhite non-Hispanic

Hispanic

BlackBlack

Asian/So. PacificAsian/So. Pacific

OtherOther

TotalsTotals

70.570.5

11.6

12.712.7

4.04.0

1.21.2

100.0100.0

213213

98

5959

3838

1212

420420

50.750.7

23.3

14.014.0

9.09.0

2.82.8

100.0100.0

110110

306

168168

345345

400400

152152


SeniorsSeniors Will Comprise the Largest Single Will Comprise the Largest Single Segment Of The U.S. Population By 2020Segment Of The U.S. Population By 2020

Growth of 55+ Population Between 2000 and 2020Growth of 55+ Population Between 2000 and 2020(As a % of total pop.)(As a % of total pop.)

0

20

40

60

80

100

120

2000 (275M Base) 2020 (325MM Base)

Source: U.S. Census Bureau

22% of 22% of total pop.total pop.

60.5MM60.5MM

30% of 30% of total pop.total pop.

97.5MM97.5MM

+61% vs. 2000+61% vs. 2000

+18% vs. 2000+18% vs. 2000


Net on Population Fragmentation:Net on Population Fragmentation:

Retailers must change their “all things to all people” and Retailers must change their “all things to all people” and “build it and they will come” approaches and instead “build it and they will come” approaches and instead become experts at targeting specific consumer segmentsbecome experts at targeting specific consumer segments

Mining one’s own data and developing close relationships Mining one’s own data and developing close relationships with one’s heavy users is already the peremptory starting with one’s heavy users is already the peremptory starting pointpoint

Being willing to target and settle for a smaller piece of the Being willing to target and settle for a smaller piece of the pie is currently proving to be a winning formulapie is currently proving to be a winning formula


Translation to Real World Positioning:Translation to Real World Positioning: Pick Your Ground and Plant Your Flag: Pick Your Ground and Plant Your Flag:

Aging AffluentAging Affluent Favor retailers who cater to taste/ Favor retailers who cater to taste/

lifestyleslifestyles Variety more important than priceVariety more important than price Prefer smaller stores/personal servicePrefer smaller stores/personal service Not a “deal” shopperNot a “deal” shopper Courtesy and “experience” are keyCourtesy and “experience” are key

IncomeIncome$146.0$146.0

$10.1$10.1IncomeIncome

HoursHours00

HoursHours12012040 $42.6 80

$66.8

$25.5

Price CalibratorsPrice Calibrators Completely disloyalCompletely disloyal Commodity vs. qualityCommodity vs. quality Cherry-picking an artCherry-picking an art Service, decor unimportantService, decor unimportant A continually moving targetA continually moving target

Time CalibratorsTime Calibrators One-stop shoppingOne-stop shopping Fast service is everythingFast service is everything Full variety is keyFull variety is key Premium qualityPremium quality Blind to dealsBlind to deals

Up & ComersUp & Comers Value-channel stock-up shopperValue-channel stock-up shopper Use supermarkets for weekly variety Use supermarkets for weekly variety

fill-infill-in Fast serviceFast service Key P.L. shopperKey P.L. shopper Growing families, growing income — Growing families, growing income —

soon to be affluentsoon to be affluent


These Trends Are Easy To Spot Just By These Trends Are Easy To Spot Just By Looking At The Current Fastest GrowersLooking At The Current Fastest Growers

Bottled WaterBottled Water

Deli-Self ServeDeli-Self Serve

ButterButter

YogurtYogurt

Frozen NoveltiesFrozen Novelties

Refrigerated EntreesRefrigerated Entrees

Unbreaded Frozen ShrimpUnbreaded Frozen Shrimp

Refrigerated shakes/drinksRefrigerated shakes/drinks

Health bars and sticksHealth bars and sticks

Diet Carb Beverages-RemDiet Carb Beverages-Rem

19.8%19.8%

10.7%10.7%

23.9%23.9%

11.0%11.0%

10.5%10.5%

22.7%22.7%

36.9%36.9%

91.9%91.9%

40.5%40.5%

10.1%10.1%

$2,282.2$2,282.2

$3,446.1$3,446.1

$1,276.5$1,276.5

$2,289.3$2,289.3

$1,941.2$1,941.2

$865.0$865.0

$489.2$489.2

$188.2$188.2

$285.9$285.9

$881.6$881.6

2001 Dollar 2001 Dollar Sales ($MM)Sales ($MM)

2001 % Dollar 2001 % Dollar GrowthGrowth

Source: AC Nielsen Strategic Planner: Food, Drug & Mass excluding Wal-Mart. 52 Weeks ending 12/29/2001

Top 10 Fastest Growing CPG Categories In 2001Top 10 Fastest Growing CPG Categories In 2001

20012001 Dollar Dollar GrowthGrowth

$377.2$377.2

$333.1$333.1

$246.2$246.2

$226.0$226.0

$184.5$184.5

$160.0$160.0

$129.2$129.2

$90.1$90.1

$82.4$82.4

$80.9$80.9



The Sea Change in U.S. Retailing and the The Sea Change in U.S. Retailing and the Key Trade Factors that are Driving ItKey Trade Factors that are Driving It


The Sea Change in U.S. Retailing and the The Sea Change in U.S. Retailing and the Key Trade Factors that are Driving ItKey Trade Factors that are Driving It


The U.S. Food Retailing Landscape in 2003The U.S. Food Retailing Landscape in 2003The U.S. Food Retailing Landscape in 2003The U.S. Food Retailing Landscape in 2003


TodayToday

120K Convenience Stores120K Convenience Stores

32K Supermarkets32K Supermarkets

6K Mass Merchandisers6K Mass Merchandisers

20K Drug Stores20K Drug Stores

1K Club Stores1K Club Stores

6K Dollar Stores6K Dollar Stores

McDonaldsMcDonaldsBurger KingBurger KingWendy’sWendy’sJack-in-The-BoxJack-in-The-Box

45% of Food Dollars45% of Food DollarsSpent Away From HomeSpent Away From Home

Outlet SaturationOutlet Saturation1950’s1950’s

No Fast FoodNo Fast Food

No Mass MerchandisersNo Mass Merchandisers

No ClubsNo Clubs

No SupercentersNo Supercenters

Independents Dominated Independents Dominated DrugDrug

A&P Dominated FoodA&P Dominated Food

Most CPG-type Products Most CPG-type Products Sold Through Sold Through SupermarketsSupermarkets

Most Meals Prepared and Most Meals Prepared and Eaten at HomeEaten at Home


SKU Growth: 1945 - 2000SKU Growth: 1945 - 2000

0

10,000

20,000

30,000

40,000

50,000

60,000

1945-1964 1965-1980 1981-1995 2000

Source: Insight Out of Chaos, 2001

SKU ProliferationSKU Proliferation

New Food Items: 1980 = 2,6892000 = 16,390


Non-Choc. CandyNon-Choc. Candy

Chocolate CandyChocolate Candy

Artificial SweetenersArtificial Sweeteners

Ground CoffeeGround Coffee

Dried Fruit SnacksDried Fruit Snacks

HH CleanersHH Cleaners

Toilet TissueToilet Tissue

Paper TowelsPaper Towels

Liquid SoapLiquid Soap

Soft DrinksSoft Drinks

79.4%79.4%

83.6%83.6%

80.2%80.2%

90.2%90.2%

83.2%83.2%

78.6%78.6%

86.4%86.4%

77.8%77.8%

55.4%55.4%

97.5%97.5%

GroceryGrocery

62.0%62.0%

58.0%58.0%

21.8%21.8%

30.0%30.0%

22.8%22.8%

42.9%42.9%

50.3%50.3%

25.1%25.1%

45.0%45.0%

44.7%44.7%

MassMass

18.0%18.0%

16.6%16.6%

8.1%8.1%

11.3%11.3%

7.2%7.2%

12.1%12.1%

16.5%16.5%

6.6%6.6%

11.6%11.6%

16.9%16.9%

SuperSuperCentersCenters

12.6%12.6%

10.4%10.4%

11.9%11.9%

15.5%15.5%

12.7%12.7%

11.4%11.4%

10.4%10.4%

10.0%10.0%

10.3%10.3%

9.2%9.2%

ClubsClubs

43.5%43.5%

5.1%5.1%

5.2%5.2%

7.7%7.7%

4.2%4.2%

14.7%14.7%

19.8%19.8%

9.5%9.5%

9.9%9.9%

24.1%24.1%

DrugDrug

9.5%9.5%

1.5%1.5%

0.4%0.4%

1.0%1.0%

0.8%0.8%

0.8%0.8%

1.6%1.6%

0.6%0.6%

0.2%0.2%

20.4%20.4%

C-StoresC-Stores

Source: Scarborough Research, 1999-2000

% Buyers In% Buyers In

Mass Availability Of Same Items In Different Mass Availability Of Same Items In Different ChannelsChannels


Channel Pricing Index on Selected ConsumablesChannel Pricing Index on Selected Consumables(Scottsdale, AZ, 8/7/2002)(Scottsdale, AZ, 8/7/2002)

Source: Hoyt & Company Store Checks w/o 8/7/2002. Source: Hoyt & Company Store Checks w/o 8/7/2002. Largest sizes carried indexed to Food on a per unit (oz/sheet/count) basis. Largest sizes carried indexed to Food on a per unit (oz/sheet/count) basis.

Formula 409Formula 409Pine SolPine SolPledgePledgeLysol Disinfecting SprayLysol Disinfecting SprayWindexWindexArrowhead WaterArrowhead WaterTea BagsTea BagsMaxwell House CoffeeMaxwell House CoffeeSweet ‘n LowSweet ‘n LowEqualEqualHershey’s KissesHershey’s KissesM&M’sM&M’sBath Tissue – 36-48 RollBath Tissue – 36-48 RollBath Tissue – 12-24 RollBath Tissue – 12-24 RollNapkinsNapkinsTowels (roll)Towels (roll)

100100100100100100100100100100100100100100100100100100100100100100100100100100100100100100100100

FoodFood

6161929268686666595992924949717192927272666665655454737360607777

SupercentersSupercenters

5353585857575454373765654545

N/AN/A43434848676754544141575739397373

ClubsClubs

Price-Based CompetitionPrice-Based Competition


Other Trade Trend Tidbits:Other Trade Trend Tidbits:

The most successful new product introductions are those The most successful new product introductions are those that save time or improve appearance or healththat save time or improve appearance or health

RFID – radio frequency identification tags – on the RFID – radio frequency identification tags – on the launching pad and inevitablelaunching pad and inevitable

Irradiated Meats – starting slowly but also inevitableIrradiated Meats – starting slowly but also inevitable

Consolidation has slowed as supermarkets struggle to Consolidation has slowed as supermarkets struggle to defend against the Wal-Mart juggernaut and try to absorb defend against the Wal-Mart juggernaut and try to absorb what they have already boughtwhat they have already bought

Everyone installing on-premise eat-in facilitiesEveryone installing on-premise eat-in facilities

• HEB with “Good to Go” HEB with “Good to Go”

• Walgreen’s “Welcome Home Café”Walgreen’s “Welcome Home Café”


Value RetailersValue RetailersValue RetailersValue Retailers

Supercenters, Clubs and Dollar StoresSupercenters, Clubs and Dollar Stores


Wal-Mart’s Expansion into FoodWal-Mart’s Expansion into Food

The most significant factor in food retailing since the The most significant factor in food retailing since the advent of self service in 1916:advent of self service in 1916:

• Invents nothing but perfects everythingInvents nothing but perfects everything

• Does nothing different but tries to do everything betterDoes nothing different but tries to do everything better

• Disdains emotion but rewards pragmatism, commitment and Disdains emotion but rewards pragmatism, commitment and disciplinediscipline

Between 1980 and 2001 Wal-Mart grew 35x’s faster than Between 1980 and 2001 Wal-Mart grew 35x’s faster than the market:the market:

19801980 20012001 Multiple vs. 1980Multiple vs. 1980

Total US Retail SalesTotal US Retail Sales $957B$957B $3,500B$3,500B 3.6 X3.6 X

Wal-Mart (US only)Wal-Mart (US only) $1.2B$1.2B $150B$150B 125 X125 X

Walmart vs. Total USWalmart vs. Total US 35 X35 X


Wal-Mart’s Expansion into FoodWal-Mart’s Expansion into Food

Wal-Mart is now the nation’s #1 food provider with 2002 Wal-Mart is now the nation’s #1 food provider with 2002 food sales of approximately $80B (vs. $50B for #2)food sales of approximately $80B (vs. $50B for #2)

Objective is 30% share of every business it entersObjective is 30% share of every business it enters

This week, This week, USA TodayUSA Today reported one analyst’s forecast that reported one analyst’s forecast that supermarkets’ share of the grocery business will drop to supermarkets’ share of the grocery business will drop to 34% by 2010 from its current 53% with the bulk lost to 34% by 2010 from its current 53% with the bulk lost to Wal-MartWal-Mart


The Heart of the Wal-Mart Competitive The Heart of the Wal-Mart Competitive Advantage – Low Operating CostsAdvantage – Low Operating Costs

Wal-Mart vs. Leading Supermarket Financials: 2002Wal-Mart vs. Leading Supermarket Financials: 2002

Wal-MartWal-Mart KrogerKroger Albertson’sAlbertson’s SafewaySafeway

SalesSales $81B$81B $53B$53B $36B$36B $32B$32B

Gross MarginGross Margin 22.2%22.2% 27.0%27.0% 29.2%29.2% 31.1%31.1%

Operating CostsOperating Costs 16.6%16.6% 22.1%22.1% 24.1%24.1% 25.9%25.9%

Operating ProfitsOperating Profits 5.2%5.2% 4.9%4.9% 5.1%5.1% 5.2%5.2%

Net IncomeNet Income 3.3%3.3% 2.2%2.2% 1.4%1.4% (2.5%)(2.5%)

Source: Company SEC filings, Kroger & Albertson’s through 3 quarters, Wal-Mart & Safeway reflect full FY2002


What Wal-Mart Has Done to Achieve its What Wal-Mart Has Done to Achieve its Growth . . . Beyond PriceGrowth . . . Beyond Price

Multi-format: Discount, Supercenters, Club, Neighborhood Multi-format: Discount, Supercenters, Club, Neighborhood Stores and on-line to address consumer purchase occasionsStores and on-line to address consumer purchase occasions

Maintains and USES a massive database to understand its Maintains and USES a massive database to understand its consumers and their shopping behaviorconsumers and their shopping behavior

• Assorts stores based on demographicsAssorts stores based on demographics

• Allows regional variances in products offeredAllows regional variances in products offered

Retail-tainment – “Fun place to Shop”Retail-tainment – “Fun place to Shop”

Bonds with suppliers to improve efficiency/lower pricesBonds with suppliers to improve efficiency/lower prices

Works to become part of the local communityWorks to become part of the local community

• Offers parking lots for local fundraisers (HS car washes, etc)Offers parking lots for local fundraisers (HS car washes, etc)

• Charitable donations to local causesCharitable donations to local causes


Other Winning Formats – Club StoresOther Winning Formats – Club Stores 2001 combined food sales of approximately $38.5B2001 combined food sales of approximately $38.5B

$B$B # Stores# Stores

SAM’sSAM’s $18.4$18.4 498498CostcoCostco $17.7$17.7 363363BJ’sBJ’s $2.4$2.4 130130

Business Model: Membership fees contribute as much as 80% of Business Model: Membership fees contribute as much as 80% of operating profits enabling cost + 10% retailsoperating profits enabling cost + 10% retails

Demographic Target: Small businesses and affluent consumersDemographic Target: Small businesses and affluent consumers

Positioning: High quality national brands and private labels at 10-Positioning: High quality national brands and private labels at 10-30% discounts to average market prices30% discounts to average market prices

Average Transaction Size: $80 - $85Average Transaction Size: $80 - $85

Penetration grew from 49 to 55% between 1996 and 2001; trip Penetration grew from 49 to 55% between 1996 and 2001; trip frequency grew from 8 to 10frequency grew from 8 to 10


Club Service Offerings: Customer Retention Club Service Offerings: Customer Retention and Margin Enhancementand Margin Enhancement

Club Membership Services: 2000Club Membership Services: 2000

Source: WCF, 2000

Costco Wholesale

Consumer Group

$45

Business

$35

Exec. Consumer, Business

$100

Executive Membership

• 2% Cash Back

• Business Credit Card Processing

• Business Equipment Leasing

• Business Health Care

• Business Line of Credit

• Business Payroll Processing

All Members

• Auto Buying

• Business, Personal Checks & Forms

• Long Distance

• Mortgage

• Real Estate

• Smart Office

BJ’s Wholesale

Consumer Group

$40

Business

$35

Premier Benefits

• Auto Buying

• Business Credit Card Processing

• Business Payroll

• Business, Personal Checks & Forms

• Car Rentals

• Embroidered Apparel Service

• Export

• Extended Warranty

• Healthcare Network

• Long Distance

• Pre-paid Phone Cards

• Real Estate

• Vacations

SAM’s Club

Consumer Group

$35

Business

$35

Elite Consumer, Business

$100

Elite Membership

• Roadside Assistance

• Home Services

• Internet Banking

• Insurance

• Savings Guide

• Prescription Drug Program

All Members

• Auto Buying

• Travel Program

• Boat & Recreational Buying

• Long Distance

• Business Checks, Forms

• Mail Order pharmacy

• Internet

• Time Management


Other Winning Formats – Dollar StoresOther Winning Formats – Dollar Stores $15B channel dominated by Dollar General, Family Dollar and Dollar $15B channel dominated by Dollar General, Family Dollar and Dollar

TreeTree

TopTop100 Rank100 Rank SalesSales % Prev Year% Prev Year # Stores# Stores % Per % Per

YearYear

Dollar GeneralDollar General 3939 $5.3B$5.3B +17.0+17.0 5,5405,540+10.8+10.8Family DollarFamily Dollar 5353 $3.7B$3.7B +17.0+17.0 4,1414,141+12.3+12.3Dollar TreeDollar Tree 9090 $2.0B$2.0B +17.0+17.0 1,9751,975+14.2+14.2

Business Model: Quality closeouts, liquidation merchandise priced at Business Model: Quality closeouts, liquidation merchandise priced at 30-40% below market averages30-40% below market averages

Demographic Target: $30 - $50K, retirees and those on fixed incomesDemographic Target: $30 - $50K, retirees and those on fixed incomes

Positioning: “A new market beneath the standard discount market”Positioning: “A new market beneath the standard discount market”

Average transaction size: $9.00 (with most items priced around an Average transaction size: $9.00 (with most items priced around an even $1.00)even $1.00)


Dollar Stores (cont’d)Dollar Stores (cont’d) Big sellers:Big sellers:

• Greeting cards for $1.00 (vs. $2.00 - $2.95 elsewhere)Greeting cards for $1.00 (vs. $2.00 - $2.95 elsewhere)

• Soaps and detergentsSoaps and detergents

• Gift bagsGift bags

• WrapsWraps

• Hair careHair care

• VideosVideos

• Wine (in states where legal)Wine (in states where legal)

Now beginning to focus on food: Dollar General just added coolers in Now beginning to focus on food: Dollar General just added coolers in 1,400 stores to stock refrigerated and frozen.1,400 stores to stock refrigerated and frozen.

While targeted at the economically disadvantaged, Dollar Stores are While targeted at the economically disadvantaged, Dollar Stores are now starting to attract the affluent as everyone is looking for a now starting to attract the affluent as everyone is looking for a bargain these days.bargain these days.


Impact on U.S. SupermarketsImpact on U.S. SupermarketsImpact on U.S. SupermarketsImpact on U.S. Supermarkets


Trip Loss to Other ChannelsTrip Loss to Other Channels

Source: AC Nielsen Homescan

Shopper Trips By Channel (1996 – 2001)Shopper Trips By Channel (1996 – 2001)(Avg. # Trips/Channel/Year)(Avg. # Trips/Channel/Year)

95

16

29

813

613

75

1523

1015

1118

01020304050

60708090

100

Grocery Drug Discount Clubs C&G DollarStores

Supercenter

19962001

180167

Total TripsDown 2 Billion Down 2 Billion Trips in Five Trips in Five YearsYears

Traditional FormatsTraditional Formats Value and/or Convenience FormatsValue and/or Convenience Formats


Daily Conversions to SupercentersDaily Conversions to Supercenters

Source: ACNielsen Cross Outlet*Facts 2000; Total US

DRUG STORES3.4%

SUPERCENTERS13.4%

A/O30.9%

MASS MERCH W/O SUPERS

13.7%

DOLLAR STORES1.2%

GROCERY $2MM+30.5%

WAREHOUSE CLUBS

5.9%

CONV/GAS1.0%

-1.2

-0.2

-0.5

+2.1

-0.6

+0.3

+0.0

+0.1

Share/Share Chg of Supercenter Shopper $ by ChannelShare/Share Chg of Supercenter Shopper $ by Channel


Huge Share Losses in Traditional CategoriesHuge Share Losses in Traditional Categories

* 52 weeks ending in fiscal year* 52 weeks ending in fiscal year

Source: Procter & Gamble and “Growing The Center Store” AC NielsenSource: Procter & Gamble and “Growing The Center Store” AC Nielsen

GroceryGrocery

Mass MerchantsMass Merchants

Warehouse/ClubsWarehouse/Clubs

All Other OutletsAll Other Outlets

75.6%75.6%

13.1%13.1%

3.5%3.5%

7.8%7.8%

1989/19901989/1990

54.5%54.5%

26.9%26.9%

9.7%9.7%

9.0%9.0%

1998/19991998/1999

Channel Share Trends, 1999 vs. 1989*Channel Share Trends, 1999 vs. 1989*

Sales Lost Over 9 Year PeriodSales Lost Over 9 Year PeriodTotal of 9 Categories: Detergents, Hair Care, Paper Towels,Total of 9 Categories: Detergents, Hair Care, Paper Towels,

Dentifrice, Diapers, Coffee, Bath Tissue, Fabric Softener, Peanut ButterDentifrice, Diapers, Coffee, Bath Tissue, Fabric Softener, Peanut Butter


Success PrinciplesSuccess PrinciplesSuccess PrinciplesSuccess Principles


Value Retailers’ Success Ingredients – Value Retailers’ Success Ingredients – Common CharacteristicsCommon Characteristics

Business models that automatically differentiate Business models that automatically differentiate

No deviation from original business modelNo deviation from original business model

Focus on a specific consumer groupFocus on a specific consumer group

Fluid merchandising that maximizes quick rotation & Fluid merchandising that maximizes quick rotation & change – quick in-and-out, frequent “surprises” change – quick in-and-out, frequent “surprises”

Below-market acquisition costs, low operating expenses & Below-market acquisition costs, low operating expenses & below-market pricing consistencybelow-market pricing consistency

Leverage supplier dollars to keep prices low vs. enhance Leverage supplier dollars to keep prices low vs. enhance profitabilityprofitability

Willingness to settle for part of the pie – none attempt to Willingness to settle for part of the pie – none attempt to be all things to all people all of the timebe all things to all people all of the time


Four Supermarkets Who Buck the TrendsFour Supermarkets Who Buck the Trends

H. E. ButtH. E. Butt (San Antonio, TX) – 295 stores, $8.7B (San Antonio, TX) – 295 stores, $8.7B

PublixPublix (Lakeland, FL) – 697 stores, $4.8B (Lakeland, FL) – 697 stores, $4.8B

Wegman’sWegman’s (Rochester, NY) – 79 stores, $3.1B (Rochester, NY) – 79 stores, $3.1B

Stew Leonard’sStew Leonard’s (Norwalk, CT) – 3 stores $200MM (Norwalk, CT) – 3 stores $200MM


What These Four Companies Have in CommonWhat These Four Companies Have in Common Long-term thinkingLong-term thinking: All follow a strategy and resist reacting to daily : All follow a strategy and resist reacting to daily

threatsthreats

Customer FocusCustomer Focus: Base assortment & merchandising decisions on what : Base assortment & merchandising decisions on what their customers want, not on what their competitors are doing or ontheir customers want, not on what their competitors are doing or onthe latest hot dealthe latest hot deal

Strong Community TiesStrong Community Ties: All participate in & contribute to local : All participate in & contribute to local community events which they aggressively leverage in in-store community events which they aggressively leverage in in-store

merchandising and advertising activitiesmerchandising and advertising activities

Market-Leading InnovationMarket-Leading Innovation: On-premise restaurants, take-out food, : On-premise restaurants, take-out food, non-food merchandise “surprises”, self-scanning & self-checkouts and non-food merchandise “surprises”, self-scanning & self-checkouts and “traffic directors”“traffic directors”

Well-trained & Courteous EmployeesWell-trained & Courteous Employees: The customer is : The customer is always kingalways king

Store as a BrandStore as a Brand: Customers know what to expect and can “trust” the : Customers know what to expect and can “trust” the experience on every visitexperience on every visit


Moral of story:Moral of story:

It’s not just price; it’s a It’s not just price; it’s a combination of factors, carefully combination of factors, carefully blended and balanced to satisfy a blended and balanced to satisfy a

particular consumer need or particular consumer need or aspiration. Each retailer has to aspiration. Each retailer has to

search within its own strengths to search within its own strengths to find the right formula. There are find the right formula. There are

no easy answers.no easy answers.

We Appreciate The Time and Attention You We Appreciate The Time and Attention You Have Given Us TodayHave Given Us Today

Specifically, we want to thank Alan Nissalke and the Specifically, we want to thank Alan Nissalke and the American Logistics Association for inviting us and American Logistics Association for inviting us and

trust that this has been both fun and helpful.trust that this has been both fun and helpful.

8912 East Pinnacle Peak Road • Scottsdale, AZ 85255 Phone (480) 513-0547 • Fax (480) 513-0548 • E-Mail: [email protected] • [email protected]

www.hoytnet.com


Top 15 “Quick, Easy, Convenient” Categories Top 15 “Quick, Easy, Convenient” Categories Based on Category Dollar GrowthBased on Category Dollar Growth

SNACKS CATEGORY

DELI-SELF SERVE

Potato Chips

Sliced lunchmeat ref pkgd

Precut salad mix/greens

Refrigerated Entrees

Shredded cheese

Fzn unbreaded shrimp

BAKED GOODS FZN

Frozen entrees-Italian 1 food

Health bars & sticks

Frozen poultry

Ready-To-Serve Entrees

Snack crackers

Creamers-liquid

$8564.99

3446.09

2548.96

2479.26

1853.69

864.99

1724.31

479.24

1434.07

1215.91

285.88

883.42

135.81

496.64

517.58

7.2%

10.7%

7.3%

7.4%

9.6%

22.7%

8.3%

36.9%

8.9%

9.5%

40.5%

8.5%

90.7%

13.7%

13.0%

$575.3

333.1

173.4

170.8

162.4

160.0

132.1

129.2

117.2

105.5

82.4

69.2

64.6

59.8

59.5

Sales($ MM)

% Growth vs. YA

$ Growth($MM)

62.5%

80.4%

69.5%

77.4%

85.2%

81.3%

82.7%

77.0%

78.6%

78.2%

44.5%

62.0%

74.8%

61.2%

84.5%

Supermarket Share

Source: Progressive Grocer Annual Consumer Expenditures Study, 9/02


Top 15 Ethnic CategoriesTop 15 Ethnic CategoriesBased on Category Dollar GrowthBased on Category Dollar Growth

Dry-mix Mexican tortillas

Frozen entrees-Mexican-1 food

Frozen entrees-Oriental-1 food

RTS -Oriental 2 foods

Canned Veg-tomatoes

Fruit drinks canned

Juice/drinks

Tequila

Sauces-Misc SS

Olives-black

Peppers

Dry-mix Mexican shells

Cooking sauce

RTS - Mexican specialties

Frozen entrees-Oriental-2 food

$803.92

461.23

437.94

234.64

332.95

120.28

343.17

370.83

93.34

222.36

175.33

169.21

137.22

76.93

20.76

10.4%

19.4%

10.3%

15.2%

9.8%

32%

9.0%

8.2%

25.1%

7.5%

9.4%

7.3%

9%

12.5%

66%

$75.7

74.9

40.9

31.0

29.7

29.2

28.3

28.1

18.7

15.5

15.1

11.5

11.3

8.5

8.3

83.8%

68.8%

76.2%

83.3%

79.4%

71.7%

68.1%

29.6%

71.2%

81.4%

76.3%

84.8%

78.2%

80.3%

84.1%

Sales($ MM)

% Growth vs. YA

$ Growth($MM)

Supermarket Share


Top 15 Health CategoriesTop 15 Health CategoriesBased on Category Dollar GrowthBased on Category Dollar Growth

BOTTLED WATER CATEGORY

YOGURT CATEGORY

Yogurt

Diet Carbonated Bev

Hot Cereal

Yogurt shakes/drinks

Sugar substitutes

Water purifiers/filters

Refrigerated veg juice

Insect repellents

Dietetic Choc Candy

Wasp & hornet killers

Nectars

Refrigerated pineapple juice

Flying insect spray

Roach traps & motels

$2282.17

2280.34

2185.06

881.56

834.38

95.28

237.19

55.62

10.62

36.79

15.25

17.71

24.74

10.28

12.99

2.27

19.8%

11.0%

9.7%

10.1%

7.1%

51.2%

11.3%

10.3%

80.3%

11.4%

24.5%

20.3%

8.5%

22.0%

12.3%

123.8%

$377.2

226.0

193.2

80.9

55.3

32.3

24.1

5.2

4.7

3.8

3.0

3.0

1.9

1.9

1.4

1.3

59.4%

83.2%

83.4%

79.6%

79.2%

77.3%

57.5%

14.0%

59.2%

24.3%

27.7%

30.9%

93.0%

96.1%

38.6%

na

Sales($ MM)

% Growth vs. YA

$ Growth($MM)

Supermarket Share


Top 15 “Personal Indulgence” CategoriesTop 15 “Personal Indulgence” CategoriesBased on Category Dollar GrowthBased on Category Dollar Growth

Butter

FROZEN NOVELTIES

Fresh cakes

Packaged sausage - dinner

Shakes & drinks/Refrigerated

Sour cream

Cream-refrigerated

Flavored milk - refrigerated

Specialty/imported cheese

Fresh rolls

Natural cheese

Fresh bakery

Natural swiss cheese

Charcoal

Frozen desserts

$1276.46

1941.18

1370.04

1152.09

188.23

622.70

426.95

452.13

408.78

643.73

388.68

133.31

164.36

373.15

238.12

23.9%

10.5%

7.6%

9.0%

91.9%

10.9%

14.5%

12.9%

14.3%

7.2%

10.5%

33.4%

23.9%

8.4%

11.8%

$246.2

184.5

96.8

95.1

90.1

61.2

54.1

51.7

51.1

43.2

36.9

33.4

31.7

28.9

25.1

81.4%

81.7%

61.7%

80.1%

84.0%

85.3%

83.7%

80.0%

77.8%

77.3%

81.0%

73.8%

75.2%

56.6%

84.0%

Sales($ MM)

% Growth vs. YA

$ Growth($MM)

Supermarket Share

8912 East Pinnacle Peak Road Scottsdale, AZ 85255 Phone (480) 513-0547 Fax (480) 513-0548 E-Mail:...

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