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Navigating the Southeast Grocery Market Diana Sheehan, Director Elley Symmes, Analyst September, 2017 Today’s Agenda Exploring the Southeastern Macroeconomic Environment Understanding the Larger Competitive Threats The Store Framework Investing for Today and Tomorrow Kantar Retail © 2017 3 Exploring the Southeastern Macroeconomic Environment 4 Job Growth Is Slower in the Majority of States in H1 Relative to 2016 West and Southeast lead, while low commodity prices are drag on the Midwest ‒Job leaders in order of strongest growing are: Nevada, Utah, States by Job Trends# Florida, Idaho, and Georgia Leading Average Lagging Declining ‒Job laggards are growing but well below average: Mississippi, Louisiana, North Dakota, Connecticut, and Illinois are lagging the furthest behind. ‒Job declines in a handful of states are due to low oil prices: Wyoming, Alaska, West Virginia, Oklahoma, and Kansas ‒Texas is notably one of the job leaders due to surging growth in Dallas and Austin. Houston is recovering after posting lagging growth in 2016 due to low oil prices. ‒Automobile-producing states should be watched: Ohio has been hit by job losses in the auto sector as automobile sales level off and inventories remain well above historical averages. Other auto-producing states — Michigan, Indiana, Kentucky, and Alabama — remain resilient for now. # Categories are based on year-to-year job growth for the six months through June 2017. Leading are the top 16 states. Lagging and declining are the bottom 16 states. Average is all other states. Source: U.S. Department of Labor, Kantar Retail Kantar Retail © 2017 5 The Largest Metro Markets Tend to Lead Job Growth It also suggests rural areas and most smaller cities are lagging States and Top 50 Metro Markets by Job Trends* ‒Orlando, Nashville, Atlanta, Jacksonville, and Dallas are the fastest Lagging Declining growing in the top 50. Notably, four of the five are in the Southeast. Leading Average ‒Thirty of the 50 biggest metros are posting growth that is at least as strong as the top 16 leading states (+1.8%). ‒Thirty of the 50 biggest metros are posting stronger growth than the average in their state or bi-state areas. This indicates these largest markets are magnets for jobs and retail sales growth not just relative to the national average, but also relative to the exurban and smaller cities in their area. * Categories are based on year-to-year job growth for the six Metro markets labeled by months through June 2017. State job growth includes that of biggest to smallest job metro markets within the state. Leading are the top 16 states and market among top 50 and metro markets posting at least 1.8% job growth. Lagging and colored by growth declining are the bottom 16 states and metro markets posting category. See slide 25 for below 1.1% job growth. Average is all other states and metro market name. markets posting job growth between 1.8% and 1.1%. Source: U.S. Department of Labor, Kantar Retail Kantar Retail © 2017 6 Top 50 Metro Markets Are 60% of the Job Market and Growing Leading Average Lagging Declining Year-to-Year Index to Year-to-Year Index to Growth Lead Growth Lead Metro Market Last 6 Months Growth* Metro Market Last 6 Months Growth* 1 New York-Northern New Jersey-Long Island, NY-NJ-PA 1.4% 79 26 Cincinnati-Middletown, OH-KY-IN 2.2% 120 2 Los Angeles-Long Beach-Anaheim, CA 1.4% 76 27 Kansas City, MO-KS Metropolitan Statistical Area 2.4% 135 3 Chicago-Joliet-Naperville, IL-IN-WI 0.8% 43 28 San Jose-Sunnyvale-Santa Clara, CA 1.8% 99 4 Dallas-Fort Worth-Arlington, TX 3.4% 190 29 Columbus, OH 2.0% 111 5 Washington-Arlington-Alexandria, DC-VA-MD-WV 1.6% 88 30 Cleveland-Elyria-Mentor, OH 0.8% 43 6 Houston-Sugar Land-Baytown, TX 1.2% 68 31 Indianapolis-Carmel, IN 2.2% 122 7 Philadelphia-Camden-Wilmington, PA-NJ-DE-MD 1.9% 104 32 San Antonio-New Braunfels, TX 2.3% 125 8 Boston-Cambridge-Quincy, MA-NH NECTA 1.8% 100 33 Austin-Round Rock-San Marcos, TX 3.0% 169 9 Atlanta-Sandy Springs-Marietta, GA 3.6% 203 34 Las Vegas-Paradise, NV 3.3% 183 10 Miami-Fort Lauderdale-Pompano Beach, FL 2.5% 141 35 Sacramento--Arden-Arcade--Roseville, CA 1.6% 91 11 San Francisco-Oakland-Fremont, CA 2.4% 131 36 Nashville-Davidson--Murfreesboro--Franklin, TN 3.7% 204 12 Phoenix-Mesa-Glendale, AZ 2.5% 139 37 Milwaukee-Waukesha-West Allis, WI 0.1% 5 13 Detroit-Warren-Livonia, MI 2.0% 113 38 Virginia Beach-Norfolk-Newport News, VA-NC 0.1% 8 14 Minneapolis-St. Paul-Bloomington, MN-WI 2.2% 122 39 Salt Lake City, UT 3.1% 170 15 Seattle-Tacoma-Bellevue, WA 2.9% 160 40 Jacksonville, FL 3.4% 191 16 Denver-Aurora-Broomfield, CO 2.1% 119 41 Richmond, VA 1.1% 59 * Leading metro markets are those posting 1.8% job growth 17 San Diego-Carlsbad-San Marcos, CA 1.8% 99 42 Louisville-Jefferson County, KY-IN 2.1% 118 or above. Lagging and declining 18 Riverside-San Bernardino-Ontario, CA 3.0% 168 43 Memphis, TN-MS-AR 1.2% 69 are metro markets posting 19 Baltimore-Towson, MD 0.9% 50 44 Oklahoma City, OK 0.3% 19 below 1.1% job growth. 20 St. Louis, MO-IL 1.2% 64 45 Raleigh-Cary, NC 2.8% 153 Average is all other metro 21 Tampa-St. Petersburg-Clearwater, FL 3.0% 166 46 Providence-Fall River-Warwick, RI-MA NECTA 0.6% 33 markets posting job growth 22 Orlando-Kissimmee-Sanford, FL 3.9% 215 47 New Orleans-Metairie-Kenner, LA 0.2% 10 between 1.1% and 1.8%. 23 Pittsburgh, PA 1.0% 53 48 Hartford-West Hartford-East Hartford, CT NECTA 0.7% 40 24 Charlotte-Concord-Gastonia, NC-SC 2.9% 163 49 Buffalo-Niagara Falls, NY 0.7% 40 25 Portland-Vancouver-Hillsboro, OR-WA 2.0% 114 50 Rochester, NY -0.4% -22 Source: U.S. Department of Labor, Kantar Retail Kantar Retail © 2017 7 Understanding the Larger Competitive Threats 8 Top Grocery Retailers at a Glance Sales (USD millions) Sales Added CAGR Retailer 2017E 2022E ('17E-'22E) ('17E-'22E) Walmart $249,634 $277,209 $27,575 2% Kroger $95,945 $116,654 $20,709 4% Walgreens Boots Alliance $73,513 $97,688 $24,174 6% CVS $68,185 $85,087 $16,902 5% Costco $53,313 $68,614 $15,301 5% TOP 5 $540,589 $645,251 $104,661 4% Albertsons Companies $51,051 $60,555 $9,503 3% Ahold Delhaize $40,949 $45,036 $4,087 2% Publix $33,471 $42,116 $8,645 5% Aldi/Trader Joes $24,173 $38,324 $14,151 10% Target $32,672 $35,255 $2,583 2% TOP 10 $182,317 $221,285 $38,968 4% Dollar General $18,603 $28,612 $10,009 9% Who is not Rite Aid $24,888 $28,590 $3,701 3% H-E-B $18,422 $24,014 $5,591 5% here that we Wakefern $15,457 $19,206 $3,749 4% expected to Dollar Tree $13,898 $19,138 $5,240 7% TOP 15 $91,269 $119,560 $28,290 6% be? Source: Kantar Retail analysis, data as of May 2017 Kantar Retail © 2017 9 Total Grocery Fails to Show the Whole Story Understanding sales mix critical to prioritizing retailers Edible Grocery Sales Added Non-Edible Grocery Sales Added (2017E – 2022E, in Billions) (2017E – 2022E, in Billions) Walmart $18.4 Walgreens $21.5 Kroger CVS Aldi Walmart Costco Dollar General Albertsons Companies Amazon/Whole Foods Publix Amazon.com H-E-B Costco Lidl* Amazon/Whole Dollar Tree Amazon drives Foods only hits top post-merger non- Amazon/Whole Foods Rite Aid ten after merger edible grocery Ahold Delhaize $3.7 Kroger $3.1 growth. Discounters don’t make top 10. *Lidl Forecasts Projections Pre-Launch Kantar Retail © 2017 10 Lidl’s First Wave in the US Source: Kantar Retail analysis; Google Maps; Supermarket News Kantar Retail © 2017 11 Lidl’s Shopper Profile Will Surprise Many as a Mid Market Retailer 100% 13% 14% 14% 16% 16% 15% 15% Household 90% 21% 22% 23% 26% 25% 25% 27% Income 31% 32% 36% 80% 15% < $25k 18% 19% 18% 18% 25% 22% 70% 26% 26% $25k – 11% 17% 27% 29% 30% $49.9k 60% 18% 28% 28% 19% 19% 17% 20% 30% 29% 50% 14% 28% $50k – 12% $74.9k 15% 18% 18% 40% 13% 13% 13% 15% 19% 19% 15% 16% 18% $75k – Lidl Here? Lidl 30% 11% 17% 17% $99.9k 13% 15% 12% 11% 11% 10% 20% 44% 42% 10% 35% 34% 9% 9% $100k+ 33% 31% 30% 7% 24% 10% 21% 19% 19% 18% 19% 17% 13% 13% 13% 0% Source: Kantar Retail analysis Kantar Retail © 2017 12 Lidl Poses Largest Threat to Traditional Southeast Grocery Retailers Low Risk Medium Risk Higher Risk Source: Kantar Retail research & analysis Kantar Retail © 2017 13 Several Themes Stood Out Clear, concise messaging Source: Kantar Retail store visits Kantar Retail © 2017 14 Hero Categories Take Center Stage Produce Wine Health & Beauty Source: Kantar Retail store visits Kantar Retail © 2017 15 Dry Grocery Lacked Shopper Localization More of this… than this: Source: Kantar Retail store visits, Aldi US website Kantar Retail © 2017 16 Aldi’s Growth Strategy Revolves on Growing Traffic More shoppers, more trips, more basket dollars No. of Shoppers No. of Trips Value of Basket • Category • “Aldi Finds” • Emphasis on introduction or promotions and “value for money” expansion(e.g., unexpected items reinforces baby care, draw in treasure price perception organics) opens hunt traffic.