Kantar_Retail_Breakthrough_Insights_H1_2015

Transcription

Breakthrough Insights
2015 First Half
REconfigure
REtail
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Retail’s Great REconfiguration
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The Retail and Shopper Specialists
Research Team
Sara Al-Tukhaim
Frank Badillo
Timothy Campbell
Alida Destrempe
Fiona Feng
Karolina Fiedler
Ray Gaul
Bryan Gildenberg
Caroline Gormley
Doug Hermanson
Tiffany Hogan
Vivian Jiang
Simon Johnstone
Erin Kennedy
Laura Kennedy
Vadim Khetsuriani
Amy Koo
Stephen Mader
David Marcotte
Rachel McGuire
Leon Nicholas
Brian Owens
Mike Paglia
Himanshu Pal
Ann Pariani
Tudor Popa
John Rand
Bryan Roberts
Nicole Santosuosso
Kate Senzamici
Robin Sherk
Andrew Stockwell
Mary Brett Whitfield
Shirley Wu
Yvonne Xu
Han Yang
Oceanne Zhang
Anne Zybowski
© 2015 – Kantar Retail LLC. All Rights Reserved.
Disclaimer: The analyses and conclusions presented herein represent the opinions of Kantar Retail. The views expressed in this
publication do not necessarily reflect the views of the companies covered by this publication. This publication is not endorsed, or
otherwise supported, by the management of any of the companies covered herein.
Copyright Notice: No part of this publication may be reproduced in any form or by any means without the express written
permission of the copyright owner.
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In This Issue
Foreword............................................................................................................................ 4
U.S. Macro Outlook: Retail Sales Boosted by Broadening Regional Recovery ................ 7
The Role of Neighborhood Market According to Shoppers .............................................. 11
Purchasing Patterns of Organics: Harvesting Supermarket Shoppers’ Awareness ...... 19
Target Quickly Sprints Ahead with Big Changes in 2015 .................................................. 23
Walmart vs. Target Pricing Study: Walmart Leads the One-Stop
Basket Assessment .......................................................................................................... 31
Rediscovering Profits in FMCG Retailing ......................................................................... 39
Carrefour Is in Better Shape for the Future ..................................................................... 43
The State of Club Business Shoppers: Highlights from Kantar Retail’s
Inaugural Report ............................................................................................................... 47
The Lidl Effect: Watch Out, Aldi (and Everyone Else) ....................................................... 49
Online Grocery Poised to Accelerate: Which Retailer Will Win the Online Basket? ........ 55
Amazon Takes on Home Services: Could “Amazon Homeowners” Be Next? ................. 63
Why Walmart Is the Biggest Retail Challenge to U.S. Drug Stores ................................. 67
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Foreword
European discount operator Lidl might mean to the U.S. marketplace.
The European trading environment has forced businesses to REtool
Commerce more radically than their U.S. counterparts. Tudor Popa also
explores the link between Format and Commerce by profiling the ability of
a mildly resurgent Carrefour to both stabilize its core and find alternative
strategies (such as franchising) for new market expansion. This view
complements Ray Gaul’s format-fueled perspective on how FMCG players
can REtool their commercial models by embracing change rather than
resisting it. Ray discusses ways to lean forward on eCommerce, discount,
proximity grocery (not convenience), and emerging models.
For much of 2015, we at Kantar Retail have been using a framework – led
by our Chief Research Officer, Andrew Stockwell – called REconfigure
REtail1 to help our clients identify the key areas we think both retailers and
suppliers will need to focus on to best position themselves for the future.
In this issue of Breakthrough Insights, we take a look at each one of these
“four horsemen” or “pillars” of a REconfigured world, and the overlay and
intersection amongst them.
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REimagining Value will mean both price and nonprice propositions,
and the next two sets of insights take an in-depth look at each. Alida
Destrempe returns with an interesting study of patterns of shopper behavior
and the adoption of organics across a variety of U.S. grocery chains. The
ability to bring nonprice value to shoppers will be a critical factor for
supermarkets looking to compete with the omnichannel players profiled
in the previous piece.
Nonprice value is fun, but price-based value is still the primary motivating
factor for shoppers when choosing their preferred retail outlets. Kantar
Retail does a lot of pricing comparison work across channels to help
understand retailer price positioning, and in this edition of Breakthrough
Insights, the team of Robin Sherk, Amy Koo, Laura Kennedy, and Erin
Kennedy put together an overview of the one-stop-shop value offered
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Those emerging models include eCommerce (particularly in grocery) that
will challenge and redefine the relationship between Commerce and Value.
Robin Sherk, Alida Destrempe, and Nicole Santosuosso look at the coming
battle for supremacy in this field among Amazon, Kroger, and Walmart –
three massive national players with very different commercial models and
value propositions.
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We start with Format, where the
team of Erin Kennedy, Robin
Sherk, and Rachel McGuire have
put together a shopper-centric
view of Walmart’s Neighborhood
Market strategy. The different
demographic and geographic mix
Neighborhood Market is relying on
to win is fascinating. That format
will compete head to head with
a new entry to the U.S. market,
likely before 2018. In that context,
Mike Paglia explores the link
between Format and Commerce
by projecting what the entry of
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Our journey begins with one of the core drivers of this need for
REconfiguration – the uncertain U.S. macroeconomic growth landscape. In
typically expansive and incisive style, Doug Hermanson details the regional
patterns of economic recovery and the need for winning retailers and
suppliers to understand these differing regional growth patterns. From there,
many of the pieces highlight one or more of the core pillars of REconfigure
REtail – REengage Shoppers, REimagine Value, REinvent Format,
and REtool Commerce.
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For more information, please visit http://www.kriq.com/BigIdea/Index.aspx?id=661821
Our final piece brings us full circle to REinventing Format – specifically, the
link between Format and Shopper. Brian Owens highlights the increasingly
intense competitive dynamic between Walmart and the drug channel
that is being driven by Neighborhood Market’s expansion and Walmart’s
increasingly intense engagement with the U.S. healthcare industry.
In all likelihood, Walmart will not look at just these two pillars
of REconfiguration. Over time, we fully expect the retailer to try to
REtool Commerce and REimagine Value in the global healthcare
landscape as well.
by Walmart and Target. This price comparison expands to the general
merchandise categories that are going to be a bigger part of Target’s
strategy moving forward.
Since Target is markedly more expensive than Walmart in these
categories, this fusing of price and nonprice value will be critical. Target
will achieve that nonprice value by REengaging Shoppers. In a critically
important article, Amy Koo looks at the major shifts Target is making to
reposition its shopper connection and value proposition. Target is typical
of a number of retailers around the world that are trying to be relevant in
a price-competitive world while also driving differentiation. What Target
can learn from retailers like Sainsbury’s in the U.K., Auchan/Carrefour in
France, Pao de Acucar in Brazil, and Loblaws in Canada – all of which are
embarking on similar journeys – will be interesting to observe.
Shoppers, Value, Format, and Commerce – the four key pillars of
REconfigured REtail. Enjoy this edition, and we hope to see you throughout
the rest of the year!
Shopper engagement is a big piece of conventional retail strategy, so
it is fascinating to watch business models that access less traditional
segments try to REengage shoppers as well. In this issue, Sara
Al-Tukhaim details Kantar Retail’s first look at small business attitudes
to warehouse club shopping. The small business owner is a critical – but
poorly understood – part of the club member mix, and Sara finds some
valuable similarities and differences among business members of the
three largest U.S. warehouse club operators. This nontraditional shopper
connection can also be done by linking the REengagement of shoppers
to the REinvention of Format to sell new types of solutions. Nicole
Santosuosso and Erin Kennedy show how Amazon is thinking about this
in the B2B marketplace with the launch of Amazon Home Services. By
trying to consolidate the fragmented services marketplace, Amazon is
bringing its marketplace capabilities to something other than products
and content for the first time.
Bryan Gildenberg
Chief Knowledge Officer
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U.S. Macro Outlook: Retail Sales Boosted by
Broadening Regional Recovery
By: Doug Hermanson
The U.S. jobs recovery is being sustained and is
broadening across states. This will be the biggest
factor propelling respectable top-line retail sales
growth in the second quarter and throughout 2015.
However, there will likely be some unevenness as
evident when “double clicking” to the local level as
residential investment boosts some communities
and a pullback in business investment in the
energy and agriculture sectors dampens spending
in other communities.
Online retail sales growth in 2015 is expected to
match the rapid pace achieved in 2014, but the
share of sales moving online will vary by category,
affecting channels and retailers differently.
Consumer electronics and department stores
will lag most channels, and may even slow
from last year’s pace, due mostly to pronounced
online competition.
For other discretionary goods, focused bricksand-mortar channels will fare better as other
factors offset the drain from online spending.
The housing market recovery will keep home
improvement retailers growing at an aboveaverage pace. Millennial Have households leading
the job market pickup will lift sales growth at
apparel specialists and home furnishing retailers
– especially small-ticket sales. Growth in these
channels will be even more notable after adjusting
for steeper price deflation in most softgoods and
homegoods categories.
Among the consumables-oriented channels,
growth will be led by drug stores due to sustained,
albeit a little bit slower, prescription drug spending
related to healthcare expansion. Improved spending
plans among Have Nots benefiting from job gains
will help boost mass retailers, but improved
growth at big-box retailers will continue to lag
most channels, partly due to online competition.
Another reason is that Have-Not–related gains are
increasingly benefiting younger shoppers who tend
to shop small-box mass retailers and convenience
stores more than big boxes. Supermarket growth in
nominal and unit-demand terms will keep a similar
pace or inch higher relative to last year as easing
food and fuel inflation helps the channel compete
with other value formats. Walmart’s ramp-up of
its Neighborhood Market format is also boosting
supermarket channel growth relative to big-box
mass retailers.
Key macroeconomic conditions shaping this
outlook are summarized in Figure 1.
Here is a more detailed look at the outlook and its
implications for suppliers and retailers:
yyCapitalize on an accelerating and expanding
recovery in certain state and local markets.
The housing recovery and growth in most
consumer-focused industries will bolster job
gains in most regions of the country. Still, softer
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global commodity demand and prices may
increasingly create pockets of weakness in state
and local markets with a high concentration of
energy-related manufacturing and mining jobs.
So far, however, the signs suggest that sustained
job growth in other sectors is trumping any
pullback in the energy-related sector. While not
severe, weaker agriculture incomes across the
Midwest may be more broadly felt.
Figure 1: Summary Scorecard of Macro Conditons
March 2015
United States
Overall
Impact
Indicators by group
Overall Consumer/Retail Indicators
Market Disruptions
Confidence & Spending Intentions
Employment, Income, Wealth & Credit
Business & Residential Investment
Prices
Exchange Rate, Monetary & Fiscal Policy
Positive
Mixed
Negative
Sources: U.S. Department of Commerce, U.S. Department of Labor,
Conference Board, Federal Reserve Board, Kantar Retail
While top-line growth will be sustained, these
forces will create continued unevenness across
markets. The housing recovery is supporting
above-average job growth in Arizona, California,
Florida, Oregon, and Utah. Some partly recovered
southeastern states – Georgia, North Carolina,
and South Carolina – are brightening. Most
threatened this year are the Appalachian and
Plains states, possibly rural areas most of all. So
far, the oil-dependent markets of North Dakota
and Texas have not shown signs of weakness
at the state level, but Nebraska, Pennsylvania,
South Dakota, and West Virginia are among those
lagging average job growth in recent months.
yyExpect softer inflation to provide varying
benefits to retailers. Steep year-to-year
declines in energy and agriculture commodities
will keep fuel prices below last year’s levels
and contribute to softer food inflation in the
coming months. This will provide a modest
lift to household budgets and spending in
the spring, but initially shoppers have been
packing away some of the savings and keeping
consumer credit card debt in check rather
than immediately putting most of it toward
incremental spending. Job and income gains,
especially among Have Nots, will be the biggest
driver of incremental spending – on discretionary
goods most of all and on consumables secondarily.
yyWhat is becoming increasingly noticeable
in recent months is steeper deflation in
discretionary goods: apparel, consumer
electronics, and appliances. A stronger U.S.
dollar has likely helped reduce sourcing costs
for many of these goods and online competition
is putting downward pressure on prices.
Therefore, most bricks-and-mortar category
specialists, department stores, and mass
retailers will benefit from incremental demand
for these categories, but online will siphon some
of these incremental sales and lower prices will
dampen nominal sales gains.
Retailers and suppliers will need to emphasize
other aspects of their offer to avoid price
competition and sustain nominal sales gains, as
shoppers tend to pocket the savings from lower
prices or spend at specialty formats and noncore
goods/services.
yyLook for improving, but differentiated
opportunities among Have and Have-Not
Millennials. Millennials (i.e., Gen Y) are
increasingly the primary beneficiary of the
jobs recovery, likely at both ends of the income
ladder (i.e., Haves and Have Nots). Noticeably
improved job growth among those who are
college educated is a positive sign that Have
Millennials are finding it easier to enter and
advance in the job market. In addition, job
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growth among teens and young adults suggest
Have-Not Millennials are gaining traction. There
is also added evidence that wage growth is
gaining traction in industries that tend to employ
members of younger lower-income households
(i.e., Millennial Have Nots), such as retail, food
services, and construction.
Millennial Have households will help lift
category specialists, such as apparel and home
furnishings. Among consumables, stronger
spending plans among Millennial Haves –
who tend to be more brand conscious – will
tend to benefit name-brand personal-care
products, upscale food/beauty/health retailers,
and organic/health-based food categories.
These products and categories will benefit
as the improved spending of Millennial Have
households expands beyond noncore retail
channels and categories such as food services
and automobiles that have led spending
recently. Millennial Have Nots will spend more
on consumables, but dollar stores and other
small-box retailers are likely to benefit the most.
This Have-Not segment also spends a relatively
higher share on products for children.
yyExpect sluggish spending to remain focused
among Have-Not Baby Boomers. Retail sales
will continue to lag most among Baby Boomers
who are ill-prepared for retirement. This is
evident in signs that Boomers in their 50s are
lagging in the jobs recovery and that the oldest
Boomers with jobs are staying in the job market
longer. Private label, dollar stores, and other
small-format, limited-assortment food retailers,
such as Aldi, will be an increasing option for
older households as they are forced to find new
ways to save money to prepare for retirement.
Meanwhile, Have Boomers are likely in
increasingly better shape to spend as their
confidence and spending intentions are
bolstered by wealth gains and less anxiety about
government-related issues. But retailers and
suppliers cannot count on them spending at
the same places and on the same categories as
before. Health, wellness, and recreation will be
an increasing part of their budgets. Suppliers
and retailers will need to position themselves
with these spending streams – in services as
well as goods – to benefit most from stronger
spending plans in this segment.
yyPrepare for category shifts online that are
broadening and becoming more apparent even
in consumables categories. Online retailers will
continue their rapid penetration of categories
in 2015. Penetration is highest in media and
consumer electronics categories, severely
dampening the outlook for consumer electronics
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stores. Recently, though, apparel sales have
moved online at a noticeably higher rate. This
will likely challenge department stores most,
but lagging apparel specialists will increasingly
be affected.
Among consumables, prescription drugs have
the highest online penetration, which will only
increase as newly insured households move
more routine prescriptions online. Online
personal-care and food sales may be lagging,
but will increasingly become noticeable as
Amazon and grocery stores ramp up fresh food
delivery and click-and-collect programs.
1010
The Role of Neighborhood Market
According to Shoppers
By: Erin Kennedy, Robin Sherk, Rachel McGuire
As Walmart shifts store growth efforts to Neighborhood Market, it is crucial to understand how shoppers use this format.
Kantar Retail uses ShopperScape® data to determine if Neighborhood Market is fulfilling its role as a fill-in trip destination
as well as to assess its place in the competitive market.
While its Supercenter owns the stock-up trip,
Walmart recognizes that shoppers and trip
missions are changing. Management’s response
is the 40,000 square-foot consumables-focused
Neighborhood Market format, which was
introduced in 1998 and has recently gained a
significant amount of traction: The Neighborhood
Market store footprint nearly doubled in 2014, and,
for the foreseeable future, will continue to expand
by approximately 200 stores per year. With Walmart
shifting its growth efforts from the Supercenter
to Neighborhood Market, it will become
increasingly important to understand how to
support this format.
Walmart’s primary goal for Neighborhood Market is
to capture a different trip type to drive incremental
sales growth. Specifically, it should capture the
smaller, but more frequent, fill-in and immediateneed trips, which smaller-box retailers are better
suited to serve. Neighborhood Market’s smaller
size is also more suitable to tight urban spaces,
helping Walmart to reach a shopper base where it
is currently underpenetrated.
As such, Neighborhood Market is focused on
competing against other potential fill-in trip
destinations, including regional grocers, dollar
stores, and drug stores. However, given that they
are primarily fill-in locations around Supercenters
in Walmart’s core markets, Neighborhood Market
stores also risk cannibalizing Supercenter sales.
Examining how shoppers are using Neighborhood
Market, including shopper penetration and
profiles, trip missions, and trip frequency, is key to
understanding whether Neighborhood Market is
fulfilling its intended purpose as well as the effect
it is having on its competitive set.
Neighborhood Market Shopper
Penetration and Profile: Reaching a
Different Demographic
ShopperScape® shopper penetration and
demographic data suggests that Neighborhood
Market is bringing new shoppers into the Walmart
ecosystem. In states where Neighborhood Market
is present, approximately 5% of shoppers who
did not shop the Supercenter in the past four
weeks did shop at Neighborhood Market. This
translates to approximately 4% of Walmart’s total
in-store shopping base being attributable to an
incremental lift from the smaller banner. However,
according to Kantar Retail’s analysis of AggData,
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10% of Neighborhood Market stores are not within
10 miles of a Supercenter. Thus, some of this
incremental audience may be due to the format
reaching new trade areas rather than shoppers
having a unique attraction to the banner versus
the Supercenter.
Figure 1: Cross-Shopping Between
Walmart Banners
(among past four-week shoppers of retailers in states where
both formats exist)
75%
73%
4%
2011
67%
5%
2012
65%
7%
2013
8%
2014
% of NMKT shoppers who shopped WMSC
% of WMSC shoppers who shopped NMKT
2011-2014 % Change: -12%
2011-2014 % Change: +89%
Source: Kantar Retail ShopperScape®, January–December 2011–2014
In terms of cross-shopping patterns,
approximately two-thirds of Neighborhood
Market shoppers also shop the Supercenter,
making it a top companion destination. Over time,
however, Neighborhood Market shoppers are
becoming increasingly less likely to also shop the
Supercenter (Figure 1). While this could suggest
cannibalization, it also suggests the banner is
bringing in more shoppers who were not previously
Supercenter shoppers.
But on the whole, Neighborhood Market is
attracting existing Walmart shoppers: Supercenter
shoppers are cross-shopping Neighborhood
Market at higher rates, underscoring the banner’s
role as a growth format for Walmart. This crossshopping pattern also highlights the possibility of
Neighborhood Market capturing a different type of
trip among current Walmart shoppers – the main
purpose of this banner.
In terms of demographics, Neighborhood
Market shoppers are more likely to be younger,
urban, and non-Caucasian when compared with
Supercenter shoppers. While this difference is
likely a reflection of the demographic composition
of areas surrounding Neighborhood Market stores,
it highlights the fact that these two formats serve
distinct shopper bases (Figure 2).
Trip Mission and Frequency:
Core, Noncore Shoppers Use
Neighborhood Market Differently
Considering that a sizable majority of
Neighborhood Market shoppers also shop the
Figure 2: Demographic Profile of Past Four-Week
Shoppers of Retailer
All
Shoppers
Supercenter
Neighborhood
Market
48,575
27,694
2,790
Gen Y
Gen X
Boomers
Seniors
Income
18%
31%
38%
13%
18%
31%
39%
12%
25%
30%
34%
11%
Have Nots
Haves
Living Area
Urban
Suburban
Rural
Presence of Children
Children <19 at home
No children <19 at home
Race/Ethnicity
59%
42%
63%
37%
63%
37%
33%
33%
32%
24%
34%
40%
43%
37%
18%
24%
76%
27%
73%
29%
71%
White
Black/African-American
Asian or Pacific Islander
American Indian
Other
78%
13%
3%
1%
5%
78%
14%
2%
1%
5%
65%
18%
4%
1%
11%
Hispanic
12%
12%
22%
Sample Size
Generation
Source: Kantar Retail ShopperScape®, January–December 2011–2014
Note: Shading indicates a significantly larger percentage vs. other Walmart banner (95% confidence).
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Of all the trip types shoppers made to
Neighborhood Market over last three months, fill-in
and immediate-use are most common (Figure 3).
At first glance, this suggests the banner is
succeeding at capturing these smaller trips.
However, among Neighborhood Market’s core
shoppers, the format serves as more of a stock-up
destination. Specifically, when compared with all
shoppers who have shopped Neighborhood Market
in the past three months, Core shoppers are more
than twice as likely to use Neighborhood Market for
stock-up trips.
Trip frequency supports the idea that Neighborhood
Market’s most frequent shoppers use the banner
as a stock-up destination. Specifically, shoppers
who make stock-up trips are more likely than
all Neighborhood Market shoppers to be weekly
shoppers (Figure 4). On the other hand, only
one-third of shoppers who make fill-in trips at
Neighborhood Market visit the store weekly,
suggesting that many of these fill-in trips are more
of an occasional event versus part of a weekly
routine between stock-up trips.
Core Neighborhood Market shoppers are those shoppers
who made their most recent food/grocery/HBC/HH essentials
purchase at Neighborhood Market. These shoppers have a
greater shopping frequency at Neighborhood Market than the
more casual, past three-month Neighborhood Market shopper
who is the main focus of this article.
Figure 3: Neighborhood Market Trip Missions
(among shoppers who have shopped Neighborhood Market in the past three months; multiple responses allowed)
All NMKT Shoppers
1.3x
53%
2.3x
Core* NMKT Shoppers
62%
48%
0.9x
31%
23%
0.9x
27%
18%
17%
Stock-Up
Fill-in trips to buy a Immediate use trips to Trips to buy specific
on groceries and
few items I'm running buy something I need coupon items or items
household essentials
low on or out of
right away
advertised on sale
19%
0.4x
8%
Trips to browse the
store and see
what’s new
Source: Kantar Retail ShopperScape®, November 2014
* Core Neighborhood Market shoppers are those who made their most recent food/grocery/HBC/HH essentials purchase at
Neighborhood Market.
Figure 4: Neighborhood Market Shopping Frequency by Trip Missions
(among shoppers who have shopped Neighborhood Market in the past three months)
All Shoppers
32%
Stock-Up
Trip Missions
Supercenter, it is important to examine whether
Neighborhood Market is helping Walmart
capture the intended smaller trips to serve as a
complementary format. Examining Neighborhood
Market trip missions reveals a nuanced story, as
Core1 and noncore Neighborhood Market shoppers
are using the retailer in different ways.
Fill-In
29%
57%
32%
39%
32%
33%
35%
25%
38%
Immediate-Use
37%
Buy Specific Sale Item
35%
21%
45%
Browse
37%
20%
43%
12%
Weekly
One to three times a month
Less than once a month
1
Note: Shading indicates a significantly larger percentage vs. all shoppers (95% confidence).
13
channels. Shoppers’ top two responses regarding
the retailers they are shopping less because
they are shopping Neighborhood Market are
supermarkets and the Supercenter, underscoring
the extent to which the banner fills the role of a
grocery destination (Figure 5).
The differences in shopping frequency based on
how shoppers use Neighborhood Market, together
with the difference in trip missions for core
versus noncore shoppers, suggest that the higher
percentage of fill-in trips may be the result of
capturing the off-hand, irregular shopper seeking
convenience, versus Neighborhood Market being
seen primarily as fill-in destination.
On the other hand, dollar stores and drug stores,
which are primarily fill-in and immediate-need
destinations, are among the retailers least likely to
be negatively impacted by shoppers’ patronage of
Neighborhood Market even though Neighborhood
Market’s low-price positioning, assortment, and
services are intended to compete with both of
these formats. However, these channels also are
more differentiated from Neighborhood Market
Neighborhood Market Competes
Well with Grocery, but Not
Necessarily the Small Box
A nuanced story also emerges when examining
how Neighborhood Market is competing with other
than either the Supercenter or supermarkets. In
particular, drug and dollar stores are better able to
fulfill certain shopper needs when compared with
Neighborhood Market: Both stores offer a smaller
box and proximity, with dollar stores also adding to
convenience by offering a limited assortment that
further simplifies the trip.
Figure 5: Types of Retailers Shoppers Are Shopping Less Because of Neighborhood Market
(among shoppers who shopped at Neighborhood Market in the past three months)
24%
16%
15%
13%
13%
10%
Supermarkets
Walmart
Supercenter
Target
Convenience
stores
Drug stores/
pharmacies
Warehouse
clubs
9%
Dollar stores
Note: Not all retailers within each channel are represented with their logo. Retailer logos were chosen based on those that Kantar Retail believes
best represent the channel and are examples of the types of retailers that may be affected.
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Kantar Retail Point of View
Walmart’s primary objective for the Neighborhood Market format is to
capture smaller trips that traditionally go to supermarkets, drug, and dollar.
In other words, the retailer truly wants its smaller banner to be a “hybrid
format” competing across channels. However, these three channels are very
different and each serves distinct shopper needs – the only real commonality
is that they are smaller than the Supercenter. Thus Walmart’s hybrid ideal
for Neighborhood Market may be a “white unicorn” given the vastly different
needs each channel serves. For example, tightening the assortment to
better compete with drug and dollar by making shopping faster would
cause Neighborhood Market to lose some of its appeal as a supermarket
replacement. However, while Neighborhood Market cannot be everything to
everyone, there are some adjustments it can make to better accommodate
fill-in trips.
cannibalization. However, according to AggData, one-third of these stores are
within this two-mile radius, which makes them a more convenient alternative
to the massive Supercenter and suggesting that the smaller format could be
playing a similar role to the Supercenter in shoppers’ minds.
Neighborhood Market Needs to Better Differentiate
from Supercenter
The fact that core Neighborhood Market shoppers are commonly using
the retailer as a stock-up destination suggests that it has a similar value
proposition to the Supercenter: It may not excel in fresh, which drives more
frequent trips, but it lures shoppers with everyday low prices on core staples,
which drive stock-up trips. Additionally, in states with Neighborhood Markets,
close to one in five Supercenter shoppers reported shopping the larger
banner less often because of Neighborhood Market. Taken together, these
findings underscore the importance of differentiating the banners’ assortment
propositions and messaging to help reduce the likelihood of cannibalization.
Recognizing opportunity to facilitate the trip, Walmart is already making shelf
adjustments, including adding lower opening price-point items, such as its
Price First label, and is expected to continue to do so. However, if management
truly wants Neighborhood Market to be a hybrid that can compete with
supermarkets, drug, and dollar, minor shelf adjustments will not be enough.
As such, Walmart will likely start trying more aggressive approaches in the
coming years.
Looking ahead, watch for an elevated and differentiated Neighborhood Market
strategy to emerge. Last year, Walmart appointed Mike Moore as President of
small formats, a new position charged with overseeing its smaller banners.
In his new role, Moore has already extended Neighborhood Market’s buying
teams, which signals the banner’s shift toward more independence. As
Neighborhood Market continues to mature under its own dedicated leadership,
expect the retailer to develop more strategic autonomy and begin to articulate
distinct tactics from the Supercenter. Consequently, suppliers should:
Additionally, the data do not deliver a clear verdict regarding the degree to
which Neighborhood Market is cannibalizing Supercenter sales. On the one
hand, Neighborhood Market appears to be bringing new shoppers into the
fold. On the other hand, the data also suggest that some shoppers may be
leaving the Supercenter in favor of Neighborhood Market. Since both Walmart
banners offer the same low prices, contributing factors to this trend could be
the convenience of navigating a smaller box and the store’s proximity to the
shopper. Walmart executives have noted that Neighborhood Market stores
should not be within two miles of a Supercenter to reduce the likelihood of
yyAnticipate demand for Neighborhood Market insights. Suppliers will need
more sophisticated insights and plans in place to work with Neighborhood
Market and complement joint business planning efforts with those at
the Supercenter.
15
yyForge local connections. The format has opportunity to deepen its
connection with shoppers by asserting itself as a local neighborhood store;
e.g., offering community events at the door or honing assortment and mealsolution promotions to local area tastes and events.
yyArticulate a distinctive trip to shoppers. Demonstrate to shoppers how
Neighborhood Market serves distinct trips versus the Supercenter.
This can be done implicitly through targeting assortment to serve
fill-in or immediate-use needs. Also consider more explicit means,
such as promotions that articulate the quick trip or encourage a fill-in
occasion (Figure 6).
Figure 6: Repurposed vs. Distinct Neighborhood Market Promotions
Repurposed from Supercenter
Distinct from Supercenter
Source: Retailer circulars, ECRM
16
Neighborhood Market Needs to Better Compete with
Dollar and Drug
Broadly, Walmart will have to innovate the format to better contend with
dollar and drug. One way to better compete with dollar stores may be to
replicate the dollar experience in a dedicated section of the store; for example,
incorporating a store-within-a-store concept that primarily consists of a
dollar-inspired assortment. Walmart is also introducing convenience stores
at Neighborhood Market gas stations to provide a quicker trip. Watch for the
retailer to introduce larger convenience sites at its stations to better serve
shoppers immediate needs.
From an assortment and services standpoint, Neighborhood Market has
everything that drug and dollar offer and more, such as perishables. However,
it is at least twice as large, which comes with disadvantages such as taking
more time to navigate and shop. For Neighborhood Market to better compete,
support the following:
yyAssert its “save money” proposition. To position versus drug,
communicate the value of Walmart’s everyday low price offer. Regarding
dollar, expect more pressure for opening price-point products, and
increased emphasis on the retailer’s private labels.
yyAssert the pharmacy. Help Neighborhood Market emphasize its health
services, including its insurance support, and ability to offer advice on
immediate-use occasions.
yyConnect to fuel. Assert quick-trip convenience in connection with
Neighborhood Market’s expanding gas station network, a service that
both dollar and drug lack.
17
18
Purchasing Patterns of Organics: Harvesting
Supermarket Shoppers’ Awareness
By: Alida Destrempe
The demand for organic food products has become
stronger in recent years in conjunction with the
nation’s increasingly health and wellness-oriented
mindset. This, combined with the growing number
of certified organic farms in the United States,
suggests that this “fad food trend” is here to stay.
The Organic Trade Association (OTA) reports that
organics now make up roughly 5% of total food
sales in the United States, with total U.S. organic
sales coming in at just over USD39 billion in the
past year.
Today, organic foods are no longer found only at
specialty niche, supermarket retailers. Within
the past year, both premium and value-oriented
retailers have expanded organic offerings.
Retailers – including conventional and low-price
supermarkets – are beginning (or continuing) to
invest in the category, expanding their current
assortment and closing the price gap by launching
private label brands. Last year, Walmart began
carrying Wild Oats organic products in an effort
to offer affordable organics. Earlier this year,
regional grocer Roundy’s introduced the Simply
Roundy’s product line that features the USDA
certified organic stamp and that clearly highlights
nutritional benefits on the front of the package.
Additionally, the OTA reports that three-fourths of
conventional grocers now offer organic products,
indicating that organics are becoming more of a
mainstream category. Corroborating this is the fact
that shoppers across multiple grocery retailers
report having noticed more organic items at
grocers in general versus a year ago (Figure 1).
Kroger, Safeway, and WinCo shoppers all are
significantly more likely than average to have
noticed more organic items at grocery stores. Both
Safeway and Kroger have rolled out efforts within
the past year to make shoppers more aware of their
organic selection. Kroger has even claimed that it
is on track to surpass Whole Foods as the country’s
biggest seller of natural and organic foods, noting
that the department continues to experience
double-digital growth on a quarterly basis.
Last year, nearly a decade after the launch of
O Organics, Safeway refreshed its organic private
brand to give it a fresh, modern look. In the same
vein, Meijer recently unveiled new branding for
its True Goodness organic brand. This continued
innovation, coupled with in-store relaunch
campaigns, generates greater shopper
awareness (Figure 2).
Retailers are not only reinventing their organic
brands, but they are also dedicating more energy
and merchandising space to the organic category.
Kroger is not shy in its execution of Simple Truth
(and natural/organic products in general), and its
efforts seem to be paying off: Kroger (as well as
Publix) shoppers are significantly more likely than
average to report an increase in their organic food
purchasing versus last year (Figure 3).
19
Figure 1: Have Shoppers Noticed More Organic Food
Items at Their Grocery Store in the Past Year?
All Shoppers
Supermarket Channel
Delhaize
H-E-B
45%
47%
41%
49%
Hy-Vee
52%
Kroger
52%*
Publix
47%
Safeway
54%
WinCo
56%
Source: Kantar Retail ShopperScape®, February 2015
*Read as: 52% of Kroger shoppers surveyed in February 2015 report
that they have noticed more organic food items at their grocery store
(not necessarily at Kroger) in the past year.
Note: Yellow shading indicates significantly greater percentage vs. all
shoppers (95% confidence level)
Delhaize includes Food Lion, Hannaford
Kroger includes Dillons, Fry's, Harris Teeter, King Soopers, Kroger,
QFC, Ralph's, Smiths
Safeway includes Dominicks, Randalls, Safeway, Tom Thumb, Vons
Even though there has been a big surge in organic
food items over the past two years, several
retailers, such as Wegmans and Ahold, have had
an established presence in the category for more
than a decade (Figure 4). While retailers such
as Safeway and Meijer continue to reinvent their
organic brands, others are working to expand the
category. WinCo, for example, has been testing an
organic produce section at a few of its stores over
the past year.
Figure 2: Refreshed Organic Brands at Safeway and Meijer
Source: Kantar Retail analysis; mypbrand.com and Meijer.com
Figure 3: Organic Food Item Purchasing at Grocery vs. Year Ago
(among primary household shoppers)
All Shoppers
22%
65%
13%
Supermarket Channel
23%
64%
13%
Delhaize
21%
H-E-B
Hy-Vee
12%
Publix
29%
WinCo
61%
59%
62%
26%
22%
9%
10%
78%
26%*
15%
67%
24%
Kroger
Safeway
64%
58%
13%
11%
Buying a lot/a little more
organic foods vs. a year ago
Buying about the same
amount of organic foods vs. a
year ago
Buying a little/a lot less
organic foods vs. a year ago
12%
21%
*Read as: 26% of Kroger shoppers surveyed in February 2015 report that they are buying a lot/a little more organic foods vs. a year ago.
Note: Yellow shading indicates significantly greater percentage vs. all shoppers (95% confidence level)
Delhaize includes Food Lion, Hannaford
Kroger includes Dillons, Fry's, Harris Teeter, King Soopers, Kroger, QFC, Ralph's, Smiths
Safeway includes Dominicks, Randalls, Safeway, Tom Thumb, Vons
20
Ensuring shopper awareness is key as retailers
expand or break into the organic category
(Figure 5). Close to half of all U.S. primary
household shoppers report having noticed more
organic food items at grocery versus a year
ago, and these shoppers are significantly more
likely than average (better than 4 in 10) to report
buying more organic foods than they were a
year ago. In fact, those who notice an increased
organic presence are almost two times more
likely than the average shopper to increase their
organics purchasing, suggesting that those
retailers and suppliers that engage in smart
merchandising initiatives are best primed for
success. Use of curved shelves, marketing shelf
interrupters, a store-within-a-store concept, and/
or different colored shelving units are some of
the many merchandising tactics currently used at
supermarkets to elevate organic foods from the
conventional assortment.
As shoppers continue to become more informed
about manufacturing standards and the benefits
of organic products, and as retailers grow
their assortments and fine-tune their category
marketing statements, it is likely that this will
stimulate buying behavior and ensure long-term
growth of organics. In fact, the Nutrition Business
Journal predicts that the natural and organic
industry will reach 13.5% of food sales by 2020,
confirming that, in order to stay competitive,
retailers and suppliers alike must throw their hats
into the organic ring.
Figure 4: Organic Private Label Timeline
2004
Ahold
Nature’s
Promise
2002
Wegmans
Organic
2008
2005
Safeway
O Organics
2002
2007
Harris
Teeter
Naturals
Meijer
Organics
(True
Goodness
Est. 2015)
Supervalu
Wild
Harvest
2010
Safeway
Open
Nature
2012
Kroger
Simple
Nutrition
2013
2014
2015
Aldi
Walmart Roundy’s
Simply
Wild
Simply
Nature
Oats
Roundy’s
2007
Delhaize
Nature’s
Place
Source: Kantar Retail analysis
Purchasing Is Steady, Likely to
Persist and Grow
Figure 5: Organic Buying Habits vs. Year Ago, by Awareness of Organic Food Items at Grocery
Organic is here to stay, with major CPG
companies driving growth. Retailers are
ramping up both product and merchandising
(and manufacturing) efforts to build shopper
awareness and capture a bigger share of the
organic wallet. As the category expands, the
USDA certified organic stamp is becoming more
prominent and shoppers’ recognition of the seal
is growing. According to a survey by the OTA,
the USA Organic label ranks within the top three
most recognizable seals among consumers.
Clearly, not all items can be certified organic.
That said, suppliers need to start thinking about
their “beneficial” product attributes to compete
against items that play in this space.
(among primary household shoppers)
All shoppers
65%
22%
Have noticed more organic
items vs. YA
13%
49%
42%*
9%
Have not noticed more organic
items vs. YA
7%
77%
16%
Not sure
6%
77%
17%
Buying a lot/a little
more organic foods
vs. a year ago
Buying about the
same amount of
organic foods vs. a
year ago
Buying a little/a lot
less organic foods vs.
a year ago
*Read as: 42% of shoppers who have noticed more organic food items at grocery stores compared with a year ago report that they are buying a lot/a
little more organic foods vs. a year ago.
Note: Yellow shading indicates significantly greater percentage vs. all shoppers (95% confidence level)
21
22
222
2
Target Quickly Sprints Ahead with
Big Changes in 2015
By: Amy Koo
Target’s leadership was very pleased with the Q4
results, particularly the higher-than-anticipated
comparable store sales (comps) of 3.8%. A
renewed emphasis on differentiated, discretionary
merchandise and engaging solution selling was
credited with encouraging guests to trade up and
buy higher-margin merchandise, improving gross
margins 90 basis points for the quarter. Chief
Financial Officer John Mulligan was excited to
announce that Chief Merchandising and Supply
Chain Officer “Kathee [Tesija] and I couldn’t even
remember the last time where both home and
apparel out-comped the company.” Mobile, online,
and flexible fulfillment orders also contributed
a hefty 90 basis points to the overall comp. The
positive results convinced Chief Executive Officer
Brian Cornell that the transition period was finally
over and that “we’ve ended the year with the data
breach fully behind us.”
Below, Kantar Retail outlines key strategic
shifts, priorities, and implications of Target’s
announcements from its Q4 earnings call, the
Financial Community Meeting, and the Bank of
America Merrill Lynch Consumer and
Retail Conference.
Huge Exits Confirm That Nothing Is
Sacred at Target
The slew of major exits and reversals announced
in the last few months heralded a new modus
operandi for Target under Cornell’s leadership.
The comprehensive strategic review conducted
during the summer of 2014 reiterated that no
elements of the business would be immune from
evaluation. As a result, decisive cuts were made to
unprofitable activities including:
yyDivesting from Canada.
yyShutting down Target Ticket.
yyEnding the PFresh era.
yyLaying off at headquarters and cutting
open positions.
Primary among these exits was the massive
divestiture from Canada, which required painful
write-offs and significant workforce layoffs. Despite
the loss of billions in investment and reputational
cost, Cornell and his team called for a swift end
to Target’s first international foray soon after the
lackluster holiday results were tallied for Canada.
A smaller winnowing was closing Target Ticket
after meaningful in-store, mass media, and vendor
efforts produced weak adoption rates and results
in the face of heavy competition from Netflix and
Amazon. The quick departures enabled Target to
turn its whole attention to improving core aspects of
the U.S. business.
credited with lifting traffic and comps during the
early years of its rollout, grocery was no longer
providing a differentiated experience in line with the
refocused Target brand. “We’re not a full grocery,
and so we’re sitting in the middle of no man’s land,”
according to Mulligan. “It should be more like the
rest of the store.” The company confirmed that while
the grocery footprint would remain the same, the
assortment and merchandising would be refined to
focus on better-for-you products and differentiation
to inspire and support guests in their wellness
goals. This is a dramatic shift from Target’s
prior use of consumables as a traffic-driving
strategy to lure guests to buy discretionary items
more frequently.
Finally, as Target concentrates on recalibrating
its U.S. operations, the leadership affirmed
its commitment to the financial community by
implementing additional cost-savings measures to
enable the retailer to restart share buybacks and
dividend growth. Layoffs at headquarters eliminated
a substantial number of existing jobs, while cuts to
numerous open positions lowered projected future
head count and redirected resources to different
areas of strategic growth.
One of the most meaningful revitalization efforts
was the recent reorganization of the role of
groceries at Target. Though PFresh was largely
23
Asserting Holistic Solutions
from “One Target” for the
“Demanding Enthusiast”
A holistic cultural, brand, and operational approach
is now at the heart of Target’s business practices.
While past leadership had a reputation for being
top-down, insular, and siloed, the new Target will
break down walls and become a more cohesive
organization through increased cross-departmental
communication and more novel approaches.
Target will “reassert [its] cultural leadership to
build unparalleled guest affinity” through “a more
agile, a more efficient, and a more guest-focused
headquarter team,” according to Cornell.
An outside-in strategic review enabled Target to
contextualize its place in the retail landscape and
also realize that today’s priority guest would be the
“Demanding Enthusiast.” The Demanding
Enthusiast is digitally savvy, holistically valueoriented, and enthusiastic about shopping (Figure
1). Because of American demographic shifts,
the core guest base is more multicultural – in
particular, more Hispanic – and young parents
would most likely be from the Gen Y instead of the
Baby Boomer generation.
Target realized that guests also expected a
unified brand proposition and working fulfillment
capabilities across multiple channels since many
of today’s fast-fashion, discounter, online, specialty,
and other retailers were already moving that way.
As a result, Target would transition from a SKUoriented approach to one that presents lifestyle-
Renewed Commitment to
Core Priorities
As Target begins its transformation in earnest,
it renewed its pledge to ramping up its digital
capabilities and detailed how it would rejuvenate its
Figure 2: Target’s Unified Approach to the Target of Tomorrow
Figure 1: Target’s Definition of the
“Demanding Enthusiast”
Source: Company documents
oriented solutions, such as it did with the holiday
Story collaboration, and it would also operate as
“One Target” through a channel-agnostic approach
(Figure 2). As Target moves toward this future
vision, the retailer has initiated significant
changes to its merchandising, marketing, and
operational investments, which are outlined in its
core priorities.
24
U.S. business. While the retailer has made some
progress with some of these priorities, it has only
begun to explore others. Kantar Retail details each
of the five core priorities below:
yyLead in omnichannel to enable on-demand,
channel-agnostic shopping.
yyClearly redefine roles for
merchandise categories.
yyCreate localization in assortment,
personalization in experience.
yyRapidly test and deploy new urban formats.
yySimplify and control costs.
Lead in Omnichannel to
Enable On-Demand, ChannelAgnostic Shopping
Target’s biggest challenge is to revamp its
technology, fulfillment, and operations not just to
catch up to, but eventually to lead, in omnichannel
retailing. “The first priority is to drive industryleading digital sales growth, as we build the
capabilities to become a leading omnichannel
retailer,” according to Cornell. Mulligan also
echoed this sentiment, stating to the investment
community that “we are agnostic to the channel in
which a guest chooses to interact with our brand.”
Guests who shop Target through multiple channels
generate at least twice the number of visits, sales,
margins, and in-store baskets as store-only guests.
Target will continue to invest heavily in information
technology and supply-chain infrastructure to
transform into a more flexible operation, with
$1 billion budgeted in 2015 for these capital
expenditures, out of a total budget of $2.1 billion.
The digital and flexible fulfillment sales were
responsible for half of Target’s comp for 2014.
While the digital contribution will abate as store
sales strengthen, the leadership still expects
digital growth to continue at 40% over the
next few years.
Target’s mobile capabilities will be improved, as
mobile is seen as the “front door to all of Target,”
according to Cornell. While a seamless mobile
commerce experience would be important, the
retailer is more critically concerned with increasing
opportunities to engage guests through social
media and other tools. “Every touchpoint is an
opportunity to inspire, to anticipate a need, and
to help simplify our guests’ busy lives,” according
to Chief Strategy and Innovation Officer Casey
Carl. This engagement would ultimately translate
into brand loyalty, influence, and greater share of
mind for Target. Reinforcing the importance of the
mobile device, Target is currently testing REDperks,
a new nontender-based, mobile-enabled loyalty
program in the Raleigh-Durham area. When the
new program launches in 2016, it will act as an
umbrella for all of Target’s programs, including
REDcard, Pharmacy Rewards, and Cartwheel.
Improvements to the supply-chain infrastructure
are already in progress. The online and in-store
inventory systems will ultimately function as one,
25
and the retailer expects the process to be complete
during the summer of 2015. These systems will
be a significant step in allowing Target to achieve
its other flexible fulfillment goals, offering a more
complete anytime, anywhere experience.
While in-store pickup (aka, buy online, pick up in
store) was rolled out across the fleet in time for the
2013 holiday season, guests are able to receive only
merchandise that is in store that day. To give guests
access to any items available online, Target will be
piloting site-to-store capabilities at the end of April
2015. Target will leverage its nearly 1,800 locations
as fulfillment destinations and has also selected a
number of stores to act as fulfillment sources. At
the end of 2014, Target transformed the backrooms
of 136 stores to serve as mini distribution centers
for online orders. These stores enabled 90% of the
U.S. population to receive shipments within two
days – substantially shortening the delivery window
for online orders compared with when it used only
three Target.com fulfillment centers. Target will
further expand this store-to-home capability to a
total of 480 stores before Q4 2015.
Clearly Redefine Roles for
Merchandise Categories
As part of Target’s strategic review, Cornell quickly
realized that “quite frankly … we decoupled ‘Expect
More. Pay Less’ during the Great Recession.”
While parts of the assortment were commoditized,
most notably through irresistible offers following
the data breach, others, such as the Target +
Neiman Marcus collaboration, were upscaled too
aggressively. To compensate, Target mandated
that every item, category, and solution must
balance both sides of the “Expect More. Pay Less”
proposition, which would reinforce a unique Target
lifestyle brand. At the core, the Target brand would
help Demanding Enthusiasts affordably raise a
healthier and fashion-forward family. “We can give
you your dress, we can give you the invitations, we
can give you the tabletop and … all the decorations
and the food” to fit your lifestyle, according to
Mulligan. Every category would be evaluated on:
yyHow it aligns to Target’s lifestyle orientation.
yyHow significantly guests consider it essential to
Target’s assortment.
Based on these two criteria, categories would
be sorted into four roles: Signature, Outperform,
Perform, and Reposition.
Signature: Target decided to elevate historically
strong categories and those that would align to
core themes that are critical to the Demanding
Enthusiast – Style, Baby, Kids, and Wellness. In the
past several months, Target doubled down on these
category efforts, many of which happen to reinforce
Target’s financial leanings of a greater private
brand and discretionary mix. To reassert the quality
of its private brand and exclusive merchandise,
Target extended the return window from 90 days to
one year. New fashion brands – the plus-size Ava
& Viv line for women and the Target Collective line
for men – were introduced, in-store programming
was created for expectant mothers, exclusive toy
share was increased for the holidays, and stronger
sporting and fitness assortments were expanded
to emphasize wellness. Target will continue to
devote considerable resources to ensure that these
categories remain elevated as part of
its value proposition. All other categories will
support solutions that focus on the Signature
category themes.
Outperform: While these trip-driving categories
are not by themselves unique at Target, they will
be differentiated through Target’s curation for
occasions and solutions that resonate with guests’
lifestyle and wellness goals. Organic, sustainable,
and health-focused grocery items fall into the
Outperform category role. For food in particular,
Target has already designated six categories
(yogurt/granola, coffee/tea, better-for-you snacks,
wine/craft beer, specialty candy, and premium
sauces/oils) as focus outperform categories, with
expanded and differentiated assortments. As a
whole, outperform categories will have an outsized
niche brand and exclusive item presence.
Perform: These categories, which Target considers
nondifferentiated basket builders, are expected to
fill in guests’ basic needs. These categories are not
growing quickly in the industry as a whole and are
particularly vulnerable to private brand penetration
because they are low-priority categories for guests.
26
Reposition: This is a temporary placeholder for
categories currently considered ill-fitting but
important at Target. These categories’ assortments
and merchandising will be redesigned to more
strongly reinforce the retailer’s lifestyle point of
view. In particular, Target explicitly called out fresh
grocery for repositioning in the next 18 months to
better align to guest expectations. Other categories
will be rationalized or phased out entirely.
Create Localization in Assortment,
Personalization in Experience
Target’s strength in creating a uniform experience
across its stores was ideal when it could dictate
fashion and lifestyle trends to guests during
the ’80s and ’90s. But as fashion trends have
diversified and digital tools have expanded the
influence of individual tastemakers, Target has
confirmed it must improve its store customization
to account for more than weather and broad local
ethnic populations. “I think we have a long way
to go,” according to Mulligan. While Target is at
the beginning of the localization journey, it will
inevitably shift decision-making from headquarters
to a broader and more regional-based staff.
Technology will be at the heart of Target’s
personalization efforts. “This year, we’ll focus on
more personalized e-mail marketing, more tailored
promotions, and targeted offers with Cartwheel
in our flagship app,” Carl said. The hiring of Mike
McNamara as Chief Information Officer from a
similar role at Tesco is seen as an opportunity to
learn from the British retailer’s personalization
advancements. “Mike’s insights and expertise will
help us remake technology at Target,” according
to Cornell. Over time, Target expects to offer more
tailored and relevant offers and messaging as it
integrates an individual guest’s behavior across the
store, online, and mobile device use.
Figure 3: Comparison of Target’s Formats (SuperTarget Not Included)
Rapidly Test and Deploy New
Urban Formats
Target was long aware of the growth opportunities
in urban U.S. markets, particularly as it reached
suburban saturation through SuperTargets and
Discount stores. Further big-box expansion would
cannibalize existing stores, and today’s U.S.
workforce migration pattern suggests faster urban
growth. While the retailer’s initial urban entry
was in 2012, the needs and shopping patterns
of the urban guest, which are a significant shift
from the familiar behaviors of the suburban carowning guest, require several years of testing. In
addition, few urban landscapes have room for a
typical 80,000 square-foot CityTarget box (Figure 3).
Though the retailer’s eight current CityTargets have
been highly successful with comps above 8% and
gross margins above 30% in 2014, the format would
become a rare flagship experience. Pragmatically,
27
Target would expand these stores only when large
boxes became available in dense neighborhoods,
such as it did for the Boston store, which will open
in the summer of 2015.
Instead, Target’s newly developed TargetExpress
20,000 square-foot format store would enable
faster growth in urban markets. Not only
would the smaller size open more real estate
possibilities, but the format also requires less
capital investment. Target rapidly announced eight
new TargetExpress stores for 2015. Target has
also quickly made changes to improve the format
assortment. The original Minneapolis location
made multiple readjustments as it quickly reacted
to local response and needs.
In 2015, Target’s nine smaller urban format
stores will already outnumber the new big-box
stores Target will open. These urban stores will
enable Target to embed in urban growth centers
where many younger shoppers with an affinity for
Target live. These stores will also serve as flexible
fulfillment centers that give guests access to the
full assortment of Target’s in-store and online
merchandise coupled with the convenience of a
small neighborhood store.
go forward” will result in greater efficiencies as
redundancies are removed. While these measures
have already resulted in job cuts, they have also
created an incentive for remaining workers to be
leaner and more productive. In addition to labor
cuts, trends and strategic priorities will have
a positive impact on Target’s costs and
profitability, including:
Simplify and Control Costs
yyLower overall store construction costs as Target
invests in capital-light smaller stores.
Although Target has largely moved beyond the
bulk of the data breach costs and Canadian
divestiture expenses, the retailer has conspicuously
emphasized its desire to simplify its operations
and better control costs. Cornell is optimistic that
efforts to “create an organization that’s much more
agile, that moves with much increased pace as we
yyHigher gross margin rates with the emphasis in
Signature categories and a higher private brand
mix overall, but particularly within consumables.
yyLonger inventory terms as the mix shift leans
toward slower-moving discretionary items.
Grocery Reinvention
The swift implementation of Target’s current strategic game plan is a positive
sign, as the retailer regains its confidence after the most challenging period in
its history. Though some specific vendors may not fare well as Target changes
course to a more differentiated, less comparable focus, the retailer as a whole
now offers a clear, compelling, and differentiated core value proposition within
the current retail landscape. It has also regained the support of the investment
community and made inroads with guests during the holiday season.
The traffic drop particularly raises concerns about the changes in grocery as it
is reassorted. While Cornell claims that “food is going to play a very important
role in complementing our other signature categories and making sure we
drive traffic to our stores and to our site,” it is not clear that Target will be
able to achieve a strong fill-in grocery experience for guests. The retailer will
significantly readjust the shelf stable food and nonedible grocery assortment,
and it has yet to unveil the biggest change to grocery, the fresh area. While the
new Senior Vice President for Grocery Anne Dament has a strong background
in the grocery business, her support staff is still burdened by an operations
structure that is not geared well for replenishment activities.
This new Target is a retailer in motion, with all aspects of the business in
transition as it prepares for an updated in-store, online, and mobile experience
for guests. As suppliers and other retailers recalibrate to this new Target,
particularly the P2016 prototype that will be previewed this fall, a number of
considerations should remain top of mind, including:
28
Kantar Retail will be keen to learn how Target will rise to the challenge of
procuring, distributing, and replenishing perishable foodstuffs that must
be highly tailored to the regional and personal tastes of its trend-sensitive
Demanding Enthusiasts. It is also uncertain whether guests will respond
well to the amp up of private brands for consumables, or miss expected
mass national brand items. If Target is not able to meet or exceed guest
expectations, it will likely continue to see a drop in its overall traffic.
Suppliers experienced with quick-fulfillment, temperature-sensitive goods
r with highly refined localization strategies should partner with Target to
quickly advance its capabilities.
will become less relevant to the retailer. At the same time, Target’s priority
to control costs should encourage Target to reconsider its official price
comparison strategy. Target should stop benchmarking against Walmart, since
Walmart’s Saving Catcher program will only lead to a race to the bottom that
Target cannot win. In addition, Target should stop offering to match prices with
its local and online competitors. Doing so encourages guests to focus more on
price instead of Target’s overall value proposition and needlessly gives away
margin, because Demanding Enthusiasts already expect to pay more at Target,
but shop there anyway.
Improving In-Stocks – Potentially a Shift Away From
Lean Inventory?
Store Traffic Concerns
Though Target successfully encouraged guests to trade up and shift to a
more discretionary basket mix this past holiday season, one trending concern
has been the falling units per transaction since the second quarter of 2014.
Though shopper penetration fell dramatically throughout 2014 after the data
breach, it was positive at the end of the fourth quarter in January 2015. The
penetration recovery should have coincided with a flat or gain in units per
transaction on a year-over-year basis as more irregular shoppers also used
Target as an opportunity to pick up fill-in consumables. While the gross margin
benefit was clear from the mix shift, it unfortunately does not bode well from
a traffic perspective as Target unwinds its PFresh emphasis and heightens
its Signature focus. As suppliers look ahead, they should emphasize their
products’ links to Target’s strategic goals and reinforce their ability to
drive traffic.
As Target gears up for a more satisfying guest experience, a defining mark
of its success will be its ability to offer in-stock goods anytime, anywhere
for its guests. This ability will require extremely adept just-in-time inventory
management and/or an increase in inventory. Signs of the latter have
already been seen, with Mulligan noting that an increase to inventory was
“intentional” and particularly important in “commodity categories to enhance
in-stocks in these frequency driving businesses.” He further reinforced the
need to enhance expectations, because “it’s not just the sales results that are
important. It’s making sure we can execute on what we are putting out there.”
Lean inventory controls have always been a critical aspect holding Target back
from a successful replenishment program. Unfortunately, lean inventory is
fundamentally built into Target’s core model, because executive management
is compensated on its ability to generate greater leverage from its working
capital, which includes inventory. As Kantar Retail looks ahead to Target’s
future success, the retailer should reassess whether its Economic Value
Added (EVA) financial model will reinforce or hinder its ability to execute its
strategic objectives.
The End of Price Matching?
In an effort to increase its assortment differentiation, Target will offer
niche or exclusive items – even those from national brands. As more Target
merchandise moves away from identical SKU comparison, price comparisons
29
30
Walmart vs. Target Pricing Study: Walmart Leads
the One-Stop Basket Assessment
By: Robin Sherk, Amy Koo, Laura Kennedy, Erin Kennedy
Kantar Retail has redesigned and expanded its previous Walmart versus Target consumables study to examine the retailers’
competitive positioning within the context of Target’s strategic reprioritizations. In the first iteration of this evolution of the
annual basket analysis, Kantar Retail examines each retailer’s basket of grocery, HBA, and general merchandise items to
determine which offered the lowest price across the one-stop shop.
Study Shifts to One-Stop Basket
This winter, Kantar Retail once again sought to
assess the relative price positioning of Walmart
and Target as they contend as leading mass
merchandisers with low-price propositions. As
these two retailers’ strategic positions evolve, the
type of basket they seek to champion likewise
shifts. Accordingly, in this latest assessment,
Kantar Retail has updated its previous,
consumables-only basket comparison to better
account for Target’s shift in position to emphasize
the broader one-stop, cross-department shop.
For context, Target had a challenging year of
transformations in 2014. The company recovered
from the data breach, replaced and created
positions for several C-level staff members, and
tried, but failed, to find a viable solution for Canada.
But the retailer is turning over a new leaf in 2015.
Chief Executive Officer Brian Cornell, who has been
at the top since August 2014, has strongly asserted
his leadership through a set of redirected priorities.
Much of Target’s future success depends
on reviving comparable store sales by shifting
merchandising efforts to focus on the “Signature
Categories” of baby, kids, wellness, and style
– categories that are what “we will be famous
for,” according to Target Chief Merchant Kathee
Tesija. Target’s last format rollout was PFresh in
2009, which introduced greater fresh, frozen, and
refrigerated food offerings into the discount box
alongside updated merchandising in beauty and
discretionary departments. While PFresh increased
the share of consumables in the box, the next
store iteration, P2016, will prioritize differentiated
solutions around these four Signature areas.
Grocery will undergo a “reinvention” to offer a
more differentiated assortment, with exclusives
and private brands likely taking an even more
prominent role than they have in the past.
As a result of these significant strategic changes,
Kantar Retail redesigned its previous mass channel
pricing study to take Target’s shifting priorities
toward one-stop shopping into account. Specifically,
edible and nonedible grocery is represented within
a single sub-basket, reflecting grocery’s changing
role for Target: While “food itself is not a Signature
Category, it will play a key role in our overall
31
assortment,” according to Cornell. At the same
time, healthcare reform and Target’s emphasis on
wellness required health and beauty aids (HBA) to
remain a separate sub-basket.
This study also introduces a general merchandise
sub-basket, in recognition of its strategic
importance for Target’s overall value proposition
to shoppers. Additional baby, kids, and wellness
items were included across all baskets to
represent Target’s Signature Category priorities.
Style-focused categories from home and apparel
were not included since they are not identical
items; both retailers feature predominantly
exclusive or private brands in these categories.
Kantar Retail’s mass channel teams feel that
these changes will better reflect how Walmart
and Target might compete going forward. It is also
important to note that the January 2015 results of
this reformed study will serve as a benchmark, as
data was collected prior to the rollout of Target’s
changing merchandising strategies.
Top-Line Results of One-Stop
Basket Assessment
Figure 1: Summary of Overall Basket Results
Target
$275.17 $290.28
yyThe price index between basket items was
narrow, with 76% of the basket items priced
within 3% of each other (Figure 2).
yyBoth retailers’ baskets posted few promotional
prices, with Walmart’s basket recording two
Rollbacks and Target’s recording four temporary
price cuts (TPCs).
yyTarget’s REDcard holders would have paid
1.6% less for the basket than Walmart shoppers
would have paid.
Method
In January 2015, Kantar Retail visited co-located
Walmart and Target stores in the northeastern
United States for the first iteration of this expanded
basket price analysis. The survey assessed a
predetermined basket of national brand items:
20 grocery (edible and nonedible), 12 health and
beauty aids (HBAs), and 12 general merchandise
items. Only comparable SKUs from both retailers
were assessed. The aim is to assess the same
basket of goods at the same locations over
time to evaluate changes in their relative
positioning over time.
$493.94 $511.45
Walmart
yyTarget’s overall basket was 3.5% more
expensive than Walmart’s. Walmart led each of
the sub-baskets, with the strongest sub-basket
lead in general merchandise (Figure 1).
Index
(TGT-WMT)
$105.36 $107.58
$113.41 $113.59
Grocery
HBA
General Merchandise
Total
102
100
105
104
Source: Kantar Retail research, analysis
Figure 2: Spread of the Indices of Target vs. Walmart
Basket Items
2%
7%
9%
4%
111 or more
104-110
103-97
96-90
89 or less
76%
32
Grocery
Target’s grocery basket was 2.1% more expensive
than Walmart’s (Figure 3). Nearly half the items in
the sub-basket were less expensive at Walmart,
with the largest differences recorded on the chips
and soda SKUs. Target, on the other hand, was less
expensive on only two items.
Each retailer featured two items on discount. At
Target, the canned tuna and laundry soap were on
TPC, while the window cleaner and laundry soap
were on Rollback at Walmart. If the discounted
items were at regular price at both retailers,
Target’s grocery basket still would have been 2.1%
more expensive.
Also of note, Target offered promotions that were
excluded from this study because they did not apply
to the current basket at checkout. The retailer
featured several special “deals” to encourage
multiple purchases of certain products, including
$5 gift cards when shoppers buy 25 of the baby
food items; a “buy more and save” offer to buy
three packs of soda for $12; a “buy five, get one
free” deal for the canned tuna; and a $5 gift card
when shoppers buy four Lysol, Clorox, Kleenex, or
Airborne items.
Figure 3: Detail of Grocery Sub-Basket Results
Segment
Potato Chips
Soda
Product
Regular (original)
Cans - Fridge Pack
Glass Cleaner
Pasta (dry)
Soup
Wipes
Baby Food
Original
Angel Hair
Chicken Noodle
Disinfecting, Fresh Scent
Plastic Jar, Strained Peas,"All
Natural", 2nd Foods
Corn Flakes
Clean Breeze, Liquid
100% Whole Wheat (Whole Grain)
Steel Wool, Reusable, Soap Filled
Orange, No Pulp, Plastic Jug
Little Snugglers - Size 2
Salted, 4 Sticks
Heavy Duty Aluminum Foil
Advance, OptiGrow, with Iron, Powder,
Tub, Stage 1
Chunk Light, Packed in Water, Can
Natural Vanilla, Cardboard Cartoon,
Tub - Black Label
Adult Complete Nutrition
Plain, Squeeze Bottle - Inverted
Cereal
Laundry Soap
Bread
Soap Pads
Orange Juice
Diapers
Butter
Foil
Infant Formula
Canned Tuna
Ice Cream
Dog Food
Ketchup
Walmart
$2.50
$4.48
Target
$3.79
$5.49
Index (TGT
to WMT)
152
123
$2.83
$1.28
$0.80
$4.63
$1.08
$3.19
$1.34
$0.82
$4.69
$1.09
113
105
103
101
101
Kellogg's
Tide
Arnold
S.O.S.
Tropicana
Huggies
Land O' Lakes
Reynold's
Similac
$3.17
$9.94
$2.98
$2.98
$3.98
$8.97
$4.78
$5.38
$24.98
$3.19
$9.99
$2.99
$2.99
$3.99
$8.99
$4.79
$5.39
$24.99
101
101
100
100
100
100
100
100
100
Starkist
Breyers
$0.96
$3.94
$0.96
$3.94
100
100
Pedigree
Heinz
Total
$13.48
$2.22
$105.36
$12.99
$1.97
$107.58
96
89
102
Brand
Lay's
Coca-Cola
Classic
Windex
Barilla
Campbell's
Clorox
Gerber
33
Health and Beauty Aids
Walmart’s health and beauty basket was only 18 cents
less expensive than Target’s (Figure 4). A majority of
the items in the basket (69%) were priced within 2%
of each other at the two retailers. Of the three items
recording notable item-price gaps, one item, the
dental floss, was on TPC at Target. The mouthwash
at Target was also on TPC, enabling a near-identical
price. Without these items on TPC, Target’s subbasket would have been 1.1% more expensive
than Walmart’s.
Both retailers also included bonus item offers in this
basket. Specifically, the vitamins at Walmart included
a bonus of 14 extra gummies in the bottle. At the
same time, the razors at Target included a bonus
razor in the package.
General Merchandise
The general merchandise basket was 5.2% less
expensive at Walmart (Figure 5). In fact, each of the
sub-basket items was less expensive at Walmart,
though 58% of the basket items were priced within
2% of each other. No items in this sub-basket were on
sale at either retailer. The Walmart sub-basket drove
its price position primarily through four of the
items assessed.
Of note, however, several items that Kantar had
planned to include in the sub-basket were excluded
due to lack of SKU comparability between the
retailers. Specifically, the baby car seat, coffee maker,
baby bottles, Elmo doll, Skylanders toy, and fitness
tracker initially included in the study plan each had
to be excluded from the final results, resulting in a
smaller sub-basket than originally planned.
Figure 4: Detail of Health and Beauty Aids Sub-Basket Results
Segment
Diaper Cream
Product
Rapid Relief, Cream, Blue
Tube
Antibiotic Ointment Plus Pain Relief, Cream,
Tube
Baby Powder
Baby Powder
Hair Coloring
Colorsilk-Beautiful
Shaving Gel
Extra Moisture Gel, with
Vitamin E
Mouthwash
Fresh Burst
Razors
Women's, Hydro Silk, 5
Blades
Vitamins
Gummy Vites, Complete,
Natural Flavor
SMK Cessation
Original Gum 2Mg
Hand Soap
Soothing Aloe Vera
Floss
Mint Waxed Floss
Eye Makeup
Oil-Free, Blue Bottle,
Liquid
Remover
Brand
Desitin
Walmart
$5.27
Target
$5.79
Index (TGT
to WMT)
110
Neosporin
$4.44
$4.49
101
Johnson's
Revlon
Edge
$3.96
$2.97
$2.97
$3.99
$2.99
$2.99
101
101
101
Listerine
Schick
$5.97
$9.97
$5.99
$9.99
100
100
Lil Critters
$10.47
$10.49
100
Nicorette
Softsoap
J & J Reach
Neutrogena
$57.98
$1.47
$0.97
$6.97
$57.99
$1.47
$0.92
$6.49
100
100
95
93
$113.41
$113.59
100
Total
Figure 5: Detail of General Merchandise Sub-Basket Results
Segment
Markers
Board Game
Golf Balls
Film
Baby Toy
Socks
Headphones
Scooter
Humidifier
Videogame
Ink Cartridge
Cable Modem
Product
Broad Line, Classic Colors
Classic, Monopoly
DT Solo, Box
True Blood, Season 7 - Blu-Ray & HD
Rock-a-Stack
Boys, Ankle, Small
JIB, Noise Isolating, Earbuds
My 1st Scooter
Warm Mist, 1 Gallon Capacity
Minecraft
Office Jet, #901, Black Ink
Model No. CM400
34
Brand
Crayola
Hasbro
Titleist
HBO
Fisher Price
Hanes
Skullcandy
Radio Flyer
Vicks
PS3
HP
Netgear
Total
Walmart
$
2.47
$ 11.97
$ 19.97
$ 39.96
$
6.97
$
8.47
$
9.88
$ 29.72
$ 29.86
$ 19.96
$ 15.97
$ 79.97
$ 275.17
$
$
$
$
$
$
$
$
$
$
$
$
$
Target
3.79
15.49
24.29
44.99
7.19
8.59
9.99
29.99
29.99
19.99
15.99
79.99
290.28
Index (TGT to
WMT)
153
129
122
113
103
101
101
101
100
100
100
100
105
play a vital role in establishing Target’s overall value proposition and will
be a significant area of attention as the retailer rebalances its merchandise
portfolio to focus on the Signature Categories. So, while discretionary private
brands are inherently out of scope for this study, suppliers must understand
that they are an increasingly fundamental component of Target’s overall value
proposition and differentiation strategy. It’s an “Expect More” time at Target,
with the “Demanding Enthusiast” now at the center of the bull’s-eye.
Walmart’s basket asserted its low price positioning, registering 3.4% less
expensive than Target’s. This was achieved through an emphasis on everyday
pricing, consistent with the retailer’s stated strategy.
Target’s prices were still very close to Walmart’s, reinforcing Target’s
continued commitment to price competitiveness. This was most evident in the
grocery and HBA sub-baskets, which when combined, were only 1.1% more
than Walmart’s. Kantar Retail anticipates that over time, Target will place
less focus on price points for single SKUs as it drives a solutions-based and
basket-building approach. In particular, Target has candidly acknowledged that
discretionary merchandise or thematic solutions, not low prices on commodity
SKUs, are the most sustainable mechanism for driving true loyalty, traffic, and
gross margins going forward.
That said, with big priority adjustments on the horizon for Target, suppliers
across the box must ensure they remain relevant to Cornell’s renewed
commitment to providing what he describes as a “differentiated, inspirational,
and one-stop shopping experience” for guests. Accordingly, suppliers should:
yyAlign toward solutions, not SKUs. Suppliers must focus on how their
products support and reinforce the bull’s-eye brand as a whole, and should
therefore stress how their products fit into a lifestyle, solution set, or
theme. Target’s Chief Merchant Kathee Tesija stated that exclusive SKUs
will provide differentiation, and it will be necessary to link these products
to overarching themes – particularly the four Signature Categories of baby,
kids, wellness, and style. Nonexclusive items can still play a big role in a
complete solution, but again, the linkage to a compelling narrative, helpful
advice, or perks will be key. Suppliers should be expected to cooperate
on more cross-box and cross-brand promotions as well – for example,
participating in a $10 Target gift card when guests purchase all featured
items for a curated picnic experience, including food, plates, blanket,
basket, and a lawn game. Meanwhile, suppliers can also leverage digital
promotions to bundle a solution aimed at Target itself, which will enable the
retailer to move faster in these spaces.
As a result, it is not a surprise that the general merchandise basket was less
competitive. Even with a REDcard, the general merchandise sub-basket alone
would still have been 60 cents more at Target than at Walmart. While Kantar
Retail pricing studies have always highlighted a tight price coupling between
Target and Walmart across consumables, the higher general merchandise
pricing at Target, even for identical SKUs, provides a key reason shoppers
perceive Target as higher priced. This higher-price perception will likely only
increase over time, as greater emphasis on Signature Categories and multiSKU, differentiated solutions will inherently tilt Target shoppers toward higherpriced discretionary goods and bigger baskets overall. While this may benefit
Target by decoupling value from the price points of individual SKUs
for shoppers, the tilt in mix shift back to discretionary will not help its actual
price comparability.
Target
yyEmphasize value, not price point. Target currently operates in an
environment where it insists that it is both comparable (the “Pay Less”
promise) and differentiated (“Expect More”). But as the retailer moves to
a more solutions-based value proposition, price points for individual SKUs
should recede from the guests’ attention. Instead, Target and suppliers
will need to assert the value of the Target experience. Can Target help
Before outlining implications for Target’s suppliers that are specifically related
to the items in this study, it is crucial to note the categories that were excluded,
specifically in discretionary categories. Guests’ consumption of private brands
is also a critical factor in pricing and value perception at Target – particularly
in general merchandise categories where private brands such as Threshold
and Merona dominate the assortment. Discretionary private brand items
35
That said, while balancing its push for low everyday prices and consistency,
Walmart’s strategy still involves emphasizing shelf price investments in trafficdriving categories and price-elastic items, whereby shoppers tend to spend
more on the category when prices are lowered. Reflective of this, its grocery
basket noted assertive low everyday prices on the soda and chips, two priceelastic items that shoppers commonly use as value indicators.
guests save time and effort? Is there a unique in-store or online experience
delights them? Does the assortment curation inspire guests to a better
lifestyle? Can guests feel good that they are supporting “good for you”
causes and products?
yyExpect more private brand emphasis. Within a heavier private
brand presence in the store overall, Target will likely broaden its
coverage, especially of wellness-driving SKUs. The retailer may also
begin introducing additional owned brands within nonedible and HBA
departments to add nuance to its private brand portfolio. Consumable
suppliers must be prepared to differentiate and assert their national
brands’ propositions against multiple private brand tiers within their
categories. Suppliers should consult their counterparts in countries with
a more mature private brand market, such as in the U.K., to learn how
national brands compete and fit within these ecosystems.
Walmart is also using digital tools to assert its low-price authority. In
particular, the retailer launched its Savings Catcher digital ad-match tool
in August 2014. The tool lets shoppers scan their receipts to compare their
baskets against local sales. If items are on sale and less expensive elsewhere,
the retailer gives the shopper a Walmart gift card of the price difference. This
tool is very popular, so much so that the retailer recently excluded drug stores
from the comparisons. As Walmart looks to balance margins and everyday
price consistency versus perceptions of absolute lowest prices, Kantar
Retail will be monitoring the retailer to determine if a pullback in marketing
emphasis of Savings Catcher will follow in 2015.
Walmart
The other element to watch for in Walmart’s price positioning is its private
label emphasis. As the retailer’s profits are pressured, it will look more to
internal procurement. This involves rolling out Price First and Wild Oats in
grocery, articulating clear tiers of value options across the merchandise ladder
to further private label penetration. Chief Executive Greg Foran confirmed this
emphasis in April, stating that the retailer will “lean in to” private labels, as
they “can and should do more.”
Walmart’s basket drove its position through an emphasis on everyday low price
items. This approach aligns to what Kantar Retail anticipates for the retailer’s
pricing strategy going forward as management looks to simplify its operations
and curb inventory growth. Specifically, in an effort to improve the store
experience and in-stocks, look for a pruning of promotions, as well as SKUs,
in the box. This heightened emphasis on simplicity will bring a greater focus to
cost-of-goods investment versus trade spending. With fewer items on display
and fewer punctuated discounts, the cadence of merchandise flow will be more
predictable, and the store conditions will be easier to maintain.
36
For suppliers working with Walmart today, anticipate the following in relation
to price positioning:
yyPressures to put trade dollars into price will rise. As the retailer looks
to control inventory growth and streamline its operations, anticipate
pressure for shelf-price investment over promotional programs. To advise
on appropriate levels of investment, be prepared to articulate the price
elasticity of your items. Also consider where your team plans to place its
promotional bets, since programs may require greater effort to sell in.
yyElevate the experience. To drive your presence in the box, consider ways
to align with Walmart’s efforts to enhance the store experience. This
involves simple, bold displays and navigation aids to aid in the perception
of a fast, clean environment. Also expect to see a greater emphasis on
complementing national brand POP with Walmart’s color and thematic
schemes. Approaches could also involve using digital tools to facilitate
product selection. Looking more holistically, aligning promotions to drive
Walmart’s fresh impressions and conversion in meat, bakery, and dairy will
also facilitate the retailer’s broader strategy.
yyPlan against private label. As Walmart works to support margin and its
variety of value offerings, anticipate a greater delineation of private label
tiers to roll out, particularly across grocery and HBA. As this happens,
monitor the price gaps and price elasticity of your offering. Re-examine
product package and retail-ready packaging to ensure they articulate the
brand’s unique strengths and value with respect to these expanding private
labels tiers. Also consider leveraging shelf signage to clearly articulate
the value for money offered across the good, better, and best products in
your portfolio.
37
38
Rediscovering Profits in FMCG Retailing
By: Ray Gaul
Recently, a major, well-respected publication
quoted an analyst who said something to the effect
of, “Aldi and Lidl suck all the profits out of FMCG
retail”. Do you agree with this statement?
If you do, please read on and let us try to
convince you that there may be a more complete
way to look at the world of European (and perhaps
global) retailing. If you don’t agree, you may find
some new material to help you build internal
sell-in arguments.
The way retailers and manufacturers make profits
has changed and the evidence is overwhelming. On
the retailer side, have a look at Carrefour’s complete
restructuring under Plassat, Metro Cash & Carry’s
repositioning as “Ultrafresh” under Koch, or Tesco’s
first steps into a complete top-to-bottom P&L/
balance sheet repair in the UK under Lewis. On the
supplier side, we see the same general trend. P&G
is shedding business units and major brands, CocaCola is undergoing a major restructuring, and the
Kraft/Mondelez shake-up still confuses many oldtimers. The list goes on. However, take a moment
to ask yourself, “Is this actually happening because
of Aldi and Lidl’s success?” This seems like a very
strange conclusion.
Let us propose a different framework for
understanding this and what to do about it.
Retailing in Post-Modern Markets
Kantar Retail’s Bryan Gildenberg spends much
of his time speaking or writing about retailing in
“post-modern” markets. Post-modern markets
are markets where modern retailing formats
(supermarkets and hypermarkets) have reached
saturation or maturity and are now being replaced
by “alternative business models”. Those business
models include, but are not limited to, food
discounters, convenience discounters, online
subscription models, farmer’s markets/premium
grocery (or what we like to call Ultra Fresh),
warehouse clubs, and others. The number
of formats is not important; it is the fact that
the alternative formats all have three things
in common:
1.Differentiation in pack or product. All these
formats do something unique when it comes to
packaged goods. Some go to small nonstandard
packs – like Poundland or Eurospin. Some go to
large nonstandard packs – like Costco or Lidl
XXL. All of them try to create a different product
and a different experience for the consumer.
formats are located near stock-up stores so
they can be the first place or last place to shop.
To get these nonstandard trips, they will run
promotions you may not see as promotions.
The most obvious example is Aldi’s midweek
nonfood treasure hunt promotions.
3.Differentiation in retail selling price (RSP).
We need to be careful here. Many people
assume that a lower RSP translates into
lower gross margin both for the retailer and
the manufacturer (both branded and private
branded). The evidence that this is false again
is abundant. There are retailers like Dollar
General that run a higher gross margin on
branded products. There are also companies
like Mercadona that deliver higher margins
to private brand companies. We also need
to understand the Walmart motto that fast
payment and efficient supply chain are virtues
that often deliver higher returns than just
looking at pure margin.
2.Differentiation in trip type. All of these formats
attempt to “win a trip” that is different from
the standard stock-up occasion. Many of these
39
Post-Modern Retailing Conclusion
New retail business models will emerge that will
approach pack, trip, and margin differently than
core grocery retail. However, this does not translate
into “sucking the profits out of retail”. There is
abundant evidence that companies that do strong
business with either discounters or other formats
actually achieve higher returns on investment than
they do with formats that rely heavily on “trade
spend” to drive store traffic.
Rediscovering Profits
Across Europe, companies are coming to Kantar
Retail and asking, “How do we reduce promotional
spend and rediscover profits?” The answer is never
simple. However, we encourage you to focus on
four truths about the future of retail. Once you
intellectualize these truths, you can take the
correct form of action to win in the future
marketplace. Win, by the way, is defined as growing
your bottom line.
1.First truth: eCommerce has arrived. The
important part of this truth is to understand
that eCommerce is a different pack, a different
trip type, and a different RSP. Ahold’s most
recent presentation on their eCommerce
strategy is a good pre-read if you are looking
for evidence of just how different it looks. The
quote to take from Ahold is that they have
achieved 3% EBIT in core mature eCommerce
markets in the Netherlands. Are they sucking
the profits out of retail? The answer is that it
is unlikely.
2.Second truth: Discounters deliver ROI.
Every company we speak to that works with
discounters tells us that they get superior ROI
from working with Aldi and Lidl. They tell us
that they had to relearn their financial model to
come to this conclusion. That financial model
focused on having a 50-50 balance between
permanent SKUs versus In & Outs. It also
focused on looking at the balance sheet and
cash-flow side of the relationship. It concluded
that it is better to run noncomparable SKUs
than to try to run the same across all formats.
3.Third truth: Proximity grocery is not
convenience. Proximity grocery – the launch of
small supermarkets that are connected to the
supply chain of large supers and hypers – is not
your father’s version of a convenience store.
The departments, categories, SKUs, prices,
40
and promotions are completely different.
Measuring success in this environment requires
new thinking along the lines of how the parent
company retailer thinks: total consumer loyalty
across all formats. The big retailers see that
a shopper who visits hypers/supers/express/
online is 50% more valuable than a shopper
who visits only one format.
4.Final truth: New models are on the way. Costco
has been launching across Europe – first in
Spain, now in France. Alibaba is already No.
1 in some eCategories in Russia. File (the
Mercadona of Turkey) launched in Turkey. It
has never been more important than today to
understand the financial models of the new
retailers arriving in Europe.
Final Thoughts
If you read the press, you will conclude that the Carrefour hypermarket model
has failed and they have had to exit 19 countries, or that Aldi and Lidl suck the
profits out of retail. The facts tell a different story. Carrefour has moved to a
low-capital business model where franchising will allow them to enter more
countries. In fact, Carrefour hypermarkets just inaugurated a new hypermarket
in Armenia, and they will soon open in Serbia (2016-2017). Aldi and Lidl are two
of the most profitable companies on the planet, and suppliers that work with
them tell of amazing ROI.
We encourage you to build a “channel map” for the countries that matter most
to you. This map should carefully list which channels are present today, which
ones are growing, what the pack/trip/RSP is for these growth channels, and
which channels will enter soon. Once you have this, get your brand teams,
trade marketing teams, and finance team in a room so you can look at it and
shout it out a bit before coming to the conclusions that a new financial model
may be in order.
41
42
Carrefour Is in Better Shape for the Future
By: Tudor Popa
Carrefour kicked off 2015 with the audacious
slogan “j’optimisme”. A play on words between
optimism and optimization, the slogan could not
better capture the state of the nation for one of the
world’s largest retailers.
Carrefour’s final 2014 push during the Christmas
season paid off. The retailer concluded the year
with increasing like-for-like (LFL) growth in all
major divisions (2014 LFL: France up 1.2%,
international up 4%). Carrefour thus emerges
into its third year under Plassat’s leadership as a
reinvigorated retailer, highlighted by:
yyAn improving position in its home market,
further reinforced by the acquisition of Dia and
the Cora buying alliance.
yyA stabilized global financial position, as markets
continue to deliver positive results following a
more decentralized strategy.
yyA mixed performance but determined expansion
trend internationally, supported by its Latin
American and other European operations.
Consolidating the Base
Even though Carrefour confirmed that 2014 ROI
will be in line with the expected EUR2.38 billion,
investors seemed undecided on Carrefour’s
prospects. The share price has oscillated between
EUR22 and EUR27 since the beginning of 2014 after
surging throughout 2013 from the low of EUR13
it reached before Plassat took over the helm in
mid-2012. On the other hand, stockholders sent
out a message of confidence in 2014 by converting
65% of dividends into stock, thus increasing the
retailer’s capital.
The retailer continued to invest throughout 2014 in
sustaining its top-line objectives by focusing on:
yyRepositioning its hypermarkets and
shopping centres in Western Europe with the
aim of consolidating them into enticing
shopping destinations.
yySustaining its objective of becoming a
multichannel retailer by growing organically or
through franchising in all formats.
yySeizing acquisition opportunities in all markets,
culminating with the integration of Dia in France.
43
yyFurther streamlining international operations
by divesting or opening up to IPOs in emerging
markets to free up capital while ensuring
business continuation, a model that has proved
its viability in Turkey, Greece, and the Middle
East. The partnership model is also expected to
kick off Carrefour’s entry into continental Africa.
Full Steam Ahead
Once Plassat’s new leadership team settled in
throughout 2013, it kicked off 2014 with a series
of initiatives in many markets and formats and
concluded with the Cora purchasing alliance at the
end of 2014.
yyAcross geographies, Carrefour has secured
market share through M&As and franchising.
Carrefour’s commitment to recovering in
Italy has given way to the retailer boosting its
supermarket network in the northern part of
the country. The retailer’s own M&A activity is
further complemented in franchise-operated
markets, such as Greece and the Balkans
where Marinopoulos has initiated an aggressive
acquisition programme. In South America,
Carrefour has sustained its hybrid Atacadao
format expansion, ensuring market leadership
in the channel; at the same time, it has reenergized the revamp of its hypermarkets. The
initiation of Brazil IPO will also help alleviate
some of the difficulties encountered in the
Southern Hemisphere, enabling the group
to focus on sustaining its expansion in other
geographies such as Africa.
yyCarrefour is still keen on developing its
multichannel proposition. Developing proximity
though franchising in all markets or deploying
new formats (Supeco, Express To Go) reflect
an energetic organization enabled by the
decentralization programme Plassat put in place.
yyOn the digital front, Carrefour remains cautious
but steady. While the drive format expansion in
France is cooling off, the retailer has continued
to develop similar capabilities outside France.
Brazil stands out as the best example where
Carrefour has reconsidered its position and
decided to reignite its online operations with the
aim of further fueling the market’s already
rapid growth.
yyIn a determined move to secure shopper traffic
and counteract the negative impact of channel
fragmentation, Carrefour has beefed up its
hypermarket and shopping gallery portfolio
across Europe, Latin America, and Asia.
yyCarrefour has also expanded its international
footprint by leveraging the local know-how
of its exclusive franchise partners: CFAO and
Majid Al Futtaim in the Middle East and Africa,
Marinopoulos and Sabanci in Eastern Europe
and Turkey.
Building Loyalty
Carrefour’s focus on consolidating its brand gained
pace throughout 2014. The retailer implemented
a series of programmes in all areas – from
product, pricing, and promotions to perfecting its
multiformat mix – all aimed at sustaining traffic
and counteracting the general decrease in loyalty.
Carrefour plays on many fronts by mixing
techniques between its own formats and
44
techniques from competing channels, such as
discounters. In spite of the overly ambitious spread
of initiatives, Carrefour puts out a clear premium
message by:
yyRationalizing its assortment with a major
emphasis on fresh, and most of all, appealing to
the local taste by improving its locally sourced
ranges (France, Belgium, Spain, Romania).
yyImproving its across-the-board private label
proposition by revamping its premium private
label ranges while trimming its entry-price
range (Carrefour Discount).
yyImproving the omnichannel shopper proposition
by exploring alternative fulfillment solutions.
In 2015, we expect Carrefour to continue repositioning its overall offer at a
more premium level with an emphasis on food and fresh as a key catalyst for
footfall. Carrefour’s real value (Price, Quality, Service) proposition is set to
further improve as a consequence of its sustained efforts in all geographies.
its markets. Online is not yet set to become a key differentiator for Carrefour,
but the retailer will most likely develop its capabilities across the board, thus
contributing to its all-round proposition.
The Brazil IPO may set the trend for similar initiatives, since Carrefour’s
focus is increasingly shifting towards looking for growth opportunities in new
geographies and withholding an overseer role in its established emerging
markets. Both directions rely on long-term partnerships that Carrefour is
consolidating across the globe.
Beyond the emphasis on expanding its proximity footprint in all geographies,
Carrefour looks determined to pursue developing its hypermarket portfolio,
especially in emerging markets. At the same time, Carrefour is expected to
further explore new growth opportunities, especially through hybrid formats
that target mixed audiences and to capitalize on the increased autonomy of
45
46
The State of Club Business Shoppers:
Highlights from Kantar Retail’s Inaugural Report
By: Sara Al-Tukhaim
This year, we launched the inaugural version of
what I hope will become an annual Kantar Retail
Report on the State of Club Business Shoppers.
Given the traditional lack of information and
shopper insights available for this core club
segment, there is much to be gleaned from the
results of this exclusive study.
Here are the high-level takeaways:
•There is a strong, underlying need to improve
small business traffic and frequency across the
clubs. Of the clubs, Costco business shoppers
are shopping most frequently and benefiting most
from frequency gains.
•The overall convenience of online appears to
be swaying business shoppers away from their
club. Amazon, online shopping, and delivery
are the most frequently cited reasons they are
shopping club less.
•In general, club business shopper overlap
is strongest with Walmart and DIY retailers,
followed by Amazon and Staples. The vast
majority (81%) of Sam’s Club business shoppers
are also shopping Walmart. While the highest
percentage of Costco’s business shoppers are
shopping DIY retailers, they are also more likely
than their Sam’s Club and BJ’s counterparts to
shop Amazon (Figure 1).
•A boost in business performance and financial
stability is encouraging some business
shoppers to shop their club more often.
It appears Sam’s Club’s investments in pricing
and selection are also having a positive impact,
while Costco’s experience and deals are a draw
for its shoppers.
Figure 1: Retailers Shopped in
the Past Four Weeks
Home center/
hardware stores
(e.g., Lowes)
74%
65%
75%
62%
Walmart
81%
69%
Amazon
10%
43%
30%
40%
31%
Staples
Restaurant
suppliers
(e.g.,Restaurant
Depot)
Jetro Cash
& Carry
Costco
56%
5%
11%
19%
2%
•In general, business shoppers more often use
their club for personal over business use, but
this tendency varies by club. Business shoppers
are more likely to shop Sam’s Club strictly for
business purposes. Compared with Costco
business shoppers, a much higher percentage
of Sam’s Club business shoppers shop for dual
(personal and business) purposes.
•When shopping for their business at club, price
matters most to small business shoppers. Apart
from price, Costco business shoppers care most
about product quality; they are also more likely to
desire a variety of brands. Meanwhile, convenient
delivery and pickup options, as well as access
to club services, matter more to Sam’s Club
business shoppers.
•If club business shoppers could change
anything about their club, speed and
accessibility are key. Regardless of retailer, it is
clear that small business shoppers desire more
out of their clubs with regard to online and pickup
purchasing options, faster business-focused
checkouts, and improved awareness of business
resources in-club and online.
My Take
Sam's Club
BJ's Wholesale
Note: Costco=78, Sam’s Club=62, and BJ’s Wholesale=16 respondents.
Source: Kantar Retail’s 2015 Club Business Shopper Study (Kantar
Retail original research powered by GCS).
47
Growing competition and the convenience of online
are threatening club business traffic. While some
club efforts to appeal to business shoppers are
certainly resonating, club retailers and suppliers
have clear opportunities to improve relevance.
48
The Lidl Effect: Watch Out, Aldi
(and Everyone Else)
By: Mike Paglia
With each passing month, German discounter Lidl
seems to be generating more and more buzz in
the U.S. trade press, specifically about its plans
to enter the U.S. market. And while Lidl’s first
store likely will not open for another couple of
years, many retailers are already jockeying for
position now so they will not be caught flat-footed.
But given Lidl’s potential to extend its disruptive
reach beyond retailers (both inside and outside
the discounter channel), suppliers may want to act
with a similar urgency and position themselves
now to successfully navigate the waves Lidl is
creating before it even crosses the Atlantic.
yyThe space may already be occupied. A LinkedIn
search for “MGP Retail Consulting” returns a list
of dozens of individuals based in the Washington,
D.C., area who appear to work for the company.
Most of the roles they hold are in operations,
project management, real estate, and human
resources. Such hiring would suggest that Lidl
has moved well beyond feasibility analysis and is
setting up a dedicated operation. In other words:
this is a go.
yyAdditionally, MGP has been recruiting heavily,
as demonstrated by numerous online job
postings for buyers, German-speaking executive
assistants, IT personnel, project managers,
and construction project managers (Figure 1).
Interestingly, many of these roles include “up
to two years” spent in Europe, presumably for
training at Lidl’s headquarters.
Figure 1: MGP Retail Consulting (i.e., Lidl) Job Postings
The Facts (So Far)
Details about the retailer’s future U.S. operations
are sparse, but we do know a few things. And
looking at them together makes it clear the
retailer views the United States as a long-term
growth market.
yyLidl has set up an advance team of sorts under
the name MGP Retail Consulting LLC.
yyOfficially established in late 2014, the group
has recently invested USD56.6 million in
corporate office space in Arlington, Virginia.
The 200,000 square-foot facility includes a test
kitchen/food lab.
Source: Kantar Retail analysis, LinkedIn
49
Four Key Predictions
1.Competitive pressure will expand beyond Aldi.
There is no doubt that the key matchup will
be between Lidl and Aldi. Indeed, after years
competing head-to-head in Europe, the U.S. is
just the latest battlefield. For its part, Aldi has
been acting urgently to deepen its foundation
in the U.S. via its strategic imperative to
get to 2,000 stores by 2018. A West Coast
expansion and its opportunistic acquisition of
former Bottom Dollar stores in Philadelphia
demonstrate this strategy. Lidl and Aldi are
similar in that they are culturally secretive and
purposeful companies operating well-run, nofrills stores with concise value propositions.
But Lidl has one potentially decisive point of
difference: It carries the national brands that
shoppers know, trust, and buy most frequently.
Lidl will likely leverage the well-established
equity of the brands on its shelves while it
works to educate shoppers about its identity
as a retailer.
that Lidl concentrates its stores in the midAtlantic and Carolinas, other retailers could
also be threatened. It could make a very difficult
scenario for Food Lion, which for years has
experienced significant shopper loss driven
by poor price perception and undifferentiated
stores. Dollar General has to be concerned
given Lidl’s prowess as a discounter. Indeed,
one could argue that Dollar General’s efforts
to remodel 875 stores this year and open 900
stores in 2016 are pre-emptive moves meant
to reinforce its positioning. Even Walmart’s
Neighborhood Market and smaller area
supermarket chains could feel an impact. Some
have suggested that Lidl’s stores could be as
big as 31,000 square feet. Even if they are half
that size (which is more likely), the stores will
effectively function as small-format grocers,
a space in which many retailers are trying to
establish a footprint.
Throughout Europe, Lidl has differentiated itself
by its expertise in localization, relevancy, and
an ability to effectively run multiple formats –
all requisite capabilities to succeed in the U.S.
market. If Lidl can get an accurate pulse on
the tastes and preferences of its new American
shoppers, then its impact could be felt across its
trading area.
2.The mid-Atlantic and Carolinas will
be the first step.
Several news outlets have reported that
Lidl is considering Alamance County, North
Carolina, as a potential distribution center site
(Figure 2). Looking at this location in relation to
its Arlington headquarters, we see where Lidl
would most likely open its first stores. Flagship
and test stores are more likely to be situated
closer to headquarters, while more everyday
stores could be spread around Virginia, West
Virginia, and North Carolina.
Figure 2: Alamance County, North Carolina, and Vicinity
More importantly, a brand-oriented assortment
could be the factor that extends its competitive
influence to other retailers. Lidl’s core value
proposition is built on strong value (i.e., price)
and convenience (i.e., quick trips in a small
box). Adding well-known CPG brands elevates
Lidl’s value proposition to an offer that is highly
relevant to shoppers, and may convince them
to modify their outlet selection. Certainly this
is a significant threat to Aldi, but assuming
Source: Kantar Retail analysis, Google
50
But Lidl’s choice of North Carolina for a
distribution center is ideal for expansion. The
state is essentially the midpoint for the East
Coast and with easy access to Interstate 95,
markets such as Atlanta; Baltimore; Charlotte,
North Carolina; and Philadelphia are all within
reach. Incidentally, a few MGP Retail Consulting
job postings are in Philadelphia (Figure 3).
North-South possibilities aside, Alamance
County offers quick access to Interstate 40
(along with other major highways) and with
it, routes to Memphis, Tennessee; Nashville,
Tennessee; and Arkansas.
3.The first wave is just that … the first.
According to the trade press and the opinion
of the supplier community, Lidl’s initial store
rollout will include about 100 locations. But it
seems unlikely the retailer will stop there. The
distribution center being considered has been
described as “comparable” to a 450,000 squarefoot facility that Walmart is planning to build
in the vicinity. If that is true, then a Lidl facility
could support significantly more than 100 stores.
It is too early to arrive at a specific number – and
both the facility’s configuration as well as the
size of the stores it supports are key variables in
determining capacity – but it seems reasonable
to assume that such a “comparable” facility
could support several hundred stores.
4.The first stores could open before 2018.
Lidl has gone on record saying that it expects to
open its first U.S. stores in 2018. However, in the
last few weeks, there have been hints that those
stores could open sooner. The logical follow-up
question is: How much sooner? Based on some
of Lidl’s recent activity, it seems feasible that the
first stores could open as early as 2017:
--
Lidl is motivated, as demonstrated by
its considerable financial investment in
the headquarter offices and the number
of people it already has on the ground
in Arlington. Additionally, recent fallout
within the senior management ranks
initially delayed U.S. entry plans from 2015
to 2018. With the turmoil having subsided,
it seems plausible that expansion efforts
have reclaimed mind share. A renewed
urgency makes entry sooner than 2018
more plausible.
--
Lidl’s current hiring efforts focus on
very tactical roles (for example, category
buyers, network engineers, real estate
analysts, etc.) that directly impact storelevel activities. If the retailer were just
now filling key leadership and strategic
roles, then a longer time frame may seem
more likely. That said, an interesting
hiring requirement for currently open
roles is a willingness to spend “up to two
Figure 3: MGP Retail Consulting Job Postings in Philadelphia
Source: Kantar Retail analysis, LinkedIn
51
years” training in Europe. Aldi engages
in a similar practice – immersing new
hires in the company’s culture and ways of
doing business. If all those open positions
were filled today and new hires were
immediately sent to Germany for two
years, it would be the second quarter of
2017 before they were fully functional. The
second half of 2016 is not out of the realm
of possibility, but it seems highly unlikely.
--
A distribution center is the backbone of
any retailer’s supply chain, and little can
happen before it is operational. Lidl has
yet to break ground on its facility, and
when it finally does, a number of variables
will dictate when it finally comes online.
How will it be configured? Will it do crossdocking? Will it carry perishables? These
are just some of the questions that Lidl
will have to resolve. It is possible the
retailer could get some level of operational
functionality one year after construction
begins. But Lidl is a purposeful company
and will want to take time to get it all right.
Based on that, two years is more feasible.
When considering all these factors together, the
net-net is that sometime in 2017 seems to be the
likeliest window for the first stores to open. In other
words, suppliers have between 20 and 30 months to
prepare. That is not as long as it sounds.
Despite its past success in entering new markets,
Lidl will have to be careful when navigating its first
moves in the U.S. The track record of European
retailers playing this market has not always been
positive. (Delhaize, Tesco, and Sainsbury’s all come
to mind.) The market’s sheer size and regional
52
differences will require Lidl to be agile and flexible.
The diversity of cultures has tripped up others in
the past, and the cultural specifics take time to
learn. Lidl will have to be measured and deliberate
in how it initially sets up and expands its footprint.
Lidl’s infiltration has impacts beyond the
channel as well. The presence of multiple, highly
differentiated discount players is a scenario
that can be highly disruptive to the larger
retail landscape. The U.K. market serves as
an instructive example. While the market was
dominated by a few key players for years, their
leadership positions have been threatened by the
ground war between Aldi and Lidl; currently half of
U.K. shoppers shop at one retailer or the other. It
may be too soon to predict the extent to which this
scenario may play out in the U.S., but some degree
of disruption is a reasonable planning assumption.
As Lidl (and its soon-to-be competitors) prepare for Lidl’s U.S. entry,
manufacturers can aid their customers in several ways while also aligning to
the opportunity that a new player represents.
From the perspective of Lidl as a potential customer,
manufacturers should:
For their current U.S. retail customers, manufacturers should:
yyEducate senior leadership on Lidl’s capabilities, culture, and ways of
doing business.
yyKeep up to date on Lidl’s activities as they unfold.
yyConsider ways to help them deepen their engagement and emotional
connection with their shoppers. Help them remind shoppers of what makes
them unique and relevant as a retailer.
yyBegin advocating for resources (even partial ones) now so a “Lidl team” will
be in place before the retailer gets here.
yyReach out to overseas colleagues who have worked with Lidl to understand
how the retailer behaves as a customer.
yyPartner on innovative efforts to deliver programs unavailable elsewhere.
yyIncorporate Lidl’s impact as a competitive input into retailers’
long-term planning.
yyReach out to Lidl now to discuss potential joint business opportunities.
yyAlign to customers’ efforts to proactively solidify their position in
the marketplace.
yyDevelop a program to educate Lidl on the specific traits and preferences
of U.S. shoppers.
yyEducate customers on who Lidl is, its value proposition, and how to
effectively compete against it.
Indeed, Lidl is generating buzz well before its first U.S. stores open. This
is a rare opportunity for manufacturers because it has been several years
since a retailer of Lidl’s stature has set up shop here. Making the most of the
opportunity means being proactive and prepared, rather than being reactive
and leaving success to chance.
53
54
Online Grocery Poised to Accelerate:
Which Retailer Will Win the Online Basket?
By: Robin Sherk, Alida Destrempe, Nicole Santosuosso
This year will be pivotal for online grocery in the United States. The top three heavyweights – Amazon, Kroger, and
Walmart – are each investing heavily to build their online grocery propositions and win the online basket. Shoppers have a
growing interest in online grocery, but it is not widely available in the U.S. market. This article examines the competitive positioning of these three contenders and what it will mean for supplier alignment.
Online grocery is still in its infancy in the United
States; one key reason is the lack of availability.
According to ShopperScape®, only 33% of primary
household shoppers say they can order groceries
online where they live (Figure 1). A majority of
urban shoppers also feel this way, while others feel
unfamiliar with the choices available.
Today, online grocery is a regional and metro
market story for the most part. However, this
is quickly changing. Kantar Retail expects the
industry to expand at a double-digit pace of growth
over the next six years, forecasting the online
penetration of food and consumables to go from 3%
in 2014 to 7% by 2020.
Three core trends will enable this escalation:
1.Shoppers’ demand for the convenience of
online purchasing when buying groceries. More
than USD1 in every USD10 spent at retail in
the United States today is online – and among
Figure 1: Shoppers’ Perceived Online Grocery Availability
Do you currently have the ability to order groceries online where you live?
Demo Segment
All Shoppers
Gen Y
Rural/Small
Town
Large Town/
Suburb
Sample Size
4,060
760
1,317
2,138
Urban/City
605
Yes
33%
34%
20%
37%
44%
No
31%
31%
44%
24%
27%
Not sure
37%
35%
36%
39%
29%
Source: Kantar Retail ShopperScape®, July 2014
Note: Green highlighting indicates significantly greater vs. all shoppers; red highlighting indicates significantly lower vs. all
shoppers (95% confidence level).
55
non-FMCG products, it is 14% and growing.
Shoppers are developing habits they expect to
translate to groceries.
2.In response, retailers must innovate their
business models to balance the increased cost
of fulfillment in this channel with shoppers’
willingness to pay for convenience (when
Amazon has set the bar for free one- to
two-day shipping). Across various online
grocery fulfillment methods, shoppers show
strong interest in using these new forms of
access (Figure 2).
3.Gen Y is a critical audience for both retailers
and suppliers. Gen Y shoppers are early
adopters of eCommerce overall and for online
grocery purchasing specifically, particularly as
they enter family-formation years. This valuable
group is keen to have the flexibility to shop for
groceries across all fulfillment methods.
Today, online grocery is mainly available from
strong regional players and in a few metro markets
from New York City and the Northeast to Chicago
nd the West Coast, with leaders like Peapod,
Wakefern, and Harris Teeter, among others.
Figure 2: Shopper Interest in Various Online Grocery Fulfillment Methods
How interested would you be in being able to order your groceries online
and receive them the following ways? (% very interested)
Demo Segment
All
Shoppers
Gen Y
Rural/Small Large Town/
Town
Suburb
Sample Size
4,060
760
1,317
2,138
605
Have the retailer deliver my grocery order
to me
40%
56%
38%
39%
50%
Pick up my grocery order at a designated
area outside the store (where I do not need
to get out of my car)
35%
51%
34%
35%
37%
area inside the store
34%
56%
34%
34%
38%
pickup point away from the store that is
convenient to me
31%
50%
31%
30%
37%
Urban/City
Comparing the Online Grocery
Propositions of Amazon, Kroger,
and Walmart
Source: Kantar Retail ShopperScape®, July 2014
Note: Green highlighting indicates significantly greater vs. all shoppers (95% confidence level).
But Kantar Retail believes 2015 will be the pivotal
year when U.S. grocers get serious about shaping
the future of grocery with the race to first-mover
advantage. While Amazon has occupied much of
the headlines since expanding Fresh to the Los
Angeles market in June 2013, leading national
grocers Walmart and Kroger are investing heavily
in digital capabilities to beat Amazon to the punch.
The talent and investment both retailers have
brought to bear is impressive:
yyNeil Ashe, the head of Walmart’s Global.com
division, asserted in October 2013 that Walmart
is “committed to being the online global leader
in grocery delivery.” Since starting its grocery
and now has online expertise and thinking from
Harris Teeter and Vitacost.com. Expect the
eCommerce platform experience Kroger has
today to elevate. The recent mergers with Harris
Teeter (click-and-collect online grocery model)
and Vitacost (national ship specialty) granted
Kroger online access, as Kroger successfully
learns from its talent and acquisitions. During
its 2014 fourth-quarter earnings call, Kroger
CEO Rodney McMullen stated that the retailer is
constantly setting new records at Harris Teeter,
where more shoppers are shopping through the
banner’s click-and-collect service. “It’s a big
part of our strategy going forward,”
McMullen said.
delivery pilot in 2011, Walmart has expanded
testing to include store pickup and designated
drive-thru pickup sites. Management has tripled
online investments since 2013 to help escalate
its efforts. Adding online grocery expertise, a
number of leaders from Walmart’s ASDA online
grocery team have recently been transferred
to Walmart US, including ASDA’s former Chief
Operating Officer, Judith McKenna.
yyKroger has built a digital team of new talent
over the past three years by hiring executives
from Macy’s, Luxottica Retail, Amazon, and
P&G. It has also developed partnerships with
technology companies to support digital efforts,
56
Despite their common goal to win the online grocery
basket, the three retailers have quite different
strategies and investments. To assess the relative
positioning of Amazon, Kroger, and Walmart’s
current online grocery operations, the first step is
to consider their relative proposition to shoppers
alongside Kantar Retail’s Online Driver Framework –
the three core reasons consumers globally
shop online:
1.Convenience: Shoppers want the ability to shop
anytime, from any place and the option to pick
up their order or have it delivered according to
their own schedules.
2.Assortment: Shoppers expect a wide breadth
of products – from niche or prestige items to
everyday favorites.
3.Value: Shoppers want an easy way to compare
prices, search for deals, and find digital
coupons. They also expect low prices, inclusive
of shipping costs.
Broadly, for online grocery in the United States, the
model is challenged. Assortment is typically the
same or narrower than in stores. Online grocery
is a premium proposition because store pricing is
typically higher than item pricing due to delivery
charges. That leaves convenience as the key
differentiator and the opportunity for retailers to
innovate the fulfillment model.
Comparing the three leading retailers’ current
online grocery offerings across these dimensions
provides perspective on where each is placing
relative bets and also offers an understanding of
their strategic approaches as their propositions
develop (Figure 3).
Fresh in the context of the broader play for winning
the consumables trip. Amazon has expanded
Amazon Fresh slowly and methodically, while
“measuring and refining” the service to suit its
shoppers who are targeted based on existing Prime
population density. The goal is the grocery basket
and a broader share of its loyal shoppers’ wallets,
while driving delivery efficiencies through more
frequent routes on a broad assortment of eligible
SKUs. This is a convenience play leveraging the
Amazon ecosystem.
Figure 3: Competitive Online Grocery
Positioning of Amazon, Kroger, and Walmart
Digging deeper into the details of what each
retailer is doing across each axis is useful for
evaluating their respective strategic initiatives
(Figure 4). Most notable is that each retailer is
approaching the challenge from multiple angles
and banner or business models, with the bricksand-mortar players leveraging their store assets as
part of the solution.
Examining their positions, Amazon Fresh is
Amazon’s play for the true grocery basket
(including Fresh), but it is important to look at
At Kroger, the value propositions of the existing
online grocery models skew a bit toward
convenience, with shoppers paying a premium for
that service – albeit one that is on par with the U.S.
market average today (USD5 for pickup, USD10 for
delivery). From what we know of its online strategy
today, Kroger seems to be betting heavily on
leveraging the store as part of its online fulfillment
option. For the shopper, the retailer is placing
equal emphasis on convenience, assortment, and
value, similar to the way it balances the four keys
of Customer 1st when it comes to the store and
brand experience.
Walmart, on the other hand, has extended
its overall brand positioning that relies on
price leadership to the online environment to
differentiate its positioning and drive relevancy
with its shoppers. Its delivery and Pickup depot
pilots match Supercenter prices and have minimal
service fees, putting value considerations first.
While Walmart started its foray into online grocery
with a delivery model in California and delivery
and store pickup options in Denver, its subsequent
expansion markets thus far appear to emphasize
store pickup, leveraging the store infrastructure.
The drive-thru pilot in Bentonville, Arkansas,
is truly innovative for Walmart since it requires
capital investment in a new infrastructure (albeit
significantly less than what a store costs) and
experiments with a limited grocery assortment
at a low price that delivers on convenience since
shoppers do not have to get out of their cars.
Source: Kantar Retail analysis
57
Figure 4: Comparing the Current Online Grocery Propositions of Amazon, Kroger, and Walmart
Amazon
Banner
Fresh
Market
National
Seattle, Los
Angeles, San
Francisco, NYC,
Philadelphia
Convenience
- Delivery
Same-day,
overnight
Pantry
Value:
- Item price
- Service fees
Walmart
Harris Teeter
Express Lane
Kroger Home
Shop (pilot)
King Soopers
Home Shop
Mid-South
Atlantic (~150
out of 220+
stores)
Cincinnati (1
store)
Denver,
Boulder,
Colorado
Springs
National ship
2-day delivery
- Pickup
Assortment
Kroger
7 days/week
delivery
windows
7 days/week
Reserve inpickup windows store
Broad fresh
assortment
(including local
merchants/
restaurants),
plus crossover
to 1.5 million
GM SKUs
Fair pricing
Membership,
$299/yr
(including $99
Prime); free
delivery with
$50 minimum,
tip suggested
~4,000 SKUs
= Store
= Store
Fresh & dry
grocery, nonfood items
Walmart
Grocery
Delivery &
Pickup (pilot)
Bentonville,
Denver,
Huntsville,
Phoenix, San
Jose, San
Francisco
Drive Pick-Up
(pilot)
Bentonville
Same-day
Same-day,
overnight
Same-day
No more than
100K SKUs
10K SKUs
= Store
Competitive
= Store
= Store
$5.99 per box
N/A
Tiers by
duration:
- $4.95/ trip
- $16.95/month
- $99.95/ year
= Store
Pickup: $4.95
= Nearby
Supercenter
$5-$10 delivery None
fee
Delivery: $10.95
Source: Kantar Retail research and analysis
Note: This chart excludes the retailers’ generic online banners (e.g., Walmart.com) to focus on grocery-basket-specific innovations.
58
= Supercenter
No pickup fee
should look for opportunities to collaborate and participate in solutionoriented programs such as recipe tools, online promotions, and coupons.
Though in its infancy today, online grocery is set to accelerate rapidly over
the next six years. This year represents an inflection point, where moves by
the leading national players will take online grocery from a selectively
urban-focused regional player model to the mainstream.
yyMeet Prime expectations. The Fresh shopper is the Prime shopper, already
accustomed to the convenience and value proposition of Amazon Prime.
This is a unique shopper with different behaviors, tastes, and preferences
already ingrained in the Amazon ecosystem.
Amazon
Kroger
The core value proposition of Amazon Fresh is about redefining convenience
and immediacy, not just the online grocery basket – a critical differentiator
that makes it more challenging for Amazon to build its brand and expertise
in grocery. On the flip side, Amazon Fresh offers a broader loyalty appeal to
Amazon’s already-loyal Prime shoppers. Same-day and next-morning delivery
options push the boundaries of what is considered “immediacy.” While the
rollout of Amazon Fresh is slow, methodical, and targeted, the imprint it has
left on the competitive landscape is much larger and another catalyst for
competitive response.
Kroger’s online grocery strategy looks to work across the dimensions of
convenience, assortment, and value. This focus takes a cue from the way
Kroger builds brands in store and depends on more than price-based
comparisons to create a competitive offering that reflects Kroger’s brand,
which is both visibly, functionally, and emotionally (via dunnhumby targeting)
differentiated from its competitors.
Like its store assortments, Kroger’s online grocery assortments will be
customized by market dynamics, given the pick-from-store fulfillment focus.
The online shelves will be functionally driven by Kroger’s robust shopper
program. This program will likely streamline how the retailer purchases,
fulfills, and manages both its online and store assortments, since stock will
now need to manage both in-store and online baskets. Having an online
assortment that reflects shoppers’ needs is imperative in winning the online
trip, particularly since existing store loyalty plus availability is the winning
combination that can cement long-term loyalty online where habits are
“sticky.” The time-saving appeal of buying online and picking up orders gives
Kroger the opportunity to expand its shopper base to younger, more digitaldependent shoppers. This reflects a shift from the store focus, which is on
core, loyal shoppers, who are much older.
Amazon’s innovation also goes beyond the online store and delivery
experience. Tools such as Amazon Dash combine Amazon’s “one-click”
mentality with basket building, providing a seamless experience for connected
shoppers throughout the entire grocery trip.
As the rollout of Amazon Fresh continues to new cities, suppliers should
consider the following:
yyDevelop a cross-functional team for Amazon Fresh. Amazon has
established a clear commitment to consumables with Fresh, its core
platform and its Prime Pantry program. As Fresh rolls out, it will become
another crucial touchpoint suppliers must call on within Amazon’s
consumables business. Working with certain Amazon departments, such as
operations, finance, and supply chain, will become more complex.
The biggest challenge for Kroger will be to make the online shopping
experience as easy and efficient as its in-store experience. Data already allows
Kroger to recommend items based on purchase history, and Kantar Retail
anticipates its shopper data will play a key role in offering order-replenishment
yyAdvance content strategy and solution selling. The Amazon site and
mobile app allow shoppers to build and maintain a list, keep track of past
purchases, and add items to their carts from online recipes. Suppliers
59
yyManage store in-stock pressures. As items are picked from shelf to fulfill
store pickup orders, forecasting accuracy and the flexibility to respond
to sudden demand spikes at particular stores will be key to maintaining
service. Understanding which SKUs will likely be popular online will help
anticipate pressures before store pickup rolls out.
suggestions or helping the retailer filter online messaging to create a more
targeted experience. Overall, Kroger’s eCommerce strategy will work only
if the stores align effectively. Since the program is still in its infancy,
suppliers should:
yyPlan scenarios against Kroger’s online pilots. Become better acquainted
with the supply-chain demands of these initiatives. Also consider
partnering with the pilot trials, anticipating requests to lean in with
relatively generous investments.
yySupport Fresh grocery trust. Fresh is an area Walmart is working to
develop, and reassuring this trust will be particularly important for
shoppers to buy in to its full online grocery offer. Consider ways to help the
retailer assert quality, such as providing assurances that expiration dates
will be within a certain period.
yyPlan against Harris Teeter’s click-and-collect service. By assessing
its current online program, suppliers will get a better handle on Kroger’s
current pilot, which is likely to expand to other markets. Work off Harris
Teeter’s platform and think how the program can be leveraged to enhance
the shopper experience and drive loyalty.
yyAssert presence on the digital list. As online grocery expands, the
importance of getting on shoppers’ lists accelerates. In particular, reexamine your searchability, product descriptions, and cross-promotion
strategies on Walmart’s mobile app. Also watch for the retailer to
leverage the online grocery order tools from ASDA’s app. Assess how
your categories are presented on this app and anticipate how the mobile
presentation might evolve for a U.S. audience.
Walmart
Walmart is positioning online grocery as expanding on the convenience
of shopping the Supercenter and Neighborhood Market without charging
shoppers for access. As it does this, the retailer’s tests are leaning in on
developing the store pickup model.
Closing Considerations
On a broader level, the initiatives at these three leading retailers require a
significant shift in their internal capabilities and resources, pivoting from
using digital as mainly a shopper marketing and insights tool to developing
eCommerce capabilities. The most important lesson is that suppliers will
not succeed by copying how they go to market with their store customers.
They must innovate their capabilities, processes, and support to win in this
space – much the way these retailer partners are trying to innovate their way
into a solution. Online grocery is a fundamentally different trip with distinct
implications on the four P’s of product, place, promotion, and price. Everything
from how to drive impulse buying to cross-merchandising to pricing needs to
be rethought.
To support these efforts, the retailer continues to import operations talent
from ASDA, its U.K. unit with an established online grocery presence. In
particular, Kantar Retail expects an increasing number of Supercenters and
Neighborhood Markets to begin offering the drive-thru and in-store pickup
options, analogous to the flexibility featured in ASDA’s newer Supercenters.
Though its expansion will likely be slower, we also expect further testing
of the click-and-collect site, with another location or two to test out
different markets.
To plan against and align with Walmart’s online grocery efforts, suppliers
should consider the following:
60
61
62
Amazon Takes on Home Services:
Could “Amazon Homeowners” Be Next?
By: Nicole Santosuosso, Erin Kennedy
With the spring season upon us, shoppers are
finally ready to undertake projects around the
house. This year, Amazon is looking to get a bigger
share of the space traditionally dominated by
bricks-and-mortar retailers with the full launch
of Amazon Home Services, a new on-demand
marketplace for home service providers (Figure 1).
The marketplace, which had been quietly piloted
in New York, Los Angeles, and Seattle in late
2014, pairs shoppers with trusted home service
providers, from house cleaning to tech support. By
giving shoppers more than 700 service options to
choose from, the new offer moves Amazon from an
item merchant to a comprehensive service and
solutions provider.
How Does It Work?
To use Home Services, shoppers add any
prepackaged service directly to their shopping
cart and are charged once the service is complete
(Figure 2). Pricing will be stated upfront and
subject to matching if a shopper can find a lower
price for the same service and professional. For a
limited time, shoppers will receive a $20 gift card
with the purchase of any service to drive trial into
the program.
Amazon Home Services is a parallel program to
the marketplace for third-party items. To become
part of the Amazon network, professionals will be
invited to the marketplace and sourced through
home service companies such as Task Rabbit
and Take Lessons, among others. Pros will be go
through a background check and ranked according
to verified shopper reviews. By providing a platform
for these service providers to win new business,
Amazon has essentially made it just as easy to buy
services as it is to buy physical products.
Amazon is not alone in realizing the power of
services in the home improvement space, of
course. The trend toward services – particularly
when it comes to reaching Gen Y and new
homeowners – is gaining ground across the
Figure 1: Amazon Home Services Carousel lmage
Source: Retailer website
63
Figure 2: Amazon Home Services Stats (Left) and User Experience (Right)
Source: Retailer website
64
home improvement landscape. In January 2012,
Home Depot acquired the pro-request service
RedBeacon. Lowe’s followed suit close to two
years later when it formed a strategic partnership
with Porch, another online-based service that links
consumers with contractors (Figure 3). The efforts
to connect consumers with the right pros benefit
the bricks-and-mortar retailers in two ways:
1.They offer the retailers’ shopper bases a
trusted destination (the retailer) to vet outside
service providers.
2.They open the door to deeper relationships
between the retailers and the featured
professionals, a lucrative shopper base that
has gained strength as the housing market
gains steam.
What does this mean for Amazon and where
it stands as a competitor in the home
improvement landscape?
yyAmazon continues to gain shoppers’ “share
of life.” Amazon has already established a
reputation as a trusted source of information for
its shoppers. The Home Services launch takes
this trust a step further, providing shoppers
with not just a wide assortment of products,
but also with the option for a complete home
improvement package with services that are
“Amazon-approved.” Amazon continues to
redefine convenience for its shoppers,
expanding from the “everything store” to a
lifestyle destination.
yyAmazon removes barriers to purchase in the
home improvement categories. By coupling
products with service providers who will assist
in installation and repair, Amazon is removing
an important barrier to purchase within these
categories. Keep in mind that several years ago,
Amazon made this work in another category,
however much narrower, when it partnered
with White Glove Delivery to remove a barrier
to TV purchasing – shipping damage. The Home
Services launch is simply an extension of that
offer, moving beyond delivery to more specialty
services like product installation, tech support,
and home repair.
yyAmazon becomes a more formidable
competitor within the home improvement
marketplace. In addition to price and
assortment, home improvement shoppers
put a high value on education, inspiration, and
expertise. As a result, home improvement
retailers have been relatively insulated from
Amazon’s quick ascendance in other categories,
since they could point to their service levels as
a clear differentiator and competitive advantage
over Amazon. However, the launch of Amazon
Home Services addresses the online retailer’s
primary gap in home improvement retail, giving
it another leg up as a competitor. Keep an eye
out for Amazon to venture further into the
services space in the future – and Home Depot
and Lowe’s to strengthen their respective offers
as home service destinations.
65
Figure 3: Porch.com Store Display at Lowe’s
Source: Kantar Retail store visits
66
Why Walmart Is the Biggest Retail Challenge to
U.S. Drug Stores
By: Brian Owens
We at Kantar Retail believe that the most disruptive
retail presence in the U.S. healthcare environment
will not be from a drug store – it will be from
Walmart. Walmart wants to become the No. 1 U.S.
healthcare provider and is now poised to challenge
the slope of drug store growth. Today, Walmart is
known as the world’s largest EDLP provider, but
tomorrow, it intends to transform itself into the
world’s largest EDLP healthcare provider. If U.S.
drug stores intend to blunt Walmart’s future
plans, they must understand the implications of
the retailer’s healthcare experience, services, and
access strategies.
Figure 1: Walmart’s Health-Focused Store Displays
Experience
The Walmart healthcare experience challenges
drug stores because the retailer is attempting
to become a one-stop shop for health. Given its
size, existing foot traffic, and record of disruptive
innovation, Walmart will use programs such as
Healthcare Begins to reconfigure its stores to
become markedly more focused on healthcare
(Figure 1). Launched in October 2014, the
Healthcare Begins program is designed to help
shoppers understand healthcare and guide them to
the options that are right for them. This approach
is a challenge for drug stores because Walmart
has more physical space to create a healthcare
experience and market these services. For drug
Source: Kantar Retail store visits
stores to remain competitive in this arena, they
must reconfigure their stores so that every
category provides shoppers with a healthy solution.
Think healthy food, healthy beauty, and healthy
home departments throughout the store. The drug
store shopper will quickly understand that the
whole drug store – not just one department in a
larger store – is dedicated to healthy living.
67
Services
The Walmart health clinic service model challenges
drug store clinics because it is designed
to provide low-cost primary care services
throughout its chain. Drug stores clinics provide
supplemental primary care for shoppers and
are rapidly expanding – CVS plans to add 1,500
MinuteClinics by 2017. In contrast, Walmart’s 17
Care Clinics are designed to offer low-cost primary
care medical services. Care Clinic services range
from $4 doctor visits for the 1 million employees
and family members covered by Walmart insurance
to $40 doctor visits for the general public. Owned
by Walmart and staffed by QuadMed, these
clinics embody the low-cost healthcare service
model many families desire. With only 17 clinics,
Walmart’s future success is predicated on the
model’s scalability. If Walmart rapidly expands its
primary care services, drug stores must find ways
to expand and exploit their specialty prescription
services to deepen existing shoppers’ trust
and loyalty.
Access
In addition to the number of Supercenters, the
Walmart Neighborhood Market expansion directly
challenges drug stores because the box format will
provide shoppers with increased access to lowcost health services. Approximately 43% of sales
Walmart is expected to add in the U.S. in 2015 will
be from Neighborhood Markets (Figure 2). The size
of these stores will range from 12,000 to 43,000
square feet. In the past, the look and feel of these
small formats mirrored the Walmart Supercenter
assortment with large footprint space dedicated
to consumables and produce. As Walmart moves
forward, its strategic focus is on fresh, fuel, and
pharmacy. That means that the pharmacy will
now be included in all new store openings along
with scaled-down versions of its new healthcare
experience and services.
Figure 2: Neighborhood Market Expansion and Sales
Store Count
Neighborhood Market Stores
$35,000
1,800
1,606
1,600
190
Expected NMKT
opening in 2015
1,400
1,200
1,190
789
800
599
600
400
1,395
990
1,000
241
$25,975
$25,000
$21,258
$20,000
$16,831
$15,000
$5,000
0
2013
$30,136
$30,000
$12,744
$10,000
346
200
2012
Sales (USD Millions)
Neighborhood Market Sales
$4,742
$6,228
$9,038
$-
2014 2015E 2016E 2017E 2018E 2019E
2012
Source: Company reports, KRiQ, Kantar Retail analysts
68
2013
2014
2015E 2016E 2017E 2018E 2019E
services that should keep them up at night. The jury is still out on how
Walmart will scale this new strategy across all its formats. In the meantime,
drug stores must play to their strengths of personalization and innovative
enterprise health solutions to maintain shopper loyalty.
If Walmart intends to fuel its future growth plans with Neighborhood Markets,
the mass merchandiser may soon rival Drug as the top healthcare destination
and threaten drug stores’ price/value proposition. Walmart’s attempt to
become the leader in low-cost healthcare should make drug stores uneasy,
but it is the combination of Walmart’s EDLP model with its low-cost healthcare
69
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