Winning Strategies to
combat price divergence
May 3, 2012
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Volume and
Margin Growth
Long Term
Success
Mutual Success for
Manufacturers and
Retailers
What Do
We Want
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What are we facing
Trip declines
Rising prices
Increased reliance on promotion
All have led to…
Diverging trends in regular and future pricing
Profits being impacted
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What strategies and tactics can the
CPG industry leverage to profitably
grow in this environment?
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Winning Strategies
Innovation Types
1.
2.
3.
4.
Premium
Functional Benefits
Additional Usage
Ethnic
Manage Trade:
•
•
•
Increase promotion prices at least in concert with regular prices
Successful innovation helps support larger trade adjustments
Consider mix of products and retailers to maximize true incremental sales
Re-invest in the Consumer:
•
Allocate a portion of profit from price increases to consumer investments for
long run brand equity building.
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What is a divergent pricing trend?
R
onn
T
/
e
c
i
r Pr
a
l
u
g
e
$24.17
$23.59
$4.48 Gap
$3.33 Gap
$20.26
34%
Divergence
TPR Price/To
nn
$19.69
2010
2011
Divergence is defined by the growth in the gap between Regular and Promotional
pricing. For Micro Popcorn, the gap has grown by 34%.
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In a sample of 24
25 categories, we found price
divergence in 50%
84% of them.
th,th2011
Source:
, 2012
Source: 52
52 Weeks
Weeks to
to March
July 3010
0%
Laundry
Laundry
Frozen
FrozenConfections
Confections
Tea
Tea
Popcorn
Popcorn
Personal
Personal Wash
Wash
Pizza
Pizza
Complete
Frozen Meals
Com
plete Frozen
Meals
Soup
Soup
HAIR
HAIR
Convenience Hots
Hots
Convenience
Yogurt
Yogurt
Coffee
Coffee
Butterand
andMargarine
Margarine
Butter
PastaSauce
Sauce
Pasta
APDEO
APDEO
RTEC
RTEC
Side
Dishes&&Packaged
PackagedMeals
Meals
Side
Dishes
Mayo
Mayo
Puffed
Puffed
CSD's
CSD's
IceCream
Cream
Ice
Catfood
food
Cat
Water
Water
Chocolate
Chocolate
NPF
NPF
-128%
70%
40%51%
17%
44%
-10%
34%
12% 28%
-3%
20%
13%
19%
18%
3% 12%
-35%
12%
11%
11%
45%
10%
14%
8%
NA
7%
Price Divergence (Reg
0%7%
Price
TPR Price vs
YA)
Price- Divergence
(Reg
-6%
5%
Price - TPR Price vs YA)
7%
4%
4% 21%
NA 3%
-3%
2%
2% 15%
-63%
0
-46%
-2%
-1%
-3%
-15%-8%
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Selling less volume at Regular Price and More on
Promotion is not a sustainable growth model.
Baseline Sales
4%
Incremental
Sales
+
=
8%
Average Regular Prices +2%
Total Sales
Growth
Win the Week
Increased Regular
Prices are being dealt
back
Average TPR Prices 0%
Regular Prices Up
0%
Inflation 0%
Avg. Vol on Promo +2%
Source: 52 Weeks to July 30th, 2011
5%
+
=
5%
Average TPR Prices +3%
Straight Averaging Growth across 25 categories.
1%
Source: 52 Weeks to March 10th, 2012
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Less than a quarter of the categories studied
achieved sustainable/profitable growth.
Inflation
Less Volume, More $’s
More Volume, More $’s
•
•
•
•
•
•
•
•
•
Butter and Margarine
Frozen Confection
Ice Cream
RTEC
Coffee
Tea
Chocolate
Yogourt
Convenience Hots
Sustainable
and
Profitable
Volume
Less Volume, Less $’s
More Volume, Less $’s
•
•
•
•
•
•
•
•
•
•
CSDs
Popcorn
Mayo
Side Dishes & Packaged Meals
Cat food
Laundry
Soup
Puffed
CFM
Pasta Sauce
APDEO
Personal Wash
Water
Pizza
25 Categories: Inflation ($ Growth – Tonnage Growth) & Tonnage Growth
Source: 52 Weeks to July 30th, 2011
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Less divergence is moving categories to a more
sustainable model
Inflation
Less Volume, More $’s
More Volume, More $’s
•
•
•
•
•
•
•
•
APDEO
Tea and Coffee
Water
CFM
Personal Wash
Mayo
Frozen Confections
Pizza
Sustainable
and
Profitable
Volume
Less Volume, Less $’s
More Volume, Less $’s
• Ice Cream
• Laundry
• Convenience Hots
25 Categories that have changed quadrants only: Inflation ($ Growth – Tonnage Growth) & Tonnage Growth
Source: 52 Weeks to March 10, 2012
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A key differentiator between ‘growth’ and ‘profitable
growth’ is the ability to protect baselines.
Vol % Chg
Tonnage
Baseline
Incremental
Inflation
Total Categories (25)
0%
-4%
+8%
0%
Growth Cats (14)
+3%
-3%
+12%
0%
Profitable Growth (5)
+4%
-1%
+13%
5%
Deflationary Cats (11)
+2%
-4%
+10%
-3%
In the current environment, CPG companies need to carefully manage baseline
drivers and trade strategies to protect category dollar sales.
Growth Categories include those with a deflationary trend.
Growth = 1% or Greater Tonn Vol % Chg
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By innovating less, selling more volume on promotion,
and deeper featuring, deflationary categories are
exposed to baseline erosion.
Static-Inflationary (14)
Deflationary (11)
Inflation
2%
-3%
% Volume on Promotion
50%
58%
Regular Price Chg
+3%
0%
TPR Price Chg
+2%
-4%
Innovation Share
4.3
2.9
Elapsed Days
35.2
40.9
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The successful categories are winning at shelf and
increasing feature prices.
Top Inflationary/Deflationary Categories Reviewed
%U
Deflationary
Categories
Inflationary
Categories
Reg $ Chg
Tea
TPR $ Chg
14
5
CSDs
1
Pasta Sauce
1
-2
-3
2
1
-2
0
0
1
3
0
0
0
-1
0
-3
4
-3
4
0
CFM
0
4
4
Yogurt
Tonn Vol Chg
3
2
6
6
Hair Care
%U
15
8
4
RTEC
Laundry
Avg Items Sold
3
2
Chocolate
Soup
%U
18
Coffee
Puffed Crck
Pt U
5
-5
1
-4
-4
-7
0
Source: Nielsen MarketTrack,
25 category assessment – 104 wks, ending Aug’11
-15
4
-1
3
3
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The successful categories are using these types
of innovation….
Pod Coffee
Premium
Super Premium
Coffee
Super Premium
Novelties
Greek
Yogurt
Functional
Benefits
Fibre/
Cholesterol
Lowering
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Innovation can also appear in different forms…
Additional
Usage
Bite-sized
Snacking
Small Sizes/Multiple
Flavours
Ethnic
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Managing all drivers is critical to success. Providing
innovation worthy of higher regular pricing is key…
Not Sustainable
Inflation
Sustainable
Pizza
Laundry
CSD’s
Chocolate
-1%
-8%
-2%
+2%
5.1
0.0
-3%
-15%
60% (-2%)
1.2
0.8
+1%
0%
78% (+2%)
6.5
+8.3
+2%
+4%
57% (+2%)
Innovation Shr
5.0
Items Carried Chg
5.4
Reg Price Chg
+2%
TPR Price Chg
-1%
Promo Volume
74% (+4%)
Source: 52 Weeks to July 30th, 2011
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If costs increase and you need to make price
changes…what would consumers prefer you do?
Ranked #1 from list of 7
• 48% - Offer larger sizes (lower cost per use)
• 14% - Introduce smaller sizes at lower prices
• 11% - Downsize but keep same price
• 9% - Increase price of existing items
• 8% - Offer same # of sales with higher prices
• 6% - Offer fewer sales
• 3% - Reduce quality
Source: Nielsen PanelViews Economy Survey - Canada - May 2011
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Downsizing may result in less volume impact but limits
overall profit opportunity.
Nielsen
Experience
• Size Reduction Elasticity is between ½ to ¾ of the
Price Elasticity
Price Increase 6%
Size Decrease -6%
Price Elasticity = -1.0
Downsize Elasticity = -0.5
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Innovation helps drive price benefits
Pricing Elasticity Comparison
Non-Innovation
Categories
Innovation
Categories
Regular Price Elasticity
Promoted Price Elasticity
-2.6
Increased
“Everyday”
Pricing
Power
-2.0
-1.7
Accelerated
Promotional
Response
-1.3
Selected Price and Promotional studies
ending from April-2010 to August-2011
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Maintaining promoted prices while increasing everyday
price will result in non-sustainable volume growth.
Scenario Based Assessment –
Innovation vs Non-Innovation Categories
$ Sales
RSP
Increase
5%
6.8%
Maintain
Promotional
Prices
Innovation
Categories
Non-Innovation
Categories
27.8%
1.3%
1.1%
Increase
Promotional
Prices
Trade Spend
-3.2%
25.5%
0.8%
6.2%
Selected Price and Promotional studies ending from April-2010 to August-2011
Category average weighted by overall category sales
Promotional frequency & activity held constant
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Consumers exhibit several behaviors when
exposed to trade promotions
9 Purchase the same brand as they otherwise
would have during that shopping trip or future
shopping trips
9 Switch to the promoted brand for that
purchase during that trip
9 Pick-up the promoted brand in place of a
purchase at another store
9 Add the promoted brand as a truly
incremental purchase
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When increased promotions no longer drive category
sales growth, we must change our approach.
Current Paradigm
Measuring the
True benefits
Market Expansion
Incremental
Volume
New
Paradigm
Consumer Behaviour
Store Switching
Brand Switching
Time Shifting
Subsidized Volume
Subsidized Volume
Non-Promoted Volume
Non-Promoted Volume
Community of Excellence – Pricing & Promotion
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Who actually benefits from the different sources of
promoted volume?
Retailer Growth
Mutual Growth
Same brand switching across stores
Market expansion & mutual share gains
Subsidization
Manufacturer Growth
Volume that would have been sold
Competitive brand switching within store
Low
Retailer Benefit
High
Promotional Impact Framework
Low
Manufacturer Benefit
High
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Are the $1.6B promoted sales truly incremental?
Promotional Impact Framework
Mutual Growth
34%
Subsidization
17%
Manufacturer Growth
37%
12%
Low
Retailer Benefit
High
Retailer Growth
Low
Manufacturer Benefit
Source: Nielsen Retailer Switching Models
Note: 7category average
High
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Benefits should be viewed in concert to align
objectives to drive a Win/Win situation.
Promotional impact framework
High
7 Category results – National GB+MM+Drug
Mutual Growth
Retailer Benefit
Retail Growth
Manufacturer Growth
Low
Subsidization
Low
Manufacturer Benefit
High
Community of Excellence – Pricing & Promotion
Source: Nielsen Retailer Switching Models
Note: 7category average
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Divergence in price drives price wars and reduces
promotion payback.
Promotional impact framework
High
Laundry Category – 3 Year Trend
Mutual Growth
Retailer Benefit
Retail Growth
Manufacturer Growth
Low
Subsidization
Low
Manufacturer Benefit
High
Community of Excellence – Pricing & Promotion
Source: Nielsen Retailer Switching Models
Note: 7category average
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Implications of price divergence will influence
sizes and brands differently.
Promotional impact framework
High
Laundry Category – National GB+MM+Drug
Small
Retailer Benefit
Medium
Low
Bubble size =
Incremental
tonnage
Large
Low
Manufacturer Benefit
Source: Nielsen Retailer Switching Models
Note: 7category average
High
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Promotion depth is conditioning customers to store
switch, while reducing the need to time shift purchases.
Laundry Category – 3 Year Trend
Store Switching
Time Shifting
2009 Î 2011
22%
39%
21%
15%
2009
2010
2011
Source: Nielsen Retailer Switching Models
Note: 7category average
31%
2009
33%
2010
2011
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But alternative strategies exist that can be brought
into play...
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Invest in more than “in-store” to build brand loyalty
TV GRP's (HH)
Year 1
Year 2
Year 3
% Volume on Promotion
Year 4
Year 5
Year 1
Year 2
% Penetration
Paper Towels
Brand A
Brand B
Brand C
Year 3
Year 4
Year 5
Dual investment offers
immediate & long-term benefits
50
40
Loyalty weakens with an
“in-store only” strategy
30
20
Media investments
strengthens penetration
10
Year 1
Year 2
Year 3
Year 4
Year 5
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Winning Strategies
Game Changing Innovation
New paradigm for trade spend
Invest in the consumer
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Q&A
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