The New Playing Fields BREAKTHROUGH INSIGHTS SECOND HALF 2017 1

Research Team

Sara Al-Tukhaim Hannah Hayes Brian Owens Mary Brett Whitfield

Christina Anderson Doug Hermanson Mike Paglia Jane Xu

Ben Antenore Tiffany Hogan Himanshu Pal Yvonne Xu

Rohini Birla Luna Jia Malcolm Pinkerton Han Yang

Timothy Campbell Simon Johnstone Tudor Popa Derya Yildiz

Anusha Couttigane Kabeer Kapoor Hanna Ryngmark Oceanne Zhang

Karolina Fiedler Laura Kennedy Kate Senzamici Tim Zhou

Alice Fournier Vadim Khetsuriani Diana Sheehan Sherry Zhu

Ray Gaul Rachel McGuire Robin Sherk

Bryan Gildenberg Alvaro Morilla Elley Symmes

Reid Greenberg Leon Nicholas Meaghan Werle

© 2017 - Kantar Retail LLC. All Rights Reserved.

Disclaimer: The analyses and conclusions presented herein represent the opinions of Kantar Retail. The views expressed in this publication do not necessarily reflect the views of the companies covered by this publication. This publication is not endorsed, or otherwise supported, by the management of any of the companies covered herein.

Copyright Notice: No part of this publication may be reproduced in any form or by any means without the express written permission of the copyright owner. 2

Table of Contents

Foreword...... 3

Amazon Acquires Whole Foods: Three Key Questions Answered ...... 6

Going Global With Costco: Learnings From Iceland and France...... 11

Lidl vs. Walmart: Shelf-Price Showdown...... 16

Retailing in Low-Tier Cities: Past, Present, and Future...... 23

U.K. Sugar Tax: What Impact Will It Have on Retail? ...... 29

Four Shopper Opportunities Within Convenience Stores...... 33

High-Touch Strategies for Apparel Retailers in a High-Tech World ...... 41

For more insights go to KantarRetailIQ.com 3

Foreword 4

Foreword

This second edition of Breakthrough Insights in 2017 arrives amid From Branding to Go-to-Market enduring disruption that, if anything, has accelerated this year. As our Though we may often look in our company “mirror” to assess branding industry turns the corner to 2018, established go-to-market strategies features, our entire go-to-market strategy going forward will be under face growing challenges ranging from digitally engaged shoppers to scrutiny. Retailers are increasingly asserting their own brands — not discounters, from Amazon to . only their private labels, but the entire brand experience of their stores Even while assortment choice has never been greater thanks to and sites. Supplier strategies will require a similar review to assess: eCommerce, many growth retailers celebrate the degree to which – Assortment: Portfolios should reflect the contemporary they limit choice. Curators like Costco and smaller stores like drive shopper base of smaller families, basket sizes, and living spaces, value, in part, by taking stress out of the shopping experience and and acknowledge that a growing number of households prefer resetting the shopper’s reference points across the traditional 4 P’s. private label. We can all agree that we have passed a tipping point to where an – Value/price: Pricing should be dynamic and optimized by trip empowered shopper is seeking convenience and value at the speed of mission, differing by shoppers, not formats or platforms. technology, without compromising quality. Moreover, the shopper can effectively determine her own personal supply chain, where the last – Media/promotion: Technology will enable these to be precise mile is the doorstep. All too often, the false sense of security of taking while enabling aggregation to scale. Tomorrow’s promotions will baby steps or downplaying the scale of disruption has led us to a place be context-aware and suggestive as our industry migrates from of inertia. While we face substantial uncertainty about the shape of incentives to rewards. future demand, we can at least be certain that winning companies in Certainly, Amazon’s purchase of Whole Foods demands such an the years ahead will need to embrace structural changes to compete. evaluation, as pieces by Robin Sherk and Elley Symmes in this edition The articles in this edition of Breakthrough Insights weave a common begin to provide. We also explore the rise of the “big small” with Mike story: Growth will require new playbooks on new playing fields. For Paglia’s article on how Lidl’s prices fare against Walmart’s. Finally, that reason, we will need to engineer new strategies across three core Rachel McGuire and Mike Paglia view convenience stores through areas to keep up with this evolving retail landscape of boundless, yet a number of engagement lenses in an article that posits growth personalized, commerce. opportunities beyond the traditional sources.

Altogether, these articles give you a flavor for some of our latest thinking on the need for a revised go-to-market approach. 5

From Retail Sales to Collaborative Commerce From Supply Chain to Holistic Touchpoint Management

The familiar (though contentious) model of supplier/retailer trade The third playing field undergoing change involves the supply chain. relations must adjust to a commercial reality that has become The days of logistics being a linear, efficiency-driven process are more multifaceted, requiring a rethink of how we allocate resources. over. Today, the digital and small-store landscape has elevated (and More broadly, a reframing of trade relations to drive more selective, complicated) supply-chain considerations. The future of retail will collaborative commerce is called for. Such a reframing of this second entail reconsidering: playing field will entail: – Management: What proportion of supply-chain assets should – Segmentation: Familiar channel and competitor definitions will retailers or suppliers manage, and which should be outsourced give way to a new reality that incorporates new competitors and to third-party experts? metrics. In particular, we tend to overweight scale in determining – Visibility: End-to-end transparency remains a goal, even as new collaborative investments. blockchain technology promises clarity and optimization along – Co-marketing: Retailers and suppliers should direct more the supply chain — from sources to stores to homes. resources to collaborative promotion planning, where suppliers – Analytics: From new inputs (like voice) to fulfillment (lockers), market their portfolio with the retailer, not just at the retailer. we can obtain enterprise efficiency only when we have software – Digitization: From marketing to commerce to fulfillment, the that powers an analytics engine holistically. supplier/retailer interface needs talent to manage the digital This notion of managing holistic touchpoints underlies the article by “storefront,” which will require shifting resources from shelf our European research team on the impact of the U.K. sugar tax. In management to screen management. her article on apparel strategies, Tiffany Hogan also reminds us that Toward that end, look for Tudor Popa’s article on the effects of the touchpoint management exists on a spectrum that encompasses changing retail dynamics in lower-tier cities in Europe. Tim Campbell’s curbside pickup, the in-store experience, and digital engagement with piece on the implications of Costco’s recent openings in Iceland the shopper. and France is also a great example of how retailer collaboration will I hope you enjoy this latest edition of Breakthrough Insights. Here and increasingly involve synthesizing learnings from around the globe. through all of our products and services, we are pleased to be your partner in navigating the structural changes underway in retail. It is a brave new commercial environment, but growth awaits those who embrace its potential.

Regards,

Leon Nicholas Chief Insights Officer 6

Amazon Acquires Whole Foods: Three Key Questions Answered 7

Amazon Acquires Whole Foods: Three Key Questions Answered By: Robin Sherk

Amazon’s USD13.7 billion acquisition of Whole Foods is a big investment Figure 1. Past Four-Week Cross-Shopping Between Amazon and that asserts just how serious Amazon is about driving reach into fresh Whole Foods food, both in the U.S. and internationally. 80 This move follows the 2016 ramp-up of AmazonFresh, when the retailer expanded the service to six new U.S. markets and to the U.K. 70 76% Positioned with a connection to farmers markets and local stores, 60 the service emphasizes natural and wellness products. Whole Foods’ brand positioning gives Amazon the credibility and reach in fresh and 50 natural that it lacked. 40 For context, Whole Foods is a leading natural grocer with USD15.5 billion in sales in 2016. It has 447 stores in the U.S., 9 in the U.K., and 30 12 in Canada. Although Whole Foods has only 9% U.S. household penetration, the two retailers’ shopper audiences closely align. 20 According to Kantar Retail ShopperScape® data, monthly Amazon shoppers and monthly Whole Foods shoppers tend to be younger, 10 11% more affluent, and urban. Indeed, 76% of past four-week Whole Foods 7% 0 shoppers also shop Amazon.com (Figure 1). Amazon may open up the Percent of Whole Percent of Amazon Percent of primary Whole Foods proposition to a much larger audience, since only 11% of Foods shoppers who shoppers who also HH shoppers who also shop Amazon shop Whole Foods shop both Amazon Amazon shoppers shop Whole Foods today. and Whole Foods

Source: Kantar Retail ShopperScape®, June 2016-May 2017 8

Kantar Retail Point of View Amazon, and the combined Whole Foods-Amazon will be in a better position to compete with . Amazon gives Whole Foods logistics This acquisition has several clear implications for Amazon’s positioning, capabilities it did not have before, whereas Amazon gets access to competitors, and suppliers. fresh expertise and reach. Amazon also gets access to Whole Foods’ What does the acquisition mean for Amazon’s positioning? 365 value-for-money private label, which has strong credibility in Fresh credibility at scale will accelerate Amazon’s reach into grocery natural and wellness. The label, which is already appearing in Pantry, in the U.S. and internationally. Amazon is now a USD15.5 billion food AmazonFresh, and Prime Now, furthers Amazon’s ability to go retailer. Whole Foods will give it a vehicle to expand grocery into more after both weekly grocery and stock-up occasions that these three countries and across more platforms. Given Whole Foods’ existing competitors represent. footprint in Canada, this market is now ripe for Fresh expansion. The other competitor to watch is Instacart. The acquisition has clearly Markets such as France, Spain, or Japan may follow. impacted its positioning and disrupted its strategic partnership with Broadly, Whole Foods enriches Amazon’s consumables platforms Whole Foods. The question is how central Whole Foods is to shoppers’ (Fresh, Now, and Pantry), and strengthens the Prime membership preference for using Instacart. We suspect the answer is “very.” offer. Shopping Whole Foods through Alexa for two-hour Prime Now What does the acquisition mean for suppliers? delivery will soon be a reality. Amazon will elevate and combine Amazon’s acquisition of Whole Foods has implications for suppliers convenience, value, and natural/fresh shopping. in terms of sales forecasting, trade promotion, and private label: We also expect Amazon to install its technology, such as click-and- – Expect not only Fresh, but also Pantry and Now to accelerate. collect grocery pickup services and the automatic Suppliers should consider both the competitive impact of 365 checkout, at Whole Foods locations. Both technologies, which are and the growing reach of Amazon’s Prime platforms. They being tested in Seattle, will accelerate the store’s trip flexibility as they should reassess their forecasts for each platform, which will roll out. now escalate faster than previously expected. Conversely, this acquisition does not mark the start of a massive cross- – Today, Amazon is still learning classic grocery marketing and channel brick-and-mortar expansion. Acquiring Whole Foods fills a promotions. As it gains expertise, watch for and anticipate specific capability and credibility gap for Amazon. And expanding greater demands in this space. grocery reach is a key strategic focus for the retailer to win share of wallet. For that reason, do not expect to see Amazon acquiring a wide – Building on last year’s rollout and expansion of the Wickedly range of retailers. Prime and Happy Belly lines, Amazon’s consumables private labels are now significantly stronger. Amazon may use its Which competitors will be most impacted? labels to set value-for-money benchmarks for shoppers. With Target, Costco, and Kroger will face the most pressure due to both Amazon’s private label credibility and reach accelerated, proposition, geography, and audience overlap with Whole Foods identifying and articulating price-value positioning versus and Amazon. Target and Costco already face competition from these lines will be key. 9

Graphic Insights: Aligning the Amazon and Whole Foods Shopper By: Elley Symmes

For Amazon to effectively optimize its Whole Foods acquisition, it must leverage the best synergies between the two companies. For example, Whole Foods’ strengths as a grocery retailer align with Amazon shoppers’ ideal grocery experience. That alignment underscores the opportunity to scale Whole Foods’ niche model to the masses and redefine the future of grocery.

Amazon Shoppers’ Demands for Ideal Grocery Experience Line Up With Whole Foods‘ Strengths (% of monthly Amazon shoppers that say factor is extremely important)

74% 66% 64% 58% High-quality Specic items I want Convenient Easy to nd what fresh foods are in-stock location I am looking for

but only 12% of Amazon shoppers shop at Whole Foods Market

Source: Kantar Retail ShopperScape®, February 2017 (top) and June 2016-May 2017 (bottom) 10

In This Time of eCommerce Disruption, Kantar Retail Has You Covered

“ eCommerce is more impactful and important than ever. Kantar Retail gives us a 360-degree point of view — especially as it relates to the shopper’s path to purchase.” – Sales Director, Fortune 100 Manufacturer 11

Going Global With Costco: Learnings From Iceland and France 12

Going Global With Costco: Learnings From Iceland and France By: Timothy Campbell

The dust has begun to settle on Costco’s May opening in Iceland and of fortifying your existing presence. As Costco saturates more U.S. June opening in France. From the outset, both the stakes and risks markets, its sales growth will increasingly originate in other markets. were high. These new clubs are the vanguard of Costco’s ongoing Ramping up with Costco now can set the stage for bigger gains expansion into new European markets. Costco is aiming for additional down the road. international openings to account for more than half of all new openings annually. But the question looms: Will Icelandic and French Figure 1. U.K. Products Heavily Represented at Costco Iceland shoppers respond to the bulk packaging and price-per-unit value as Costco hopes they will?

As Costco expands, suppliers must position themselves as Costco’s partners, able to match the club’s global capabilities and increasing demands for integrated sourcing and pricing strategies. Here are five key action items to keep in mind regarding these new openings.

1. Recognize that Costco is well-positioned alongside the local competition.

Outside of B2B-focused retailers, the pay-to-shop model is rarer in Europe than it is in the U.S., so local shoppers are curious to see Source: Kantar Retail what Costco has to offer. In France, Costco brings a host of both new and local products with a strong price value proposition. In Iceland, the breadth of Costco’s global supply chain is fundamentally 3. Leverage a global supply chain. disrupting and lowering prices across the market by forcing competing To effectively sell to Costco globally, you will need regular contact retailers to renegotiate contracts with manufacturers. Existing with your international counterparts in most markets where you and price differentials have caused shopper sentiment to turn against Costco both sell. Costco country heads meet regularly in Seattle established retailers as shoppers compare Costco’s offer and pricing. to discuss market-by-market strategies that can improve member In this environment, you can be well-positioned to turn significant value. In response, Costco will expect your company to communicate volume at these new locations. seamlessly across divisions to better serve Costco members. 2. Expand distribution. Coordinate the development, distribution, pricing, and selling strategy of both your global and local items. You can use strong performance As Costco expands its global operations, new opportunities are in one market to improve your partnership with Costco in other emerging for domestic suppliers around the world (Figure 1). Consider markets farther afield. Costco as a potential entry point into new markets or as a means 13

4. Learn which opportunities are the largest.

Not all categories are created equal in every market. France and Iceland revealed some marked differences in category SKU and space allocation compared with the U.S. and Costco’s other markets. In France, biking, outdoor exercise, baked goods, and alcohol are receiving more space and attention (Figure 2). In Iceland, Costco’s expanded seafood assortment is flush with both local and imported products (Figure 3). Focus on the categories where the opportunity is greatest. Ensure that best-in-class practices and learnings are shared across your organization. Figure 3. Costco Iceland Seafood Items: Local Dried Fish, Figure 2. Biking Products Featured at Costco France Caviar From Germany, and Salmon From Scotland

Source: Kantar Retail

Source: Kantar Retail 14

5. Prepare for the global threat and opportunity Kantar Retail Point of View of Kirkland Signature. Costco’s European expansion is a harbinger. As the club saturates its In the absence of traditional marketing vehicles, Kirkland Signature North American markets, it will depend on its burgeoning international acts as Costco’s global brand ambassador (Figure 4). For many Costco operations to drive a larger share of the company’s growth. In addition members, and even some who are not, the Kirkland Signature brand to stocking popular local SKUs, Costco is seeking global coordination connotes a desirable combination of value and quality. Furthermore, of sourcing, pricing, and promotional strategies with capable the label is expanding — accounting for an increasing share of both suppliers. If vendors cannot align with Costco in Iceland and France, sales and SKUs as it solidifies its hold on current categories and they will be increasingly ill-prepared to partner with Costco moving enters new ones altogether. The brand is an ever-present threat even forward. Those able to mirror Costco’s strong internal communication if no nationally branded competitors can compete with your offer. and strategic cohesion across markets within their own organization Pre-empt this threat by continuously offering the Costco member are poised to succeed, helping Costco keep its model competitive and unique value in all markets. value-driven in all of its markets.

Figure 4. Iconic Kirkland Signature Item Offered in the Iceland Market

Source: Kantar Retail 15

PepsiCo, Coca-Cola, Walmart, and Kroger Top the List of Best-in-Class Trade Partners

G.R.O.W.T.H. US 2017

“Leadership is for the taking, if we are going to grow, we must get the courage to lead ... now.”

“The 2017 US PoweRanking study reects the continued rise of courageous growth leaders that prioritize innovation and 2017 1 2 3 4 5 5 4 3 2 1

insights over margin management. If you are going to grow,

CENTER STORE CENTER UNMEASURED

CHANNELS you need to muster the courage to lead.” 2016 DATA BIG 1 JET.COM2 WHOLE FOODS3 4 5 4 5 3 2 1

ZERO INFLATION ZERO NATURAL & ORGANIC DIGITAL One manufacturer noted: COURAGEOUS G.R.O.W.T.H. might PRIVATEbe achieved LABEL through Courageous Commitments and Actions of Growth

“Walmart’s ability to move into the Leaders suchLIDL as ... eCOMMERCE TRADE REDUCTION

eCommerce realm coupled with their ACTIVIST INVESTORS ACTIVIST

physical stores will keep them ahead GRANULARITY REINVENT PROXY FIGHTSOWNABILITY 3G CAPITAL 3G WAYS OF HUMAN

TRUTH TELLING

of the pack." AMAZON INNOVATION WORKING UNDERSTANDING ALDI DATA COST

MILLENNIALS

One major retailer noted: “Pepsi always brings customized ideas to retailers for mutual growth, and has the resources and dedication to then In order to achieve COURAGEOUS G.R.O.W.T.H, one Žrst needs the courage to have the tough conversations and test and adjust the plans.” make the necessary commitments that will ultimately unlock it.

“A Courageous Company has the courage to be wrong on something they have never done before versus being wrong on something they know no longer works.” 16

Lidl vs. Walmart: Shelf-Price Showdown 17

Lidl vs. Walmart: Shelf-Price Showdown By: Mike Paglia

Lidl opened its first U.S. stores in June, and new locations are coming Supercenters) on 24 branded SKUs and 15 private label SKUs across online every week. Yet even before the launch, the retailer created edible, nonedible, and health and beauty categories. All data was enormous buzz in the CPG community, most notably regarding its collected on June 15, 2017, at the Lidl and Walmart Neighborhood well-documented history of disruptive pricing. Now that Lidl’s stores Market in Greenville, S.C. The two stores are located across the street are open, we can make definitive comparisons across merchandising from each other. tactics between Lidl and its American competitors. Kantar Retail has Comparing the Branded Basket: A Overall Differential done exactly that, and the results are eye-opening. Lidl and Walmart achieved price parity on 14 of the 24 branded SKUs In this analysis, we will compare pricing between Lidl and Walmart we surveyed (Figure 1). Neighborhood Market (which has identical pricing to Walmart

Figure 1. Branded SKU Pricing: Lidl vs. Walmart

Walmart Lidl Cheaper/ Walmart Lidl Cheaper/ Item Lidl Price Item Lidl Price Price Pricier By: Price Pricier By: Minute Maid Lemonade 59 oz $1.25 $1.50 -17% Sensodyne Toothpaste $4.94 $5.24 -6% Hershey Syrup 24 oz $1.99 $2.28 -13% Aveeno Baby Wash 18 oz $8.97 $8.97 0% Powerade 32 oz $0.74 $0.80 -8% Suave Shampoo 30 oz $1.94 $1.94 0% Old Bay Seasoning 6 oz $3.69 $3.98 -7% Crest Complete Toothpaste 6.2 oz $3.42 $2.97 15% Jif Peanut Butter 16 oz $2.32 $2.48 -6% HBA Basket Total $19.27 $19.12 1% Bertolli Extra Virgin Olive Oil 17 oz $5.98 $5.98 0% Pedigree Canned Dog Food 13.2 oz $0.69 $0.74 -7% Diet Coke 12 pk cans $4.68 $4.68 0% Bounty Paper Towels 6 rolls $8.98 $8.98 0% DiGiorno Pizza 31.5 oz $5.47 $5.47 0% Cascade Pods 14 ct $3.97 $3.97 0% French’s Mustard 14 oz $1.56 $1.56 0% Charmin Bath Tissue 6 rolls $6.97 $6.97 0% Gerber Baby Food 5 oz $0.98 $0.98 0% Pampers Size N Diapers 32 ct $8.97 $8.97 0% SPAM 12 oz $2.64 $2.64 0% Pup-Peroni Dog Treats 25 oz $10.98 $10.98 0% Bud Light 12 pk cans $10.99 $9.88 11% Tide Laundry Detergent 75 oz $8.97 $8.94 0% Ben & Jerry’s Ice Cream 1 pint $4.28 $3.48 23% Nonedible Basket Total $49.53 $49.55 0% Edible Basket Total $46.57 $45.71 2% Branded Basket Total $115.37 $114.38 1%

Source: Kantar Retail 18

Though the difference between baskets was a mere 99 cents, Lidl price cuts in the Southeast do seem to have been moderately effective posted lower prices on 7 of 24, or 29%, of the items in our basket. Of in narrowing the overall price gap with Lidl. note, we recorded only one discounted item at Walmart. The 75 oz. More important than the basket-level difference, however, are the Tide laundry detergent was on Rollback at $8.94, with a pre-Rollback depth and number of discounts for selected items. Consistent with price of $9.97 (as listed on Walmart.com). Without the Rollback, Lidl our expectations, Lidl posted price points on select items that would have been cheaper on 8 of 24 items. Walmart was cheaper created a number of deep, punctuated discounts relative to Walmart than Lidl on only three items. Overall, though, Walmart’s pre-emptive (Figure 2).

Figure 2. Impact Pricing With Punctuated Discounts in the Branded Assortment

Less expensive at Lidl Equal pricing with Lidl More expensive at Lidl Minute Maid Lemonade 59 oz. . . . -17% Bertolli Extra Virgin Olive Oil 17 oz Bud Light 12 pk cans ...... 11% Hershey Syrup 24 oz...... -13% Diet Coke 12 pk cans Crest Complete Toothpaste 6.2 oz. . .15% Powerade 32 oz...... -8% DiGiorno Pizza 31.5 oz Ben & Jerry’s Ice Cream 1 pint . . . . 23% Old Bay Seasoning 6 oz...... -7% French’s Mustard 14 oz Pedigree Canned Dog Food 13.2 oz. . -7% Gerber Baby Food 5 oz Jif Peanut Butter 16 oz...... -6% SPAM 12 oz Sensodyne Toothpaste...... -6% Aveeno Baby Wash 18 oz Suave Shampoo 30 oz Bounty Paper Towels 6 rolls Cascade Pods 14 ct Charmin Bath Tissue 6 rolls Pampers Size N Diapers 32 ct Pup-Peroni Dog Treats 25 oz Tide Laundry Detergent 75 oz

Source: Kantar Retail 19

The effect of these surgical pricing moves is subtle but important. Figure 4. Private Label SKU Pricing: Lidl vs. Walmart While Walmart maintained parity on the majority of items (and Walmart Lidl Cheaper/ indeed came in well below Lidl on three items), Lidl’s “impact pricing” Item Lidl Price Price Pricier By: tactic across more items may allow it to establish leadership in price Mustard 20 oz $0.59 $1.38 -57% perception. Such impact pricing was visible throughout the store, Glass Cleaner 32 oz $0.98 $1.98 -51% clearly intended to shape shoppers’ view of Lidl’s value proposition White Bread 20 oz $0.85 $1.48 -43% (Figure 3). Mac & Cheese 7.25 oz $0.59 $0.86 -31% Figure 3. Eye-Catching Price Points at Lidl Spaghetti 32 oz $1.45 $1.97 -26% Pasta Sauce 24 oz $1.19 $1.50 -21% Ibuprofen 100 ct $1.99 $2.48 -20% Canned Peas 15 oz $0.55 $0.68 -19% Liquid Dish Soap 24 oz $1.69 $1.97 -14% Ketchup 24 oz $0.89 $1.00 -11% Granny Smith Apples 1 lb $1.16 $1.29 -10% Canned Tuna 5 oz $0.65 $0.68 -4% Green Bell Peppers 1 lb $0.49 $0.50 -2% Bananas 1 lb $0.44 $0.44 0% Whole Milk 1 gal $2.09 $2.09 0% Private Label Basket Total $15.60 $20.30 -23% Source: Kantar Retail Source: Kantar Retail

Comparing the Private Label Basket: The Gap Widens Significantly Figure 5. Impact Pricing With Punctuated Discounts The price gap between Lidl and Walmart widened substantially when in the Private Label Assortment we compared 15 private label items (Figure 4). Lidl’s private label Lidl Cheaper/Pricier by: 0% 0% basket was priced 23% less than Walmart’s, with no comparable 0% -2% -4% private label items cheaper at Walmart. -10% -11% -10% -14% -20% Whereas Walmart achieved price parity on most items in the branded -21% -20% -19% -23% basket, the retailers had equivalent pricing on only two private label -30% -26% -31% SKUs (bananas and whole milk). More importantly, Lidl posted a -40% -43% double-digit percentage price advantage over Walmart on 73% of the -50% Lidl is less expensive Lidl is more expensive -51% items in the basket (11 of 15 items), with prices ranging from 10% to a -60% -57% commanding 57% cheaper than Walmart. -70%

Despite Lidl’s overwhelming price advantage on the overall private label basket, its “impact pricing” tactic led to two individual price gaps — on mustard and glass cleaner — that were more than double the overall basket-level price gap of 23% (Figure 5). Source: Kantar Retail 20

Extending this tactic into private label makes Lidl’s value proposition Though it is tempting to focus on Lidl’s price advantage on individual significantly more visible because approximately 90% of Lidl’s in-store items, the broader impact of Lidl’s disruptive pricing on category assortment is private label. This provides a much larger “canvas” dynamics is more significant. Price gaps such as these will redefine than the branded assortment, which comprises only about 10% of what shoppers perceive is a “good price” for a given item (similar items (Figure 6). to what Walmart did decades ago); at the same time, it effectively lowers the opening price point “floor” for a given category and widens Figure 6. Eye-Catching Price Points Dominate the expected gap between private label and brands in the market in Private Label at Lidl (Figure 7). As competitive retailers respond, category price “ladders” can become confusing, and brand power can erode. As Lidl opens more stores and expands its reach, this dynamic will extend to more of the U.S. market.

Regardless of whether shoppers actually make a purchase at Lidl, their recalibrated price perception is likely to have a ripple effect across the competitive retailer landscape.

Figure 7. Lidl’s Private Label Is 57% Cheaper Than Comparable National Brand

Source: Kantar Retail Source: Kantar Retail 21

Kantar Retail Point of View 3. Engage Walmart on its capacity to emphasize (and competitively price) what Lidl does not have in its stores. Now that Lidl is officially open for business in the U.S., suppliers will Such a strategy would play to Walmart’s depth of assortment need to transition from speculating about Lidl’s impact to executing (in store and online), pharmacy, and free online-order pickup. against it. With empirical data in hand, four strategic implications for Moreover, creative in-store merchandising takes on a greater suppliers become clearer: urgency. 1. For suppliers that sell the same items at Lidl and Walmart, 4. Zero in on private label as the essential proving ground for anticipate price parity between the two retailers. Leaving Lidl to convey its value proposition, since both the depth aside the expectation of funding, suppliers in this situation and breadth of price gaps are eye-popping relative to the may find themselves in the middle of a tug of war, since any branded gap. It is important to note that Lidl emphasizes price action taken at one retailer will likely be countered by the both the quality and price of its private labels, whereas other. A more productive approach may be to sell a different Walmart seems to prioritize price (for example, Great Value). item to Lidl than to Walmart. Assuming the item aligns to Lidl’s Going forward, it appears that Walmart will need to focus on criteria, the move would minimize comparability issues and both variables to compete against Lidl’s private brands. Over diminish tension with Walmart. At a broader level, such an the longer term, if shoppers endorse Lidl’s value proposition, “asymmetrical” assortment between the two retailers will also the retailer could take a leading role in setting the bar for help to reduce shopper leakage from Walmart to Lidl. private label innovation in ways that will significantly impact 2. Help Walmart understand the optimal price gaps between both retailers and suppliers. the two retailers. As Lidl opens more stores, suppliers will be able to conduct price elasticity studies (and determine optimal gaps) and bring an informed perspective to their merchants. Indeed, parity may not be necessary in all cases given Walmart’s other advantages. 22

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2018 Americas Events 23

Retailing in Low-Tier Cities: Past, Present, and Future 24

Retailing in Low-Tier Cities: Past, Present, and Future By: Tudor Popa

Executive Summary for example. Retailers in Giurgiu are almost all discounters; the exceptions are and , which operate Low-tier cities are playing a new role in the clash between . All retailers have gradually taken up strategic positions multichannel retailers and discounters. These cities compensate for in key areas of the city (Figure 1): their unattractive, low-affluence profile by their national scale. They are also a testing ground for retail innovations aimed at catering to an – ’s compact hypermarket is located on the outskirts, increasingly polarized shopper. as you enter the city from the north.

Giurgiu is a low-tier city on ’s southern border with . – Two Profi are next to two of the city’s traditional markets, The capital city of Giurgiu County, the city sits on the northern bank its standard strategy. of the Danube across from the Bulgarian city of Ruse. The bridge connecting the two cities makes Giurgiu one of Romania’s main border – is in two residential areas. hubs, while its proximity to Bucharest 100 kilometers away makes – Carrefour and Ahold Delhaize’s Mega Image are located it the main transit point for Romanian tourists driving to destinations in high-affluence areas. in southern Bulgaria or Greece.

Just like many other low-tier cities in Romania, Giurgiu has experienced Figure 1. Map of Retail Chains in Giurgiu a gradual and steady decline in living standards during the last few decades. With its economics revolving around the border transit hub Kauand and surrounding agricultural areas — and industry almost nonexistent — the city is currently one of the lowest contributors to Romania’s GDP. Pro The depressed economy led to a gradual exodus of human capital. Carrefour Market Since 1990, the city’s population has declined by approximately one- Penny Market third to 50,000. Among Giurgiu County’s 250,000 inhabitants, seven in eight are officially unemployed. The city’s situation is similar to that of many other places across Central where young and Supeco Lidl middle-aged people have moved to more affluent cities in the country or even abroad, leaving behind an unbalanced demographic and an Express Penny Market unsustainable economic situation. Mega Image Pro Retail in Giurgiu is typical for its demographic profile. The city is large Carrefour Market enough to host at least one store from each of Romania’s major retailers, but not large enough to justify a full-fledged hypermarket, Source: Google Maps 25

Spend half a day in Giurgiu visiting most of these stores, and you Figure 2. Penny Market: Upping the Discounter Proposition, might reflect on these three themes: Likely Inspired by Former Sister Retail Chain, Billa

1. Retailers are fighting for share in an increasingly polarized shopper landscape.

In most countries, wealth is concentrated in the capital city and a few other major metropolitan areas, while low-tier cities often get left behind. For Romania, these low-tier communities have been critical to the rapid development of discounters, a late-entrant channel to the hypermarket-dominated retail market. While the rest of the trade focused on gaining scale in high-affluence cities like Bucharest, Cluj, Timisoara, and Constanta, discounters like Profi, Penny, and (since 2011) Lidl established themselves in low-affluence communities where Source: Kantar Retail they gradually set the trading standards and learned how to better cater to shoppers there. The nationwide Billa acquisition was an unmissable opportunity for Carrefour, even going beyond the chain’s similarity to the Carrefour With discounters expanding their presence in low-tier cities, large Market format. Carrefour has further leveraged the acquisition to help multichannel retailers have limited opportunities in those locales. They grow a relatively obscure model with a limited footprint in Romania: either fold or make an equally decisive move. Rewe decided on the Supeco, which is now deployed in two former Billa stores (in Galati former when, as it did in , it discontinued the sizable Billa Romania and Craiova). Originally from Spain, Supeco has been present in operation in order to focus on strengthening Penny. This proved to Romania since 2014. Giurgiu was among the first cities chosen for its be an opportunity for Carrefour, which acquired the 86-store Billa deployment, for obvious reasons (Figure 3). In addition to Romania, supermarket chain in 2016 for an estimated EUR100 million. Carrefour operates Supeco in two other countries: Brazil, where it 2. Channel blurring opens space for new formats. complements its inspiration Atacadão, and (as of 2017) Italy, where it Now the roles have reversed. Lidl, Penny, and Kaufland are doubling was deployed on former underperforming stores in the north. down on their presence in more affluent towns while they use their Figure 3. Supeco’s Manager Aisle: Top Seasonal Promotions already-established national buying scale to perfect their models Elevated Under Prominent Price-Focused Messaging nationwide. In top-tier cities, the discounters are increasingly eroding the share of established multichannel retailers by using a balanced mix of affordability, increased quality, and convenience to gradually challenge their proposition. Moreover, rumors of Aldi entering the market are likely to materialize sooner rather than later, further strengthening the discounter commercial model in the market and the pushback from competitors (Figure 2).

Source: Kantar Retail 26

The format’s current scale and ongoing support give a strong signal 3. Some formats fit better than others. about this nuance in Carrefour’s omnichannel strategy. Taking into The Carrefour Market in the former Billa location seemed out of place account Carrefour’s integration and subsequent conversion of 650 in Giurgiu. While it caters to a niche local audience with its broader former Dia stores to the newly created Carrefour Contact format in offer and plays the role of a mini hypermarket with a sizable nonfood France, it seems Carrefour has decided that the best way to tackle range (though not comparable to its out-of-town main competitor discounters is to confront them directly (Figure 4). And where do these Kaufland), the store seemed purely to help Carrefour consolidate retailers gain most of their traction? In low-tier cities. But gaining market share. The Promo Gate, which shoppers go through to access traction calls for differentiation, and that is what Supeco provides, the store, might not be enough to convince them of the store’s value maybe even more so than Contact. (Delhaize attempted a similar proposition since prices on key items ranked among the highest in feat years ago in Romania with Red Market, a progressive discount the city (Figure 5). chain it soon closed to focus on its core Mega Image format.) Figure 5. Carrefour Market’s Promo Gate at the Entrance Figure 4. Carrefour-Deployed Supeco Across From Lidl

Source: Kantar Retail Source: Kantar Retail

Supeco, on the other hand, was impressive because it featured no Supeco is a relatively new breed of retailer that, like Action in Western reference to Carrefour. Its assortment consisted entirely of unknown Europe and Poundshops in the U.K., proves that there is always a way low-cost brands, low-priced national brands, and very discreet to undercut the competition. The visit in Giurgiu showed that the unbranded Carrefour products. At the time of our visit, Supeco model has not changed much since our early visits to one of the first underpriced all its competitors in Giurgiu on comparable key A-brand shops in Spain. Despite reports of unsatisfactory results in Romania, items (Figure 6). And like all the other discounters, the store buzzed Carrefour is not ready to give up on it. with activity. 27

Figure 6. Prices of Comparable Key A-Brand Products vs. Local Average

120%

Price vs. Local Average

110%

100%

90%

80% Supeco Carrefour Market Lidl Penny Pro Kauand

Coca-Cola 2.5 liter (1 count) Jacobs 250 grams (1 count) Activia 125 grams (1 count) Promotions and Danonino 50 grams (4 count) Heineken 0.5 liter (1 count) Heineken 0.5 liter (6 count) price-advantage signage

Source: Kantar Retail

Kantar Retail Point of View County. The project unites 80 vegetable farmers in the Varasti village While Bucharest and other major cities are witness to the latest retail and guarantees Carrefour will buy their products while ensuring innovations — such as eGrocery, self-checkouts, and scan and pay quality to shoppers. The Giurgiu municipal administration has — and account for the largest share of local retail, places like Giurgiu also announced that three major manufacturers are set to open are where retailers are resorting to guerrilla warfare in their efforts production plants in the city’s Free Trade Area, creating 1,000 jobs. to secure national scale and consolidate brand equity. For their part, This news — and the prospect of a new bridge being built across the suppliers must adjust their product and commercial strategies to Danube starting in 2018 — put the socioeconomic dynamics of the city account for these economic and competitive realities and contribute in a new perspective. to establishing targeted partnerships aimed at unlocking growth for These developments show that even communities that have both sides. They must also cater in the most appropriate fashion to experienced prolonged periods of decline may quickly find themselves local shoppers. on a path that could result in significant growth. For that reason, Supporting these communities from within should be higher on retailers that make a long-term commitment to cater to these manufacturers’ agendas. Carrefour has already taken the lead by communities through thick and thin can become an integral part of setting up the country’s first retailer-backed cooperative in Giurgiu any potential turnaround. 28

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U.K. Sugar Tax: What Impact Will It Have on Retail? 30

U.K. Sugar Tax: What Impact Will It Have on Retail? By: Kantar Retail Research Team

Executive Summary The U.K. will be the next big market to act when it implements a sugar tax in 2018. This tax will specifically target the soft drinks category. As public health costs continue to rise, more countries are seeking Drinks with more than 5 grams of sugar per 100 milliliters will be taxed to regulate unhealthy products. With the U.K. set to impose a tax on at a rate of 18p per liter, while those with 8 grams or more of sugar per high-sugar drinks in 2018, manufacturers and retailers can assess 100 milliliters will be taxed an extra 24p per liter. the short- and long-term implications of the tax by looking to other countries that have already enacted similar taxes. Laws of this nature often lay the foundation for greater change. To stem food waste, for instance, France enacted a law in early 2016 Retailers and suppliers in the U.K. are feeling uncomfortable with requiring supermarkets larger than 4,000 square meters to donate national-level political and economic changes. An increasingly unsold food to local charities or food banks. Retailers contravening the regulatory environment means companies face even greater law face fines of EUR3,750 to EUR75,000. Despite various loopholes in challenges as the transformational impact of legislation takes hold. and poor policing of the law, French shoppers have become incredibly The regulation of categories, which is nothing new, has mostly targeted demanding regarding sustainability issues. They are seeking better alcohol and tobacco. As is the case with smoking, the societal cost of packaging, lower energy consumption, environmentally friendly food obesity is creating a stronger argument for taxes on sugary/unhealthy production, and waste reduction. The sugar tax could produce a food. In 2015, 19.5% of the adult population across the OECD was similar effect in the U.K. obese, with obesity rates expected to increase by 2030.

Of all the European countries attempting to change unhealthy eating habits by taxing certain foods, and Denmark have taken the biggest steps by raising taxes on foods deemed high in fat, salt, and sugar by as much as 25%. 31

Kantar Retail Point of View purchases of sugary beverages declined by 18.8 milliliters per person per day in 2014 and by 29.3 milliliters per person per day in 2015. How suppliers, retailers, and shoppers react to the U.K’s sugar tax has both short- and long-term implications. Long-Term Impact of the Sugar Tax

Short-Term Impact of the Sugar Tax Developments in Hungary also show that regulating health-related categories can be a significant catalyst for health and wellness, which Because soft drink manufacturers are the focus of the sugar tax, they has become one of the most comprehensive platforms for growth and will be most affected. They will face two choices: Reformulate their differentiation in retail today. In the U.S. alone, health and wellness products or pay the levy. To keep prices stable, they could absorb has the potential to contribute $1.2 trillion to the retail market by 2025. the tax at the source, but this option is unlikely. Instead, in the short term, many will pass the cost on to shoppers directly or indirectly by Crucially, eating healthier is the most elementary path to health and increasing prices on lower-calorie/low-sugar variants. With looming wellness, so how shoppers approach healthy eating will ultimately inflation, shoppers will be more likely to look at cheaper brands or determine the direction retailers take. In Hungary, the development cheaper substitutes of the same product. of eating healthy has been rapid since the tax on unhealthy food went into effect in 2011. By repositioning their offers early, retailers In Hungary, most manufacturers of unhealthy products changed and suppliers have been able to capitalize. Many large FMCG suppliers their formulas to avoid the levy. After the tax was imposed, sales of in Hungary have grown share by promoting new products across a carbonated soft drinks fell 15.1% after the first two years, according to broader health and wellness offer as the demand for healthier options, various reports. Purchases of such products also declined in Mexico such as “free-from” products, has increased dramatically. and other markets where similar taxes were implemented. One study reported a significant impact on the poorest households, where Unsurprisingly, discounters reacted swiftly. Lidl quickly rolled out its Healthy Till initiative, removing all sweets, chocolates, and crisps from Figure 1. Healthy Till at Lidl Hungary checkouts and replacing them with healthy alternatives (Figure 1). For its part, Aldi began introducing a wider range of organic packaged foods and beverages; organics is one of the discounter’s fastest- growing segments.

Indeed, nearly all retailers in Hungary have ramped up their private label ranges, and in many instances, health and wellness products are outselling non-health and wellness products. Expanding demand should only encourage more product development and growth.

In the U.S., health and wellness in retail is ahead of the curve, representing a ubiquitous focus for retailers and brands. European- based suppliers and retailers can use knowledge gained from the U.S. market to plan their offer, guide what goes in their products, and Source: Kantar Retail determine the best way to communicate and display how their brands support shoppers’ health and wellness needs. 32

Insights Conference eCommerce Conference Mar 6 & Amazon Planning Workshop May 16-17 European Drug, Health & Beauty Workshop Jun 19 Russian Retail Proximity/Convenience Key Account Retailing Workshop Planning Workshop Oct 23 Oct 9-10

French Retail Key Account Planning Workshop Mar 20 European Discounters Turkish Retail Key Carrefour Global Planning Workshop Account Planning Planning Workshop Sep 20 Workshop Mar 21 Dec 5

2018 EMEA Events 33

Four Shopper Opportunities Within Convenience Stores 34

Four Shopper Opportunities Within Convenience Stores By: Mike Paglia and Rachel McGuire

The unmatched fragmentation and complexity of the convenience commuting stops (i.e., “stop in on way to/from work or school”) and channel makes hard, data-backed shopper insights difficult to come trips to buy a meal are significantly more likely in the Northeast. by, which makes unlocking the significant growth potential of the These examples underlie a simple yet profound point: Given the sheer channel difficult. However, leveraging our proprietary ShopperScape® size and fragmentation of the U.S. market and the database, Kantar Retail is able to extract four key shopper opportunities channel, we should expect variation in what drives shoppers to visit — along with relevant implications — that suppliers can leverage to convenience stores. Suppliers, therefore, need to consider geography grow their convenience channel business.* as a key input in their customer plans since it will have an outsized 1. The role of the convenience store varies by region, influence on key decisions, such as how to invest ad spending, what so plan accordingly. items to sell, and how to merchandise in the store.

The missions that motivate trips to convenience stores vary 2. Parents and younger shoppers are highly engaged considerably by geography (Figure 1). While purchasing gasoline with the channel. is the most common trip driver overall, it is especially likely to drive Beyond geographic differences, important differences also exist convenience store trips in the Midwest and South. On the other hand, between demographic cohorts in what drives them to convenience

Figure 1. Types of Trips Made to Convenience Stores, by Region (multiple responses allowed)

80% Northeast Midwest South West 70% 62% All shoppers 60%

50%

40% 38%

30% 21% 20% 18% 14% 11% 10%

0% To buy gasoline While traveling Trip to buy specic items Stop in while running Stop in on way to/from To get a quick meal out of town/on a road trip (other than gasoline) other errands work or school

Note: Arrows indicate statistically significant difference vs. all shoppers (95% confidence level). Source: Kantar Retail ShopperScape®, January 2017 * The ShopperScape® survey is a monthly survey of 4,000 shoppers who are a) the primary shopper for their household; and b) age 18+. Therefore, respondents are not representative of the total convenience store channel shopper base, because they likely skew more female and older than convenience store shoppers overall. 35

stores (Figure 2). A review of those differences reveals that younger Figure 2. Types of Trips Made to Convenience Stores, shoppers and especially those with kids at home rely on convenience by Demographic Segment (multiple responses allowed) stores for a wider range of trip missions. In fact, shoppers with All Kids in Gen Y Gen X Boomers Seniors children significantly overindex in making all but one major trip type. Shoppers HH Specifically, parents overindexed the most on commuting stops Sample Size 4,050 981 1,271 1,480 318 959 and stopping in while running other errands. This implies that for To buy gasoline 62% 63% 66% 60% 50% 70% parents, the c-store trip is likely part of a larger route. In that context, While traveling out of town/ 38% 45% 38% 35% 31% 43% shoppers are seeking to maximize the productivity of their time spent on a road trip shopping. To that end, in-store merchandising and adjacencies with Trip to buy specific items 21% 24% 22% 20% 15% 23% an eye toward speed and incrementality matter more, both in terms (other than gasoline) Stop in while running of driving basket growth (for the retailer’s benefit) and maximizing the 18% 26% 19% 14% 5% 24% other errands return on time invested (for the shopper’s benefit). Stop in on way to/from 14% 22% 18% 8% 1% 22% work or school Like shoppers with kids at home, younger shoppers also are more likely to leverage c-stores, overindexing on several key trip missions To get a quick meal 11% 17% 12% 7% 4% 14% relative to all shoppers. Younger shoppers, however, are a little more I never visit convenience stores 16% 11% 13% 19% 28% 11% nuanced in how they shop c-stores relative to their peers who are parents. The most striking difference between the two groups is that Note: Green/red highlighting indicates significantly greater/lower vs. all shoppers younger shoppers do not overindex on making trips primarily to buy (95% confidence level). ® gasoline. Conversely, younger shoppers are more likely than parents Source: Kantar Retail ShopperScape , January 2017 to make c-store trips related to traveling, errands, and meals. The speak to a broader audience will each be only partially effective. implication for suppliers, therefore, is that c-stores meet different Instead, the data suggests that a strategy employing both targeted needs for different shopper cohorts. and broad approaches that complement each other would be a more holistically effective way to engage as many shoppers as possible. Understanding these specific needs is critical for suppliers to engage In other words, significant opportunity exists in this channel to both with these shoppers effectively. reward loyal shoppers and satisfy the functional needs of convenience- 3. Loyalty-driven strategies will resonate with about half of seeking shoppers. convenience store shoppers (but in a big way). Among shoppers of specific c-store retailers, a few retailers rise to the Assessing shopper loyalty at the channel level reveals an interesting top in terms of garnering a shopper base that tends to describe itself finding. Roughly half of convenience store shoppers report that as loyal. In particular, an easy majority of , QuikTrip, and they tend to always go to a specific store, whereas the other half say shoppers say they tend to always shop a specific convenience store they tend to go wherever is most convenient in the moment (Figure 3). that they like — presumably Wawa, QuikTrip, or Sheetz. What do these This means that marketing strategies designed around loyalty (such retailers have in common? What are they doing to drive repeat traffic as retailer-branded rewards programs and apps) or those meant to from existing shoppers and build a relatively loyal shopper base in this fractious channel? 36

Figure 3. Self-Assessed Convenience Store Loyalty All three retailers are generally regarded as best in class in terms of store experience and execution. They have also created an in-store All Convenience Store Shoppers offer that resonates with shoppers and, therefore, drives loyalty. But for Wawa, QuikTrip, and Sheetz, shopper engagement does not end Alwayats g theo to store’sstore I ldoors.ike EachSh oretailerp what ehasver sat olargere is m audienceost conve andnien tis highly engaged with shoppers on social media, across Facebook, Twitter, Instagram,Wa andwa Snapchat. The7 content2%* of each retailer’s28% social media platformQu iprovideskTrip both insight60 into% its marketing efforts40% and a valuable 51% 49% road mapSh eforet zsuppliers. 58% 42% Tend to visit Tend to – SLoyalty-focusedpeedway convenience55% retailers seek a young45% and diverse whatever always go store is most to specic audienceShel ldemonstrated53 %by content featuring4 Millennials,7% convenient store I like women, and people from a wide array of ethnic backgrounds. 7-Eleven at the time 51% 49% E– xThesexon/M sameobil retailers position50% themselves as 5part0% of their shoppers’ communities. Shoppers are encouraged to share BP/ARCO/Amoco am/pm 48% 52% photos and posts (to which the retailer often directly replies). Chevron/Texaco 46% 54% Content often features families, children, and shoppers enjoyingCircle Ktheir favorite42 %items. 58% Past Four-Week Shoppers of Key C-Store Retailers – Recurring content themes include made-to-order and fresh Always go to store I like Shop whatever store is most convenient foods, an abundance of humor, and significant engagement with shoppers. Wawa 72%* 28% QuikTrip 60% 40% Additionally, all three retailers effectively leverage mobile technology to further deepen shopper engagement, specifically in the form of 51% 49% Sheetz 58% 42% Tend to visit Tend to rewarding loyal shoppers (Figure 4). Smartphones and tablets are an Speedway 55% 45% whatever always go ideal platform for driving loyalty because they are tightly ingrained in store is most to specic Shell 53% 47% convenient store I like the shoppers’ daily lives. Targeted offers, combined with eCommerce 7-Eleven at the time 51% 49% capabilities in some instances, position the retailer to better convert / 50% 50% the conversation to commerce. BP/ARCO/Amoco am/pm 48% 52% The view of loyalty the data provides bears an important implication: Chevron/Texaco 46% 54% From a marketing perspective, one size fits half. While some retailers 42% 58% build their entire marketing strategies around loyalty, not all seek to do so. Indeed, the vast majority of retailers favor more broad- * Read as: 72% of past four-week Wawa shoppers say they tend to always shop a based ways of attracting shoppers. Therefore, suppliers need at least specific convenience store they like. Note: Arrows indicate statistically significant difference vs. all convenience store two complementary approaches to marketing in the convenience shoppers (95% confidence level). channel — one targeted and one widespread — to effectively maximize Source: Kantar Retail ShopperScape®, January 2017 shopper engagement. 37

Figure 4. Loyalty Programs Among Leading Convenience 4. Improving the in-store experience is a shared responsibility. Store Retailers It is easy to assume that the work of providing a positive shopping experience falls squarely on the retailer’s shoulders. However, when looking at the factors that matter most to convenience store shoppers, suppliers can have significant influence in several areas (Figure 5).

The opportunities for suppliers to be influencers revolve mainly around assortment and price, specifically the extent to which they are on point with shoppers’ expectations. Shoppers indicate several areas that have significant room for improvement. Shoppers reported that their expectations are largely met in terms of beverage selection and having specific items they want. The performance gap widens significantly, however, when it comes to healthy food options and pricing, suggesting that many shoppers’ expectations for the ideal c-store shopping experience are going unmet. While retailers certainly

Source: Kantar Retail, retailer websites, Apple App store

Figure 5. Convenience Store Performance Gaps: Ideal vs. Actual Convenience Store Shopping Experiences

IDEAL: ACTUAL: PPT Gap: “Extremely important” Describes typical c-store ACTUAL – IDEAL when shopping c-stores shopping experience Sample Size: 3,403 Has wide selection of beverages 30% 35% 5.0

Easy to get in and out 66% 68% 2.5

Has specific food/drink items I like 41% 39% -2.5 YES

Influence Do not have to go out of my way to get there 63% 60% -2.9 points for Store is clean and looks nice 59% 53% -5.9 suppliers Healthy food/snack options 27% 20% -7.3

Feels safe/well-lit 68%* 57% -10.7 Expectations Met Expectations

Prices are reasonable 64% 49% -14.5 NO

Clean restrooms 53% 32% -20.4

* Read as: 68% of convenience store shoppers say the store feeling safe/well-lit is “extremely important” to them when shopping at c-stores; 57% of convenience store shoppers say that their recent convenience store shopping experiences have met that condition. Source: Kantar Retail ShopperScape®, January 2017 38

share some of the burden, suppliers have an important role to play. Kantar Retail Point of View Related specifically to assortment, suppliers need to develop a The convenience channel’s unmatched level of complexity can granular, data-backed view of the healthy food opportunity as well as discourage suppliers from entering or increasing their level of the target shopper base. investment in the space. Yet those undaunted by that complexity can At a broader level, suppliers need to develop a clearer understanding find significant opportunities to engage with shoppers. To identify and of what constitutes “reasonable” pricing at convenience stores. execute against these opportunities, suppliers must first undertake a Shoppers going to convenience stores are often seeking to maximize number of efforts to ensure proper orientation. their time and are willing to pay slightly higher prices (relative to other – Quantify the size of prize for your company. Though highly channels) to do so. Retailers and suppliers traditionally arrive at shelf fragmented, the convenience channel represents an undeniable prices by factoring in cost items, fees, margin requirements, and other growth opportunity for suppliers. Tapping into that growth, factors with little consideration for the shopper. However, a more however, requires being able to identify and aggregate multiple, strategic and shopper-centric approach would be more effective. smaller growth pockets as opposed to the more traditional Understanding who shops the channel, their trip mission while in the practice of relying on a few large-scale retailers. store, and which retailers excel at driving engagement and loyalty are all important inputs that can help refine pricing strategy – Invest in third-party data for the channel, and leverage what in a positive way. your customers have available. Data available for this space is spotty, but some is better than none. Leverage what data your company can acquire to form the foundation of an analytics initiative that can extract useful insights.

– Educate your marketing teams about the convenience channel, its key players, their strategies, and how shoppers use the space. A deep understanding of the channel, particularly from a marketing perspective, will better prepare you to develop more effective shopper engagement strategies that will benefit both you and your customers. 39

Graphic Insights: Navigating the C-Store Data Desert By: Kantar Retail Shopper Team

Today, retailers and suppliers are finding success by effectively leveraging data-driven insights; however, in some key areas of retail, reliable data is sparse. The gap between supply and demand of healthy food at convenience stores is one opportunity ShopperScape® data has exposed.

Navigating the C-Store Data Desert % of c-store shoppers say it’s important to them that c-stores 68 carry healthy beverage/snack options, but only ...

% of c-store shoppers feel that c-stores today oer healthy 20 beverage/snack options

Source: Kantar Retail ShopperScape®, February 2017 40

In This Time of Empowered Shoppers, Kantar Retail Has You Covered

“ Shopper trips are changing. We leverage Kantar Retail’s shopper insights to build a story with retailers — expanding their viewpoint on trips and conversions.” – Director of Insights, Fortune 100 Manufacturer 41

High-Touch Strategies for Apparel Retailers in a High-Tech World 42

High-Touch Strategies for Apparel Retailers in a High-Tech World By: Tiffany Hogan

Excellence in digital engagement and digital commerce has become Don’t Make All Customer Service Self-Service a goal for almost every retailer, so digital strategies dominate the High-tech service solutions skew to self-service. Mobile technology headlines. Retailers are investing in mobile apps, beacons, artificial gives shoppers more control over their experience and greater intelligence robots, automated manufacturing systems, and other access to information in the palm of their hand. These strategies technologies to speed up everything from production to POS. While are important for enabling the type of flexible shopping many the push for high-tech excellence is necessary for retailers to grow in of today’s shoppers want. Yet retailers must be careful to balance the omnichannel age, it does not mean that retailers should forget self-service with customer service. While shoppers are looking about good old-fashioned customer service. This is especially true in for a stress-free, streamlined experience when shopping in general, an ego-intensive, experiential category like apparel, where physical a streamlined experience does not have to be exclusively connections and advice are often a key part of the purchasing process. technology’s territory. Here are key high-touch strategies apparel retailers can employ to differentiate themselves in a high-tech world. Take mobile phones, for example. Most retailers are focused on how mobile apps can be a shopper’s best in-store shopping buddy. To that Amazon Wardrobe: Where High Touch and High Tech end, they are adding in-store navigation features and pushing apps Will Converge as a source of assortment information. But mobile devices can also Amazon’s latest apparel shopping innovation exemplifies the very facilitate personal customer service. To check out shoppers when reason retailers will need to think about the balance between high- they are ready, Nordstrom has put mobile devices in the hands of its tech and high-touch strategies. Prime Wardrobe allows shoppers associates in Nordstrom Rack stores and in the shoe departments of to try before they buy (encouraging trial of more styles) and delay its full-line stores, eliminating checkout lines and giving more personal payment until any returns are processed. attention to each shopper (Figure 1).

Since this new strategy involves technology only minimally, it is High Touch Doesn’t Have to Mean Low Tech currently virtually a “no touch” strategy when it comes to either Focusing on digital and high-tech solutions does not negate the need physical or digital interaction. But we strongly anticipate this will for high-touch customer service. In many ways, using these strategies change. With Echo Look and Style Check services in their infancy, a in combination can produce more effective results. Many retailers growing private label assortment, and the promise of an on-demand are adding elements of customer service on top of digitally-driven production system in the near future, Amazon has been putting the omnichannel capabilities. Nordstrom has added curbside pickup to its pieces together to create a very holistic apparel experience. Once buy online, pick up in store offer (Figure 2). With a text or phone call, these services converge in an experience that is both high touch and an associate can deliver purchases right to the shopper’s car, parked high tech, Amazon will be the retailer to beat. in a space designated for quick in-and-out shopping. Shoppers can even text an associate to make an in-store purchase and get advice on what to buy. For its part, Macy’s will move its in-store pickup locations 43

Figure 1. Express Mobile Checkout Figure 2. Nordstrom’s Curbside Figure 3. Macy’s In-Store in Nordstrom Rack Stores Pickup Service Pickup Location

Source: Kantar Retail Source: Kantar Retail Source: Kantar Retail

Figure 4. Personalized Style With Stitch Fix operates entirely online, it encourages shoppers and stylists to connect and share advice and preferences (Figure 4). Though the shopper and stylist may never meet in person, these personalized interactions take online customer service to new heights.

Physical Stores Differentiate Multichannel Retailers From Online

While physical stores differentiate multichannel retailers from their pure-play competitors, many retailers still need to figure out how to optimize that differentiation in an increasingly digital-first world. Though shoppers are incorporating digital into their path to purchase more and more, almost 75% of shoppers still purchase apparel most Source: Retailer website often in stores, and 60% still do most of their shopping there. For many of these shoppers, going to stores still provides the best experience to the front of the store to make this quick shop much easier, rather when it comes to many aspects of apparel shopping (Figure 5). than make shoppers traverse the entire store (Figure 3). Shoppers also indicate that they expect a different experience in stores compared with online shopping. Shopping in stores is the Even some online-only retailers realize that high-touch elements can best way they can interact with products, get good advice, and have benefit their shoppers. A core tenet of the Stitch Fix business model fun while doing it. has always been personalized stylist services. Even though Stitch Fix 44

Figure 5. Venue Providing the Best Experience for Different Aspects of Apparel Shopping (among all female primary household shoppers)

Shopping in stores Shopping online

75% 68% 66% 64% 64% 55% 53% 42% 40% 33% 34% 33% 30%

Being able to Hassle-free Safe, secure Getting what Good Getting Having a Getting Staying Getting the Variety of Access to Having a see/interact returns transactions I want in a customer product fun/enjoyable “good deals” up-to-date on lowest price on sizes more styles stress-free with product timely fashion service advice shopping fashion trends specic items shopping experience experience

Source: Kantar Retail ShopperScape®, June 2016

For further evidence, consider how many of today’s most disruptive of what really makes the store experience different from shopping pure-play apparel/fashion retailers — Bauble Bar, Birchbox, Bonobos, online. Shoppers expect stores to be the best place for them to get Fabletics, ModCloth, Rent the Runway, Warby Parker — have opened good advice and customer service and to have a fun experience when some form of physical presence. Bonobos in particular recognized the shopping. As store visits dwindle, giving associates the information value of a high-touch experience to generate revenue. It designed its and autonomy to keep the customer happy will be key because each Guideshops to provide personalized customer service and create a visit will become an even more important opportunity to strengthen a brand connection, rather than as a place to purchase goods. Since shopper’s connection with the retailer. it opened its Guideshops, revenues have grown 80% in surrounding Personal Stylists: Tried-and-True Methods Are Still Effective locations. If online companies value physical connections with shoppers enough to build stores that do not even sell products, then On the flip side, retailers are not forgetting that traditional retailers that already have a physical presence have an opportunity to personalized services like stylists and beauty consultants are a key use their footprint in the same way. part of the strategy. In this case, associates can do more than provide shoppers with assistance. They can also provide expertise that can Stores and Associates Are the Real Brick-and-Mortar Advantage help the retailer become a new source of advice and information Retailers with a physical presence can offer more to shoppers than that encourages shoppers to revisit. Going beyond just general just a handy place to pick up purchases. A store’s advantage is styling services, retailers are offering experiences tailored to specific both its location and its contents: store associates. Retailers might needs. Topshop’s personal stylist program offers unique services be tempted to streamline store staff levels to offset a fall in sales, tailored to everything from bridal parties to finding the perfect pair but doing so would be shortsighted. To grow sales and enhance the of jeans. Macy’s revamped styling services also cover a wide range in-store experience, retailers should invest in training associates, rather of occasions, including general style advice, vacation wardrobes, and than reduce their value to an hourly wage. Motivated and empowered even gift giving (Figure 6). employees are an important part of any store strategy and the heart 45

Figure 6. Personal Styling Services From Topshop and Macy’s

Source: Kantar Retail, retailer websites

Don’t Underestimate the Basics

Retailers also should not underestimate the value of good old- fashioned merchandising and floorset execution. One of the strongest headwinds to conversion is shoppers not being able to find the size or style they are looking for. Good merchandising and strong execution can go a long way toward helping shoppers have a successful trip (Figure 7).

Figure 7. Best-in-Class Merchandising: Uniqlo and COS

Source: Kantar Retail 46

Kantar Retail Point of View It is important to note that retailers’ investments will not be equal across quadrants or similar to each other, and that they will likely While high-tech strategies are grabbing the headlines, it is easy to skew toward the upper-left or lower-right corners. Even so, all forget how important high-touch customer service strategies are to retailers should make sure they have a firm grounding in those basic apparel retailing. Shoppers will continue to incorporate digital into merchandising areas, which will ensure a strong foundation on which their shopping routines, and retailers must make investments to to build new initiatives. support these changing habits. But retailers must be wary of two easy missteps: investing in high-tech strategies at the expense of high- In addition, they need to ensure that investments in high-tech solutions touch solutions, and investing in high tech for the sake of high tech. are actually solutions, not just gimmicks that tick the “high-tech” box. Do you really need beacons to push sales alerts to in-store shoppers, High-tech and high-touch solutions are not mutually exclusive. or would creative signage or optimized staffing levels do the trick? Actually, some of the most creative and successful solutions involve Will your shopper really use that smart mirror to change the color of both. Retailers should evaluate solutions across all four quadrants her dress, or is it better to equip associates with more information? of this customer service matrix to ensure they find the best solution These questions will result in different answers for different retailers, for shoppers’ needs and offer a balanced mix of customer service but ultimately help retailers provide what is best for shoppers rather options (Figure 8). than what makes a better headline. Figure 8. Customer Service Matrix

HIGH TECH

LOW HIGH TOUCH TOUCH

LOW TECH

Source: Kantar Retail 47

We connect a world-class set of retail and shopper assets with pragmatic, solution-oriented people to grow client businesses

CONSULTING TECHNOLOGY INSIGHTS & ANALYTICS SOLUTIONS

Our Core Capabilities:

Shopper Insights Retail & Channel Insights Category & Shopper Solutions

We help you convert shoppers to buyers in store and We help you shape your go-to-market strategy, We help you unlock future sources of real growth online by understanding shopper needs, motivations, assess new channel opportunities, and strengthen through the development of fact-based category behaviors, barriers, and triggers across the increasingly your customer relationships by understanding how drivers and activation platforms. These are tailor- complex omnichannel path to purchase. the overall retail landscape is evolving. made for specific channels and retailers, and are purpose-built to influence purchase behavior.

Go to Market Organizational Performance Retail & Purchase Data Analytics

We help you improve your performance with physical We help you develop the commercial capability of We help you apply best-in-class analytical tools and and eCommerce retailers through better business your organization and the commercial competency consulting services to create winning strategies in planning and alignment of brand with retailer and of your people. We do this through organization store and online across assortment, merchandising, shopper objectives and by choosing which channels design; commercial process mapping; competency promotions, and price. to compete in, how best to access them, and how to modeling; and the assessment, design, and delivery win within them. of training academies.

Trade Optimization Virtual Reality eCommerce

We help you harness the power of advanced analytics We help you create virtual retail environments and We help you and your organization build capabilities to transform insights into powerful sales strategies product content for virtual merchandising, store that arm you with the tools needed to win in this post- while effectively driving critical sales processes. We design, category management, retail execution, digital world. We partner with you to provide insights do this through sales planning, trade promotion and shopper research so your entire organization and custom advisory services that enable you to build management and optimization, retail execution, can take a shopper-centric perspective to drive a competitive online channel strategy, digital joint and advanced pricing. better, faster retail decisions. business plan, and the necessary skills to connect with your always-on, always-distracted online shopper.

Our Global Network Includes:

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We help you sell more effectively and profitably. www.kantarretail.com

Twitter: @kantarretail How we do it LinkedIn: www.linkedin.com/company/kantarretail We connect a world-class set of retail and shopper capabilities and assets with pragmatic, solution-oriented Email: [email protected] people to grow client businesses. Vimeo: https://vimeo.com/kantarretail

Our brand story Kantar Retail Headquarters Every business challenge requires a unique solution. We 24-28 Bloomsbury Way bring together a collection of retail and shopper assets — London, WC1A 2PX insights, tools, analytics, and experienced consultants who United Kingdom think pragmatically while building and delivering integrated +44 (0) 20 7450 2643 solutions. Our passion is using the right combination of Kantar Retail Americas these assets to grow your business. 501 Boylston St., Suite 6101 Boston, MA 02116 United States +1 617 912 2828