Basic Guide to selling Private Label in Germany

The Private Label Proposition
Dublin, April 22nd 2009
Basic Guide to selling Private Label in
Germany
Hermann Sievers, smk-consulting, D-Hamburg
1
Germans shop around – smart shopper!
2
German FMCG-Retail:
Private Label + 15 %-points in 8 years!
FMCG Brands
Private Label (incl. Aldi)
Brands
Private Label
3
Development of PL-share 2004 – 2008
in Germany
total
Food Retail Hypermk Discount Supermk
Drugstore
Brands
PL
4
Aldi´s PL-dominance:
40% of all PL in Germany sold through Aldi!
5
Share of Private Label within categories
examples (01 – 06 2008)
Dairy (white)
Non-perishables
Staple foods
Frozen/icecream
non alc beverage
cereals
sweets
6
Development of Private Label share
per discount retailer (Germany)
7
Pioneered by Aldi, discounters are the dominant
retail format in Germany.
50s-70s
• Aldi as discount pioneer
• Market entry of other
discounters
• Limited assortment with
focus on food
80s-90s
• New format and
assortment strategies
(e.g., non-food)
• Strong focus on
internationalization
2008
• Expansion into new
assortments and services
(e.g., travel, M-Commerce,
fresh products, bio)
• Beginning consolidation
< 2,000 stores
≈ 12,000 stores
>15,000
15,000 stores
< 5 % market share
≈ 30% market share
> 44% market share
8
Key success drivers discount in Germany
Assortment
• Limited, but covering all
essential needs
• Enriched by seasonal items
Quality
• High standards, confirmed
e.g.
by Stiftung Warentest
Image
Efficiency
•Low complexity, high
continuity and convenience
• 98% penetration
• Accepted by all consumer
segments
• Each household can reach three
different discounters within 10
minutes
• High degree of
standardization
• Attention to details
9
Half of German consumers can almost
exclusively be reached through discounters
98,0%
of all German households bought at discounters in 2006
51,0%
47,0%
regular purchase
at discounters
“sporadic” purchase
at discounters
97 trips p.a.
37 trips p.a.
65%
demand
coverage
at discounters
24%
demand
coverage
at discounters
Today:
Distribution at discounters in Germany is a success factor for brands
10
source: GfK ConsumerScan, Nov.2005–Oct.2006
German Discount Retailers
11
Germany: Discount Retailers Ranking 2008
Company
outlets
Aldi Süd
Turnover in bn.
€
13.3
remarks
Aldi Nord
11.2
2,500
Lidl
14.8
3,000
Netto/Plus
11.0
4,000
Merger in 2008
7.0
2,300
300 outlets from
Plus (2008)
Norma
3.3
1,250
Focus on South/
Southwest Germany
Netto North
1.0
300
1,700
(EDEKA)
Penny
(Rewe)
(Dansk
Supermarket)
Focus on Eastern
Germany
source: Trade Dimensions, Lebensmittelzeitung, own estimations
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Two Aldis in Germany:
Division Aldi Nord/ Aldi Süd
n Nord: 35 subsidiaries incl.
n
n
n
n
n
distribution centers
2.500 stores
Simple store- and poduct design
Limited assortment < 850 sku
Turnover/store: 4,3 Mio €
Turnover/sku: 6 Mio €
n Süd: 31 Subsidiaries incl.
n
n
n
n
n
distribution centers
1.700 stores
More sophisticated product- and
store design
Broader assortment <1.000 sku
Turnover/store: 7 Mio €
Turnover/ sku: 7 Mio €
Some identical products can have different pricing in Aldi
Nord/Süd
13
TOP 6 german retailers (in bn. €)
(total Market: 151 bn. € in 2008)
EDEKA Group
(incl. Netto)
37.606
90 % food
Metro Group
(incl. real.-)
31.575
42 % food
REWE Group
(incl. Penny)
29.580
83 % food
Schwarz Group
(Lidl + Kaufland)
26.500
82 % food
Aldi Group
(Aldi Nord+Süd)
24.500
81 % food
Tengelmann Group
(incl.Plus)
13.990
61 % food
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The relative price increases in 2008 accelerated the growth
of discounters – Aldi back on a growth path
share of sales (in %)
change value (%) **
drugstores
2002 2003 2004 2005 2006 2007 2008
7,8
8,0
8,2
7,9
8,5
8,7
8,6
23,6
hypermarkets
total
(> 1500 sq m)
supermarkets
(< 1499 sq m)
discounters
Aldi
Lidl
bn. €
**
2008:2007
+2,4
23,6
23,6
24,6
24,4
24,7
24,1
+2,7
31,8 30,1
28,7
26,3
24,6
23,6
23,3
+4,0
38,4
40,9
42,5
43,0
44,0
+7,6
36,8
39,7
18,3
6,4
18,8
7,1
19,1
7,1
18,9
7,9
19,6
8,6
18,7
9,2
18,9
9,7
+6,5
+11,2
134,7 136,7 136,6 136,6 140,2 144,2 151,6
+1,5 +0,0 -0,1 +2,7 +2,8 +5,1
share of retail chains* in retail food trade
source: IRI universe, always at end of year
* according to retail panel system
** own calculations based on GfK ConsumerScan, total till roll fmcg
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Retail formats cost comparison
Total costs as % of grossprice
VAT
Profit
Advert
Headq
Logistic
POS
16
Growing consciousness of German retailers
to become retail brands
n Pricing is not the right means to differentiate from competition.
German shoppers differentiate only 3 types of food retail
outlets: supermarkets, big supermarkets (hypermarket) and
cheap supermarkets (discounters). But only discounters are
synonymous for cheap prices.
n Therefore, during the last 2-4- years food retailers have started
developing positionings and concepts to differentiate from
competition. There is a trend of becoming a retail brand like
Tesco, M&S or Sainsbury in the UK
17
German food retail (full assortment):
consciousness to become a Retail Brand
18
Some Touch-points of a Retail Brand (EDEKA):
overall performance of brand is most important!
19
Key success factor Private Label –
focus on Retail Brand
n EDEKA: since 2005
n REWE: since 2007
n Globus: since 5/2008
n real.- (Metro): since 8/2008
Privat Label is not only another „Touch Point“ , but it is an ultimate
expression of the Retail Brand, because customer takes it home and taste it!
20
EDEKA frozen Pizza
>old
<new
21
Original Positioning of Private Label (2007):
cheap me-too brand
22
Key economy brands:
benchmark Aldi for quality & price
Aldi movements in price & product are carefully observed and
instantaniously copied („GUT&GÜNSTIG“=EDEKA, „ja“ = Rewe, „Tip“ = real.-)
23
2009: Discounters start again Price War as
Means against recession & new challenger
24
Germany: The Hard Discount Price War
Q 1/2009: Aldi leads the gang!
25
Food Retailers (full assortment) with reasonable
Private Label Business (>10% share)
EDEKA
> 2 bn. € (75% GUT&GÜNSTIG)
REWE
>1,5 bn. €
Kaufland
> 1,2 bn. €
real.- (Metro-Group) > 1,0 bn. €
Tegut
> 0,2 bn. € (focus organic)
Globus (St. Wendel) > 0,3bn. €
There are more chances for innovative product concepts than with
commodity products for economy brands
26
EDEKA Private Label structure:
cover all price tiers
n Premium
n Wellness/Organic
n Convenience
n Standard
n Economy
27
PL-structure EDEKA. Meaning for supplier
Top-quality in product and packaging,
better/different than brand, innovative, create trends,
create value
mostly me-too, low grade of innovation,
sophisticated packaging, Low-cost, added
value
Me-too of 400 – 600 Top-Aldi
products, low cost producer, hard
price negotiations, small
revenuel, not innovative
28
New Launches EDEKA (2007-2009)
Even for standard Private Label, retailers look for new product
concepts, they try product and packaging innovations
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EDEKA GUT & GÜNSTIG
n Philosophy: Benchmark Aldi in
- assortment of core-products (ca. 500-700 sku)
- Identical in quality (packaging & product & taste) and price!
n Umbrella-brand design, „cheap“-looking
n Placing: medium to low
n No innovations, only me-too Aldi
n Suppliers: usual 1-year contract
n Supermarkets: 7 regional wholesalers, 40 distribution centers
n General PL Framework-Contract: responsibilities design, law,
cost, licensing, quality assurance/management (acc. IFS), audits,
test results („Stiftung Warentest“, „Ökotest“), liability, quality of
deliveries (Logistics), penalties, recall of defective products etc.
Multi-tier-retailers like EDEKA and Rewe have more than one
decision maker, that adds complexity to the buying process
30
Real.-: new Private Label structure (2008)
Potentials on all tiers - problems to find „selection“-products
31
REWE Privat Label structure (2008):
n Processed Meat/Meat
(net-margin: 35-45%)
n Wellness/Organic
(net-margin >35%)
n Standard
(net-margin >30% or rather
beyond category-average)
n Economy
(net-margin >20%, but
depending on Aldi-price)
32
Kaufland Private Label
(Hypermarket Schwarz-Group, 11.8 bn. €/2008)
n K-Classic Label: Economy
Brand, introduced 2004
n Share: ca. 10%
n K-Classic „WellYou“ WellnessRange, introduced 2008
n Centralized and efficient
decision making
n 5 distribution centers
Successful Hypermarket-concept in Germany: „Discount-Hypermarket“
33
Which part do private label products
play in Discount stores?
n Besides price, discount retailers seek a differentiation through
special products, esp. within fresh/chilled products
n Aldi and Lidl – try to distinguish themselves through private
label
n Private label products in discounters are no longer only me-too,
but besides the basic assortment (still me-too) there are
additional assortments to deliver profit and competence.
n Typically, there is no distribution of new product launches
ofbrands (fmcg) in discount stores. Therefore discounters have
to launch new concepts/products via private label.
n In some areas, discounters like Aldi & Lidl made markets resp.
create new categories.
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Aldi & Lidl create categories!
Fast adoption of trends: smoothies
35
Aldi: keeping up with trends
wellness & organic
36
Aldi Süd: Co-Branding with Brand!
Brand manufacturers can avoid confrontation by coco-branding.
branding. CoCo-branding as a result from
coco-operation with manufacturer brands to tailor their offers to their target groups.
groups.
Aldi PLPL-brand
French brand
+
=
37
Products you wouldn´t expect in Hard
Discounters
38
Hard Discount: new Luxury Private Label
„Luxury for everyone“
39
Aldi: strict quality standards
40
Country-Promotions at Aldi, Lidl, Penny
What about an Irish Week?!
41
Many ways to do business with Aldi (Nord +
Süd)
n National Listing = become part of the normal assortment; oneyear contract
n Local Listing = become part of the normal assortment of one or
more warehouses (>local products and for testing)
n Promotional Listing: Listing for one – usually weekly - promotion
incl. national advertising in the particular week
n Seasonal Listing: Listing for a special period, f.e. a barbequeproduct will be listed from April – September
n Thematical Promotion: become part of a special advertising
(„America“, „Italian Week“, „Wellness“, etc)
n Usually, you don´t need a contract
n Centralized distribution
n Net/net-prices (incl. your delivery cost to depot/warehouse)
Promotional listings could lead to normal national ones!
But it is always a matter of low price and high quality!
42
Aldi´s internal listing process: Trial & error
example cheese
Best customer is the one who shops regularly and buys much
n
n
n
n
n
n
n
n
Which varieties of cheese are really needed?
Strong demanded, easy to handle-products for every day
Best quality
Internal consideration, talks with some potential suppliers*
Check the suppliers offer
Test in some outlets or one region for some months
Analysis of test results, perhaps check another variety
Decision, to introduce into all stores or refrain from it
*suppliers too can suggest a new product
If necessary (big category/avoid risk), Aldi takes more than one
supplier per product
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The other ones (Lidl, Netto, Penny, Norma)
act similar to Aldi
n National Listing = become part of the normal assortment; oneyear contract or no time limit
n Promotional Listing: Listing for one – usually weekly - promotion
incl. national advertising in the particular week
n Seasonal Listing: Listing for a special period, e.g. a barbequeproduct will be listed from April – September
n Themed Promotion becomes part of a special advertising
(„America“, „Italian Week“, „Wellness“, etc)
n At Lidl, you have to sign a PL-contract. In general, not much
paperwork with discount headquarter
n Centralised distribution
Promotional listings could lead to a standard national listing!
But it is always a matter of low price and high quality!
44
Private Label Suppliers have to be innovative
n As neither German discount retailers nor full assortment
retailers have NPD-departments at their disposal, they need
innovative and creative suppliers who deliver more than just
me-too. In most cases, responsible person is the buyer/
category manager = decision maker. There is no
Marketing/Product Management at Aldi, Lidl etc!
n Retailers expect ideas and suggestions for category
development by private label suppliers
n UK PL food retail is still seen as leading in Europe. Therefore
suppliers with experience to UK Private Label have an asset
against competition from continental Europe.
n (compared to the U.K. and Ireland, German food retail is not so
sophisticated. Price is still the key means to do the business)
Don´t consider commodities, think of innovations!
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Whom to start with?
(Details depend on particular retailer)
n Discount:
high turnover/sku, good structure and organization of decision &
supply chain, fast, only centralized distribution+assured
distribution into each outlet, not much paperwork, quickly follow
and sometimes (Aldi) create trends, introduction of „luxury“brands, no Marketing, spectrum from single local promotion to
long lasting national listing, sometimes individual
packaging/content/size required (mixed tray etc.)
n Supermarkets:
low turnover/sku, complicated structure (strategic, national, local
buying), slow decision, mostly centralised distribution but no
assurance for distribution in each outlet, expect innovations from
brands+ but also open for PL-innovations, listing at Aldi is
advantage (positive argument!), much paperwork
In „discount country“ Germany try Discount Retailers first!
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Thank you very much!
Hermann Sievers, smk consulting, D-Hamburg
[email protected] www.smk-beratung.de
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