winning with discounters - fifth p industry viewpoint

FIFTH P StrategyWinning with Discounters

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The rise of discounters1

The long-term impact for the industry2

An effective way to leadership in price positioning3

How to find out more4

As the retail price wars evolve, suppliers will come under continuing pressure to grow value simultaneously across all channels

What are the challenges? Long term price

deflation erodes profit margins

Short term reactionary tactics have a knock on effect in the market, eroding further value

Price match guarantee & promo promiscuity intensifying trade spend pressure

Evolving price war further diluting brand loyalty and reducing ability to charge a brand premium

GROCERY

DISCOUNTERSCONVENIENCE

Profit erosion

- Price deflation as other channels expand their convenience offering

+ Price consortiums benefitting from scale to rebalance supplier negotiations

+ Rapid share gains

+ High shopper value perception

- Mounting profit concerns

- Hypermarkets losing traction in favour of smaller formats

- Shrinking ability to command a premium for branded products

Channel leakage

£££

£££

£££

£££

Amid the rise of discounters value growth will remain tied to pricing

PRICE DEFLATION IS HERE TO STAY

Consistent competitive pressures, wage deflation and shopper value perception will further erode prices

DISCOUNTERS ARE THE NEW PRICE BAROMETER

Morrisons will be joined by their competitors in price matching against the discounters, as a new price floor is

established

TRADING WILL ONLY GET TOUGHER

Retailers will expect suppliers to fuel the price war through

increasing trade investment

2006Introduction of loyalty schemes and targeted consumer promotions led to rapid value growth in the top 4

2008Recession severely affects average basket spend and promo promiscuity, eroding value in branded products

2009

Creation of revenue growth functions allowed companies to improve net price realisation through quick wins

TODAYBig four invest over £1bn in price warDiscounters gain significant traction across the consumer landscape

Retail sales value

Manufacturer gross margin %

Leading in pricing & winning in the discounters era: What you can do to retain value?

Achieve a well considered and rational consumer price positioning and corridors; groceries VS discounters first and foremost

Establish the right enablers to implement a

defensible pricing structure

Sales director need to lead the way in changing the mind-set of the business towards channel pricing leadership

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3

4

Ascertain your future role as a category and as a

business within the discounters’ overall strategy

2

Sales director need to lead the way in changing the mind-set of the business towards channel pricing leadership

1

TODAY TOMORROW

Adaptive approach

Less reactive approach

than in the past but

pricing and promotion

decisions still heavily

adapting to customer

landscape

Pre-emptive approach New mind-set across

the business in setting

price positioning and clear level of

accountability in the team

as to who manages it

Cultural Shift to empower NAMs to make effective and considered channel-wide decisions

A

Having the right tracking and measuring mechanism to provide relevant insights

B

Embedding price positioning as a critical step in the sales planning cycle

C

YESTERDAY

Reactive approach

Pricing and promotion decisions taken in

response to external events

RESPONSIVE TO CUSTOMER CHANGES IN PRICING

STRATEGIES

PROACTIVE STRATEGY

MANAGEMENT

Ascertain your future role as a category and as a business within the discounters’ overall strategy

2

Apply analytical rigour to fully understand and monitor the discounter’s point of view of the FMCG world via a mix of primary research and secondary data analysis. Clarity on their priorities will better inform your price positioning decisions.

How do they identify their main competitors?

What are their national plans in terms of geographical expansion?

How do they want to price position themselves in the market and how can we support the execution of their pricing strategy?

What shopper segments are they after? How are they changing their in-store customer experience?

What role does the UK market play in the group global growth strategy?What level of margins are they prepared to operate within? What’s the role

of premium brands VS private labels in their overall brand strategy?

What are their overall assortment priorities for the future (breadth and depth), outside the beverage category?

To what extend are the willing to dilute their model by trading up their merchandise assortment to higher quality products?

What are their shopper engagement programs and how can we support them via pricing and pack decisions?

Achieve a well considered and rational consumer price positioning and corridors; groceries VS discounters first and foremost

3

Ensure consistent Target Price positioning across channels and against competitors in order to achieve financial ambitions

Clear channel and customer roles in the current landscape and within future trends

Determine pricing relationships in the market and identify key product battlefields for customers

Assess the impact of channel leakages and identify the most material products

DICOUNTERS VS GROCERY STORES PRICE POSITIONING

Do Grocery and Discounters need to be in the same corridor?

Do we need to differentiate the packs so that they don’t conflict?

Establish the right enablers to implement a defensible pricing structure

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Define the right structural pricing to help achieve and manage the consumer price corridors in the market

Structure the pricing to your customer in line with how you want them to behave in the market.

The key is to contrast customers’ strategy :– Whom they are trying to

compete with?– What do they want to price

position themselves in the market?

– What level of margins are they prepared to operate within?

Lidl Asda

List Price

Net Invoice Price

Triple Net Price

On-Invoice

Discount

Promo Investmen

t

Terms

Use Rate Card Pricing, promo and trade investment by customer to support price positioning

Interested? How to find out more…

We are Fifth P. Since 2011, we’ve worked with our clients in the FMCG & consumer product industries across Europe to create growth strategies that sustain long-term growth & leave lasting legacies

+44 7521 012 923

[email protected]

winning with discounters - fifth p industry viewpoint

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