Case study – Expansion strategy

Bord Bia Brand Forum

Paul Foley

Dublin, 5. March 2015

About Paul Foley

• Founder and Managing Partner of Foley Retail Consulting • Over 40 years of experience in retail • Former Board member at Iceland Foods Ltd • Former Board member of ALDI (23 years till 2012) • Board member: OKEY Russia, GIPPO Belarus and INVERTO Germany

Foley Retail Consulting (FRC) • Based in Vienna, Austria • Privately owned/ owner managed • Focused purely on retail, FMCG and e-commerce • Operating in multiple geographical markets • Working with a variety of retailers and channels • Solutions derived from real practice! • Partners of FRC have combined 135 years of top level retail management experience 09.03.2015 Bord Bia Brand Forum 2

The grocery scene Ireland & Britain 2015

• Irish and British grocery market is being disrupted by the displacement of sales to the discount channel. Why?

• Discounters seek 4 certain conditions for market potential: • High standard of living: GDP above global averages • High EBITDA average earnings: 7-10% • High wage economy • Property ownership surety and possibility

• Critical point is when discounter reaches scale point of buying

power. Let’s do the math together!

09.03.2015 Bord Bia Brand Forum 3

The grocery scene Ireland 2015

Buying power comparison

• Tesco sales 2014: €3.097b / 38,000 SKU = €81,500 per SKU

• Pareto principle: 80% sales from 20% of range

• 80% Tesco sales €2.477b / 7,600 SKU = €325,921 per SKU

• Aldi sales 2014: €1.518b / 1,400 SKU = €1,084,285 per SKU

Aldi and Lidl are both 3x buying power size of Tesco per SKU


The grocery scene Ireland & Britain 2015

• Today Aldi and Lidl have real market power. They exceed all other players in Irish market for sales per SKU and they have 20% of the grocery market!

• Discounters have today 260 stores in the Irish Republic, they plan 350. That’s 34% more stores and 40% more space!


Market share of Ireland’s top 6 grocery retailers (2014)

31.24

22

10.79

10.74

10.2

7.44

0 5 10 15 20 25 30 35

Musgrave

Tesco

Aldi

BWG

Lidl

Dunnes

Market share %

Market share %

76% private label

91% private label

46% private label

36% private label

51% private label

23% private label

Source: Planet Retail


The role of private label (2014) The % private label penetration of Irish grocery trade by major product category

• Aldi and Lidl have 29% of all private label market

54

36

32

31

21

18

12

11

7

0 10 20 30 40 50 60

Dry and tinned packaged grocery

Dairy

Paper

Cooked meat

Pet food

Cleaning

Personal care

Beer

Spirits

% PrivateLabelpenetration

Source: Planet Retail


How should the brands fight back? The branded part of the grocery industry is under sales and margin pressure, there are though ways of using, enhancing or inventing “brand equity”:

1. Quality unique selling points 2. Provenance and history 3. New product development 4. Marketing – telling the story 5. Join the party and sell to the discounters/bargain stores 6. Sell a bit of Ireland to the world! 7. Sell your product to the discounters!


Brands doing a great job - three examples

Butlers Chocolates

• 80+ years old, owned by Sorensen family

• Fabulous chocolate confectionery made in Dublin

• Tourist attraction in Dublin - Butlers Chocolate Experience

• Sells in 60 airports, 40 different countries and online



Jameson Irish whiskey

• Famous old Irish brand owned by Irish distillers

• Produces a new variant every year

• Focuses on “ambitious social” males aged 25-40

• Sells 60m bottles per year and growing at 5% pa

• Spends €80m pa on marketing and sponsorship

• Brand is said to be worth €1.68b



Keogh’s Irish crisps • 200 year old family run potato farm now

producing crisps in Oldtown County Dublin • Fantastic products like Dubliner and

cheese, shamrock and sour cream • Brand is every inch the personification of

the countryside of Ireland • Sales since 2011 have doubled every year • Now exports to the UK


How a retailer thinks across different formats? • The supermarket/superstore operator is focused on: “consumer total needs satisfaction”

• The convenience store operator is focused on: “distressed needs that are time or distance constrained”

• The discounter is focused on: “low prices via low costs”

Consumer needs based organisations

Functional based

organisations


All three understand popular products and popular quality levels!

What a retailer needs from a supplier, (especially a discounter)? • Key is to understand or create a customer need:

– Time/cost/health/feel good/reward/event/stress relief/entertain

• Be an expert in your category – Your retail partner should not know more than you!

• Research constantly and find the gap

– This is what keeps you ahead of the competition

• Never rest, always upgrade the product – Constantly test the next generation of NPD

You have to sell your story to the consumer and the retailer simultaneously! 09.03.2015 Bord Bia Brand Forum 13

Weetabix cereals - a case study • Product was at first unique – but then reasonably well copied by private label

(PL) manufactures. Future was examined! • Foreseen problems of all their New Product Development (NPD) being copied

and delivered quickly to market • As a solution Weetabix bought as much PL manufacturing capacity as possible • Increased the quality of PL product to rival its own brand • Gained the major supply of PL in British market because of quality and price • Increased NPD but only switched (NPD) into PL after 18 months • Relied on constant NPD to drive growth • Successful business in a sector that has high PL penetration • Sales up 3.3% in 2014 • Pre-tax profits up 21% (2013/14)


The key questions????

1. Who depends on whom? Partners or advisories? – It’s an interdependency! Retailers need products, brands need a route

to market

– Think constantly about your partner’s needs. There are not enough top management meetings, vital if your going to understand the needs



4. Do retailers really care about long-term supplier relationships? – Yes, but they care more when you have something of value! You need to

be hard to replace. Your relationship with the end consumer is critical here.



5. How retailers really think about Trade Marks and IP? – This is not uppermost in a retailer’s mind. If it is important to you,

make the product hard to copy and do as many unique selling points as possible.



6. What’s the single most important thing a brand operator can do that would make their product indispensable?

HAVE PERSONALITY! (IT’S VERY HARD TO COPY)


Thanks for your attention!

Kärntner Ring 5-7|1010 Vienna|Austria Phone: +43 1 205 1160 1253 – Email: [email protected]

www.foleyretailconsulting.com


Documents

Case study – Expansion strategy