Archive | December 2011

2012 New Year’s Resolutions Every Consumer Package Goods Company Should Make

 

2012 New Year’s Resolutions Every Consumer Package Goods Company Should Make

By Craig Rosenblum

The Competitive Edge

Willard Bishop

November 2011

 

The Benefit

As the song goes, “It’s the most wonderful time of the year!” It begins with stuffing ourselves at

Thanksgiving, sharing gifts at Christmas, and ends with making all those resolutions at New Years. It

also starts the holiday shopping season with Black Friday and Cyber-Monday in order to get the best

deals for those on your holiday shopping list and ends with the resolution (and bills) that I am going to

stay within budget next year. If you think about it, this really isn’t too different if you are a

manufacturer or in the consumer goods retail business planning for the holidays (Thanksgiving and

Christmas), making on the fly adjustments to enhance or modify accordingly, and ending with

resolutions to do things more efficiently, effectively, and profitably next year.

As we look forward to 2012, this issue of Competitive Edge will provide insight into several New Year’s

resolutions that every consumer package goods (CPG) company should make to improve sales

effectiveness, financial efficiency, shopper satisfaction, and enhance collaboration

 

Evolution The evolution of retail and where it is heading has never been more apparent than today. Over the last 50 years retail has continued to

evolve from:

Retail 1.0 – The age of national brands and a manufacturer controlled supply chain.

Retail 2.0 – The age of retailing. Retail consolidation creating fewer more sophisticated retailers, who reclaimed control of the supply chain and cost control.

Retail 3.0 – The age of the shopper. Customer data is now essential and interwoven into the strategic and tactical decisions being made.

1.0 2.0

Seven New Year’s Resolutions

Understanding that the new norm is truly all about the shopper, future success must become a true collaborative effort between retailers and CPG companies in order to meet the shopper’s needs. Recognizing that CPG resources (human, financial, and technological) are not endless, it is imperative that you make the following New Year’s resolutions to make sure that you are maximizing the utilization of your resources and ensure retailers are focused on your company and your brands to drive sales, profits, shopper satisfaction, and competitive differentiation.

Recognizing that each facet of a CPG company (IT, manufacturing, supply chain, marketing, finance, category management, etc.) is going to have their own unique list of resolutions, the following are focused on supporting the retailer facing sales efforts to improve business performance.


1. Ensure you have the right retailer priorities – Most CPG companies prioritize resources based upon volume. While historically this may have been the right way to go and profits usually followed, given today’s economic and competitive pressures, it is not quite that simple. It is imperative that CPG companies truly understand and evaluate which channels and retailers are growing (or not) and the cost-to-serve or true profitability of each. Some of the benefits from this type of approach are:

Focusing upon the most important retailers and priorities. Deploying resources (human, intellectual, and financial)

towards the efforts that are most important.

Driving greater return-on-investment from your selling organization and efforts.

Understanding how imperative it is to follow such an approach is exemplified by the following:

Kraft’s recent announcement of separating the high-growth global snacks business and a high-margin North American grocery business.

Walmart’s transition from the largest in volume and profits for most CPG companies to just the largest in volume due to their demand for lowest cost-of-goods to enable lowest opening retail price points and new hi/lo promotion strategy.

The on-going trend of grocery losing share to non-traditional and alternate channels (e.g., Dollar, Club, Limited Assortment, etc.). Traditional supermarket’s share has gone from an 89.6% to a 40.2% over the past 25 years according to Willard Bishop’s 2011 Future of Food Retailing study.


2. Increase your organization’s understanding of how retailers make money – Many CPG companies do not understand where and how retailers make their money. We have all heard about what razor-thin margins retailers make. According to FMI’s Annual Financial Review reports, over the last 10 years the industry’s after-tax net profit has been 1.22%. But do you truly understand why? A retailer’s overall costs change by store part, department, aisle, category, and SKU. Hence, as you look at the table below you can see that store ABC’s weigh heavily on a retailer’s ability to be profitable. The two components which have the greatest erosion of in- store profitability are store labor and occupancy/rent. This is evident in the store Perimeter’s ABCs. ABCs as a percentage of sales is almost twice as much as the Center due to the nature of handling produce and meat, deli, fish, and bakery service components.


Focusing on this type of approach and understanding will open up new and more strategic customer relationships. The following are some ways to impact these costs:

Minimize stocking and rotation time at the shelf by providing cut- and/or case-ready cases.

Gravity-feed fixtures (e.g., Campbell’s Soup Racks) which enable product to feed forward and stay front-faced.

Optimize case-pack size and configuration to minimize inventory on the shelf and increase turn.

Focusing on this type of approach and understanding will open up new and more strategic customer relationships.

 

3. Provide pricing insights on how your brands/categories impact the retailer’s overall price image – Retailers today are more cognizant than ever of their price image and doing everything they can to enhance it. CPG companies need to be aware of a retailer’s overall pricing strategy and their processes to enhance price image. Getting private label price gaps right will help retailers better manage category profitability, and help you protect your own case volume and margins. Willard Bishop has helped over three dozen retailers develop their pricing strategies and enhance their price image, and has identified several components you should be taking into consideration. Do you know the following about your retail customers:

Their overall pricing strategy (EDLP, hi/lo, or hybrid)?

Who their primary and/or secondary competitor is in the market?

The category role(s) and marketing intent(s) of your categories?

If your SKU’s are known value items (KVI’s)? If so, do you know which ones and why?

The tipping points for your category, brands, and SKUs? What are these indexes? Are you in the imperceptible range (1% – 4%), perceptible range (5% – 8%), or pass the tipping point (9+%)?

The relationship of everyday and promotion pricing and how it impacts your location in the spectrum of tipping points?

Improving your understanding of how retailers’ price image is created can help you design better pricing and promotion plans, and lessen the pressure for you to “give back” price increases in some categories.

 

4. Identify the right price gaps between your brands and private label and develop a strategy to hit them – Every shopper today is trying to stretch their shopping budget to bring home as many bags of groceries as possible and save some money. This, combined with the improved quality of product, has enabled private label to continue to grow and gain share. However, commodity inflation has continued to pressure CPG companies to pass on cost increases and retailers to pass these on to the shopper by raising shelf prices. Unfortunately, the gaps between private label and their national brand competitors continue to rise. Average gaps should be dependent on many factors including the retailers’ overall strategy, the category strategy, the breadth of private label at their disposal, how many tiers of private label they carry, pricing on national brands, etc. Below is one illustrative example of how gaps change by category.

 

5. Proactively optimize your own assortment – Traditionally speaking, 20% of the SKUs in any category account for 80% of the volume. This is why so many retailers, starting with Walmart in 2009, began the 10% – 15% SKU reduction process. As we all now know, they went too far, alienated shoppers, which in turn caused sales, profit, and share loss. While product innovation is still essential, the leading CPG companies have taken the opportunity to control their own destinies and optimize their own portfolio versus waiting for the retailer or a competitor to do so. Those who have conducted this exercise have found success due to:

Enhancing brand equity by focusing on strategic fit and growth opportunities for current and new SKUs.

Increasing sales due to optimizing shelf space, pack-out, and minimizing out-of-stocks.

Limiting their exposure as private label expansion continues.

Improving cost efficiencies in packaging, product, and

transportation.

Driving greater promotional effectiveness with existing trade funds.


6. Utilize Shopper data across all of your merchandising decisions – It would appear that category management and shopper insights are heading on a collision course to become shopper-based category management. For those who are already incorporating the retailer shopper or loyalty card data into insight across price, promotion, space, and assortment and selling accordingly, you are already there. For those of you who are still “Panning for Gold” in the ocean of shopper data, the following are some thoughts on how to increase your odds of success or value.

Drive your merchandising insights and tactical decisions to focus on the retailer’s top-tier of shoppers (diamonds, platinum, or top-20%).

Develop hypotheses and utilize the shopper data to validate and execute upon them.

Utilize the retailer’s shopper stratification, understand the volume gaps by segment, and derive programs to close the gap.


7. Identify promotions that work for your categories in a market and maximize your trade fund effectiveness by going after them – The more things change, the more they stay the same. Retailers today, for the most part, still conduct promotion and ad planning the same as they always have. It is week 23, looking at what they did week 23 a year ago and repeating. Unfortunately, due to the flattening of trade-spend dollars by most CPG companies, this is causing the necessity to ensure you drive the greatest incrementality possible from your investment. In order to convince the retailer to change this process, CPG companies today must:

Track and measure performance/effectiveness of trade promotion spending.

Determine the most appropriate amount and allocation of trade and consumer promotion spending.

Identify what works uniquely for a retailer in their competitive market and why. Many times retailers are unaware of other successful programs in the market, because they are too focused on what has historically been the case.

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Putting on a new pair of goggles – looking beyond the walls of our business

in today’s markets innovation increasingly comes from two sources: learning to see patterns where others don’t, and finding ways to adapt what others are already doing to our business models.

 

Putting On A New Pair of Goggles

 

Putting on a new pair of gogglesA few weeks ago I wrote about a stodgy safety products manufacturer that dramatically increased sales of its goggles by studying fashion trends. I’m not suggesting we all start subscribing to Vogue, Glamour or Elle (although maybe that is not a bad idea). What we do need to do is start looking beyond the walls of our businesses on a regular basis.

Innovation doesn’t always require pulling groundbreaking ideas out of thin air. In fact, in today’s markets innovation increasingly comes from two sources: learning to see patterns where others don’t, and finding ways to adapt what others are already doing to our business models. For most of us, this requires expanding our sources of information, as well as stretching our brains to get us thinking differently and looking at the world in new ways.

Expand your sources of information

Over the course of a single year, the typical American reads 100 newspapers and 36 magazines, and watches almost 2,500 hours of television. We also listen to more than 700 hours of radio, buy three books and 20 CDs, and talk on the phone for more than 500 hours. And that doesn’t include texts, tweets, updates, pokes, and all the other social media stuff many of us now do on a daily basis.

Sounds like a lot, doesn’t it? Maybe so, but for most people it comes from the same sources over and over again, especially in business. As leaders, we tend to gather data about our customers, markets, and industries from similar sources while paying scant attention to what goes on outside our companies or industry.

To expand your data-gathering horizons, make a list of all your information sources according to the percentage of data they provide. Then ask questions like: How much time do we spend collecting information? What are our primary sources of data? Are these still reliable sources for our business or industry? Where else can we look?

Conduct a cold-eye review

Another technique for gaining fresh perspectives is to have non-experts research various aspects of your business. For example, have your CFO look at customer data, your head of manufacturing look at customer info, and so on. When done well, this “cold eye review” often finds the obvious (things previously missed because everyone is used to them) and occasionally finds the unique.

Cold eye reviewers can uncover unsafe conditions in a plant because workers stopped seeing the situation a long time ago. They can identify new applications for a current product because they don’t know what it’s supposed to do or not do. They can also uncover significant opportunities to reduce costs, cut cycle time, and/or dramatically shift processes because they don’t know about the way things “are supposed to be.”

Have your cold eye reviewer give a presentation that communicates their general approach to the review, the data found, a summary of key points, and any recommendations. Follow that up with any questions you might have, and a discussion of what is possible based on the data presented.

Stimulate your brain

In order to adapt ideas from other areas, it helps to loosen up our brains with the following techniques:

  • Go outside. Go outside your office, take off your shoes, and walk barefoot in the grass. Breathe deeply and just listen to the sounds. You’ll be amazed how these simple tactile sensations can take your brain in a whole different direction.

 

  • Stretch. I mean really stretch – first your body and then your mind. Stand up and lift your arms above your head. Roll your shoulders. Inhale and exhale slowly. Now pause and think about something from a different perspective. Ask yourself, “What if it could be different? What if there is a better way? Who have I met this week and what did I learn from them? How can I apply what I learned?”
  •  

  • Do a “walking sponge” session. Take a walk and try to absorb as many new ideas as you can. Turn off your thinker and focus on seeing, hearing, feeling and smelling.
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  • Daydream. Let your mind wander. Instead of trying to think of an idea or solution, don’t try. Let your subconscious work on it for a while.
  • If these don’t grab you, just try something different. If you’re right-handed, use your left. Drive home from work a different way. If you bring a sandwich for lunch every day, bring a salad. Or better still, try a kind of food you’ve never had before.

    Trying something familiar in a different way just might loosen up your thinking and let you see the world in a different way. You’ll be amazed at what putting on a new pair of goggles can reveal to you (and you’ll look really fashionable doing it)!

     

    Holly is the CEO of THE HUMAN FACTOR, Inc. (www.TheHumanFactor.biz) and is a highly sought after and acclaimed speaker, business consultant, and author. Her unique approach to creating strategic agility, helping others go slow to go fast, will change your thinking.

    The magic of diasporas…from The Economist

    Immigrant networks are a rare bright spark in the world economy. Rich countries should welcome them

     

     

    THIS is not a good time to be foreign. Anti-immigrant parties are gaining ground in Europe. Britain has been fretting this week over lapses in its border controls (see article). In America Barack Obama has failed to deliver the immigration reform he promised (see article), and Republican presidential candidates would rather electrify the border fence with Mexico than educate the children of illegal aliens. America educates foreign scientists in its universities and then expels them, a policy the mayor of New York calls “national suicide”.

    This illiberal turn in attitudes to migration is no surprise. It is the result of cyclical economic gloom combined with a secular rise in pressure on rich countries’ borders. But governments now weighing up whether or not to try to slam the door should consider another factor: the growing economic importance of diasporas, and the contribution they can make to a country’s economic growth.

    Diaspora networks—of Huguenots, Scots, Jews and many others—have always been a potent economic force, but the cheapness and ease of modern travel has made them larger and more numerous than ever before. There are now 215m first-generation migrants around the world: that’s 3% of the world’s population. If they were a nation, it would be a little larger than Brazil. There are more Chinese people living outside China than there are French people in France. Some 22m Indians are scattered all over the globe. Small concentrations of ethnic and linguistic groups have always been found in surprising places—Lebanese in west Africa, Japanese in Brazil and Welsh in Patagonia, for instance—but they have been joined by newer ones, such as west Africans in southern China.

    These networks of kinship and language make it easier to do business across borders (see article). They speed the flow of information: a Chinese trader in Indonesia who spots a gap in the market for cheap umbrellas will alert his cousin in Shenzhen who knows someone who runs an umbrella factory. Kinship ties foster trust, so they can seal the deal and get the umbrellas to Jakarta before the rainy season ends. Trust matters, especially in emerging markets where the rule of law is weak. So does a knowledge of the local culture. That is why so much foreign direct investment in China still passes through the Chinese diaspora. And modern communications make these networks an even more powerful tool of business.

    Diasporas also help spread ideas. Many of the emerging world’s brightest minds are educated at Western universities. An increasing number go home, taking with them both knowledge and contacts. Indian computer scientists in Bangalore bounce ideas constantly off their Indian friends in Silicon Valley. China’s technology industry is dominated by “sea turtles” (Chinese who have lived abroad and returned).

    Diasporas spread money, too. Migrants into rich countries not only send cash to their families; they also help companies in their host country operate in their home country. A Harvard Business School study shows that American companies that employ lots of ethnic Chinese people find it much easier to set up in China without a joint venture with a local firm.

    Such arguments are unlikely to make much headway against hostility towards immigrants in rich countries. Fury against foreigners is usually based on two (mutually incompatible) notions: that because so many migrants claim welfare they are a drain on the public purse; and that because they are prepared to work harder for less pay they will depress the wages of those at the bottom of the pile.

    The first is usually not true (in Britain, for instance, immigrants claim benefits less than indigenous people do), and the second is hard to establish either way. Some studies do indeed suggest that competition from unskilled immigrants depresses the wages of unskilled locals. But others find this effect to be small or non-existent.

    Nor is it possible to establish the impact of migration on overall growth. The sums are simply too difficult. Yet there are good reasons for believing that it is likely to be positive. Migrants tend to be hard-working and innovative. That spurs productivity and company formation. A recent study carried out by Duke University showed that, while immigrants make up an eighth of America’s population, they founded a quarter of the country’s technology and engineering firms. And, by linking the West with emerging markets, diasporas help rich countries to plug into fast-growing economies.

    Rich countries are thus likely to benefit from looser immigration policy; and fears that poor countries will suffer as a result of a “brain drain” are overblown. The prospect of working abroad spurs more people to acquire valuable skills, and not all subsequently emigrate. Skilled migrants send money home, and they often return to set up new businesses. One study found that unless they lose more than 20% of their university graduates, the brain drain makes poor countries richer.

    Indian takeaways

    Government as well as business gains from the spread of ideas through diasporas. Foreign-educated Indians, including the prime minister, Manmohan Singh (Oxford and Cambridge) and his sidekick Montek Ahluwalia (Oxford), played a big role in bringing economic reform to India in the early 1990s. Some 500,000 Chinese people have studied abroad and returned, mostly in the past decade; they dominate the think-tanks that advise the government, and are moving up the ranks of the Communist Party. Cheng Li of the Brookings Institution, an American think-tank, predicts that they will be 15-17% of its Central Committee next year, up from 6% in 2002. Few sea turtles call openly for democracy. But they have seen how it works in practice, and they know that many countries that practise it are richer, cleaner and more stable than China.

    As for the old world, its desire to close its borders is understandable but dangerous. Migration brings youth to ageing countries, and allows ideas to circulate in millions of mobile minds. That is good both for those who arrive with suitcases and dreams and for those who should welcome them.