Truper Proposal March 2006 Final Draft

1

Evaluating Opportunities in North America

• Teleos Overview.• Vulnerabilities within the North American lawn and

garden tool industry.• North American retailers are entering Mexico’s retail

network.• Changes within the North American retail market.• Truper’s unique position will allow it to take

advantage of this situation.

The information contained in this presentation is CONFIDENTIAL INFORMATION andis the property of Teleos, Inc. Unauthorized review, retention or duplication in any form orfashion is strictly prohibited.

2

Teleos Corporate Overview


Your business is already successful, but you recognize that in order to continue being successful, your business is going to have to change.

Your first success was based on being the most cost competitive in the market; but your market is changing –more competitors are coming close to your price point, and they are being entertained as viable vendors from your customer.

Now, you want to innovate, to build a business strategy for ensuring long term success, and you know that to accomplish this, you will have to develop new products and emphasize marketing.

3

Perhaps the first step is wanting to better understand the North American market, or perhaps you want to go through a more comprehensive analysis.

Many Teleos clients desire a review of their entire channels to market, including a review of their sales and distribution channels, an evaluation of potential North American joint venture partners or a serious investigation into expanding into the country.

Whatever yesterday’s success, the needs of your business are changing. Teleos is your solution changing your North American business model. Teleos is the intelligent way to U.S. markets.

Teleos offers consulting services ranging from business plandevelopment to formal product design review including

code and regulatory compliance analysis (UL, FDA, NSF, USP, etc.).

Business Plan Development services include complete competitor comparisons,marketing studies (from complete brand name recognition surveys to suggestedproduct and marketing differentiation strategy analysis), and development of

ways for growing your business in North America.

Product Design & Development includes design review for acceptabilityboth at the regulatory and consumer levels. These services can be extended

to formal product development assistance in transitioning existingtechnologies into new markets and applications.

Distribution & Sales Channel Analysis typically includes a reviewof whether your business should employ an expansion

strategy in North America limited to informal representation,establishing limited distributors, or formally opening your own

operation in North America.

Management Services offered by Teleos include searchingfor candidates for you to interview and hire, and Teleoscan be retained on an on-going basis for managing new

hires as you expand your management teaminto North America.

Family of ServicesFamily of Services

Business PlanDevelopment

Product Design &Development

Distribution & SalesChannel Analysis

ManagementServices

4


Vulnerability of North American Lawn & Garden OEMs

Vulnerability of North American Lawn & Garden OEMs

• North American Lawn & Garden OEMs are characterized by:– Various conditions of financial distress.– High levels of management turnover, including key account

managers who are looking for new opportunities at other OEMs.

– Antiquated manufacturing infrastructures.– Over-reliance on low cost sourcing to perpetuate their

relationships with key customers.– Poor brand-name recognition.– Too little investment in product development, innovation

and marketing activities.


5

How This Vulnerability Developed


1980s

1990s

2000s

Current DayDuring this period of time, thedominant retail segment leaderswere not as highly differentiatedas they became in the 90s. In addition, the retailers did not haveas dominant a size advantage overtheir OEM vendors as the retailersnow possess.This détente led to a status-quo onthe part of a large majority of thevendors, who began to rest on thelaurels of their existing product linesand brand status.

The 90s led to extensive advancements in logistics which allowed retailers to begin to develop a strategic advantage for the consumer. Because the vendors had not energized theirproduct development and marketing activitiesduring this period of time, the retailers beganto become more dominant. At the sametime, high degrees of retail differentiation initialized and segment leaders began todominate (Wal-Mart and Home Depot especially).

By 2000, the retail segment leaders hadbecome so dominant they had almost completeprice advantage over their vendors. A numberof vendors serving the retail communityconsolidated, but the newly formed companieswere financially not as strong nor as flexibleas they were in the late 70s and early 80s. Globalization introduced a new competitiveadvantage which served the retailer and furtherdepressed the prices of a variety of goods being sold.

Retailers have begun to bump into one another: Wal-Mart is so large that it inevitably bumps into retail space previously owned by segment leaders like Lowes or Bed Bath & Beyond. As each of these retailers attempts to grow and differentiate itself from the competition, it must place emphasis on innovative products. Desiring new products and brands consumers recognize, retailers are finding their vendors are, in many cases, so financially weak they can not provide this. Consequently, new spaces are opening up for vendors capable of filling this gap.

Deflation’s Aftermath• Retailers have gained a significant price advantage through the

benefits of globalization.• The cost to vendors who have not used this to their advantage

has been increasingly lower prices retailers are willing to pay.• The underlying premise from the retailer is that lower prices

will induce the consumer to buy; however,– This premise has a flaw: namely, it will not last forever. At some

point the consumer market will mature and consumers will need new products to begin buying again.

• As can be seen in the Home Depot/TTI/Rigid/Ryobi deal, the problem is that when the market finally deflates, the vendors who remain are so financially and organizationally distressed they have lost the ability to innovate and brand.


6

This Says Everything …

“ … a number of brand recognition studies have showed both the retailers and the lawn &

garden companies that consumers have literally no brand name recognition with respect to

gardening tools & products …”- Union Tools

management team member


What This Means

• This is dangerous in that it is an indicator of a mature market where price is becoming the sole driver; however,

• It is also an indicator of a market ripe for innovation and for basic branding activities.

• A company with four core capabilities: strong account management, reasonable pricing, innovative product designs and brand-building marketing, would be able to build a dominant position within this market segment.


7

The Wrong Way


• New handle.• Identified need to get consumer to interact

with product in order to maximize sales.• Identified need to feature product in flyers

and point-of-purchase displays.• Actually did neither.• Used to strategically protect existing unit

volume potentially lost at major retailers.– This meant getting high volume but losing ability

to leverage the value of the design.• No branding activities were developed, no

new marketing efforts beyond introduction at key retailers, no repositioning within the real estate at North American retailers.

• Net Effect? Innovation without marketing is a short term win.

The Right Way• Truly new product (handle & attachment).

• New point-of-purchase displays.

• New marketing collateral.

• New ad campaigns.

• Product roll-out selected to find retail customers sensitive to innovation, which meant sacrificing initial volume to take the time to build a brand and maximize profitability.


8

Not a Stretch

• To some, this type of emphasis on innovation and marketing may seem inconsistent with what they hear North American big-boxes say they desire.

• But looking at the new relationship forged by Lowes and OXO, one example of the emphasis on marketing and innovation can be clearly seen.



9

OXO Good Grips®• New relationship between Lowes & OXO announced in

October of 2005. – Emphasis on line of short-handled garden tools and hardware tools

using OXO’s principle of universal design.– Builds on OXO Good Grips® brand name from kitchen utensils.– Builds on OXO’s innovative design.

• Why did Lowes have to get someone new to enter shelf space already served by Stanley Tools, Lufkin, Ames, Union Tools and many others?– Because for those companies, the emphasis on lowering product cost

forced them to lose their focus on product development and marketing activities.

– Ultimately, Lowes knows they need new products with brands consumers desire for their own health.

– The OXO style of opportunity is present for Truper in North America.– Someone is going to fill the void, our hope is it will be Truper.


North American Retailers Are Entering Mexico’s

Retail Business


The following “Strategy Canvas” mapping tool is taken from the Harvard Business Reviewarticle, “Charting Your Company’s Future” by W. Chan Kim and Rénee Mauborgne.

10

North American Retailer’s Strategic Position

• A saturated NA retail space means retailers must look elsewhere for the growth their shareholders expect.

• Some retailers, probably those that will be more successful in the long-term, are looking to change their business model (Target emphasizing lifestyle design at reasonable cost, Lowes emphasizing the female gardener / home hobbyist).

• The path of least resistance for most retailers is to take theirexisting business model and project it into non-domestic markets.

• Wal-Mart and Home Depot have been very public in their intentions to perpetuate their growth by expanding into the markets in China, Europe, Mexico and South America.


How Will Walmex Impact Truper?

May 31, 2005 – Wal-Mart Press Release:

“Mr. Solorzano said there would be no change to Wal-Mart's core business approach in Mexico. ‘We are a very institutional, very disciplined company,’he said. ‘The values of the company are not going to change.’

Walmex, one of Mexico's largest private employers with nearly 700 stores and restaurants, has identified 200 cities and towns as potential new markets. In 2004, Walmex had record sales of $12.5 billion, more than three times the total sales of its nearest rival.

As Wal-Mart has increased it presence in Mexico, opposition to the big-box stores has grown. Critics have said it brings cheap foreign imports that hurt local business.”


11

What is the Balancing Point?


Truper has brand name recognitionby the Mexican customer, which it haswisely used to expand into new productlines primarily through active sourcing projects.

Wal-Mart has low but growing brand name recognition by the Mexican consumer, but has a vast array of product lines through its own global sourcing infrastructure.

Wal-Mart’s Mexico Strategy Canvas

Price Brand Quality Innovation Service &Support

Low

to

Hig

h O

ffer

ings


The traditional Wal-Mart business model isprimarily price driven, with very low

emphasis on brand or innovation. Quality,while somewhat important, is not as

significant a driver as price.

The following canvases are based on Teleos’ research; additional time with Truper would improve the analysis.

12

Truper’s Mexico Strategy Canvas


Low

to

Hig

h O

ffer

ings


Truper’s business model emphasizesbrand recognition and quality, allowing

Truper to expand into new SKUs throughsourcing activities. This business

model will be impacted as Wal-Mart andHome Depot bring a parallel competency

to bear in the Mexico retail market.

Overlapping The Two Strategy Canvases


Truper Wal-Mart Mexico


An Important Question:given Wal-Mart’s price

advantage, how will Truper’sadvantages in brand, quality,

innovation and serviceprotect Truper as Wal-Martoffers lower priced productswith increasing consumer

brand recognition andquality?

WM will exploit price, turning

this into the core of their

competitive message.

Wal-Mart will attempt and make quality,innovation and customer service matter

less to the Mexican consumer because of the over-whelming price advantage they

have over other native retailers andmanufacturing OEMs.

WM

will narrow

this gap.

13

Changes Within the North American Retail Market


Wal-Mart As A Leading Indicator

• Communities resisting new Wal-Mart stores.• Pressure on Wal-Mart to increase employee benefits

and hourly wages.• Wal-Mart becoming a symbol for a demographic in

America who have lost their blue-collar manufacturing jobs and who see a future of lower wages and less job satisfaction.

• Politically astute leaders are beginning to use Wal-Mart as an object lesson they can exploit to their advantage.

• New books and documentaries are feeding this populism.


14

Wal-Mart’s Struggle as Part of Larger Changes

• Wal-Mart’s political problems are unique to its size; however,

• Its broader problems are related to its business model – specifically two things:– Its resistance to OEMs who have strong

brand names,

– Its low-cost emphasis has stripped many organizations of their ability to develop new products as a consequence to lowered overhead structures.


Changes to Expect• The growing populism is going to force Wal-Mart to change its

employment and vendor practices.• Wal-Mart is already attempting to change its image from “Every

Day Low Prices” to a more fashionable & new product driven message.– Other major retailers are going to follow this trend, as evidenced by

Lowes’ OXO deal and the continued emphasis on lifestyle products and celebrity product marriages (George Foreman Grill, Martha Stewart Living, Emeril Lagasse Cookware, etc.).

• Teleos anticipates large retailers placing greater emphasis on brands and innovative products.

• The question is, for companies in the garden tool sector, do they have the where-with-all to take advantage of this?– Or are they sufficiently exhausted to miss this opportunity?


15

Truper’s Unique Position


Why Truper Is the Company to Take Advantage of These Changes

• A corporate culture that values expanding at its own pace through strategic moves that place it in a high degree of control.

• A management ethic that reinforces the opportunity to grow, but only if growth is truly mutually beneficial for the retailerand itself.

• A recent investment in a product testing center, creating an infrastructure ideally positioned to both certify the quality ofevery product with a Truper name as well as develop new products.

• A company with sufficient stability to challenge the established, but vulnerable, North American retailers who misunderstand that their competition is only from Chinese knock-offs.


16

What Are the Opportunities?• Teleos would not suggest a strategy of capturing

existing SKUs with existing products unless prevailing business reasons make it necessary.

• The North American retail community is primed for a brand-building investment.

• If a well-planned and well-executed marketing plan was coupled with some innovative products, the result would be lucrative.

• Innovation opportunities exist within the long-handled tool, short-handled gardening appliance, striking tools and climbing products.


Teleos would like to be one of Truper’s

partners for the next stage in your growth.

We would like to provide additional insight,

account management and product design assistance

as Truper continues to expand into the

North American retail market.Teleos – The Intelligent Way to U.S. Markets.

Contact InformationEmail: [email protected]: www.teleos-inc.com

Documents

Truper Proposal March 2006 Final Draft