Walmart Neighborhood Market: Assessing Its Prospects in a Changing Landscape Laura Kennedy, Director Leon Nicholas, SVP and Knowledge Officer March 2016 Doing Business in Bentonville © Kantar Retail 2016 Copyright © 2016 Kantar Retail. All Rights Reserved. 501 Boylston St., Suite 6101, Boston, MA 02116 T: +1 (617) 912 2828 [email protected] No part of this material may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photography, recording, or any information storage and retrieval system now known or to be invented, without the express written permission of Kantar Retail. The printing of any copies for backup is also strictly prohibited. Disclaimers The analyses and conclusions presented in this seminar represent the opinions of Kantar Retail. The views expressed do not necessarily reflect the views of the management of the retailer(s) under discussion. This seminar is not endorsed or otherwise supported by the management of any of the companies covered during the course of the workshop or within the following slides. © Kantar Retail 2016 Agenda: Assessing Neighborhood Market’s Prospects Shopper Assortment Prototype Competition: Spotlight on Publix Conclusion and Supplier To-Dos Source: Kantar Retail research and analysis © Kantar Retail 2016 3 Neighborhood Market’s Expansion Will Continue About 35% of WMT’s U.S. sales added through 2020 will be from small formats “I am really excited about what we can do with Neighborhood Markets. But we have got to fix some of these basic things and then we can get into them.” –Greg Foran, October 2015 Sales (USD millions) Stores Closed 102 12,000 square foot NMKTs, 24 “traditional” Source: Company presentation and reports, Kantar Retail analysis Note: Neighborhood Market store closures in January 2016 occurred before the end of the fiscal year and are accounted for in 2015. Sales impact is accounted for beginning in 2016. © Kantar Retail 2016 4 Establishing “Development” Leadership 5 Neighborhood Market has equal footing with Supercenter in ops structure Judith McKenna “Ignore [Neighborhood Chief Operating Officer, Walmart US Markets] at our peril” – Judith McKenna, June 2015 As COO, now also oversees all Walmart associates in addition to leading small format strategy and the Development Team Previously EVP strategy and international dev. for WMT International (M&A, real estate, format development) Before, COO and CFO of ASDA; as COO, oversaw logistics, eCommerce, financial services Source: Company reports, Kantar Retail research and analysis © Kantar Retail 2016 Julie Murphy EVP, Neighborhood Markets, Walmart US Previously EVP and President, Walmart West; divisional SVP; and various store operations positions Replaced Mike Moore in May 2015—Moore now oversees Supercenters 6 Looking for More Autonomy for Merchants Neighborhood Market structure has focused on ops Steve Bratspies Chief Merchant Lea Jepson Senior Director, Merchandising, Small Formats Julie Murphy EVP, Neighborhood Markets, Walmart US Marc Lieberman Brian Hooper David Norman VP, Small VP, Real Estate SVP, Ops West Jesica Duarte Formats Small Formats VP, Neighborhood Market Regional VPs Larry Mahoney Glenda Fleming Development SVP, Logistics SVP, Ops East Regional VPs Source: Company reports, Kantar Retail research and analysis © Kantar Retail 2016 15-20+ reports, and growing PLUS: Market managers for each district exclusively focused on NMKTs 7 Retooling Neighborhood Market “There are opportunities for us to significantly update and improve things like space allocations; adjacencies; ambience; navigation; and flow in both of our formats. We’re working on this now” –Greg Foran, April 2015 Fresh Pickup Fill-in Trips Pharmacy Source: Kantar Retail research and analysis © Kantar Retail 2016 Fuel 8 Shopper © Kantar Retail 2016 9 Neighborhood Market Needs to Recapture Trips Continued decline in Supercenter penetration, despite stores added Percent Shopped Walmart during Past Four Weeks, by Format 80% 70% 68% 62% Walmart/Walmart Supercenter 60% 60% 50% Amazon.com 40% 30% 28% Neighborhood Market* 20% 10% 17% Walmart.com 9% 10% Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 0% 3% Analysis for Neighborhood Market is limited to states in which Neighborhood Market had a presence as of January 2016 Source: Kantar Retail ShopperScape® , January 2007- January 2016 © Kantar Retail 2016 NMKT’s Shoppers Are Younger than the Supercenter’s Shopper Profile: Past 4-Week Shoppers Walmart SC Walmart NMKT Annual HH Income Locale* Kids in HH Generation Race/Ethnicity <$25k $25k-$49.9k $50k-$74.9k $75k-$99.9k $100k+ Mean income Rural Small Town Large Town Suburban Urban/City Yes No Gen Y Gen X Boomers Seniors Mean age White Non-Hispanic Black Non-Hispanic Hispanic 27% 27% 18% 11% 17% $58,180 17% 21% 13% 36% 13% 28% 73% 20% 31% 38% 11% 49.3 68% 14% 13% 26% 27% 19% 12% 17% $58,720 9% 13% 15% 43% 21% 29% 71% 25% 32% 34% 9% 46.8 59% 17% 17% Analysis limited to states in which Neighborhood Market was present as of January 2016 Note: highlighting indicates significant difference between column percentages (95% confidence level) Source: Kantar Retail ShopperScape®, January-December 2015 © Kantar Retail 2016 ‒ Compared to Supercenter shoppers, Neighborhood Market shoppers… Live in denser market areas Are younger More likely to be Hispanic, African American 10 11 NMKT and Supercenter Shoppers Overlap Though over time NMKT shoppers become less likely to cross-shop the SC Cross-Shopping Between Walmart Banners (among past four week shoppers of retailers) NMKT shopped SC SC shopped NMKT 2011-2015 % Change: -12% 2011-2015 % Change: +136% 75% 73% 67% 4% 2011 5% 2012 Analysis limited to states in which Neighborhood Market was present as of January 2016 Source: Kantar Retail ShopperScape®, January 2011-December 2015 © Kantar Retail 2016 65% 7% 2013 64% 8% 2014 10% 2015 For Shoppers, NKMT Beats Supercenter on Efficiency 12 But lacks on some key convenience measures How Shoppers Describe the Shopping Experience at Walmart, by Format (among past four-week shoppers of each retailer) Describes experience at NMKT Describes experience at Supercenter Knowing that I'm paying a low price Feeling like I got a "good deal" Ability to get in and out quickly Fast checkout Store is clean and looks nice Specific items I want being in-stock Availability of high-quality fresh foods (e.g., meat, produce) Availability of my favorite national brand products Can get everything I need across a variety of categories Availability of high-quality private label brands Store associates are available and helpful if I need them Good variety of pre-prepared "to-go" foods available Fun and pleasant shopping experience Offers unique products I can't find elsewhere 59% 57% 53% 52% 49% 46% 41% 39% 37% 30% 28% 25% 25% 16% 68% 64% 36% 45% 35% 63% 51% 43% 31% 29% 23% 26% 24% 15% Ability to use the retailer's app on my smartphone while in the store to make the shopping trip easier 14% 12% Offers "meal solutions" to help me figure out what to buy/cook Wide variety of organic products available 13% 11% 13% 13% Opportunities to engage with products in the store (e.g., through sampling stations, interactive displays, etc.) 4% 12% Source: Kantar Retail ShopperScape®, May 2015 © Kantar Retail 2016 Legend Green= NMKT is better Orange= WMSC is better For Shoppers, NKMT Beats Supercenter on Efficiency 13 But lacks on some key convenience measures How Shoppers Describe the Shopping Experience at Walmart, by Format (among past four-week shoppers of each retailer) Describes experience at NMKT Describes experience at Supercenter Knowing that I'm paying a low price Feeling like I got a "good deal" Ability to get in and out quickly Fast checkout Store is clean and looks nice Specific items I want being in-stock Availability of high-quality fresh foods (e.g., meat, produce) Availability of my favorite national brand products Can get everything I need across a variety of categories Availability of high-quality private label brands Store associates are available and helpful if I need them Good variety of pre-prepared "to-go" foods available Fun and pleasant shopping experience Offers unique products I can't find elsewhere 59% 57% 53% 52% 49% 46% 41% 39% 37% 30% 28% 25% 25% 16% 68% 64% 36% 45% 35% 63% 51% 43% 31% 29% 23% 26% 24% 15% Ability to use the retailer's app on my smartphone while in the store to make the shopping trip easier 14% 12% Offers "meal solutions" to help me figure out what to buy/cook Wide variety of organic products available 13% 11% 13% 13% Opportunities to engage with products in the store (e.g., through sampling stations, interactive displays, etc.) 4% 12% Source: Kantar Retail ShopperScape®, May 2015 © Kantar Retail 2016 Legend Green= NMKT is better Orange= WMSC is better Overall, Big Gaps Between Expectations and NMKT’s Delivery of Fresh, Service, Variety 14 Ideal Shopping Experience vs. Experience at Neighborhood Market (among past four-week Neighborhood Market shoppers) Extremely/somewhat important when shopping Describes experience at NMKT PPT Diff (Actual – Ideal) Knowing that I'm paying a low price Availability of high-quality fresh foods Feeling like I got a "good deal" Fast checkout Store is clean and looks nice Can get everything I need across a variety of categories Specific items I want being in-stock Ability to get in and out quickly Availability of my favorite national brand products Store associates are available and helpful if I need them Fun and pleasant shopping experience Availability of high-quality private label brands Offers unique products I can't find elsewhere Good variety of pre-prepared "to-go" foods available Wide variety of organic products available Opportunities to engage with products in the store (e.g., through sampling stations, interactive displays, etc.) 86% 85% 83% 81% 81% 81% 80% 78% 70% 68% 64% 52% 42% 38% 34% 59% 41% 57% 52% 49% 37% 46% 53% 39% 28% 25% 30% 16% 25% 11% -27.1 -43.9 -25.8 -29.5 -32.6 -44.0 -33.5 -25.5 -31.1 -40.0 -39.1 -22.3 -25.4 -12.9 -22.5 28% 4% Offers "meal solutions" to help me figure out what to buy/cook 26% 13% Ability to use the retailer's app on my smartphone while in the store to make the shopping trip easier 20% 14% Source: Kantar Retail ShopperScape®, May 2015 © Kantar Retail 2016 -23.6 -12.5 -6.6 15 Assortment © Kantar Retail 2016 16 Recapturing the Fill-In Trip Redirecting the “mass” model Fresh Pickup Fill-in Trips Pharmacy Source: Kantar Retail research and analysis © Kantar Retail 2016 Fuel Food Merchandise Ladder Half as many SKUs at Neighborhood Market, but higher proportion of smaller sizes Mustard Assortment: % Private Label Neighborhood Market Supercenter 22% 23% Source: Kantar Retail store visits and analysis, 2016 © Kantar Retail 2016 17 Fill-in Trips Non-Edible Grocery Ladder: Paper Towels SKU culling, more thoughtful pack sizes at NMKT Paper Towels Assortment: % Private Label Neighborhood Market Supercenter 28% 28% Source: Kantar Retail store visits and analysis © Kantar Retail 2016 18 Fill-in Trips HBA Ladder: Mouthwash Higher share of private label at NMKT, but mostly identical pack size distribution Mouthwash Assortment: % Private Label Neighborhood Market Supercenter 20% 14% Source: Kantar Retail store visits and analysis © Kantar Retail 2016 19 Fill-in Trips Private Label Initiatives Crystallize at NMKT Elevating brand, emphasizing quality; central to operating model Best Basic Source: Kantar Retail store visits © Kantar Retail 2016 20 Fill-in Trips 21 Adult Beverages Are a Trip Driver Fill-in Trips Clear fill-in, quick trip role; create excitement Creating excitement, solutions Source: Kantar Retail store visits © Kantar Retail 2016 Shelf guidance for types of beer, suggested food pairings for wine Co-merchandising Encourages Routine, Impulse Solutions 22 Fill-in Trips Moving fresh through the store Source: Kantar Retail store visits © Kantar Retail 2016 General Merchandise Becoming a Better Complement Using Pickup to extend the aisle Source: Kantar Retail store visits © Kantar Retail 2016 23 Fill-in Trips 24 Prototype © Kantar Retail 2016 25 Go-Ahead Prototype Floor Plan Walnut St., Rogers, AR Drinks To Go station Source: Kantar Retail store visits, company reports © Kantar Retail 2016 Including selfcheckouts 26 Rogers Prototype Store Revolves Around Fresh Low sightlines, layout give full view of perishables on entry Fresh “We’ve seen fresh penetration expand in this store [prototype] relative to its peers.” –Greg Foran, November 2015 Source: Kantar Retail store visits © Kantar Retail 2016 27 Meat Moves Up Front, Produce Artfully Displayed “We’re encouraged by our newest prototype, which features better sightlines and displays.” –Greg Foran, November 2015 Source: Kantar Retail store visits © Kantar Retail 2016 Fresh 28 Deli and Bakery Elevate Fresh, Quick Trip Message Fresh “All Neighborhood Markets… will open up with a bakery and a deli because we absolutely believe that’s important in the future” –Judith McKenna, April 2015 Source: Kantar Retail store visits © Kantar Retail 2016 Stores Within the Store Add Meaning to Assortment Tapping into special health needs, young families Source: Kantar Retail store visits © Kantar Retail 2016 29 Fill-in Trips Grocery Pickup Is Expanding to NMKT Online grocery could be key cog in quick-trip message 30 Pickup • Curbside grocery pickup now available in 20 markets, across Walmart formats; adding another 20 in 2016 • Features drive-up kiosks for calling up an order and parking spaces where orders can be loaded Marketing in-store reminds shoppers of online grocery option Source: Kantar Retail store visits © Kantar Retail 2016 31 Competition: Spotlight on Publix © Kantar Retail 2016 Recapturing the Fill-In Trip in the Portfolio Pressure continues on “mass” model NMKT Source: Kantar Retail research and analysis © Kantar Retail 2016 32 Neighborhood Market’s Supermarket Competitive Set Varies by Region 33 Top Grocery Retailers Also Shopped by Neighborhood Market Shoppers, by Region Northeast Central West Walmart/WMSC 59% Walmart/WMSC 83% Walmart/WMSC 64% Costco 46% Sam’s Club 35% Food Lion 30% Safeway 33% ALDI 32% ALDI 27% Trader Joe’s 32% Hy-Vee 20% Sam’s Club 21% Albertsons 28% Kroger 15% Kroger 20% WinCo Foods 23% Whole Foods 13% Trader Joe’s 17% Southwest Southeast Walmart/WMSC 75% Walmart/WMSC 74% Kroger 31% Publix 61% Albertsons 30% Winn-Dixie 39% Sam’s Club 28% Sam’s Club 25% Sprouts 22% ALDI 20% H-E-B 21% Costco 15% Source: Kantar Retail ShopperScape®, January-December 2015 © Kantar Retail 2016 34 Where Can NMKT Learn from Competitors? Keeping in mind NMKT’s points of focus Fresh “When we are up against someone who is really good at running supermarkets, frankly our fresh offering has not been on par with what it takes to win.” –Greg Foran, October 2015 Pickup Fill-in Trips Pharmacy Source: Kantar Retail research and analysis © Kantar Retail 2016 Fuel 35 Case Study: Neighborhood Market vs. Publix March 2015, Tampa, FL Charlotte Among the Neighborhood Markets in the six states Publix has a presence… Atlanta 40% are within 2 miles of a Publix Jacksonville Lakeland (rest of Florida) Miami 53% are within 5 miles Source: Aggdata, Kantar Retail analysis © Kantar Retail 2016 36 Neighborhood Market vs. Publix: A Price Comparison Raspberries Bread Chicken breast Hot dogs Tomatoes Apples Bananas Cheese Butter Bacon Orange Juice Grapes 100% Whole Wheat (Whole Grain) Perfect Portions Fresh Bun-sized premium beef franks Cherry Granny Smith Provolone Salted - 4 sticks Black label original Homestyle, Some Pulp Green Arnold Perdue Oscar Mayer Campari Land O' Lakes Land O' Lakes Hormel Tropicana - $2.78 $2.98 $6.98 $3.98 $2.48 $1.67 $0.59 $3.98 $3.96 $4.78 $3.98 $2.98 $4.49 $4.29 $8.99 $4.99 $2.99 $1.99 $0.69 $4.39 $4.29 $4.99 $3.99 $1.99 Index (Publix-NMKT) 162 144 129 125 121 119 117 110 108 104 100 67 Glass Cleaner Regular French Vanilla, Cardboard cartoon, tub - black label Corn Flakes Chunk Light, packed in water, can Angel Hair Little Snugglers - size 2 Steel Wool pads - Lemon Heavy Duty Aluminum Foil Cans - fridge pack Chicken Noodle Sensitive, for Fussiness and Gas, with Iron Adult Complete Nutrition Plain, Squeeze bottle - inverted Disinfecting Wipes, Fresh Scent 64 loads plastic jar - strained Peas "All Natural", 2nd foods Windex $2.83 $3.99 141 Breyers Kellogg's Starkist Barilla Huggies S.O.S. Reynold's Coca-Cola Classic Campbell's Similac Pedigree Heinz Clorox Tide $3.94 $2.98 $0.75 $1.38 $8.97 $1.88 $5.92 $4.48 $0.88 $24.98 $12.97 $2.22 $4.63 $11.97 $5.49 $3.99 $0.99 $1.69 $10.49 $2.19 $6.79 $4.99 $0.97 $26.99 $13.99 $2.39 $4.79 $11.99 139 134 132 122 117 116 115 111 110 108 108 108 103 100 Gerber $1.08 $1.07 99 Hand Soap Vitamins Floss Hair Coloring Razors Antiobiotic Ointment Mouthwash Diaper Cream Painkiller Crisp Cucumber and Melon Gummy Vites, Complete - natural flavor Satin Complete - mint Colorsilk - Beautiful Women's - Hydro Silk, 3 Razors, 5 blades Softsoap Lil Critters Oral B Revlon Schick $0.98 $3.98 $2.27 $2.97 $9.97 $1.79 $5.49 $2.99 $3.79 $12.49 183 138 132 128 125 Plus Pain Relief antibiotic cream, tube Cool Mint Rapid Relief Diaper Rash Cream - Blue tube Ibuprofen, 200 Mg $4.44 $5.97 $5.27 $5.94 $5.39 $6.99 $5.89 $6.29 121 117 112 106 Shampoo Eye Makeup Remover Shaving Gel Dandruff Shampoo - Classic Clean Neosporin Listerine Desitin Advil Head and Shoulders $7.26 $7.49 103 Oil-Free, blue bottle (liquid) Extra Moisture Gel, with Vit. E Neutrogena Edge $6.47 $2.97 $6.49 $2.55 100 86 Segment ‒ March 2015, Tampa, FL ‒ Basket of 12 fresh items, 16 grocery items, 12 HBA items ‒ Neighborhood Market was less expensive in all three sub-baskets Ice Cream Cereal Canned Tuna Pasta (dry) Diapers Soap Pads Foil Soda Soup Infant Formula Dog Food Ketchup Wipes Laundry Soap Biggest differential in fresh Only three items cheaper at Publix overall ‒ No Rollbacks, 3 sale items at Publix Fresh basket Grocery HBA March 2015 Results Index (PublixNMKT Publix NMKT) $ 42.44 $ 50.08 118 $ 91.86 $ 102.80 112 $ 58.49 $ 67.64 116 Total $150.35 $170.44 113 Source: Kantar Retail store visits Baby Food Product Brand Total © Kantar Retail 2016 NMKT Publix $150.35 $170.44 113 Within Categories, Publix’s Average Prices Are Higher Too What is the price differential worth to shoppers? Retailer Merch Ladders % Private Label NMkt Publix NMkt Publix NMkt Publix 26% 18% 9% 13% 11% 13% Source: Kantar Retail store visits and analysis © Kantar Retail 2016 37 But Publix Is Strong in the Perimeter and in Service Fresh is throughout the store, cross-merchandising guides the shopper Source: Kantar Retail store visits © Kantar Retail 2016 38 Competition Will Necessarily Go Beyond Price New thinking, new innovation driving differentiation in marketplace ‒ Perishables, fresh continue to elevate Investment on the rise as shoppers demand it ‒ Driving differentiation with departments Greater importance on categories and merchandising placement ‒ Keying on digital, not just eCommerce Online grocery will become a more important factor ‒ The wild card: Lidl Where price and assortment will be center stage Source: Kantar Retail research and analysis © Kantar Retail 2016 39 40 Conclusion and Supplier To-Dos © Kantar Retail 2016 41 Is Walmart Differentiating This Format? A closer look at the “Neighborhood” message Some attention to local connection, distinguishing the store… …Marketing largely remains parallel with the Supercenter Ad is the same as at the Supercenter Source: Kantar Retail store visits © Kantar Retail 2016 “Available at your local Supercenter and Neighborhood Market” Neighborhood Market’s Prospects: To-Dos for Suppliers 42 Resources: • 1 • • Evaluate your team size and structure, including roles in category management, supply chain, analytics, and marketing. Capitalize on expertise already in your company around BIC supermarkets and other small formats (e.g., drug). Include these teams in joint business planning. Differentiation: 2 • • • Build merchandising skills outside the pallet, selling off the shelf. Dedicate resources to assortment and endcap planning for this format. Craft solutions at Neighborhood Market that are different from the Supercenter, especially focused on to-go and fill-in trip missions. Prototype-driven growth: 3 • • • Target merchandising that orients around fresh and perishables. Develop an online grocery and broader assortment Pickup strategy to build baskets and send the convenience message. Link solutions with services to highlight the convenience message. Source: Kantar Retail research and analysis © Kantar Retail 2016 Kantar Retail Walmart & Sam's Club Workshop Apr 5-6, 2016 Bentonville, AR At this two-day workshop, our Walmart and Sam’s Club experts will dig into the retailers’ efforts to significantly evolve their propositions for a rapidly changing and demanding shopper base, and will deliver implications for suppliers’ business planning and growth opportunities. You’ll walk away from this Workshop with: ‒ ‒ ‒ Forecasts for Walmart’s store expansion and sales growth heading into the end of the decade Insights into where Walmart is investing to drive relevance and what the retailer will demand from suppliers as investments continue to pressure profits Understanding of the extent, purpose, and plausibility of Sam’s current member and merchandise evolution through 2020 Featuring Kantar Retail Experts: Laura Kennedy, Director David Marcotte, SVP Leon Nicholas, SVP & Knowledge Officer © Kantar Retail 2016 Sara Al-Tukhaim, Director Tim Campbell, Jr. Analyst For further information please refer to KantarRetailiQ.com Contact: Laura Kennedy Director Leon Nicholas SVP and Knowledge Officer T: T: +1 (617) 912 2851 [email protected] @LauraWK_KR @kantarretail © Kantar Retail 2016 +1 (617) 912 2871 [email protected] @leonnicholas7
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