Value Chain Strategy in a VUCA World
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The document discusses trends in the food industry and consumer landscape in a volatile, uncertain, complex, and ambiguous (VUCA) world. It notes that consumers are increasingly demanding and face changing demographics. The food supply chain is driven by the consumer, who wants value, convenience, quality, and transparency. Major trends include the rise of discount stores and ethnic retailers, online grocery growth through companies like Amazon, and evolving retail formats. Strategic opportunities lie in understanding diverse consumers and adapting quickly to their changing needs.
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Value Chain Strategy in a VUCA World
- 1. Value Chain Strategy in a VUCA world Richard Kochersperger Summer 2013 Volatile Uncertain Complex Ambiguous
- 3. Tell Me and I Forget Teach Me and I Remember Involve me and I Learn Ben Franklin 36/14/2013
- 4. Previous Presentations • 2013: The Consumer will change your business whether you like it or not! • 2012: Speed: The Consumer is Changing Faster than the Food Industry can change! • 2011: Seek to stay out in front and don‟t look back! • 2010: The World is Changing Faster than you are! 6/14/2013 4
- 5. Goals/Objectives • Who‟s Driving the Bus (food industry)? • Economic Impact of a leaderless nation. • Food Industry Perspective – Winners and Losers – New Developments • A review of Key Players/Concepts • Strategy: Key Issues and Opportunities 56/14/2013
- 6. Consumers are becoming more demanding and retail/foodservice operations face tougher questions. CONSUMER Increasingly fast- paced lifestyles Tech-savvy Ageing population Single households Uncertainty over economy MARKET Legislation Saturation Urbanisation Rising commodity prices Rise of e-commerce I want value I want that NOW I want convenience I want quality Where does my food come from? Can online work alongside our outlets? How can we cope with rising costs? How will we cope with restrictive legislation around „unhealthy‟ food? What technology will work best? How can our menus/products best reflect ethnic and ethical trends?
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- 8. The Consumer Drives the Food Supply Chain 86/14/2013
- 9. Customer‟s Perspective •Anytime: 24/7/365 •Any Place: Format •Anywhere: geography •My Way! 96/14/2013
- 10. The “Have” and “Have Not‟s” $0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 $140,000 1970 1975 1980 1985 1990 1995 2000 2005 2010 Bottom 20% Top 20% 106/14/2013
- 13. Who Are My Consumers? Generation Age Millions of People Millennials (Generation Y) 18 - 24 71 Generation X (Busters) 25 - 35 41 Younger Boomers 35 - 50 48 Mature Boomers 50 - 65 40 Depression / WWII 67 - 80 35 G.I. - Pre 1928 Over 80 26 Generation Alpha (google kids) under 6 ??? Generation Z (digital natives 6 - 18 35 136/14/2013
- 16. Observations about the Consumer • Consumer behavior is changing faster than our abilities to change the FCPG supply chain (OMNI-Channel) !! • Demographics don’t work!!! – 5 W’s: Who, What Where, When, Why? • Different drivers affect decision making 166/14/2013
- 17. 5 W’s • Who? • What? • Where? • When? • Why? As consumers we are diverse in thought, purchase behaviors, and the use of technology. We are individuals. The successful marketer understands the weaknesses of „labeling‟ people; therefore, they keep a record of purchases, responses to promotions, emails, feedback etc to build „customized‟ shopping suggestions. IE., Amazon 176/14/2013
- 18. Thought for Today 6/14/2013 18
- 19. Reality Check American Employment??? • Available Workforce: 155 million • Unemployed/underemployed: 29.7 million • Real Rate: 19% • Rutgers Study: 2006-2011 – 27% of the graduating students have full time jobs – 33% are unemployed • The median family income dropped 39% since 2007 19 7.7 6/14/2013
- 20. Reality Check 206/14/2013 90 million don‟t work 23 million claim disability 48 million on SNAP
- 22. Reality Check • 1 in 6 Americans; 1/10 Canadians are challenged to feed themselves • 2 Billion people worldwide do not have enough food to eat! • 40% of global food resources are wasted – Not harvested – Spoils – Thrown away 226/14/2013
- 23. 4 Biggest Economic Factors • Payroll tax increases: The expiration of payroll tax cuts on January 1 hit lower- and middle-income consumers especially hard. • Housing recovery is not real: Many of the purchases are speculators: Investment Groups • Healthcare: Rising premiums will continue to funnel consumer spending to healthcare rather than to food & retail consumption • Energy Costs: Significantly impacts consumer budgets 6/14/2013 23
- 24. Future FCPG Industry Supply Value Chain Command Center Control Tower Roles can not be defined Retailers Google Microsoft Amazon The Consumer Distributors Third Party Alliances, Partners Manufacturing Network Regional, global plants Bulk, Semi-finished, Filling Finishing, Suppliers Information Information InformationInformation Information 246/14/2013
- 25. Thought for Today “Insanity is doing the same thing, over and over again, but expecting different results.” ― Albert Einstein 256/14/2013
- 26. 10 Food Companies Dominate 266/14/2013
- 27. 27 Food Retail Industry Graveyard 6/14/2013
- 28. Food Retail Industry Graveyard 286/14/2013
- 29. Food Industry E R 296/14/2013
- 30. Food Industry E R 306/14/2013
- 31. Consumer Reports 2012 • 33% changed primary store • 43% looking for lower prices • 25% poor selection, long lines • 17% employee rudeness • Not enough checkouts • Wegmans 88 • Trader Joe‟s 86 • Publix 85 • Fareway 84 • Costco 83 • Harris Teeter 83 • Raley‟s 82 • Hy Vee 82 • Stater Bros 81 • Winco 81 • Whole Foods 81 316/14/2013
- 33. 6/14/2013 33 Food Retail Winners
- 34. Rise of the Ethnic Focused Retailer 346/14/2013
- 36. Same Store Sales % Change from last year May -2.09% April -5.15% March +2.53% February -0.67% January +1.67% December - -0.94% November -0.26% October +0.58% September -0.88% August -0.81% July +0.85% June -2.01% May +1.17% April +1.84% 6/14/2013 36 Inflation Rate: 1+% At Home 2.3% Away
- 37. 2013 Retail Market Share Number of Stores Dollar Share Annual Millions Traditional Grocery 40,333 42.9% $480,138 Total C Stores 152,513 15.6% $158,546 Total Non Traditional Grocery 54,325 39.1% $387,529 Dollar Stores 23,418 2.4% $21,492 Total All Formats 247,081 100% $1,026,215 Future of Food Retailing, 2012 Willard Bishop 376/14/2013
- 39. Key Developments • McDonald’s Seen Overhauling U.S. Menu From 145 Choices • Kroger Powers DC with Food Waste • Six Food Recalls a Day in the U.S. and Counting • Whole Foods Mulls Larger Stores, Acquisitions • Bright Farms to Build Greenhouse in DC Food Desert • Loblaw Rolls Out Digital Loyalty Program • Fresh and Easy TBD • Walgreen’s Energy Free Store 6/14/2013 39
- 40. Retail Developments • Supervalu returns to its roots • C&S supplies Winn Dixie • Target opens in Canada • KROGER Turkey Hill signs distribution deal with CORE-MARK • TARGET and other US Retailers test Google same-day delivery • 7-Eleven Owner to More Than Double North America Stores • Costco to open 150 more warehouses • Sweet Bay/Harvey’s goes to Bi Lo • Wal-Mart Neighborhood Market to expand 6/14/2013 40
- 41. Retail Developments • WAWA goes to Florida: 100 stores • America runs on Dunkin‟ • Deep Discount Stores (Family Dollar, Dollar General: 500 stores+ 6/14/2013 41
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- 45. New Fresh Formats 6/14/2013 45
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- 51. Global Battle Company Banner Sales, 2011 (USD bn) 5-year CAGR, 2006-2011 1 Walmart 483.1 +5.6 2 Carrefour 150.4 +4.1 3 Tesco 116.3 +6.0 4 AEON 107.7 +12.8 5 Metro Group 106.3 +4.0 6 Seven & I 98.8 +9.6 7 Schwarz Group 97.5 +10.9 8 Kroger 93.7 +6.3 9 Costco 93.5 +7.4 10 Casino 86.3 +10.1 Company Banner Sales, 2017f (USD bn) 5-year CAGR, 2012-2017f 1 Walmart 637.7 +4.8 2 Amazon 199.4 +24.8 3 Carrefour 169.6 +4.8 4 AEON 158.6 +5.9 5 Tesco 156.9 +5.2 6 Costco 151.7 +7.8 7 Seven & I 140.2 +5.8 8 Schwarz Group 130.1 +6.4 9 Metro Group 118.5 +3.6 10 Auchan 113.3 +6.7 6/14/2013 51
- 52. McDonald’s and Yum! Brands will extend their leadership through penetration of international markets and adapting to local consumer behaviour. US chains dominate, holding all spots in the top 10. 0 20,000 40,000 60,000 80,000 100,000 120,000 McDonald'sYum! BrandsBurger King Subway Starbucks Wendy's Dunkin' Brands Darden DineEquityDomino's Pizza RetailBannerSales(USDmn) Total Banner Sales 2011-2016 2011 2016 McDonald’s will remain the market leader, as it continues to enhance its brand image and adapt product ranges to local tastes. Burger King is currently playing catch-up after suffering during the downturn, but is forecast to drop to fifth by 2016. Dunkin’ Brands is set to move up to sixth by 2016 with the Dunkin‟ Donuts banner focusing on expansion in Europe and Baskin- Robbins concentrating on the US. Domino’s Pizza will retain its position through international growth and e-commerce drives. Source: Planet Retail
- 57. Bricks-NA • WINCO FOODS plans new DC in Phoenix • ALDI NORD Trader Joe’s to build DC in Pennsylvania • ALDI NORD'S Trader Joe's chooses Texan DC site • ALDI SÜD to start work on south Florida DC soon • Grocers Supply to build in Dallas 6/14/2013 57
- 58. Bricks • SCHWARZ GROUP Lidl builds new DC in France • TESCO One Stop DC for northern England • CPALL to expand distribution network • MERCADONA equips new DC with Witron automation • CARREFOUR plans new DC near Marseille • DIA to open new warehouse in Argentina • DELHAIZE GROUP begins construction of Serbian DC 6/14/2013 58
- 59. Pick Up Sites: Peapod • Chevy Chase, Columbia, Clarksville, MD • Amazon partnerships: Rite Aid, Staples, 7-11 • Walmart: a retail store. • Europe: click and pick common at store level 6/14/2013 59
- 60. Clicks • MARKS & SPENCER opens new multi- channel DC • AMAZON to open Czech Republic DC • WAKEFERN introduces online case ordering • SEARS offers fulfilment service for other retailers • TESCO plans new dotcom warehouse in Didcot • Peapod building new DC in North Jersey • Fresh Direct new DC in the Bronx 6/14/2013 60
- 61. Social Media • Facebook buys Instagram • Google purchases Wildfire • Salesforce buys Buddy media • Yahoo purchases Tumbler • Oracle buys Involver and Virtue • Over $3 billion was spent to access social media. 6/14/2013 61
- 62. Thought for Today “A mind is like a parachute. It doesn’t work if it is not open.” ~ Frank Zappa 6/14/2013 62
- 63. Battle of Value Chains 6/14/2013 63
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- 74. January 2012 January 2013 Increase Grocery items 13,869 31,700 128% Sold/Fulfilled by Amazon 8,238 10,174 +1,936 January 2012 January 2013 Increase Grocery items 155,000 229,000 48% Sold/Fulfilled by Amazon 17,925 39,000 +21,075 #1 „Earth‟s Biggest Selection‟ January 2012 January 2013 Increase Grocery items 620,000 1,703,527 174% Sold/Fulfilled by Amazon 169 75,000 +74,831 Amazon’s Grocery category expansion: Source: Planet Retail
- 75. % of Total Category Sales Online 756/14/2013
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- 87. Amazon Performance 2010 2011 2012 2013 Sales 34.2B 48.1B 61.1B Inventory Turns 11 10 9 Accounts Payable 72 74 75 Cash Flow 3.5B 3.9B 4.2B Cap Ex 979M 1.9B 3.8B Shipping Revenue 3.5% 3.2% 3.7% Outbound <7.5%> <8.3%> <8.4%> Fulfillment <8.5%> <9.5%> <10.5%> Gross Margin 22.3% 22.4% 24.8% 6/14/2013 87
- 88. • Walmart serves customers more than 245 million times per week at more than 10,857 retail units in 27 countries • WalMart employs 2.2 million associates globally, including almost 1.4 million in the United States. • Walmart is one of the largest private employers in the U.S., the largest in Mexico and one of the largest in Canada as well. 886/14/2013
- 91. Source: A.C. Nielsen Channel Service Over 75% of Walmart Supercenter volume is being captured from retailers in other major channels. Each new Walmart Supercenter averages $1.7million in sales per week (roughly $900,000 in supermarket item volume). If Walmart takes 5% to 7% of the $750 billion grocery industry in 2013, Walmart will add $35 - $50 billion Supercenter Source of Volume 33% All Other 32% Grocery Chains 22% Walmart Discount Stores 13% Other Mass 6/14/2013 91
- 92. 92 69 different banners through out the World 6/14/2013
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- 94. WalMart Growth Format 2013 2014 Large Format >60,000 sq.ft. 125 125 Medium/ Small <60,000 sq.ft. 90-100 90-100 Sam‟s Club 12 15 Total 237 240 946/14/2013
- 95. Walmart Innovations • Experimenting with grocery home delivery – San Jose, San Francisco, Chicago. • Introduced „Goodies‟ – Subscription service for new products not carried in inventory • Offering „same-day‟ deliveries via internet • Offering click and pick with in-store lockers • Partnership with American Express Cards • Offering Scan and go via smartphone 956/14/2013
- 100. 100 When there Is no vision, the people perish! 6/14/2013
- 103. Mobile Ecommerce 103 Social media marketing is going to blow the shingles off the roof once people really figure out how to use it Megan O’Connor, Levi Strauss 6/14/2013
- 104. Online grocery shopping is most prevalent among shoppers in the Asia region. Growth is being spurred by retailers embracing e-commerce as young, affluent, tech-savvy consumers opt to shop via the channel. 10% 7% 7% 27% 10% 8% 33% 31% 11% 13% Proportion of web shoppers who have made grocery purchases online. Source: Planet Retail’s Online Shopper Survey data.
- 105. On Line Food Sales 1056/14/2013 FMI: 11%
- 107. Smart Phone Users Reach for Phone 150 X/Day 6/14/2013 107
- 108. The Move to Wearables 6/14/2013 108
- 114. World’s Largest E-Commerce Co 1146/14/2013
- 115. Same Day Delivery 6/14/2013 115
- 116. Closing Thought Excellence is not a skill. It is an attitude. ~Ralph Marston 1166/14/2013
- 119. Value Chain Initiatives • 1. Develop an Omni Channel Strategy: – Pick from a DC; Direct to Consumer – Pick from a DDC; Direct to Consumer – Pick from a DC; Pick up at the store – Pick from a DC; Pick up via a locker – Pick from retail store; direct to consumer – Pick from retail store; pick up at the store 6/14/2013 119
- 120. • 2. Take fingerprints off the “box” • Remove the number of touches in the value chain – Collaboration – Flow Through – Cross Dock – Reduce back door receiving 6/14/2013 120 Value Chain Initiatives
- 121. DC: Automation 121 Take Fingerprints off the Box! 6/14/2013
- 122. • 3. Effectively manage transportation services – Professional traffic team to control all purchase orders. – Audit team to review freight bills. – Move to intermodal where appropriate – Review energy resources: Natural Gas, Electric – Hedge your energy commitment – Black box/satellite connections with all assets – Balance the work load : Offer incentives for „slow days' 6/14/2013 122 Value Chain Initiatives
- 123. Urbanization • Traffic • Smaller Stores/Trucks • Road Restrictions • Parking • Noise Levels • No Docks • Security • Congestion 1236/14/2013
- 124. • 4. Invest in Technology: Goal is to go paperless; immediate response time – Internet of things: • Wearables • Scannables • Flyables – Traceability of products, support equipment, people. – Big Data: capture; analyze; manage – Cloud: SaaS 6/14/2013 124 Value Chain Initiatives
- 125. Satellite Communications 125 V to V: Cars, Trucks, Airplanes, Trains 6/14/2013
- 126. Technology • Outside IN: Respond to the market – Social Media – Industry Resources – Trend Watching – Utilize the Digital Natives • Demand Shaping • Customer Relationship Marketing (CRM) 6/14/2013 126
- 127. Technology Tools • Brands go online direct to consumer • On-line food shopping continues to grow significantly • An explosion of mobile shopping/scanning apps • Digital dialogue widens/expands • Front end checkouts are eliminated 6/14/2013 127
- 128. • What value does your company? Your team? bring to the – Consumer? – Customers? – Neighborhood? – Industry? • If your contribution is strictly moving product, your role will be diminished and/or eliminated! 6/14/2013 128 Value Chain Initiatives
- 129. Closing Thought • It‟s not the strongest companies that survive, nor the most intelligent, but the ones most responsive to change! 1296/14/2013
Notas del editor
- Key Channel Trend from the last five years. I have used Discount which reflects the CAGR growth on the last page (though you do not have to base your decision solely on CAGR if there is something more interesting to say about another channel)