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An indepth look at the key issues impacting the retail food industry
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Disruptive Forces:Are U prepared?
Richard H. Kochersperger
June, 2014
04/11/23 1
Industry Gurus
04/11/23 2
Tell Me and I Forget
Teach Me and I Remember
Involve me and I Learn
Ben Franklin
04/11/23 3
Previous Presentations
• 2014: Disruptive Forces: Are U Prepared?
• 2013: Value Chain Strategy in a VUCA world
• 2012: Speed: The Consumer is Changing Faster than the Food Industry can change!
• 2011: Seek to stay out in front and don’t look back!
• 2010: The World is Changing Faster than you are!
04/11/23 4
Goals/Objectives
• Who’s Driving the Bus (food industry)?
• The REAL Economic Situation
• Food Industry Perspective• Winners and Losers• New Developments
• A review of Key Players/Concepts
• Logistics Strategy: Key Issues and Opportunities
04/11/23 5
Disruptive Forces• Decline in the Fertility Rate
• No Growth Economy/Income Disparity
• Speed of Change
• Technology Influences/Transparency
• The Amazon Effect
• Rise of New Competition
• Government Regulations
• Globalization
04/11/23 6
The Consumer Drives the Food Supply Chain
704/11/23
Customer’s Perspective
•Anytime: 24/7/365•Any Place: Format•Anywhere: geography•My Way!
804/11/23
The “Have” and “Have Not’s”
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U. S. Demographics
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U. S. Demographics
04/11/23
Who Are My Consumers?Generation Age Millions of
PeopleYoung ones (Generation Alpha 0 – 10 11
Digital Natives (Generation Z) 10 - 17 21
Millennials (Generation Y) 18 - 24 91
Generation X (Busters) 25 - 35 41
Younger Boomers 35 - 50 48
Mature Boomers 50 - 65 40
Depression / WWII 67 - 80 35
G.I. - Pre 1928 Over 80 26
1204/11/23
Observations about the Consumer
• Consumer behavior is changing faster than our abilities to change the FCPG supply chain (OMNI-Channel) !!
• Consumer is complex!!• Demographics don’t work!!!
• 5 W’s: Who, What Where, When, Why?
• Different drivers affect decision making
1304/11/23
Future FCPG Industry Supply Value Chain
Command CenterControl Tower
Roles can not be defined
RetailersGoogleMicrosoftAmazon
The Consumer
DistributorsThird PartyAlliances,Partners
ManufacturingNetwork
Regional, global plantsBulk, Semi-finished,Filling Finishing,
Suppliers
Information Information
InformationInformation
Information
1404/11/23
Thought for the day!
04/11/23 15
Perspective
04/11/23 16
04/11/23 17
Reality Check
American Employment???• Available Workforce: 155 million
• Unemployed/underemployed: 23.7 million
• 102 million working age Americans do not work
• Real Rate: 17+%
• Rutgers Study: 2006-2011– 27% of the graduating students have full time jobs– 33% are unemployed
• The median family income dropped 39% since 200718
6.3
04/11/23
% working in the US
04/11/23 19
Labor Force Participation: Men
Businesses Are Being Destroyed Faster Than They Are Being Created
04/11/23 21
Reality Check• 1 in 6 Americans; 1/10
Canadians are challenged to feed themselves
• 2 Billion people worldwide do not have enough food to eat!
• 40% of global food resources are wasted
– Not harvested– Spoils– Thrown away
2204/11/23
4 Biggest Economic Factors• Fertility Rates: rapidly declining
• Food Prices: Rapid increases due to drought, disease
• Healthcare: Rising premiums will continue to funnel consumer spending to healthcare rather than to food & retail consumption (48 million no insurance)
• Energy Costs: Significantly impacts consumer budgets
04/11/23 23
US Fertility Rate
Fertility Trends
04/11/23 25
Fertility Trends
04/11/23 26
Food Industry Prices
04/11/23 27
Food Prices• Bacon: 55% increase since 2010
• Ground beef: 35%
• Oranges: 35%
• Coffee: 31%
• Peanut Butter: 30%
• Margarine: 30%
• Wine: 25%
• Turkey: 24%
• Chicken: 22%
• Pork: 15% 2014
04/11/23 28
Protein Pricing
04/11/23 29
Independent Food Retail Sales
04/11/23 30
Financial Performance
• UNFI 13.9%
• Sprouts 13.8%
• AWG 6.8%
• Delhaize 4.6%
• Whole Foods 4.3%
• Spartan/Nash 4.3%
• Publix 4.0%
• Inflation Rate: 3%+
• Costco 3.0%
• Ingles 2.5%
• Supervalu 2.1%
• Walmart 2.0%
• Safeway 1.8%
• Unified Grocers 1.4%
• Stater Bros 1.0%
• Loblaws 0.9%
• Ahold 0.1%
• Weis Mkts 1.3%
04/11/23 31
Foodservice Economic Performance
04/11/23 32
Current Issues• Number of People financially struggling
• $20 trillion spent on poverty programs• 13 million on welfare• 35 states welfare pays more than minimum wage• 49 million live in poverty: $23,550• 49 million on SNAP• 11 million disability• 47% have given up looking for a job
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Thought for the Day
04/11/23 34
Food Retail Industry Graveyard
04/11/23 35
Food Retail Industry Graveyard
04/11/23 36
Food Retail Industry Graveyard: 2014
04/11/23 37
Food Industry E R
04/11/23 38
Food Industry E R
04/11/23 39
Consumer Reports 2014
• 33% changed primary store
• 58% looking for lower prices
• 26%Long wait Checkout• 25% poor selection, long
lines• 20% Cleanliness• 17% employee rudeness• Not enough checkouts
• Wegmans 88• Trader Joe’s 87• Publix 85• Costco 84• Sprouts 84• Fareway 83• Marketbasket83• Raley’s 83• Stater Bros 82• Winco 81
04/11/23 40
Food Retail Winners
04/11/23 41
Food Retail Winners
04/11/23 42
Rise of the Ethnic Focused Retailer
04/11/23 43
Foodservice Losers
25% of new restaurants go out of business the first year
04/11/23 44
Foodservice Industry Winners
04/11/23 45
Thought for the Day
May -2.09%
April -5.15%
March +2.53%
February -0.67%
January +1.67%
04/11/23 46
December - -0.94%
November -0.26%
October +0.58%
September -0.88%
August -0.81%
July +0.85%
June -2.01%
May +1.17%
April +1.84%Inflation Rate: 1+% At Home
2.3% Away
Foodies: Green, Natural, Organic
04/11/23 47
Clean Food
04/11/23 48
Real FoodReal Food is food which truly nourishes producers, consumers, communities and the earth. It is a food system--from seed to plate--that fundamentally respects human dignity and health, animal welfare, social justice and environmental sustainability.Some people call it "local," "green," "slow," or "fair." We use "Real Food" as a holistic term to bring together many of these diverse ideas people have about a values-based food economy
04/11/23 49
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51
Farmers Markets
2013: 8,000+
04/11/23
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Food to the Neighborhood
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Urban Agriculture
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Vertical Farms
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Thought for the Day
04/11/23 63
US Developments
• Roundys for sale: Invest in Mariano’s• Kroger buys Harris Teeter• Fresh n Easy sold to Yucaipa investment group• Susser purchased by Sunoco• Okey-Dokey closes Florida• Spartan-Nash merger• Bozzuto’s supplies Mars/Baltimore• Winco opens in Phoenix and Dallas• Wegmans moves into Richmond• Albertsons purchases United Stores/TX
04/11/23 64
• Aldi to open DC in Houston
• Aldi to open DC in LA
• Mi Pueblo looks at liquidation
• Savalot to open Colorado DC
• Family Dollar closes 370 stores
• Caseys to build DC in Indiana
• Giant Eagle moves into Indianapolis
• Publix enters Charlotte
US Developments
04/11/23 65
• Peapod to open DC Jersey City, NJ• Ahold to open 100,000 sq ft greenhouse• Lidl to open 100 stores by 2018; office in VA• Grocers Supply to build Dallas DC• Fresh Grocer switches to Wakefern Coop• Belle Foods closes all stores/AWG picks up pieces• Safeway Sells off Dominicks/Chicago• Bi-Lo buys Piggly Wiggly stores/Scarolina• Tops purchased by management team
US Developments
04/11/23 66
• Meijer moves into Milwaukee
• Gelsons purchased by TPG investment group
• Gordon Foods purchases Glazier Foods
• UNFI to build DC in Prescott Wisconsin
• UNFI purchases Tony’s Finer Foods
US Developments
04/11/23 67
Canada Developments
• Sobeys purchases Safeway/Canada
• Sells 30 stores to Overwaitea
• Loblaws purchases Shoppers Drug Mart
• Walmart ramps up supercenters
• Target fails to get traction
• Loblaw to build DC in Cornwall
04/11/23 68
One Thing Is ClearRetailers with a clear brand outgrow the market
Source: Kantar Retail analysis 69
Natural/Organic
Natural/Organic ValueValue
PremiumPremium ClubsClubs
‘13E-’18E CAGR =
9.2%
‘13E-’18E CAGR =
5.4%
‘13E-’18E CAGR =
7.5%
‘13E-’18E CAGR =
6.3%
#1 #2
#3#4
Amazon
• “Clearly, Amazon is teaching the world what’s possible,”
• He doesn’t know exactly which geographies where it will work, but Walmart is focused on delivery in London and possible Shanghai.
04/11/23 70
Amazon• 96 D C’s: 7th generation design (Kiva)
• 10,000 robots to be installed
• Amazon deliveries in UK, India, China (bike)
• Fulfillment by Amazon: 65% +
• Sunday Delivery with USPS
• New Corporate Offices
• Phone rumor
• App Store: 200,000 apps/games
• AWS: software as a service
04/11/23 71
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Amazon Smile
• Amazon donates 0.5% of the price of your eligible AmazonSmile purchases to the charitable organization of your choice.
• AmazonSmile is the same Amazon you know. Same products, same prices, same service.
• Support your charitable organization by starting your shopping at smile.amazon.com.
04/11/23 73
• Estimated 22+ million customers @ $79/year
• 20 million products
• No minimum orders
• Free Shipping-2 days
• Free Video/TV Streaming
• Free Kindle Books
• Free Music Downloads
04/11/23 74
Amazon Fire TV
04/11/23 75
Amazon: Pantry
Prime Pantry is a new shopping experience on Amazon.com. Prime members can shop popular household essentials and have them conveniently delivered.Adding your first Prime Pantry item to Cart starts a Prime Pantry box. As you shop, you see that each Pantry item tells you what percentage of a Pantry box it fills based on its size and weight. Pantry boxes are large and can hold up to 45 pounds or four cubic feet of household products. As you check items off your list, we continuously track and show you how full your box is.You can buy as much or as little as you want for a flat $5.99 delivery fee per Prime Pantry box. Save gas, save money, save time.04/11/23 76
Amazon
Welcome to Amazon School Lists, a new way for K-12 teachers to create and share online back-to-school supply lists with parents. With everything from pencils and rulers to calculators and binders, parents can complete back-to-school shopping in just a few clicks. They can also copy, save or print the list. When Kindergarten, elementary school, middle school, and high school teachers and parents are on the same page about supplies, kids get off to a great start.
04/11/23 77
Amazon DashDash connects to your home Wi-Fi network and works directly with your AmazonFresh account. Say or scan items into your Dash, and then view the list on your desktop or mobile device to purchase and schedule delivery.
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Amazon Fresh
• Seattle
• S Cal
• Nor Cal
• Partnering with other
Food retailers
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Amazon May Day
Mayday: 9 second response time04/11/23 81
Experimenting with Drones
• 85% of orders weigh 5 lbs or less
• Waiting on FAA to determine guidelines
04/11/23 82
Amazon Performance2010 2011 2012 2013
Sales 34.2B 48.1B 61.1B 74.4B
Inventory Turns
11 10 9 9
Accounts Payable
72 74 75 74
Cash Flow 3.5B 3.9B 4.2B 5.4B
Cap Ex 979M 1.9B 3.8B 3.4B
Shipping Revenue
3.5% 3.2% 3.7% 4.1%
Outbound <7.5%> <8.3%> <8.4%> <8.9%>
Fulfillment <8.5%> <9.5%> <10.5%> <11.5%>
Gross Margin
22.3% 22.4% 24.8% 27.2%
04/11/23 83
• Walmart serves customers more than 250+ million times per week at more than 11,000+ retail units in 27 countries
• WalMart employs 2.2 million associates globally, including almost 1.4 million in the United States.
• Walmart is one of the largest private employers in the U.S., the largest in Mexico and one of the largest in Canada as well.
• Sales: $473 Billion
8404/11/23
• How to compete with Amazon
• Focus on small stores: Multiple Formats• Convenience store• Market store
• Order online pick up at the store.
• Drive in-Pick up centers
• Savings Catcher: checks competitor ads for items purchased at Walmart, and provides e-gift cards for the difference in price when a competitor’s price for eligible items is lower.
• Wild Oats partnership
• Expansion of organics
04/11/23 85
Walmart Innovations• Experimenting with grocery home delivery
• San Jose, San Francisco, Chicago.
• Offering ‘same-day’ deliveries via internet
• Offering click and pick with in-store lockers
• Partnership with American Express Cards
• Offering Scan and go via smartphone
• Express/Convenience Store program
• E-commerce sales $13 Billion
8604/11/23
04/11/23 87
Net sales Net sales
~$279.4B Increase of 2% or $5B
Operating expenses
Operating expenses
18 bps of leverage4 consecutive years
Operating income
Operating income
~$22.4BIncrease of 4% or $860M
Grew profit faster than sales
Gross profit rate -1 bps
Priceinvestment
Priceinvestment
Walmart U.S. delivered a strong FY 14
04/11/23 88
Net sales Net sales
~$50.6B Increase of 1.6% or $785M
Operating expenses
Operating expenses
14 bps of deleverage
Operating income
Operating income
~$2.0BIncrease of 5.0%
Grew profit faster than sales
Gross profit rate -1 bps
Priceinvestment
Priceinvestment
Membership income
5.9%
Sam’s Club increased membership income
Note: All data is without fuel
04/11/23 89
Net sales Net sales
~$136.5B Increase of 1.3% or $1.8B
Operating expenses
Operating expenses
18 bps of deleverage
Operating income
Operating income
~$6.3Bdecrease of 4.7%
Gross profit rate -10 bps
Priceinvestment
Priceinvestment
Walmart International invested in price
04/11/23 90
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93
69 different banners through out the World
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Walmart Transportation
04/11/23 96
• 8th largest food retailer
• 7 million customers visit 375 stores each week
• Opened 32 stores last year
• Fortune one hundred best companies: 16 years
• Gross Margin: 35.8%
• Net Income: 4.3%
• 94 stores in development
• Goal: 1200 stores
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• 418 stores: $11 billion
• 4,000 items: 80% private label
• Stores: 8-12,000 sq. ft.
• Sales per sq ft: $1750
• Top ranked supermarket by Consumer Reports
• Outsourced transportation
04/11/23 99
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• 150 stores/26 states
• 34% margin/7% ops
• Sales: $1.6 Billion
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Deep Discount Stores
• $16. B
• $9.3 B
• $7.4 B
• $5.3 B
• Price Rite: Shop Rite
• Savalot: Supervalu
• Aldi: Albrecht
• Ruler Foods: Kroger
• Bottom Dollar: Delhaize
04/11/23 111
Dollar Stores
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• Sales $73 Billion
• Net Profit: $2.4 Billion
• 2016: $130 Billion
• 2020: Healthcare to be 20% of GDP
• 8,200 locations
• 70,000 associates
• 10,000 Americans turn 65 every day
04/11/23 113
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11504/11/23
• Makes wrong decision about credit card technology
• Data breach which impacts millions
• Sales go down
• Makes major acquisition to invade Canada
• Rolls out 100+ stores
• Didn’t understand supply chain issues• Wrong prices• High out of stocks
• CEO gets fired!!
04/11/23 116
Perspective
• All of these retailing concepts were not viewed as competition to food retailers 20 years ago.
04/11/23 117
• Makes an investment into Albertsons
• Albertsons buys United Supermarkets
• Acquires the 5 Supervalu divisions• ACME• Shaws• Jewel• Albertsons/West Coast• Shoppers/Farm Fresh
• Saves Safeway/US
04/11/23 118
• Cerberus saves the retail segment
• Supervalu goes back to its roots
• Sales: $18 Billion /Profit: 1%
• Purchases the Rainbow stores in MPS
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• Sales: $20 Billion
• Multiple Formats• HEB• Central Mkt• Mi Tienda• Joe V
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Ahold/
• 167 pick up points
04/11/23 127
• Seattle
• Philadelphia
• Los Angeles
• NYC
• Chicago
• Austin
• Washington DC
• San Francisco
• Boston
• San Jose
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Sysco dominates
04/11/23 133
Global BattleCompany Banner Sales,
2011 (USD bn)5-year CAGR,
2006-2011
1 Walmart 483.1 +5.6
2 Carrefour 150.4 +4.1
3 Tesco 116.3 +6.0
4 AEON 107.7 +12.8
5 Metro Group 106.3 +4.0
6 Seven & I 98.8 +9.6
7 Schwarz Group 97.5 +10.9
8 Kroger 93.7 +6.3
9 Costco 93.5 +7.4
10 Casino 86.3 +10.1
Company Banner Sales, 2017f (USD bn)
5-year CAGR, 2012-2017f
1 Walmart 637.7 +4.8
2 Amazon 199.4 +24.8
3 Carrefour 169.6 +4.8
4 AEON 158.6 +5.9
5 Tesco 156.9 +5.2
6 Costco 151.7 +7.8
7 Seven & I 140.2 +5.8
8 Schwarz Group 130.1 +6.4
9 Metro Group 118.5 +3.6
10 Auchan 113.3 +6.7
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135
When there Is no vision, the people perish!
04/11/23
Complexity in Supply Chain
04/11/23 136
Battle of Value Chains
04/11/23 137
Going Forward
1. Eliminate the Black Holes
2. Embrace Technology
3. Develop an OmniChannel Strategy
4. Transportation/Traffic Opportunities
5. Collaboration in the Network
04/11/23 138
1. Eliminate the Black Holes!!!
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Map the Value Network
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SourcesProductsRoutesCostsPricingInventory
Value Chain Mapping: Product
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Procurement is a supply chain function!
Product Visibility
• Track and trace from source to your operation
• Assume RFID will not happen?
• Ensure integrity of the product
• Identify opportunities to improve in-stock performance throughout the supply chain
• Temperature• Quality• On-time• Lowest Cost
04/11/23 142
Food Safety Modernization Act
• Foreign Supplier Verification Program• All levels• Original source• Visit facilities• Major story: Prawns Supply Chain
• Traceability of products through the network• RFID required to make it work• Life to Death accountability
04/11/23 143
Food Safety Action Plan
• Court recently ruled “all parties involved in a supply chain contamination problem can be held liable.”
• Jenson Farms, CO• CDC-reported total of 147 infected persons from 28
states, including 33 deaths and one miscarriage.
• Lawyers will sue all companies!!!
• Focus on the potential problem products/companies
04/11/23 144
Reduce deliveries to the store!
• Traditional DSD products (15-25% cost of goods)
• Specialty Food Products (GM: 17%+ Net: 2%)• 11% US food sales• Growth: 14%
• Foodservice Products ( GM: 15-25%+)
• Cross Dock from supplier/distributor
• Flow Through Pallet Build
04/11/23 145
2. Technology Opportunities
04/11/23 146
• Embrace Technology:AutomationPaperless SystemsSupply Chain Cloud
Ariba: The world’s business commerce network
IBM ecommerce platform
DC: Automation
147
Take Fingerprints off the Box!
04/11/23
3-D Printing
04/11/23 148
Internet of Things
04/11/23 149
Internet of Things
04/11/23 150
Video: SAP GlassGoing Paperless in the supply chain• https://www.youtube.com/watch?v=9Wv9k_ssLcI
04/11/23 151
Technology Tools
• Brands go online direct to consumer• On-line food shopping continues to grow
significantly: 6% in Europe; 15% during holidays
• An explosion of mobile shopping/scanning apps
• Digital dialogue widens/expands• Front end checkouts are eliminated
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3. Omni Channel OpportunitiesDevelop an Omni Channel Strategy:•Pick from a DC; Direct to Consumer
•Pick from a DDC; Direct to Consumer
•Pick from a DC; Pick up at the store
•Pick from a DC; Pick up via a locker
•Pick from retail store; direct to consumer
•Pick from retail store; pick up at the store
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Peapod/Ahold: $570 million Fresh Direct: $450 millionAmazon Fresh: $100 million
Picking from the store is not an ideal solution!!!
On Line Food Sales
15404/11/23
FMI: 11%
• Effectively manage transportation services• Professional traffic team to control all purchase orders.• Audit team to review freight bills.• Move to intermodal where appropriate• Review energy resources: Natural Gas, Electric• Hedge your energy commitment• Black box/satellite connections with all assets• Balance the work load : Offer incentives for ‘slow days'
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4. Transportation Opportunities
5. Collaboration in the Network• Share Groups
• Educational Programs: 600 colleges/universities now offer degrees in Supply Chain Management
• Logistics Institute (Canada)• Consultants
• Blogs
• Road Trips
• Association local meetings• CSCMP, APICS, WERC, ASM
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Blogs:
• Food: valuenetworkissues.blogspot.com• Marketing: haccmarketing.blogspot.com
• [email protected]• 610-256-6636
• Post on www.slideshare.com
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Thought for the Day
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