Kantar Retail Strategy Next 5years

7/30/2019 Kantar Retail Strategy Next 5years

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KantarRetail.com

KantarRetailiQ.com

Kantar Retails Guide to Retailer/SupplierStrategy for the Next Five Years

Shares:The

Kantar Retails Guide to Retailer/SupplierStrategy for the Next Five Years

Shares:The

55Wallet

EngagementReal Growth

Decision

Solution


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Executive Summary 4

The Five Shares 10

Real Growth 14

Wallet 24

Decision 30Solution 38

Engagement 50

Concluding Thoughts 56

Author

Bryan Gildenberg

Editor

Mary Brett Whiteld

DesignJennifer Zipp

Contributing Thinkers

Frank Badillo

Katie Casavant

Jeremy Cohen

Mark Davies

Ray Gaul

Ken Harris

Lois Huff

Vadim Khetsuriani

Brendan Langan

Jim Leonard

Steve Mader

Dave Marcotte

Leon Nicholas

David Recaldin

Mike Paglia

John Patterson

Jonathan Phillips

John Rand

Bryan Roberts

Robin Sherk

Sandy Skrovan

Phil Smiley

Mike Urness

Ginny Valkenburgh

Vincent Verdier

Mary Brett Whiteld

Anne Zybowski

And Countless Others...


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Executive Summary

5

4

Looking to 2011 and beyond, there

continues to be ve core areas whereretailers (and concurrently suppliers)

are seeking to gain momentum and

share. Share immediately makes most

people think market share. However,

it is Kantar Retails rm belief that in

todays world market share is an

outcome, not an objectiveand thatthe enablers to gain that share are

fundamentally changing. In fact, those

enablers are shares themselves.

Executive Summary


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76

Share o real growth or where will I grow?

In a world where growth is harder to nd,

aligning resources against where the

growth is becomes even more important.

Share of real growth will force us to look at

the markets, channels, and customers thatare growing faster than the marketplace

overall, and understand whether our

organization is well positioned to capitalize

on this increasingly selective growth.

Share o wallet or how much will shoppers

spend? In markets where new square

footage is harder for retailers to nd,

retailers become obsessed with selling

more to shoppers they already have. In

markets where square footage expansion

opportunities continue, retailers still need

to understand how to capture share of foot-

steps most effectively to capture the wallet

spend that comes along on those trips.

Those shares can be derived from looking at the change

dynamic presented by three key factors:

1. The change in the retail/trading environment

2. Changed shoppers

3. The changing nature of information access and usage

These three variables intersect in a variety of ways, and

between them raise ve key issues we think will be

transformative for suppliers and retailers in the 2010s:

Executive Summary

The 5 Shares Map

Source: Kantar Retail


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98

Share o engagement or how will I cut

through the clutter and connect? Simply

being shopped today is insufcient to pre-

dict future growth. Retailers and suppliers

are continuing to nd the need to engage

with their shoppers more comprehensively.

We see this engagement needing to take

place in three core areas:

In aisle

Across the total store

Beyond the store

Maximizing each one of these shares requires arobust series of capabilities and approaches to

capitalize on the opportunities and mitigate the

threats presented by them.

One nal notethe primary focus of this paper

is on the brick-and-mortar retail world. This

may seem anachronistic in a digital age, but the

simple fact is that more than most of the trade inconsumer goods and services today is conducted

through traditional physical stores. The impact of

online retail competition (and more importantly,

online information) is discussed extensively, but

done so from a bricks-and-mortar perspective.

Share o decision or why will shoppers

choose certain outlets/brands? As shop-

pers continue to be exposed to marketing

and information from a variety of sources,

smart retailers are aggressively ensuring

they are part of the shoppers rapidly chang-

ing decision processes. Those decisions

drive three more questions retailers andsuppliers must be prepared to answer

successfully in order to win:

Who owns the decider?

What are they deciding?

Where are those decisions taking place?

Share o solution or what can I oer to

provide more value to my shopper?

Retailers continue to use their own brands,

bundled products, and service offerings to

expand their share of their shoppers lives.

Those solutions take three key forms:

Retailers replacing the value creationhistorically driven by suppliers

Retailers moving their solutions to

adjacent spaces

Retailers tackling non-traditional ser-

vices/initiatives to provide more holistic

solutions

Executive Summary


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11

Kantar Retails Guide to Retailer/SupplierStrategy for the Next Five YearsShares:

The

Kantar Retails Guide to Retailer/SupplierStrategy for the Next Five YearsShares:

The

55Wallet

EngagementReal Growth

Decision

Solution

In the back hal o 2010, Kantar

Retail saw a number of companies

concerned with two big shares as

they sought to build their strategies

for 20112015market share and

share price.

Global economic conditions remain

challenging, but the challenges are

different in different parts of the world.

In markets that can deliver robust growth,

the challenge is getting investment levels

right against a short-term prot

opportunity that is anything but certain.In many slower-growing, higher-prot

markets short-term volatility is up, but

there is limited likelihood of either rapid

recovery or deceleration. 1970s economists

might have called this stag-atility

the odd combination of relatively stable

overall conditions threatened by a

multitude of potential systemic shocks.

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SharesShares

55

These skills we believe reside in the ability to answer ve

key questions with ve key share-driving strategies:

Share o Real GrowthWhere Will We Grow?

Share o WalletHow Much Will Shoppers Spend?

Share o DecisionWhy Will Shoppers Choose Cer-

tain Outlets and Brands?

Share o SolutionWhat Can I Offer to Provide MoreValue to My Shoppers?

Share o EngagementHow Do I Cut through the

Clutter and Connect?

Kantar Retails economic outlooks for the US and Europe

for 2011 both project an environment that is getting better

but that by itself will provide little forward momentum

any growth in this landscape will need to be earned.

Todays shifting headwinds seem to be coming from three

major directions:

1. The retail and economic landscape itself2. Shoppers changing attitudes

3. The changing nature of information as it continues to

become portable, personal, social, real-time and, in

many cases, free

These three forces create their own dynamics, and their

intersections create signicant challenges and opportu-

nities as well (Figure 1).

Figure 1: The 5 Shares Map


Earning Growth

An interesting story came from the US economy in Oc-

tober 2010 when retail sales increased by a surprisingly

high amounta $4 billion increase from a median sales

rate of $56.3 billion per month from MarchSeptember to

$60.3 billion in October. Of that increase, about 20% of it

is attributable to one medium-sized companyChrysler

Corporation (with a 37% unit sales increase over October

2009) and over half of that comes from one item: the highly

successful re-launch of the Jeep Grand Cherokee. The key

to this little story is that growth will go to the highly skilled

operators, who understand how to reach consumers with

newly constructed value propositions. The Jeep story re-

veals that in light and shifting winds, the skilled and agile

crew often beats the large and strong one.


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Share o Real Growth

Or, where will we grow?

In a world where growth is harder to nd, aligning

resources against where the growth is becomes

even more important. Share of real growth will

force us to look at the markets, channels, and

customers that are growing faster than themarketplace overall, and understand whether

our organization is well positioned to capitalize

on this increasingly selective growth.

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1. Markets

Growth will continue to be geographically selective.

Ranked by retail sales growth, the top 25 growth markets

in the world will constitute 86% of global retail growth;

but signicantly, 67% of that growth will come from

beyond the US/Western Europe and Japan and from

markets historically referred to as emerging (Figure 2).

China on its own is projected to contribute more than 20%

of global retail growth for the next ve years, and mar-

kets such as Russia, Brazil, India, and South Africa gureprominently in growth projections.

This information is helpful but not sufcient for for-

mulating strategy because it ignores the importance

of understanding the retail landscape. Though Brazil,

Russia, India, and China often are lumped together to

demonstrate the scale of the emerging market opportu-

nity, their retail landscapes are in vastly different places.

India has a restrictive government and a marketplace

dominated by the traditional trade, while Brazils retail

landscape is dominated by three of the most sophisti-

cated global retail operatorsWalmart, Carrefour, and

Casino.

Real Growth

Figure 2: Share o Projected Retail Growth By Country 20102015


Ranked by retail sales growth, the top 25

growth markets in the world will constitute86% of global retail growth; but signicantly,

67% of that growth will come from beyond

the US/Western Europe and Japan and from

markets historically referred to as emerging.


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To help explain the importance of understanding the state

of the retail landscape, Kantar Retail uses its ve-stage

Market Evolution ModelSM to assess marketplace devel-

opment and the retailer/supplier capabilities required to

succeed (Figure 3).

At each stage, the structure of the retail market and the

capabilities required differso that a market such as

Brazil (rmly in the penetration phase, where retailers

look to design multiple formats to penetrate previously

untapped segments/geographies) can be separated from

China (in concentration where retailers use price and

excitement to steal trafc) and India (in Exploration

where the modern trade continues to try to learn and

Real Growth

1918

adapt to the shopping/business environment). The skills

required for retailers and suppliers at each phase differ

greatly, and both money and energy can be wasted by try-

ing to apply inappropriate capabilities at any given stage

of market development.

2. Channels/retailers

In modern and post-modern markets identifying the chan-

nels and retailers growing faster than the market is criti-

cal. Nowhere is this more critical than in the US today,

where growth over the next ve years will come from far

different places than it did in the previous ve. Additional-

ly, in both the US and Europe, we expect to see a fragmen-

tation of growth to unconventional retailers/channels.

This will require retailers to become increasingly open-

minded and nimble in regards to assessing their true

competitive landscape and will almost certainly push

more and more retailers to become more multi-format intheir approach. For suppliers the challenges are coun-

ter-intuitively even more fundamental and make custom-

er segmentation an essential skill for growing faster than

the market.

Customer segmentation models have been in play for

most sophisticated suppliers for a long time, and many

have spent countless hours and dollars developing and

rening them. At their core, though, all segmentation

models essentially separate customers on three keycriteria: scale, growth potential, and strategic t for the

suppliers business (Figure 4).

If we simplify the chart a little and give these eight small

triangles within the squares names, we arrive at a simple

segmentation framework (Figure 5). The key to driving

real growth in todays environment will require suppliers

Figure 3: Kantar Retail Market Evolution ModelSM

Levels o Demand Creation/Fulfllment Work By Evolution Stage

Source: Kantar Retail Research


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to follow the three arrows Kantar Retail calls The Axes of

Braveryso called because movement in these directions

takes suppliers beyond their comfort zone. The most suc-

cessful suppliers will be good at routing resources away

from the top left quadrant (occupied by slow growth but

large customers with familiar business models and pro-

cesses) to the top right (occupied by fast-growing retailers

or channels that play by unfamiliar rule books) and the

bottom right (occupied by smaller emerging opportunitiescapable of delivering high growth).

This simple concept takes real work, as often the sup-

pliers organization is wired to work most effectively

with its traditional customer base in the top left or bottom

left. The four key areas that need to be understood in this

re-wiring are the four core Kantar Retail enablersthe

connection point between strategy (We need to focus on

growth customers) and execution (We actually got our-

selves to focus away from our traditional comfort zone).

Kantar Retail Strategic Enablers

To put this in perspective, Kantar Retails initial 2020

China channel forecast foresees a future where Chinas

hypermarket and convenience channels could both be

bigger than those channels are today in the US, Japan,

and Europe combined! The challenge that presents to an

Real Growth

Figure 5: The Axes O Bravery Resource Allocation Redened



People Process Tools Measures

The skills required

to manage

customers the

organization is not

wired for are very

different than

managing big

established

businesses.

The difference

between doing

something well

once and doing it

well repeatedly is

almost invariably

process. Building

work routines to

align against these

customers iscritical.

Information,

insights, and data

requirements are

almost invariably

different for these

retailers and

require different

analytic capabilities.

Success metrics

need to be recast

for retailers that

may drive growth

but from a very

different economic

model than

established

customers.


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organization is one of exibility: how do we build an organi-

zation that can be ready for the different and markedly less

comfortable places growth will come from in the 2010s?

3. Consumers

The best way to think about the consumer landscape in

the real growth world is to understand that even though

fragmentation continues in every way (e.g., from demo-

graphics to income to media), the economics of fragmen-

tation are no more appealing to large entities than theyever wereprot still requires the focused deployment of

resources against potentially sizable opportunities.

In order to capture these opportunities, Kantar Retail

uses a framework called fragmented polarity that en-

courages linking attributes that highlight different as-

pects of consumer behavior. In the US, based on analysis

of our ShopperScape database, we have identied four

major buckets we believe will drive shopper behavior:

1. Age cohorts (Populations)

2. Differentiators: ethnicity, income, and technological

sophistication (Proles)

3. Things people care about: value sensitivity, global citi-

zenship, wellness, outsourcing, leading-edge technol-

ogy use, and life enhancement (Priorities)

4. Shopping approaches: informed, intuitive, involved,

interactive, and individualized (Process)

A useful way to see this fragmented polarity is by actu-ally matrixing these opportunities against each other into

a conceptually sensible but fairly detailed 256 box matrix

(Figure 6).

By crossing these attributes against each other, market-

ers can start to nd compelling segments or groups of

segments to target, and meaningful multi-dimensional

proles start to emerge.

Understanding share of real growth means committing

resources against organizational agilitywhich we dene

as exibility with purposeto maximize opportunities

regardless of the market, retailer/channel, or consumer

segment where they occur.

Figure 6: Fragmented Polarity Opportunity Matrix


Real Growth


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Share o Wallet

Or, how much do shoppers spend

with a retailer compared with

what they could spend?

Retailers and suppliers around the

world today invest an enormous amount

of energy on shopper insights, and get-

ting a return on this investment will be

absolutely critical to driving competitive

superiority.


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Target expanding presence in ood: Through itsPfresh initiative, Target is seeking to capture ll-in

grocery trips from its most loyal shoppers.

The obvious expansion into online retail probably

would require its own whitepaper to explore; for now,

though, the issue around online in this context is re-

ally no different than any other retail formathow will

the shopper segment her shopping list amongst the

formats she has available to choose from?

At the same time, multiple format strategies are a hall-

mark of retail markets that are in the Penetration phase of

market development this is more of a share of national

wallet approach. Mexico, in particular, is the best repre-

sentation of this phenomenon today. Walmexs variations

on its Bodega Aurrera format are all about reaching small-

er communities that cant support a larger footprint Wal-

mex store. Single-format operators that run a distinctive

format also can capitalize on the Penetration phase. One

of the fastest growing retailers in the world is the Mexicanconvenience chain Oxxo, which is expanding into neighbor-

hoods that used to be dominated by the traditional trade.

2) Share o basket

In more consumer product-related arenas investment

continues to ow to shopper insights, but as Kantar Re-

tails survey of US retailers shows, retailers continue to be

dissatised with key attributes of what they receive from

suppliers in terms of shopper insightsespecially longer-

term foundational issues around who is buying and theunderlying shopper behavior driving that (Figure 7).

For retailers with loyalty cards and a suite of analytics be-

hind that, the temptation is to go answer these questions

themselves. However, the risk is that data in the absence

of context can be powerful, but often insufcientpartic-

ularly when trying to do anything truly innovative. Shop-

per insights today risks becoming an exercise in identi-

Share of Wallet encompasses three key concepts:

1) Share o total wallet-opening occasions

Retailers around the world continue to develop a variety of

footprints to capture wallet share, as they continue to de-

velop their understanding of the occasions that drive shop-

ping trips. In markets in the Concentration stage of retail

development, the old tactics of drive trafc and attention

in the marketplace are still vital and relevant. China in

particular will see a shakeout of modern-trade operators

over the next ve years as the winners separate from the

pack. Winners are the retailers in that environment that

can keep and hold shopper trips as shoppers begin to shift

to modern retail from the traditional trade.

The retailer of the post-modern retail market that is

primarily bricks and mortar will either have to be a re-

lentlessly focused model targeting one occasion only,

accepting the tradeoffs of that (Costco comes to mind)

or be willing to meet shoppers wherever they want to go.This has led virtually all of the Top 10 global retailers into

some sort of format diversication trend:

Walmart and smaller stores: Through the acquisi-

tion of Netto in the UK, the building from ground-up

of radically smaller concepts in China and Central

America, and its quasi-public concept development for

much smaller footprints in the US, Walmart will push

itself and its best supplier partners to understand

small footprint retailing far better than it does today. Tesco and hypermarket/discount expansion: Virtual-

ly all of Tescos square footage expansion (particularly

outside the UK) is in formats that are much different

than its core UK grocery platforme.g., hypermarkets

in Asia and compact hypermarkets/discount opera-

tions in Central Europe. Even its UK growth is being

driven as much by hypermarket expansion as super-

market growth.

Wallet

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fying and addressing correlationif A happens, then B

happens, so do more of A and hope B happens more. A

number of retailers have done very good work improvingtheir results with this type of analysis. The dunnhumby-

inuenced family of retailers (including Kroger in the

US, Tesco in the UK, and Casino in France) has all seen

strong results with this type of optimization work, as has

Metro with its Real chain in Germany.

Suppliers today have been stepping up their efforts to

bring shopper insights to their now more knowledgeable

retailers, but the dissatisfaction gap on the retailer side

is real. There appears to be two major issues here. Therst is that suppliers today are still answering the ques-

tions most relevant to them, not the questions of greatest

importance to their retail customers.

The second gap is actionability. There are few retailers

in the world that prefer a great idea without an execution

plan to a mediocre idea they can see a way to activate.

The integration between insight and best-in-class execu-

Figure 7: Kantar Retail Trade Promotion Survey 2010:Retailers Rate Suppliers On Insights

Source: Kantar Retail Trade Promotion Study 2010

Wallet

tion will be critical to suppliers driving shopper insights

into tangible results (Figure 8).

Strategic category management is the connection point

between why-driven insights and actionswhere truly

transformational category blueprints can step-change

the shopper experience and business results.

3) Share o wallet over time

Even though thinking about share of wallet over time

may be more difcult to conceptualize than share of oc-

casions or share of basket, it is no less important. The

relationships that retailers continue to develop over time

are changing the nature of shopping decisions, as they

are able to deliver relationship-based value rather than

transaction-based value. Retailers with loyalty programs

continue to have the greatest ability to leverage this. The

Atlantic drug chains with established loyalty programs

CVS in the US, Shoppers Drug Mart in Canada, and Boots

in the UKhave begun changing the very nature of valueas something that is maximized over time, and maximized

the more the shopper spends with the retailer.

Figure 8: Insights + Action Programs Redened


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Share o DecisionOr, why

shoppers choose certain outletsand brands?

Under this particular why are three

focused questions that center this

discussion around how inuencing

shopper decisions is changing:

1. What is the nature of this inuence?

2. Where and when is this inuence

taking place?

3. Who is inuencing them?

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1) What is the nature o this infuence?

Here we build on the relationship theme from Share of

Wallet to unpack how retailers are creating a different

type of relationship that alters the nature of core deci-

sions a shopper makes. The really interesting issue

today is around pricing and what is happening as price

becomes an increasingly personal and private conver-

sation between the shopper and the retailer. Though

in many cases it is easy to become fascinated with thebells and whistles of technology without understanding

the business implications, the ability to personalize and

privatize a pricing conversation has the chance to be the

most transformative capability retailers can harness in

the 2010s.

Even today retailers such as Kroger and CVS in the US are

using their loyalty cards as a way to build a pricing rela-

tionship with shoppers that is very difcult for retailers

like Walmart to compete against. This sounds strange tothose of you familiar with the CVS business model, as low

prices are not necessarily part of the strategy. But the

companys high value-off promotions that reward item

and basket purchases over time create the best possible

answer when a competitor asks a CVS shopper what

CVSs prices are: I dont know. What Walmart histori-

cally has been good at is rigorous price-comping of its

local competitors to achieve store-level competitive price

advantage. How does this work when the shelf price is

only a guide for what it will actually cost shoppers?

The other key point around pricing is that mobile technol-

ogy represents the most democratic means ever cre-

ated for getting non-shelf based price reductions into

the hands of shoppers that need them (i.e., low-income

shoppers). Particularly in the US, where newspaper-

based couponing has been a much bigger piece of theretail landscape than in most markets, this could lead

to a marked increase in promotional shopping as lower

income shoppers start to aggressively use their phones

for price-oriented shopping.

2) Where and when is this infuence taking place?

In particular, we like to focus this conversation on the

new moments of truth being created in a multi-channel

communication world. The First Moment of Truth was

a useful crystallizing framework but it runs the risk ofbeing more limiting than helpful today. Why? The rst

moment of truth concept (that the shoppers rst major

decision about a brand is at the shelf) was always a dif-

cult one for the retailer to swallow. Retailers appreciated

the insights into decision making at the shelf brought to

Decision

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The rst moment of truth concept (that the

shoppers rst major decision about a brand

is at the shelf) was always a difcult one

for the retailer to swallow... [Retailers]

always knew that their rst moment of truth

is somewhere signicantly differentusuallywhen a shopper is leaving the house, in the

car, or making a shopping list and trying to

gure out which outlet to shop.


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and any other virtual community) have a powerful ad-

vantage vs. retailers and suppliersthey dont own the

assets involved in the distribution of goods to shoppers.

The best example of this is mysupermarket.co.uka

business with no retail assets that operates primarily

outside the UK (much of their development and technol-

ogy is in Israel) but is a user-friendly interface between

UK shoppers and the four major online grocery retailers.

Shoppers on the site enter a list of categories, and the

site recommends specic items and allows for easy price

comparison and basket switching back and forth among

the four major retailers as the shopping trip continues.

The site keeps a running tally of the total basket cost atall four outlets simultaneously (Figure 9), and in one click

the shopper can change the store where the purchase

will be made.

them rst by P&G and then by others, but always knew

that their rst moment of truth was somewhere signi-

cantly differentusually when a shopper is leaving the

house, in the car, or making a shopping list and trying to

gure out which outlet to shop.

Today, entities such as Google (as well as many suppli-

ers) have started embracing this notion of Zero Mo-

ment of Truth to try and capture shoppers wherever

their points of decision are. Increasingly these points of

decision are being digitally inuenced. This inuence

puts increasing pressure on the conventional supplier-

oriented path to purchase, which views the work of

reaching people pre-outlet as brand work, and

the work of converting people in outlet as trade or

shopper work. But with shoppers able to enter a store

outlet from their sofa and able to access digital content

seamlessly through their mobile devices in store, today

its simply all marketing now.

3) Who is infuencing them?

Historically retailers and brands have fought for control of

the shopper. Indeed, it became common in Mature/Post-

Modern retail markets to assert that retail concentration led

to a power shift between manufacturers and suppliers.

Today Kantar Retail would assess this as the wrong way

for these trading partners to frame this particular issue.

Instead, the paradigm made famous by the US TV showLost seems most appropriate here: Live Together. Die

Alone. There are any number of sophisticated entities

today looking to position themselves as a go-to resource

for consumers/shoppers on virtually anything they need,

and these entities (such as Google, Facebook, Twitter,

Figure 9: Mysupermarket.co.uk Shopping Screenshot

Source: mysupermarket.co.uk

Decision

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Obviously, the other side of this activity is aggregating the

information generated by this type of interface and offer-ing it for sale to interested partieshttp://www.mysuper-

market-insights.co.uk/ does exactly this (Figure 10).

So today retailers and suppliers risk being mutually

disintermediated by other entities looking to own the

information that feeds peoples decisions; if they own

the information, they own the decision. With information

becoming more portable, personalized, accurate, social,

real-time, and free, we expect this trend to create po-

tentially the most signicant threat today to the historicretailer-supplier value chainthis information owned

outside of the chain hurts the value creation potential of

the chain itself.

In the future, suppliers and retailers will nd their inter-ests more tightly aligned than they have been in the past,

as disintermediated asset owners in a process have a very

common name in business: distributors. Distribution is a

noble profession, but one with historically far lower mar-

gins than either retail or branded manufacturing.

The need in this new Share of Decision world is for sup-

pliers and retailers to begin to think about organic inu-

encehistorically, brand marketing capabilities have

been strong closer to the bottom left-hand side of thematrix (Figure 11). Marketingdigital, shopper, and

conventionalwill all see the world evolve up and to the

right, with emphasis spread across the three triangles

within each square, instead of dominated by the triangle

in the middle (home).

Figure 11: Organic InfuenceCommunication Redened


Decision

Figure 10: Mysupermarket-insights.co.uk Homepage

Source: mysupermarket.co.uk


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39

Share o SolutionOr, what

products and services can I

oer to broaden/deepen my

relationship with the shopper?

Retailers continue to use their own

brands, bundled products, and service

offerings to expand their share of their

shoppers lives. Those solutions take

three key forms:

Retailers replacing the value creation

historically driven by suppliers

Retailers moving their solutions to

adjacent spaces

Retailers tackling non-traditional

services/initiatives to provide more

holistic solutions

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40 41

Share of Solution takes us in two separate directions as

far as retailers go:

First and foremost is the idea that retailers can replace

solutions that were heretofore the provenance of their

suppliers. Own label, private brands, house brands

whatever the term, it is clear that retailers are continuing

to accelerate their private label programs in most devel-

oped retail markets around the world.

But, Kantar Retail also encourages retailers and sup-

pliers to think carefully about what this replacement

strategy means. Industry commentators will often

talk about own brand or private label as if it is

one strategy, but at Kantar Retail we like to think of it

as four strategies as illustrated in our Private Brand

Strategy Matrix (Figure 12):

Figure 12: Kantar Retail Private Brand Strategy Matrix


This matrix is dened by the two major drivers of retailer

private brand strategies:

1. Retailer motivation for offering private brands: is the

intent simply to increase gross margin or is there a

goal of trying to build a more sophisticated brand?

2. The source of the private brands power: is it reec-

tive, drawing power by replicating the national brands

equity at a lower price point? Or is it incandescent,

which Kantar Retail denes as an item which is thephysical manifestation of how the shopper would ar-

ticulate the retailers brand, in product form.

The key for a retailer is that without a differentiated

brand position the shopper can consistently, accurately,

and passionately articulate, the retailer does not have

permission from the shopper to build incandescent

product brands. Most of the failed retailer private brand

initiatives around the world can be classied as trying

to take an incandescent position without the requisite

retail brand architecture in place to support it, leading

to shopper confusion. For retailers, be humblethere

is absolutely nothing wrong with a nancially motivated,

reectively powered private brand strategy. Kroger in

the US (a retailer with a fragmented brand proposition)

has turned this into a 30%+ private label unit share in

many categories. For suppliers, understand that the

bottom left and top right on the matrix present very dif-

ferent challenges to their core brands, and competitivestrategy should be adapted accordingly.

The retailers that have had success in that top right

quadrant are a mixed collection, but no one today has

a simpler private brand strategy globally than Costco,

whose Kirkland Signature brand across multiple catego-

ries represents one of the largest premium brands in the

world, with well over USD 13 billion in sales (Figure 13).

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4342

Figure 13: Kirkland Signature Single Malt Whiskey

Figure 14: Carreour le bio Organic Set

Figure 15: Target Up and Up onPromotion

Figure 16: Mercadona ExtraPasteurized Milk

Source: Kantar Retail store visit

Source: Kantar Retail store visit

Source: Target circular Source: Kantar Retail store v isit

In a more niched way, Carrefours Bio line of organics has

leveraged the companys brand expertise in foods to move

across a variety of categories with a brand presence in

emerging categories (Figure 14).

Retailers such as Target in the US with its Up and Up

brand have raised the design standard of their reective

private label to bring it more in line with their brand ob-

jectives, but the value proposition is still distinctly reec-

tive (Figure 15).

The top left quadrant of the Private Brand Strategy Matrix

is occupied by retailers where private label is an integral

part of the business model. The obvious answers here

would be primarily private brand houses such as Aldi

and Trader Joes. A more interesting model continues to

evolve in what is loosely characterized as the soft dis-

count trade. Lidl in Europe has been increasing the role

of brands in its historically private label oriented offer.

Perhaps the most interesting example of this type of re-

tailer is Spains Mercadona, who maintains about a 50/50

balance between national brand and own brand, but who

also sees itself in the business of developing brands. In

many cases, Mercadonas primary research (they inter-

view 135,000 Spanish consumers/year) allows them to

identify trends in the marketplace. It was one of the lead-

ers in the development of 550 gluten-free food products

in Europe and has pioneered some unique processing

techniques such as extra pasteurized milk (Figure 16).

Suppliers have historically viewed a retailers move to-

ward private brands as solely a zero sum game: as the

retailers brand improves, mine commoditizes. We would

encourage suppliers to think about this problem a little

differently in the futurein particular as it relates to

differentiated retailers. The only alternative to differenti-

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44

ated retailers are undifferentiated, conventional retail-

ers, and markets where the largest conventional custom-

ers struggle for resonance (Germany, for instance) are

not particularly attractive markets for either retailers or

suppliers from a pure prot perspective. To paraphrase

Winston Churchills perspective on democracy as a form

of government, differentiated retailers are the worst

customers you can have, apart from every other kind.

Churchill would not have approved of appeasement as

a strategy for these customers, and neither does Kan-

tar Retail, but a robust engagement with these retailers

around areas of mutual brand development will be es-

sential for protable supplier growth going forward.

2) Multi-channel

Though our primary focus here is on how the bricks and

mortar world is changing, no discussion around how

retailers are seeking to provide solutions for shoppers

would be complete without an understanding of howretailers continue to use the digital world as an extension

of their in-store ability to provide solutions in both incre-

mental and transformative ways:

Small ways accretive to the total shopping experi-

enceThrough safeway.com, Safeway US shoppers

can track their food purchases made through their

loyalty card and receive suggestions on how to eat

cheaper/healthier.

Transormational ones core to the shopping experi-enceThe dismantling of the purchase and delivery

process today represents one of the most interest-

ing opportunities associated with the multi-channel

world. Many retailers have integrated their inventory

systems with online shopping sites so online orders

can be picked up in-store:

- Walmart USA has expanded its Site to Store pro-

gram to include hundreds of FedEx ofces across

the US as sitesparticularly in urban areas

where Walmart stores are inconveniently situated.

- Auchan in France continues to experiment with its

Chronodrive format, which allows online orders to

be picked up in t-for-purpose small convenient

locations instead of a hypermarket.

Relatively transormational ones that are ancillary

but integrated with the core retail propositione.g.,

Loblaws building with Presidents Choice Financial

Services a largely online bank with the highest cus-

tomer satisfaction rates of any bank in Canada from

20072010, according to J.D. Power and Associates.

3) Non-traditional

Financial services have been a part of retailing for almost

as long as the buying and selling of goods. Today, non-

traditional services include myriad offers where retailerscan insert their brand into a void where there is a gap

between consumer need and a trusted solution. The most

compelling of these today are in three areas:

HealthcareBoots in the UK has been a pioneer of

the integration between health and large scale retail

Solutions

...robust engagement with [differentiated]

retailers around areas of mutual brand

development will be essential for protable

supplier growth going forward.

45


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4746

for a long time and continues to drive innovative

thinking around how these two areas can/will merge.

The marketplace to continue to watch this develop will

be the US, as healthcare reform (or the lack thereof)

continues to change the cost and accessibility of

primary healthcare in the worlds largest healthcare

marketplace.

Food saetyCarrefour and Metro have both been

working extensively in Asia to brand themselves as the

food supply chain experts; in particular working with

small farmers to help them modernize their process-

es and improve quality (Figure 17). Carrefours Filire

Qualit program has promoted closer partnerships

between Carrefour and its key agricultural suppliers

for years, and Metro exhibited a bar-coded apple at

the Shanghai Global Expo in 2010.

Environmental sustainabilityWalmart has taken a

leadership position in terms of trying to optimize its

supply chain and operations to reduce its environmen-tal footprint.

Supplier reactions to retailers initiatives around solutions,

social responsibility, and sustainability have been mixed.

Figure 17: Carreour Filiere Qualite/Metro Bar-Coded Apple

Source: Carrefour.com/metro.com

In some cases, there is a sense that retailers are not com-

mitted to these strategies and are using them for public

relationsor that they are a distraction from the core

business at hand. Sometimes that is a fair assessment. It

is interesting to note how many conversations US retailers

were having with key suppliers around broader environ-

mental issues when trading conditions were not as robust

as they needed to be. Suppliers skepticism also may be a

failure to recognize their own shortcomings in terms of the

types of innovations they are bringing to the table.

The fear from a supplier perspective has to be the re-

tailers breadth and ability to bring a solution together

well beyond the suppliers competitive boundaries. For

those suppliers without limitless scale/breadth on their

own, a return to depth of innovation seems wise, and a

world of fewer bigger innovations is almost certainly part

of the solution. Innovation is on most companys 2011

agendas. After the aggressive trading conditions in mostparts of the world in 2009 and 2010 and the risk of rising

commodity costs in 2011, there is a shared, industry-wide

assumption that margin expansion will only be possible

through whats next.

However, most innovations being brought to the mar-

ketplace today do not command the hoped-for margin

improvement/premium from customers or consum-

ers. Usually this is due to an excess of incrementalism.

Incremental investment poses two obvious challenges tothe retailer:

1. Invariably they can replicate it themselves and sell it

at higher margins.

2. It does not help the economics of the shelf, in that the

economics on the incremental innovation generally

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4948

Figure 18: Kantar Retails New Premium

Source: Kantar Retail research

are not markedly different than whatever item in the

category it is replacing.

This is why Kantar Retail proposes suppliers think hard

about a resurgence in mission-driven innovation. Our

shopper research in most markets today indicates that

shoppers are willing to pay a premium for the attributes

they valueit is just that those attributes are better

dened in the shoppers mind than they used to be. One

way Kantar Retail thinks about this type of innovation isvia our New Premium framework (Figure 18).

Some of the best innovations are those that combine the

why, what, and how to drive transparency and au-

thenticity, preservation either of self or of the planet, and

a sense of purpose. Generally trying to emphasize one of

these attributes on its own (particularly without authen-

ticity as a key pillar) is rejected by the shopper/consumer,

but an integrated approach that conveys an authentic and

real solution stands a far better chance of consumer up-take. One possible roadmap for the future of innovation

is where product innovation is paired with broader think-

ing around bundling and services to generate a mission-

driven solution (Figure 19).

The other critical piece for suppliers as they innovate is

to incorporate shelf-level economics into their innovative

thinking. In particular, its imperative to understand one

key fact: how any innovation a supplier brings to a cus-

tomer improves their overall shelf economics better than

replacing a SKU with private label. The pathway to this is

almost invariably in better understanding of GMROI, or

Gross Margin Return on Inventory, which assesses sales,

turn rates, out of stocks, and margin rates in an inte-

grated returns framework that focuses on the cash ow

productivity of the shelf. If P&L driven innovation has a

role, it must enhance the retailers P&L as well as the

suppliers or there will be no place for it on the shelf.

Figure 19: Mission-Driven SolutionsInnovation Redened


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51

Simply being shopped today is insufcient

to predict future growth. Retailers andsuppliers are continuing to nd the

need to engage with their shoppers

more comprehensively. We see this

engagement needing to take place in

three core areas:

In aisle

Across the total store

Beyond the store

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If differentiated retailers are the only players that will

be able to grow in brick and mortar buildings, how will

this differentiation take place? Great retail brands arecreated in-store; our favorite example of this is always

the Costco ideaa 90% renewal rate on a pay-to-use

proposition with no formal marketing at all. Engage-

ment through TV, social media, and online for retailers is

terric, but if the stores do not live up to the idea (i.e., if

they are not the physical manifestation of that image), the

retailers brand falls apart. That is why a very sensible

answer to what is the best shopper marketing program

I can have? might be, clean up your stores! Especiallyin a digital world, a negative experience can move around

the globe at terrifying speed. United Airlines found this

out when they broke a songwriters guitar and his song

(United Breaks Guitars) has as of today gathered more

than 9.5 million YouTube views.

Though engagement and YouTube anecdotes invariably

bring focus to the digital/social/mobile arena from mar-

keters, it is important not to lose sight of two things:

1. There may be far bigger and easier-to-leverage op-

portunities to communicate in-store, and the worlds

largest retailers are all desperately trying to under-

stand how to reinvigorate parts of stores or entire

formats that are ghting to remain relevant in a digitalworld.

2. The need to integrate these platforms more carefully

will be critical to creating organized communication

campaigns.

Share o Engagement will be won at three levels:

Engagement

5352

Retailers and suppliers, to retain shopper en-

gagement, will be working hard on solutions

that are operationally efcient, nancially re-

warding, and engaging to the shopper. Getting

this combination right will take both hard workand a far more integrated approach among

marketing, creative, nance, and retail than

most suppliers have had in the past.

In-aisle

This is where the strategic category management concept that is part ofwinning Share of Wallet needs to come to life. Retailers and suppliers, to retain

shopper engagement, will be working hard on solutions that are operationallyefficient, financially rewarding, and engaging to the shopper. Getting thiscombination right will take both hard work and a far more integrated approachamong marketing, creative, finance, and retail than most suppliers have had inthe past.

In-store

A number of retailers are seeking to revitalize core formats that used to drivetheir business but whose performance today is languishing. The worlds twolargest retailers are deep in this process. Walmarts Project Impact initiativesand subsequent rollback of many Project Impact tenets in the US have receivedenormous publicity, but what Carrefour is trying to do with its Carrefour Planetformatbreaking the hypermarket into core departments (i.e., market,organics, frozen food, beauty, fashion, baby, house, leisure and multimedia, and

discovery) with a very different look and feel than typically experienced in ahypermarket is no less revolutionary.

Beyond the store

Here it is illustrative to look at a simple but revealing metric: the number offans the top 25 CPG retail/CPG brands have garnered on Facebook (as rankedby the website All Facebook in October 2010) (Figure 20).


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The key is to look at the brands that engage, and then

study how they do that. Among the capabilities used by

brands that succeed in engagement in this new world are

humor and the ability to capture the imagination and im-

part a sense of fun. These are the things that simply get

repurposed virally more than anything else. For example,

brands such as Skittles and Red Bull (nos. 28 and 35, re-

spectively, on the list of most liked brands) punch way

above their relative size because of the fun and engage-

ment they bring to their brands and their marketing.

As retailers and suppliers seek to create and enhance en-

gagement, the following framework is helpful for dissect-

ing what to do next from a marketing perspective (Figure

21). In particular, the need for orchestrated campaigns

that stretch across media and touchpoints becomes criti-

cal, along with great insights, great creative and relent-

less execution.

Figure 21: Orchestrated DelightCommunication Redened


Engagement

5554

Figure 20: Most Liked CPG/Retail Brands on Facebook: Oct. 2010

Source: All Facebook


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56 57

The ve-shares analysis is designed to do

one thing: to help the reader simplify all

of the shifts that are taking place in this

incredibly dynamic but moderate growth

environment. Hopefully this simplication

helps frame todays changes in terms of

business decisions that need to be made

and specic outcomes to achieveand then

every organization can use an understand-

ing of those two things as a starting place

to chart a course of action. The Executive

Summary chart include in this report has

some suggested indicated actions:

Strategic: Multi-year or multi-functional

initiatives Planning: Things that need to be baked

into next years plan to be resourced

Tactical: Quick things that can probably

be started within the context of an exist-

ing operating plan

This three-level platform can be a helpful

way to sift through exactly where to focus

next and to keep your organization from

being overwhelmed by the variety ofchallenges and opportunities the changing

world presents. Kantar Retail has a wide

range of product, people, and skills to help

you through this transition. For more

information on our offer, ask anyone you

know here or simply reach out to me.

Thanks for reading and have a terric and

successful year!

Bryan Gildenberg

Concluding Thoughts


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Contacts

Leadership TeamWayne Levings

Chief Executive Ofcer

Mayer Danzig

Chief Digital Ofcer

Bryan Gildenberg

Chief Knowledge Ofcer

Steve Pattinson

Chief Executive Ofcer - Market Insights

Bryan Roberts

Director, EMEA Retail Insights

Phil Smiley

Chief Executive Ofcer - Asia Pacic

Global Sales and ServicesScott Buttereld, Chief Customer Ofcer

[email protected]

Michael Pickord, Director, Strategic Global Accounts

[email protected]

MediaKatherine Clarke, Vice President

[email protected]

About Kantar RetailKantar Retail (www.KantarRetail.com) is the

worlds leading retail insights and consulting

business. Kantar Retail offers a suite of retail and

shopper insights, strategy, analytics and organiza-

tional capabilities that help retailers and suppliers

transform challenges into opportunities for growth.

Kantar Retail has ofces in 15 markets around the

globe. The company is headquartered in London

and is part of the Kantar Group of WPP.

Kantar Retail iQKantar Retail iQ (www.KantarRetailiQ.com)

provides fact-based, forward looking insight on

key global retailers, channels, markets and

shoppers to help you understand the trends of

today and prepare for the realities of tomorrow.A broad range of data, written insights, webinars,

photos, eLearning courses and interactive tools

help you build strategic business plans and

maximize growth opportunities.


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2011 Kantar Retail, LLC. All Rights Reserved.

Disclaimer: The analyses and conclusions presented herein represent the opinions ofKantar Retail. The views expressed in this publication do not necessarily reect theviews of the companies covered by this publication. This publication is not endorsed, orotherwise supported, by the management of any of the companies covered herein.

Copyright Notice: No part of this publication may be reproduced in any form or by anymeans without the express written permission of the copyright owner.

Kantar Retail Strategy Next 5years

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