Breakthrough Insights:
Get Out of the Box to Earn Your Share (Second Half 2010)
By Kantar Retail
In the back half of 2010, we hear a lot of companies concerned with two big shares as they seek to build their strategies for 2011–2015—market share and share price. At Kantar Retail, we continue to try and pull this conversation closer to where work and strategy live—we are seeing companies that over-focus on the measures of success in this type of challenging environment lose focus on the long-term shifts in the marketplace. We also feel that it is important to pay respect to the economic conditions of the developed world; however, for those of us trying to deliver results in a 12–18 month time frame, we have hit a strange environmental condition—where short-term volatility is up but where most are not predicting either rapid recovery or deceleration. 1970s economists might have called this “stag-atility.”
Our economic outlook for both the US and Europe projects an environment that is getting better but that by itself will provide very little forward momentum—any growth in this landscape will need to be earned. An interesting story comes from data reported in November about the US economy: retail sales increased by a surprisingly high amount, a $4 billion increase from a median sales rate of $56.3 billion per month from March–September to $60.3 billion in October. Of that increase, about 20% of it is attributable to one medium-sized company—Chrysler Corporation (with a 37% unit sales increase over October 2009) and over half of that comes from one item—the highly successful re-launch of the Jeep Grand Cherokee. The key to this little story is that growth will go to the highly skilled operators, who understand how to reach consumers with newly constructed value propositions. The Jeep story reveals that in light and shifting winds, the skilled and smart crew often beats the large and strong one.
We believe these skills reside in the ability to answer five key questions with five key “share” driving strategies—each one of which is highlighted in this Breakthrough Insights compilation: Share of Real Growth—or, where will we grow? In addition to the economic overview which outlines both the opportunities and challenges of the US/European macro landscape, we take a quick look at the Chinese marketplace to understand the growth potential of the market that will dominate retail growth in the 2010s. This article is highlighted by our first-cut 2020 China channel forecast in which we see a future where China’s hypermarket and convenience channels are both bigger than those channels are today in the US, Japan, and Europe put together. The challenge that presents to an organization is one of flexibility—how do we build an organization that can be ready for the different and markedly less comfortable places growth will come from in the 2010s?
At the same time, there is still real growth to be earned even in the most challenging of environments. Our overview of shopper behavior and trading conditions in the US home improvement marketplace highlights that and is a great set-up for the other four questions/capabilities—all of which will be required to capitalize on those opportunities.
Share of Wallet—or how much do shoppers spend with a retailer compared with what they could spend? This conversation moves us squarely to Arkansas where our “Getting It Right” series focuses on the issues Walmart encountered with its Project Impact initiatives in the US. Our historical perspective is included for two reasons, apart from pointing out that we, like many, predicted that Walmart’s swing away from some of its foundational equities was going to cause shopper disruption and confusion. First and foremost is to highlight the pieces of Project Impact that were successful—and there were many. Walmart improved its free cash flow (as we predicted) and gained shoppers who were turned off by “un-impacted” stores. This look backwards is important to remember that an “over-correction” by Walmart could cause them to reverse many of these gains. The second reason is even simpler and more important—the business problem Walmart is trying to solve with Project Impact (the need for returns to grow in the US to cover its lower-return International growth) still exists; any reversal from their strategies still has to solve this problem. Our Q2 review of Walmart’s performance discusses that balancing act.
Sam’s Club is the other Share of Wallet case study in this issue as the retailer seeks to expand member relevance in key categories. There are good things going on here. Sam’s is making choices around the categories where it wants to win and using analytics to more deeply understand their members’ wallets and spending behavior. With that, though, the Sam’s business challenge remains the same. The rate of return on the Sam’s business is significantly lower than the Walmart US stores business so Sam’s has to find a way to grow share that brings new dollars to Walmart corporately.
Share of Decision—or why are shoppers choosing certain outlets and brands? In particular, we like to focus this conversation on the new moments of truth being created in a multi-channel communication world. The “First Moment of Truth” is a useful crystallizing framework, but it runs the risk of being more limiting than helpful today. Why? The first moment of truth concept (that the shopper’s first major decision about a brand is at the shelf) has always been a difficult one for retailers to swallow; they appreciated the insights around that brought to them first by P&G and then by others but always knew that their first moment of truth is somewhere significantly different—usually when a shopper is leaving the house, in the car, or making out a shopping list and trying to figure out which outlet to shop. Today, entities such as Google (as well as many suppliers) have started embracing this notion of the “Zero Moment of Truth” to try and capture shoppers wherever their points of decision are. Increasingly these points of decision are being digitally influenced. As part of our enhanced coverage of digital and social media we look at how US food, drug, and mass retailers are expanding their social media presence, and what that means for retailers and the suppliers that sell through them. In addition, our China conversation quickly looks at Taobao, the largest and most influential online retail site most of you have never heard of. Share of Solution—or what products and services can I offer to broaden/deepen my relationship with the shopper? Share of solution takes us in two separate directions as far as retailers go. First and foremost is the idea that retailers can replace solutions that were heretofore the provenance of their suppliers. Own label, private brands, house brands; whatever the term, it is clear that retailers are continuing to accelerate their private label programs in most “developed” retail markets around the world. Suppliers have historically viewed this as solely a zero-sum game: as the retailer’s brand improves, mine commoditizes. We would encourage suppliers to think about this problem a little differently in the future—in particular as it relates to differentiated retailers. The only alternative to differentiated retailers are undifferentiated retailers, and markets where my largest “conventional” customers struggle for resonance (Germany, for instance) are not particularly attractive markets for either retailers or suppliers from a pure profit perspective. To paraphrase Winston Churchill on democracy, differentiated retailers are the worst customers you can have, apart from every other kind.
That being said, private label continues to represent a robust source of conversation between suppliers and retailers. The evolution of CVS, one of the largest US drug chains, has prompted some charged conversations on the topic between it and key supplier partners. But in 2010, CVS is looking to expand its solution the second way retailers can—by meeting new needs that it was meeting either ineffectively before or not at all. As CVS seeks to improve its convenience offer and store clustering initiatives, it will create significant opportunities for suppliers to grow with them, provided they can see past the challenges of a retailer seeking to expand its private label program.
Another retailer that continues to redefine its solution to shoppers is Metro—in this case by going back to the future to some degree and enhancing its origins as a wholesale cash and carry business. Two key initiatives are profiled: its small, wholesale-emphasized format (Makro Punkt in Poland) as well as its answer to Auchan’s Chronodrive (Metro Drive) in France. Cash and carry continues to be an interesting global battleground format because of its flexibility—ranging as everything from a high-end retail environment in post-modern retail markets (i.e., Costco) to one of the earliest pioneer formats in emerging modern trade environments (Pakistan and Vietnam, for example).
Share of Engagement—how are retailers cutting through the clutter to connect? If differentiated retailers are the only players in brick and mortar buildings that will grow, how will this growth take place? Great retail brands are created in-store. Our favorite example of that always is the Costco idea—a 90% renewal rate on a “pay-to-use” proposition with no formal marketing at all. Engagement through TV, social media, and online for retailers is terrific but if the stores do not live up to the idea (i.e., if they are not the physical manifestation of that image), the retailer’s brand falls apart. That is why a very sensible answer to “what is the best shopper marketing program I can have?” might be clean up your stores! Especially in a digital world, a negative experience can move around the globe at terrifying speed. United Airlines found this when they broke a songwriter’s guitar. His song (“United Breaks Guitars”) has as of today gathered more than 9.5 million YouTube views.
But accentuating the positive also is an engagement strategy, and here we look at Carrefour’s hypermarket reinvention tests in France. Carrefour desperately needs to re-engage shoppers in an experience that is familiar to them but becoming less relevant as France’s population ages and a younger generation, raised digital, has a less compelling need for a “store where you can get everything.” That store to them is their laptop or mobile phone. How Carrefour and other large store operators reconnect shoppers to these spaces will be one of the great retailer/supplier challenges for the next five years.
Finally, over the next several months the two legacy platforms Kantar Retail has used to distribute insights to our clients (the Retail Forward Intelligence System and MVI-Insights) are being combined into one global platform: Kantar Retail IQ. We hope this integration simplifies your knowledge searches and deepens and enhances your understanding of the rapidly changing retail world. Please feel free to contact us with any questions about this integration ... and happy winter holidays to you!
Bryan Gildenberg,
Chief Knowledge Officer 4 Breakthrough
Download Breakthrough Insights (Second Half 2010) (pdf, 3Mb)