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Kantar Kantar Retails Retails Guide Guide to to Retailer/Supplier Retailer/Supplier Strategy Strategy for for the the Next Next Five Five Years Years

Real Growth

Engagement

Wallet

Solution

KantarRetail.com KantarRetailiQ.com

Author
Bryan Gildenberg

Executive Summary

Editor
Mary Brett Whitfield

The Five Shares


Real Growth Wallet Decision Solution Engagement

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Design
Jennifer 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 Whitfield Anne Zybowski And Countless Others...

Concluding Thoughts

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Looking to 2011 and beyond, there


continues to be five core areas where retailers (and concurrently suppliers) are seeking to gain momentum and share. Share immediately makes most people think market share. However, it is Kantar Retails firm belief that in todays world market share is an

Executive Summary

outcome, not an objectiveand that the enablers to gain that share are fundamentally changing. In fact, those enablers are shares themselves.

Executive Summary

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 five key issues we think will be transformative for suppliers and retailers in the 2010s:

Share of real growth or where will I grow? In a world where growth is harder to find, 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 the marketplace overall, and understand whether our organization is well positioned to capitalize on this increasingly selective growth.

The 5 Shares Map

Share of wallet or how much will shoppers spend? In markets where new square footage is harder for retailers to find, 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 footsteps most effectively to capture the wallet spend that comes along on those trips.

Source: Kantar Retail

Executive Summary

Share of decision or why will shoppers choose certain outlets/brands? As shoppers 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 changing decision processes. Those decisions drive three more questions retailers and suppliers 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 of engagement or how will I cut through the clutter and connect? Simply being shopped today is insufficient to predict future growth. Retailers and suppliers are continuing to find 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

Share of solution or what can I offer 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 creation historically driven by suppliers Retailers moving their solutions to adjacent spaces Retailers tackling non-traditional services/initiatives to provide more holistic solutions

Maximizing each one of these shares requires a robust series of capabilities and approaches to capitalize on the opportunities and mitigate the threats presented by them. One final 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 in consumer 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.

In the back half of 2010, Kantar

The

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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 profit

Shares:
Kantar Kantar Retails Retails Guide Guide to to Retailer/Supplier Retailer/Supplier Strategy Strategy for for the the Next Next Five Five Years Years

Real Growth

Engagement

opportunity that is anything but certain. In many slower-growing, higher-profit markets short-term volatility is up, but there is limited likelihood of either rapid

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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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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 itself 2. 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 significant challenges and opportunities as well (Figure 1). Earning Growth An interesting story came from the US economy in October 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 reveals that in light and shifting winds, the skilled and agile crew often beats the large and strong one.

Shares

These skills we believe reside in the ability to answer five key questions with five key share-driving strategies: Share of Real GrowthWhere Will We Grow? Share of WalletHow Much Will Shoppers Spend? Share of DecisionWhy Will Shoppers Choose Certain Outlets and Brands? Share of SolutionWhat Can I Offer to Provide More Value to My Shoppers? Share of EngagementHow Do I Cut through the Clutter and Connect?

Figure 1: The 5 Shares Map

Source: Kantar Retail

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Share of Real Growth Or, where will we grow?


In a world where growth is harder to find, 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 the marketplace 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 significantly, 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 five years, and markets such as Russia, Brazil, India, and South Africa figure prominently in growth projections. This information is helpful but not sufficient for formulating 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 opportunity, 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 sophisticated global retail operatorsWalmart, Carrefour, and Casino.
Figure 2: Share of Projected Retail Growth By Country 20102015

Ranked by retail sales growth, the top 25 growth markets in the world will constitute 86% of global retail growth; but significantly, 67% of that growth will come from beyond the US/Western Europe and Japan and from markets historically referred to as emerging.
Source: Kantar Retail

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To help explain the importance of understanding the state of the retail landscape, Kantar Retail uses its five-stage Market Evolution ModelSM to assess marketplace development 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 (firmly 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 traffic) and India (in Exploration where the modern trade continues to try to learn and

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 trying to apply inappropriate capabilities at any given stage of market development. 2. Channels/retailers In modern and post-modern markets identifying the channels and retailers growing faster than the market is critical. Nowhere is this more critical than in the US today, where growth over the next five years will come from far different places than it did in the previous five. Additionally, in both the US and Europe, we expect to see a fragmentation of growth to unconventional retailers/channels. This will require retailers to become increasingly openminded and nimble in regards to assessing their true competitive landscape and will almost certainly push more and more retailers to become more multi-format in their approach. For suppliers the challenges are counter-intuitively even more fundamental and make customer 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 refining them. At their core, though, all segmentation models essentially separate customers on three key criteria: scale, growth potential, and strategic fit 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 of Demand Creation/Fulfillment 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 successful 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 processes) 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 opportunities capable of delivering high growth). This simple concept takes real work, as often the suppliers 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 ourselves to focus away from our traditional comfort zone). Kantar Retail Strategic Enablers
People
The skills required to manage customers the organization is not wired for are very different than managing big established businesses.

Source: Kantar Retail Research

Figure 5: The Axes Of Bravery Resource Allocation Redefined

Process
The difference between doing something well once and doing it well repeatedly is almost invariably process. Building work routines to align against these customers is critical.

Tools
Information, insights, and data requirements are almost invariably different for these retailers and require different analytic capabilities.

Measures
Success metrics need to be recast for retailers that may drive growth but from a very different economic model than established customers.

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
Source: Kantar Retail Research
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organization is one of flexibility: how do we build an organization 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 demographics to income to media), the economics of fragmentation are no more appealing to large entities than they ever wereprofit 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 encourages linking attributes that highlight different aspects of consumer behavior. In the US, based on analysis of our ShopperScape database, we have identified four major buckets we believe will drive shopper behavior: 1. Age cohorts (Populations) 2. Differentiators: ethnicity, income, and technological sophistication (Profiles) 3. Things people care about: value sensitivity, global citizenship, wellness, outsourcing, leading-edge technology 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 actually 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, marketers can start to find compelling segments or groups of segments to target, and meaningful multi-dimensional profiles start to emerge. Understanding share of real growth means committing resources against organizational agilitywhich we define as flexibility with purposeto maximize opportunities regardless of the market, retailer/channel, or consumer segment where they occur.

Figure 6: Fragmented Polarity Opportunity Matrix

Source: Kantar Retail Research

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Share of 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 getting a return on this investment will be absolutely critical to driving competitive superiority.

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Share of Wallet encompasses three key concepts: 1) Share of total wallet-opening occasions Retailers around the world continue to develop a variety of footprints to capture wallet share, as they continue to develop their understanding of the occasions that drive shopping trips. In markets in the Concentration stage of retail development, the old tactics of drive traffic and attention in the marketplace are still vital and relevant. China in particular will see a shakeout of modern-trade operators over the next five 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 relentlessly 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 diversification trend: Walmart and smaller stores: Through the acquisition 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: Virtually 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 operations in Central Europe. Even its UK growth is being driven as much by hypermarket expansion as supermarket growth.
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Target expanding presence in food: Through its Pfresh initiative, Target is seeking to capture fill-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 really 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 hallmark 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 representation of this phenomenon today. Walmexs variations on its Bodega Aurrera format are all about reaching smaller communities that cant support a larger footprint Walmex 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 Mexican convenience chain Oxxo, which is expanding into neighborhoods that used to be dominated by the traditional trade. 2) Share of basket In more consumer product-related arenas investment continues to flow to shopper insights, but as Kantar Retails survey of US retailers shows, retailers continue to be dissatisfied with key attributes of what they receive from suppliers in terms of shopper insightsespecially longerterm foundational issues around who is buying and the underlying shopper behavior driving that (Figure 7). For retailers with loyalty cards and a suite of analytics behind 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 insufficientparticularly when trying to do anything truly innovative. Shopper insights today risks becoming an exercise in identi27

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

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 of wallet over time Even though thinking about share of wallet over time may be more difficult to conceptualize than share of occasions 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 value as something that is maximized over time, and maximized the more the shopper spends with the retailer.
Figure 8: Insights + Action Programs Redefined

Source: Kantar Retail Trade Promotion Study 2010

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 improving their results with this type of analysis. The dunnhumbyinfluenced 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. The first is that suppliers today are still answering the questions 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-

Source: Kantar Retail Research


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Share of DecisionOr, why shoppers choose certain outlets and brands?


Under this particular why are three focused questions that center this discussion around how influencing shopper decisions is changing: 1. What is the nature of this influence? 2. Where and when is this influence taking place? 3. Who is influencing them?

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1) What is the nature of this influence? 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 decisions a shopper makes. The really interesting issue today is around pricing and what is happening as price becomes an increasingly personal and private conversation between the shopper and the retailer. Though in many cases it is easy to become fascinated with the bells 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 relationship with shoppers that is very difficult for retailers like Walmart to compete against. This sounds strange to those 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 historically 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 technology represents the most democratic means ever created for getting non-shelf based price reductions into the hands of shoppers that need them (i.e., low-income

The first moment of truth concept (that the shoppers first major decision about a brand is at the shelf) was always a difficult one for the retailer to swallow... [Retailers] always knew that their first moment of truth is somewhere significantly differentusually when a shopper is leaving the house, in the car, or making a shopping list and trying to figure out which outlet to shop.

shoppers). Particularly in the US, where newspaperbased couponing has been a much bigger piece of the retail 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 influence 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 of being more limiting than helpful today. Why? The first moment of truth concept (that the shoppers first major decision about a brand is at the shelf) was always a difficult one for the retailer to swallow. Retailers appreciated the insights into decision making at the shelf brought to

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them first by P&G and then by others, but always knew that their first moment of truth was somewhere significantly differentusually when a shopper is leaving the house, in the car, or making a shopping list and trying to figure out which outlet to shop. Today, entities such as Google (as well as many suppliers) have started embracing this notion of Zero Moment of Truth to try and capture shoppers wherever their points of decision are. Increasingly these points of decision are being digitally influenced. This influence puts increasing pressure on the conventional supplieroriented 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 influencing them? Historically retailers and brands have fought for control of the shopper. Indeed, it became common in Mature/PostModern 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 show Lost 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

and any other virtual community) have a powerful advantage 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 technology 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 specific 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 at all four outlets simultaneously (Figure 9), and in one click the shopper can change the store where the purchase will be made.

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Figure 10: Mysupermarket-insights.co.uk Homepage

Figure 11: Organic InfluenceCommunication Redefined

Source: mysupermarket.co.uk Source: Kantar Retail Research

Obviously, the other side of this activity is aggregating the information generated by this type of interface and offering it for sale to interested partieshttp://www.mysupermarket-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 potentially the most significant threat today to the historic retailer-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 find their interests 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 margins than either retail or branded manufacturing. The need in this new Share of Decision world is for suppliers and retailers to begin to think about organic influencehistorically, brand marketing capabilities have been strong closer to the bottom left-hand side of the matrix (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).

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Share of SolutionOr, what products and services can I offer 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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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 developed retail markets around the world. But, Kantar Retail also encourages retailers and suppliers 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 defined 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 reflective, drawing power by replicating the national brands equity at a lower price point? Or is it incandescent, which Kantar Retail defines as an item which is the physical manifestation of how the shopper would articulate 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 classified 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 financially motivated, reflectively 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 different challenges to their core brands, and competitive strategy 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 categories represents one of the largest premium brands in the world, with well over USD 13 billion in sales (Figure 13).
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Source: Kantar Retail Research


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Figure 13: Kirkland Signature Single Malt Whiskey

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 reflective private label to bring it more in line with their brand objectives, but the value proposition is still distinctly reflective (Figure 15).

Source: Kantar Retail store visit

Figure 14: Carrefour le bio Organic Set

Source: Kantar Retail store visit


Figure 15: Target Up and Up on Promotion Figure 16: Mercadona Extra Pasteurized Milk

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 discount 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 retailer 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 interview 135,000 Spanish consumers/year) allows them to identify trends in the marketplace. It was one of the leaders 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 toward 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-

Source: Target circular

Source: Kantar Retail store visit

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ated retailers are undifferentiated, conventional retailers, and markets where the largest conventional customers struggle for resonance (Germany, for instance) are not particularly attractive markets for either retailers or suppliers from a pure profit 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 Kantar Retail, but a robust engagement with these retailers around areas of mutual brand development will be essential for profitable 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 how retailers continue to use the digital world as an extension of their in-store ability to provide solutions in both incremental and transformative ways: Small ways accretive to the total shopping experienceThrough safeway.com, Safeway US shoppers can track their food purchases made through their loyalty card and receive suggestions on how to eat cheaper/healthier. Transformational ones core to the shopping experienceThe dismantling of the purchase and delivery process today represents one of the most interesting 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 program to include hundreds of FedEx offices 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 fit-for-purpose small convenient locations instead of a hypermarket. Relatively transformational 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 customer 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, nontraditional services include myriad offers where retailers can 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

...robust engagement with [differentiated] retailers around areas of mutual brand development will be essential for profitable supplier growth going forward.

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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 safetyCarrefour 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 processes 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 environmental footprint. Supplier reactions to retailers initiatives around solutions, social responsibility, and sustainability have been mixed.

In some cases, there is a sense that retailers are not committed 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 environmental 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 retailers 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 most parts 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 marketplace today do not command the hoped-for margin improvement/premium from customers or consumers. Usually this is due to an excess of incrementalism. Incremental investment poses two obvious challenges to the 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

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

Source: Carrefour.com/metro.com

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grated returns framework that focuses on the cash flow 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 18: Kantar Retails New Premium

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 defined in the shoppers mind than they used to be. One way Kantar Retail thinks about this type of innovation is via our New Premium framework (Figure 18). Some of the best innovations are those that combine the why, what, and how to drive transparency and authenticity, 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 authenticity 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 uptake. One possible roadmap for the future of innovation is where product innovation is paired with broader thinking around bundling and services to generate a missiondriven 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 customer 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-

Source: Kantar Retail research

Figure 19: Mission-Driven SolutionsInnovation Redefined

Source: Kantar Retail research

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Simply being shopped today is insufficient to predict future growth. Retailers and suppliers are continuing to find 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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Engagement

Retailers and suppliers, to retain shopper engagement, will be working hard on solutions that are operationally efficient, financially rewarding, and engaging to the shopper. Getting this combination right will take both hard work and a far more integrated approach among marketing, creative, finance, and retail than most suppliers have had in the past.

Though engagement and YouTube anecdotes invariably bring focus to the digital/social/mobile arena from marketers, it is important not to lose sight of two things: 1. There may be far bigger and easier-to-leverage opportunities to communicate in-store, and the worlds largest retailers are all desperately trying to understand how to reinvigorate parts of stores or entire formats that are fighting to remain relevant in a digital world. 2. The need to integrate these platforms more carefully will be critical to creating organized communication campaigns. Share of Engagement will be won at three levels:

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 are created 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. Engagement through TV, social media, and online for retailers is terrific, 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! Especially in 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.

In-aisle
This is where the strategic category management concept that is part of winning Share of Wallet needs to come to life. Retailers and suppliers, to retain shopper engagement, will be working hard on solutions that are operationally efficient, financially rewarding, and engaging to the shopper. Getting this combination right will take both hard work and a far more integrated approach among marketing, creative, finance, and retail than most suppliers have had in the past.

In-store
A number of retailers are seeking to revitalize core formats that used to drive their business but whose performance today is languishing. The worlds two largest retailers are deep in this process. Walmarts Project Impact initiatives and subsequent rollback of many Project Impact tenets in the US have received enormous publicity, but what Carrefour is trying to do with its Carrefour Planet formatbreaking 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 a hypermarket is no less revolutionary.

Beyond the store


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

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Engagement

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

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 impart 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, respectively, on the list of most liked brands) punch way above their relative size because of the fun and engagement they bring to their brands and their marketing. As retailers and suppliers seek to create and enhance engagement, the following framework is helpful for dissecting what to do next from a marketing perspective (Figure 21). In particular, the need for orchestrated campaigns that stretch across media and touchpoints becomes critical, along with great insights, great creative and relentless execution.

Source: All Facebook

Figure 21: Orchestrated DelightCommunication Redefined

Source: Kantar Retail research

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The five-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 simplification helps frame todays changes in terms of business decisions that need to be made and specific outcomes to achieveand then every organization can use an understanding 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 existing 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 of challenges 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 terrific and successful year!

Concluding Thoughts

Bryan Gildenberg

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Contacts
Leadership Team
Wayne Levings Chief Executive Officer Mayer Danzig Chief Digital Officer Bryan Gildenberg Chief Knowledge Officer Steve Pattinson Chief Executive Officer - Market Insights Bryan Roberts Director, EMEA Retail Insights Phil Smiley Chief Executive Officer - Asia Pacific

About Kantar Retail


Kantar 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 organizational capabilities that help retailers and suppliers transform challenges into opportunities for growth. Kantar Retail has offices in 15 markets around the globe. The company is headquartered in London and is part of the Kantar Group of WPP.

Kantar Retail iQ
Kantar 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.

Global Sales and Services

Scott Butterfield, Chief Customer Officer Scott.Butterfield@KantarRetail.com Michael Pickford, Director, Strategic Global Accounts Michael.Pickford@KantarRetail.com

Media

Katherine Clarke, Vice President Katherine.Clarke@KantarRetail.com

2011 Kantar Retail, LLC. All Rights Reserved. Disclaimer: The analyses and conclusions presented herein represent the opinions of Kantar Retail. The views expressed in this publication do not necessarily reflect the views of the companies covered by this publication. This publication is not endorsed, or otherwise 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 any means without the express written permission of the copyright owner.

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