© Drs. Joost van der Laan Mumbai January 2016 © Drs. Joost van der Laan
EXCELLENCE INSTORE OPERATIONS
Incl. the case of Jumbo supermarkets
by drs. Joost van der Laan
Mumbai - January 2016
© Drs. Joost van der Laan Mumbai January 2016 © Drs. Joost van der Laan
Drs. Joost van der Laan
• Department stores Marketing and Logistics
• Ahold logistics and controlling
• Jumbo format development
• Retail consulting
• PWC Efficient Consumer Response
• Nielsen category management
• AT Kearney TQM
• Erasmus Food Management Institute research
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© Drs. Joost van der Laan Mumbai January 2016 © Drs. Joost van der Laan
The Netherlands
17 million people
After the USA, the Netherlands is the world's second exporter of agricultural products.
After the USA and Spain, the Netherlands is the world's third producer of vegetables and fruit.
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The Netherlands
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Bali
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Contents
• Shopper frustrations become USP’s
• Category management• Assortment and presentation• Price• Productivity• Omni-channel• Jumbo case
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© Drs. Joost van der Laan Mumbai January 2016 © Drs. Joost van der Laan
Frustrations become USP’s
Understand the shoppers delightsand frustrations,
and learn how to turn theseinto Unique Selling Propositions
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© Drs. Joost van der Laan Mumbai January 2016 © Drs. Joost van der Laan
Real shopper demands
You have to really KNOW shopper demands to be able to satisfy them:
1. Well known demands: important and acted on by shoppers – IMPORTANT TO ADDRESS
2. Political correct answers: claimed as “important” but not acted on - only for external politics
3. Subconscious demands: “not important” for shoppers, but acted on - IMPORTANT TO ADDRESS
4. Not important for shoppers and not acted on
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© Drs. Joost van der Laan Mumbai January 2016 © Drs. Joost van der Laan
Real shopper demands
How do we know “subconscious demands” of shoppers?
1. Look at BEHAVIOR of shoppers, especially in case of in-store problems
2. Analyze COMPLAINTS (= free advice of emotionally involved customers)
3. Ask shoppers what they generally consider “ANNOYING” in a store
And: hypnosis interviews
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© Drs. Joost van der Laan Mumbai January 2016 © Drs. Joost van der Laan
Real shopper demands
What do shoppers find ANNOYING?
• Waiting in line
• High prices
• Products not available
• Produce not fresh
• Unfriendly store employees
No surprises, but solutions often NOT CREDIBLE
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© Drs. Joost van der Laan Mumbai January 2016 © Drs. Joost van der Laan
Addressing shopper demands
How do you make an Unique Selling Proposition of a real shopper demand?
• Take the demand serious
• Take UNIQUE actions
• Offer PROOF
The combination of unique action and proof is key for TRUST and competitive advantage
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What is shopper demand?
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Is this “unique action”?
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Jumbo case
Discover amazing exampleshow to prove to your customers
that you have the best store in town
First example
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© Drs. Joost van der Laan Mumbai January 2016 © Drs. Joost van der Laan
Commitment and proof
Example of an unique action and the offer of proof:
• Shopper demand: NOT WAITING IN LINE
• System: POS week planning and automatic shopper movement measurement
• COMMITMENT: maximum 3 shoppers in line
• PROOF: line > 3: products in cart are FREE
This is an example of the Jumbo case
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© Drs. Joost van der Laan Mumbai January 2016 © Drs. Joost van der Laan
Category management
Know how to discoverthe specific profit driversof each product category
and create commercial strategiesleading to effective and efficient tactics
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Category management process
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Category definition
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Category
Subcategory A Subcategory B Subcategory C Subcategory D
A1 A3 A5
A2 A4
B3 B2 B3 C1 C3 C4
C2
D1 D2
–SKU 1–SKU2–SKU3–SKU4–SKU 5..SKU X–SKU X + 1
© Drs. Joost van der Laan Mumbai January 2016 © Drs. Joost van der Laan
Category presentation
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Category roles
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Destination
Transaction builder
Routine
Convenience
Traffic builder
Mai
n S
trea
m
To ensure the category fulfils the occasional needs of primary shoppers
To ensure the category adequately fulfils the daily/weekly needs of primary and secondary shoppers
To maximize basic and discretionary spending by primary and secondary shoppers for their daily/weekly needs
To provide regular positive incentives for secondaryand (in some cases) other shoppers to visit stores
Primary shoppers' automatic choice for the category
© Drs. Joost van der Laan Mumbai January 2016 © Drs. Joost van der Laan
Category tactics
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Category profit drivers
What are profit drivers of different categories?
• Wines: product quality and know-how• Heineken beer: high availability but low visibility
• Produce: freshness and low waste• Meat: optimized partitioning into max. price
• Dairy: efficient logistics and cooling• Organic products: visibility and reasonable price
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© Drs. Joost van der Laan Mumbai January 2016 © Drs. Joost van der Laan
Assortment and presentation
REDUCE COSTS and IMPROVE MARGINSby optimizing assortmentsand shelf-space allocation
Using Direct Product Profitability (DPP)
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DPP/turnover matrix
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Products have different DPP/sales profiles
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DPP/turnover matrix
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Price
discover the difference between price LEVEL and price IMAGEand develop a profitable price strategy
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© Drs. Joost van der Laan Mumbai January 2016 © Drs. Joost van der Laan
Price-level
What is the PRICE-LEVEL of a retail format?• Price level is measured
• by collecting the product prices
• of a fixed basket of products
• by an independent company
And comparing this with the industry average
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© Drs. Joost van der Laan Mumbai January 2016 © Drs. Joost van der Laan
Price-level
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© Drs. Joost van der Laan Mumbai January 2016 © Drs. Joost van der Laan
Price-level
Are there any measurement LIMITATIONS?• Only basket of NATIONAL BRANDS
• While some stores only carry private labels
• Some discounters are excluded!
Can retailers “fix” the price measurements?• No promotions included, but:
• Timing and basket products are anticipated
• And temporary price reductions are included
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© Drs. Joost van der Laan Mumbai January 2016 © Drs. Joost van der Laan
Price - image
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What is price-image?• Customer price level PERCEPTION
• based on interviews with customers.
What are drivers of price image (besides price-level):• store presentation
• assortment mix
• promotions
• PROOF! (Jumbo case)
© Drs. Joost van der Laan Mumbai January 2016 © Drs. Joost van der Laan
Price-level and price-image
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How do you achieve SHAREHOLDER VALUE?• Favorable (low) price-image
• Plus medium or high price-level
How does this combination work?• Low price image good for SALES
• and for traffic and customer retention
• Medium price level good for GROSS MARGIN
• High sales plus high margin good for NET PROFIT
© Drs. Joost van der Laan Mumbai January 2016 © Drs. Joost van der Laan
Price-level and price-image
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Profitability
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But how to increase profitability?
First the accountant approach:
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Accountant approach
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For an accountant, higher profit means higher prices or lower costs, or (preferably) a combination.
But:• Higher prices create a COMPETITIVE problem
• Lower costs often create a SERVICE problem
Alternative: positive feedback
© Drs. Joost van der Laan Mumbai January 2016 © Drs. Joost van der Laan
Positive feedback
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What is “positive feedback”?
• ENFORCING loop
• Can be downwards: vicious cycle
• Can be upwards: virtuous cycle
The exponential growth of the virtuous cycle is a powerful tool in retail strategy
© Drs. Joost van der Laan Mumbai January 2016 © Drs. Joost van der Laan
Profitable price strategies
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What are the best price strategies?
• High/low (promotions): Albert Heijn
• Every Day Low Pricing (EDLP): Jumbo
• High share of private label products (discounters)
Focus on price image by PROOF
PROOF generates TRUST
© Drs. Joost van der Laan Mumbai January 2016 © Drs. Joost van der Laan
Price: positive feedback
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What is the effect of EDLP?
• For EDLP to work, prices must be dropped, which leads to lower gross margins
• Lower margins means that VOLUME must increase substantially
• To get increased volume, the strategy must create a low-price image in consumers’ mind
EDLP requires positive feedback
© Drs. Joost van der Laan Mumbai January 2016 © Drs. Joost van der Laan
Price positive feedback
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© Drs. Joost van der Laan Mumbai January 2016 © Drs. Joost van der Laan
Accountant: negative feedback
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Price: positive feedback
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Positive feedback at Walmart (US):
• Buying at low costs from China
• Selling at Every Day Low Prices (EDLP)
• Effective promotions for favorable price image
• Local pricing after competition is wiped out
• Low salaries and focus on cost reduction
• Attracting customers from a wide area
• Using high profits for expanding the store format
© Drs. Joost van der Laan Mumbai January 2016 © Drs. Joost van der Laan
Walmart exponential growth
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New online virtuous cycle
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Quality-image
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What is “QUALITY IMAGE” of a store?
Customer perception of:• Assortment choice
• Private label quality
• Natural product quality (example: wines)
• Freshness of produce
• Clean store
• Friendly store employees
© Drs. Joost van der Laan Mumbai January 2016 © Drs. Joost van der Laan
Quality-image / price-image
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How do you achieve CUSTOMER VALUE?• Excellent quality image
• plus favorable price image
Examples of great customer value:• Aldi: low price levels, excellent product quality
• WholeFoods: organic choice, excellent presentation
• Jumbo: low price levels, excellent proven service
© Drs. Joost van der Laan Mumbai January 2016 © Drs. Joost van der Laan
Quality-image / price-image
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© Drs. Joost van der Laan Mumbai January 2016 © Drs. Joost van der Laan
Profitable market development
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How to increase total store sales?
• Increase FREQUENCY existing customers (turn secondary customers into primary customers)
• Increase BASKET SIZE of existing consumers
• Increase PENETRATION existing market
• Increase MARKET SIZE
How do you increase market size?
© Drs. Joost van der Laan Mumbai January 2016 © Drs. Joost van der Laan
Profitable market development
The “Law of Increasing Returns” of larger stores:• A WIDER and DEEPER assortment attracts more
customers
• Customers will buy more (larger BASKET SIZE)
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© Drs. Joost van der Laan Mumbai January 2016 © Drs. Joost van der Laan
Law of Increasing Returns
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The Law of Increasing Returns has a significant effect on the retail landscape
© Drs. Joost van der Laan Mumbai January 2016 © Drs. Joost van der Laan
Profitable market development
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Productivity
Improve productivitywith the internal benchmarking technique
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© Drs. Joost van der Laan Mumbai January 2016 © Drs. Joost van der Laan
Benchmarking
What is benchmarking?
• Comparing elements of your operation with best (world class) examples
• Analyzing improvement opportunities• Implementing improvements• Measuring results, continuous improvement
External and internal benchmarking
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Internal benchmarking
Productivity with internal benchmarking, fase 1:
1. Picture actual productivities of individual store departments of your own stores
2. Relate productivity to the relevant driver
3. Calculate the productivity-driver relation
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Internal benchmarking
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Internal benchmarking
Productivity with internal benchmarking, fase 2:
1. Introduce a productivity improvement factor
2. Make standardized store planning with average improved productivity
3. Use outliers as example for laggards
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© Drs. Joost van der Laan Mumbai January 2016 © Drs. Joost van der Laan
Productivity improvement
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outliers
New standard productivity
outlier
laggard
© Drs. Joost van der Laan Mumbai January 2016 © Drs. Joost van der Laan
Omni-channel
Omni-channel grocery retailing is the future
• The physical supermarket is a COMPETITIVE and sustainable business model
• Online grocery retail with home delivery is a necessary additional SERVICE
• Online presentation of food products will ENHANCE the physical store
Grocery retailing is an UNIQUE business
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© Drs. Joost van der Laan Mumbai January 2016 © Drs. Joost van der Laan
Store - home-shopping
© Drs. Joost van der Laan Mumbai January 2016 © Drs. Joost van der Laan
Online cost-drivers
What drives online grocery distribution costs?
• Turnover• Assortment• Temperatures (including fresh and frozen?)• Manual or mechanised picking, productivity• Average basket size• Average distance to consumer homes• Average distance between consumers• Percentage returnables• Number of complaints
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© Drs. Joost van der Laan Mumbai January 2016 © Drs. Joost van der Laan
Online store costs
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Online cost reduction
What are extra online distribution costs?• 15% OF TURNOVER
How to reduce extra distribution costs?• PICK-UP POINTS (“Drives” or “Pups)
BUT consumer prefers home delivery
BUT is willing to pay only 5% for home delivery
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© Drs. Joost van der Laan Mumbai January 2016 © Drs. Joost van der Laan
India
© Drs. Joost van der Laan Mumbai January 2016 © Drs. Joost van der Laan
India
India has online grocery potential:
• Rise of the middle class• Favorable demographics (millennials)• Internet users 600 million in 2020• Smartphone penetration• Populated cities• But also metropolitan issues (traffic jams)
Low labor costs for order-picking and home delivery
© Drs. Joost van der Laan Mumbai January 2016 © Drs. Joost van der Laan
Thank you
Drs. Joost van der Laan
www.RetailEconomics.com
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