Consumer Currents

hirty years ago the influential economist Theodore Levitt coined the term ‘globalization’ in a Harvard Business Review article analyzing the emergence of standardized, Tlow-cost consumer products. For Levitt, globalization reflected the changes in social behavior and technology that meant companies could sell the same goods around the world. In the ensuing decades, globalization has reshaped economies, inspired bestselling books (notably by Thomas Friedman) and generated much political controversy. Yet today Levitt’s observations are more pertinent than ever. Every company in the consumer industry – be they retailer, manufacturer or supplier – has to think globally. The facts speak for themselves. By 2030, the middle class in China is projected to consist of 1.4 billion consumers, four times as large as America’s middle class. India won’t be far behind, with 1.07 billion middle class consumers by then. The importance of a global vision is the prevailing theme in this issue of Consumer Currents. On p18, Ofra Strauss, the Chairperson of the food and beverage group Strauss, discusses how the company has ventured beyond its domestic market, reaching out to consumers in Brazil, China, Mexico and the US with a series of strategic joint ventures. McCain Foods is already a globally famous brand but, as their CEO Dirk Van de Put makes clear on p6, the company sees plenty of scope for growth, especially in emerging markets. By the end of this year, the company will have doubled capacity at its Harbin plant, in northeast China, to keep pace with demand. The most compelling evidence of China’s importance to the global economy is the scrutiny applied to every statistic as analysts seek to continuously adjust their growth forecasts. Some of this speculation focuses so intensely on the short term that it brings to mind the famous observation by another Harvard economist, John Kenneth Galbraith, that “the only function of economic forecasting is to make astrology look respectable”. Like every other economy in the world today, China faces significant challenges but in the long run – as our investigation of the country’s luxury goods market makes clear on p10 – the most likely outcome is that growth will continue, especially as its own brands, like Shang Xia, begin to develop a global presence. The world’s consumer markets are influenced by a host of local factors – from a particular government’s economic policy to the success of a kids’ TV show – yet certain trends transcend national borders. The growing purchasing power of the senior consumer – which we explore on p14 – is one trend retailers and manufacturers can no longer afford to ignore. There are already 800 million people aged 60 and over in the world. By 2050, the United Nations predicts the number of over-60s will have soared to more than two billion. There is no such clarity about the future of the mall. In the US, many analysts predict the age of this temple to consumerism is over. Yet in Brazil, China, Singapore and Turkey, the mall is being reinvented with a host of attractions designed to ensure that millions of consumers visit, shop and stay. These strategies seem to be working too – for example, many luxury brands doing business in China have emphasized how vital it is to have the right location in the right mall. And finally, as this issue coincides with the 2013 Global Summit of The Consumer Goods Forum in Tokyo, we acknowledge the inspirational example set by Kazuo Inamori, one of Japan’s most famous business leaders. In an age when consumer confidence in a brand can be disturbingly fragile – and corporate reputations damaged in an instant – his career is a reminder that the best business leaders have an ethical compass.

Willy Kruh Global Chair, Consumer Markets KPMG International Twitter: @WillyKruh_KPMG

2 ConsumerCurrents 15 Contents

6 Out of the frying pan McCain CEO Dirk Van de Put on how he’ll transform the potato business

4 Off the shelf Turning browsers into buyers, and why clothes stores are going for cheesecake 6 First person Diversifi cation is healthy, says McCain President and CEO Dirk Van de Put 10 The power of China The Chinese aren’t just buying luxury brands, they’re developing their own 14 The older, the better How can food and drink retailers benefi t from the rise of the senior consumer? 17 Is Russia’s future in food? Why the world’s largest country is investing heavily in agricultural growth 18 Case study The Strauss Group: using strategic joint ventures to become a global player 20 Can malls be reinvented? Retailers and owners say yes, but can’t agree on what the future looks like 22 Lessons from other industries What can we learn from the Zen Buddhist priest who rescued Japan Airlines? 23 Insights ConsumerCurrents is published by Haymarket Network, Teddington KPMG provides a wide range of studies and analyses Studios, Broom Road, Teddington, Middlesex, TW11 9BE, UK on behalf of KPMG International. Group Editor Robert Jeffery Editor Paul Simpson Production Editors Sarah Dyson, Stephanie Wilkinson Art Editor Paul Yelland Designer Amy Hanbidge Contributors Ian Cranna, Chris Daniels, David Edwards, Matthew Gwyther, Alison McClintock, Martin Rosser, Kath Stathers Picture Editors Dominique Campbell, Jenny Quiggin Senior Account Manager Alison Nesbitt Managing Director, Haymarket Network Andrew Taplin Cover image Redlink/Corbis, A.J.J. Estudi/Getty Images. No part of this publication may be copied or reproduced without the prior permission of KPMG International and the publisher. Every care has been taken in the preparation of this magazine but Haymarket Network cannot be held responsible for the accuracy of the information herein or any consequence arising from it. Views expressed by contributors may not refl ect the views of Haymarket Network or KPMG International or KPMG member fi rms. 4 10 14 18 3

Food and drink is been blurring formats in this way for years increasingly used to and is now using a new contemporary diner top up retail revenue concept called Sixth & Pine in a slew of outlets and opening espresso bars. Four other major US retailers are weighing up whether to offer food in store. In a concerted effort to make its supermarkets more attractive for families, UK supermarket giant Tesco has acquired the family-friendly restaurant chain, Giraffe, for US$76m. The world’s fi fth largest retailer has also invested in the Harris + Hoole coffee chain and Euphorium bakery to build a portfolio of brands it can incorporate in and around its stores. So why food? “It’s all about engaging customers,” says Cate Trotter, founder of retail research fi rm Insider Trends. “Visitors who are ‘passing through’ need to be encouraged to stop, look and spend. Recent fi gures from PathIntelligence show that for every 1% uplift in dwell time, there is generally a 1.3% increase in sales.” Offering food and drink to persuade customers to stop, look and spend is Would you like some one tactic that cannot be replicated online. In Urban Outfi tters Terrain stores in the US, customers spend 90 minutes browsing merchandise, “but that can double to pineapple cheesecake three hours if they visit the café and shop between a glass of wine or lunch,” said Terrain’s President Wendy McDevitt. with that jacket? “Ingvar Kamprad, the IKEA founder, situated a café between the store’s showroom and marketplace because Retailers offering food and drink alongside their normal products are discovering he felt hungry people were not good that customers are signifi cantly more likely to stop, look and spend in-store customers,” says Trotter. The popularity of farmers’ markets, and global reach of such TV formats as MasterChef (in 35 countries) evoting over half the fl oorspace consumers in store. The company’s 14 retail have convinced many retailers that of a fl agship store to a restaurant and restaurant outlets generate US$2,000 in customers’ culinary adventures can help serving cocktails and pineapple sales per square foot, two-and-a-half times them compete with online shopping. Dcheesecake, when you’re best as much as its retail-only stores. That’s why “With competition becoming fi ercer known for casual beachwear, sounds risky Tommy Bahama was so keen to promote – especially from e-commerce – retailers but Tommy Bahama’s diversifi cation has the concept in its 13,000 square-foot store need to be innovative and fl exible about their been a fi nancial boon. on Manhattan’s iconic Fifth Avenue. formats and business models as they strive Some 12% of the Oxford Industries- There is nothing new about retailers to attract customers to their stores, and keep owned company’s US$452m annual revenue selling food and drink to bolster revenues. them there for longer,” says Mark Larson, derives from food and drink purchased by Upscale US fashion retailer Nordstrom has Global Head of Retail, KPMG International.

code with a smartphone camera. In one in-store trial by Nabisco and Kraft in the US, consumers were 12 times more likely to tap rather than snap. Nexttech Customers usually spend fi ve to ten seconds with a product, but dwell time for NFC tappers shot up to 48 seconds, with 36% of them saving a recipe, downloading the Kraft app or sharing it with friends. A test by Dutch upmarket fashion retailer Vic produced similar results. Near Field Communications NFC can also connect online and offl ine to the benefi t of brands, retailers and consumers. Activision uses the technology to enable users NFC stands for Near Field Communications, which enables smartphone to turn their Skylander fi gurines into virtual characters in the game, one users to communicate with any other NFC device or nearby RFID-tagged of the strategies that has turned this series into a US$1bn brand. object by tapping their phone. More than 100 million NFC-enabled phones Duncan Avis, KPMG in the US, and Leader for Social and Mobile will be shipped this year. While NFC has been touted as a new payment Enterprise, says: “Even in-store, the customer experience is changing system, the real boon for retail may lie in the technology’s ability to engage radically as use of smartphones and tablets increases – and NFC-inspired consumers, where it could prove more rewarding than snapping a QR mobile innovations can capture the consumer’s imagination and attention.”

© 2013 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member fi rms of the KPMG network are affi liated. Trend Spotting Always on their minds Turn browsers into buyers With shoppers increasingly browsing in store only to buy Just in… Consumer Executive Top of Mind Survey 2013 online (“showrooming”), bricks and mortar retailers need When KPMG and the Consumer Goods Forum asked executives from to stop cursing smartphone users and start courting 442 of the world’s largest consumer companies what would keep them, says KPMG in the US Partner Bolette Andersen them occupied over the next two years, one in five ranked economy and consumer demand highest, and 40% put it in their top three. In January a sign in the window of a Melbourne In fact, four of the top five issues were all related to top-line growth. health food store went viral. It told customers: “As Supply chain issues ranked fourth as a top concern, largely driven of February, this store will be charging people a $5 by issues around cost volatility, quality and supplier reliability. fee per person for ‘just looking’.“ Four people did Responsibility and regulation polled relatively low in the survey overall pay for ‘just looking’ so this frustrated attempt to – being cited as a top concern half as frequently as growth – as combat showrooming (where customers check out companies around the world, especially in the Western economies, products in-store only to buy them elsewhere for a focused more on issues directly affecting sales and profi ts. By lower price) did make US$20, but the tactic is hardly likely to woo contrast, in Western Europe and Asia, food and beverage respondents potential customers – and, as showrooming’s key demographic is put food and product safety most often at the top of the list. smartphone-savvy shoppers aged 18 to 39, this trend is here to stay. Companies are planning to work with consumers, rather than try to The impact of showrooming on bricks and mortar retailers can’t infl uence them, with a third linking innovation to consumer collaboration. be overestimated – around 48 million US shoppers showroomed A third also say data is key to growth – yet 41% have trouble with during the 2012 holiday season, an increase of 134% over 2011. technology, and for 80% mobile technology and e-commerce is a Successful retailers will use challenge. So expect partnerships with technology providers. smartphones to transform their “Smartphones Having said all this, customer service, reach out to businesses are going new shoppers and generate give retailers back to basics in search new revenues. of growth. Sales, brand Bricks and mortar retailers the chance to building, pricing… should start with the proposition transform their because times are tough that any customer who is and it’s what they know. showrooming in their store is a customer service” See more results and sale they shouldn’t lose. If download the full report retailers can make their mobile experience more compelling than at www.kpmg.com/ rival offerings, why should the consumer go elsewhere? Making that CMsurvey. experience compelling starts with easy, effi cient Wi-Fi in-store but it will also embrace such initiatives as launching an app that shows up where shoppers look for reviews (Twitter, Facebook, CNet, forums), displaying reviews on point-of-sale signage for big-ticket items and using geo-fencing to target in-store offers which can point shoppers China looks overseas for luxury to products that are only a few feet away. ”We used to ask companies ‘What are you doing about China?’” says Sometimes, there’s nothing as compelling as a bargain. Some Nick Debnam, Asia Pacific Chair, Consumer Markets, KPMG China. studies suggest that 20% of in-store purchases are impulse buys “Now we ask them what they are doing about the Chinese.” A new and so discounts offered on their phones can be very effective: in KPMG report on China’s luxury goods market shows 71% of 2012, 35 million mobile coupons were redeemed by US shoppers. high-net-worth mainland Chinese surveyed traveled abroad in 2012 Retailers can learn from the ease of shopping online. Convenience (up from 53% in 2008) and 72% made a luxury purchase on their trip. and delivery options have been instrumental in making Amazon a Chinese travelers are of enormous importance to luxury brands: for retail giant. The development of click and collect services has seen example, for every dollar of business Estée Lauder does in China, large traditional retailers regain market share; in one major company’s it makes two dollars in sales to Chinese consumers abroad. For case more than half of online sales are picked up in-store. more on the Chinese and luxury goods, see our feature on page 10. One great convenience of shopping online is that you can do this 24/7. Some retailers have turned stores or billboards into round-the- clock operations where – through the use of QR-codes or digital Canada 12% touchscreens – customers can order items for pick-up or delivery. France Chinese e-commerce giant Yihaodian has opened 1,000 such virtual 43% stores across China. Bricks and mortar retailers may need to be US Switzer- more audacious if they are to compete in the long term. 39% land Japan Hawaii 12% 24% Last but not least, a great customer experience can trump the 14% desire for the best price. Think of your physical store as “experience Dubai HQ” Karl Heiselman, CEO of brand consultants Wolff Olins, has 15% Singapore suggested. Let your customers engage, network and play. Maldives 14% Some retailers have fl ourished by allowing consumers to browse 28% their collection on in-store iPads. For others, the secret to success is Australia 32% creating an ambience that makes customers want to hang out there. Preferred As business guru Joseph Pine said once, “Time is the currency of all international travel destinations experiences. The more time your customers spend with you, the – top 10 (%) more money they will spend now and in the future.” (Chinese high-net- worth individuals)

“There is so much potential to be the best and biggest in potatoes”

Dirk Van de Put, President and CEO of McCain Foods, reveals why – and how – he plans to transform the global potato business

t a time when organizations but we want it to be a driver of potato are scrambling to keep pace with consumption worldwide. As a consequence, shifting customer preferences, we need to change how we relate to our Atransformational leadership has clients, how we look at innovation, and become a popular management style of the evolve from a french fry company to a modern CEO. For an example of a leader whole potato company. transforming a multi-billion dollar company, you’d do well to start with Dirk Van de Put, McCain is already the world’s top producer President and CEO of McCain Foods. of french fries. What is the diversifi cation With 46 manufacturing facilities and strategy as it relates to potatoes? 36,700 supply partners worldwide, McCain There are six main ways people eat is the largest producer of french fries for potatoes: french fried, mashed, baked, both retail grocery chains and foodservice boiled, as an ingredient in soups and curries, markets. Its products generate an or cut into cubes and pan fried. Our biggest impressive US$8bn in annual sales. opportunity is to take what people do at Van de Put joined McCain in June 2011, home with potatoes and give them the more following a career that started with Mars convenient version. A baked potato takes in his native Belgium, and then onto about an hour and half in the oven. We Coca-Cola, Danone and Novartis in the just launched a year ago in the UK the Americas. He has refocused McCain on microwavable version of a baked potato its core product: potatoes, and no longer that is ready in fi ve minutes and tastes like just frozen. He is also in the midst of it came out of the oven. And while we’re shifting the company’s identity from that not quite there yet, we believe there is a of a supplier to an advocate for the healthier way to make a french fry without frying it. consumption of potatoes. We call that the Holy Grail of our business On a warm spring morning in Toronto, because then we would have a product ConsumerCurrents met with 52-year-old with very little fat, rich in nutrients and an Van de Put at the company’s executive excellent source of calories. headquarters in a meeting room. The open fl oorplan means that no one, not even the Over the years, McCain expanded into CEO, has an offi ce. products like frozen pizza and frozen fruit. Does that mean McCain is retreating As CEO of McCain, what was the fi rst from those categories? thing you changed? We don’t want to get rid of frozen, but we The fi rst thing I changed – and what I am want to be bigger and wider than a frozen still changing – is how we look at ourselves. potato company. The two founders, Wallace McCain started with a processing plant, and Harrison, saw McCain as a frozen food selling mostly frozen french fries to company and they went from potatoes to restaurants. The company was a supplier pizza to meals. Today, eighty percent of our

business is potatoes, and 94% of potato potatoes, mostly in curries. The potential consumption is done by people buying or right now in India is much bigger than in growing their own potatoes, and peeling and China because potato consumption is slicing them themselves. There is so much “We’re looking at already innate. Russia has the highest potential that we should try to be the best potato consumption in the world: that is and biggest in potatoes. We also think acquisitions on another exciting market for us. chilled and fresh products will become two fronts: forms more important: we’re seeing that consumer Why did you move McCain’s executive trend with the ‘eat local’ food movement. of potato products headquarters to one of Toronto’s most creative neighborhoods? McCain recently changed the ingredients we don’t have – We were in Toronto’s fi nancial district – there of many of its products, making them were lawyers, consultants, bankers and then more natural and recognizable to and fi nding a there was us, the french fry guys. That was consumers. How big of an issue is the not our place to be. I always found that food health movement for food companies? shortcut into companies take themselves so seriously. In A very big issue. We had to try and fi nd emerging markets” the end, we’re making a fun product, and I replacements for ingredients that would still saw what that offi ce was costing us and said allow the product to behave and taste the we can move to a much cheaper space, same. The benefi t is a commercial that says create an environment much more inviting to ‘Made with ingredients found in your own talent and in an area that has creative kitchen’, but the work behind the scenes has energy. Now the question is how do we do been enormous. One of our pizzas had to go that in all our offi ces around the world? through 56 different iterations until it was what we wanted. We haven’t solved the You actually started out as a veterinarian. puzzle in all of our products – and that’s At what point did you realize your future where it gets tricky. Do we get rid of those lay in business? products or keep looking for alternatives to While studying to be a veterinarian, I worked certain ingredients? As for our french fries, at a radio station in my hometown. We we’ve eliminated trans fat and have reduced raised funds through advertising and saturated fat by 45% since 2007. concerts, and I realized that doing things with people was a lot of fun. After I McCain is a supplier to McDonald’s and THE WORLD OF McCAIN graduated and started work in a veterinary other quick-service restaurants (QSRs). offi ce, Mars was looking for a veterinarian How have those relationships changed, as with public relations experience for their QSRs work to become more transparent pet food business. It was brilliant for me about where they source food? because not a lot of veterinarians had We have a role working hand-in-hand to help that. I had no clue what P&L or brand understand their consumers, the types of positioning was, but I learned on the job. product we can offer them and if those They made sure I understood the fi nancial products can be made healthier. It’s diffi cult and marketing side of things. because there are moments when the discussion goes straight to cost. If for 66 How did you transition to Coca-Cola? years you’re a supplier and you now say to Mars sent me to Latin America, and that them ‘I want to be a partner’, they say, ‘Yeah began to accelerate my career. In the right, everybody tells me that’. But it’s really beginning, there was not a lot of belief that in the interest of both parties to get to a 1 in every 3 french fries around pet food could be a big part of the Mars different kind of relationship. QSRs need to business in Latin America. I was there in the world is McCain-made source from someone they trust, that treats the 1990s when the middle class was just employees right, and runs the right quality 160 countries sell McCain products starting to open up, and the business assurance in their plants. exploded. Mars noticed my success. The company has 3 core customer Other companies did, too. You’ve announced plans to double the outlets: grocery stores, capacity of your potato processing After working for Coca-Cola, you then foodservice operations and plant in Harbin, China. How do you see launched the Latin America business McCain’s presence in emerging markets? quick-service restaurant chains for Danone. So how did you end up in Potato eating in China is under-developed. Toronto at McCain? 3,200 growers partner with McCain It exists through the KFCs and McDonald’s, Coca-Cola was very centralized, almost but through retail it’s almost non-existent. 3 major acquisitions were the opposite of Danone, which is a French The potential is there – the Chinese company. Danone didn’t have a prescribed announced in 2012, most recently government has promoted the potato to the system of doing things; it was much more level of rice because it’s a crop that is better Sara Lee in Australia dependent on the regional manager to make for the environment and gives higher calories things happen. That was more my style, 200 agriculturalists and agronomists per hectare. But the potential goes hand-in- so I stayed 11 years and eventually ran the hand with the growth of Western cuisine, are employed by the company Americas from Miami. It was a nice ride, which is going to take a while. India is a Miami was a great place to raise my kids, region where people consume a lot of but eventually I started to ask, ‘What’s next?’

Novartis approached me about running their courage and creativity to sell those changes. over-the-counter division worldwide, which The group used this paradigm – called was interesting and back to my roots in transformational leadership – and I’ve been medicine. Before I joined Novartis, McCain working with them now for 10 years. had spoken to me about a succession plan for their CEO and doing a regional role fi rst. What role is acquisition playing in the I had already done a regional role for Danone company’s growth? and wasn’t interested. So I go to Novartis We’ve made more acquisitions this year than and barely four months into the job who in our history. We’re looking at acquisitions comes knocking on my door? McCain. on two fronts. Can we bring in-house different technologies and forms of potato You have brought a transformational making that we currently don’t have? leadership style to McCain. When were The other is, can we move faster in you fi rst infl uenced by this style? emerging markets by fi nding a short Running the Americas for Danone, I had cut? We’re also experimenting with been involved in a lot of diffi cult business new food categories. Over time we’ll decisions. The dairy business in Brazil had add another priority to complement been performing very poorly. The way retail potatoes, because it makes sense not customers were taking their margins on our to be focused on one type of product yogurt business was never going to allow in terms of fi nancial stability. You’ll see the category to develop. For years we had us buy smaller businesses in certain this list of things that needed to change, but regions of the world in order to understandand Local L fl avor: all for one reason or another never got to it. So a particular food category much better, McCainM fries for McDonald’sM France we brought in these coaches from a group experiment with it and see if it’s a good willw be sourced in called Praemia which enabled us to fi nd the idea to scale out. FranceF by 2014

© 2013 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member ﬁ rms of the KPMG network are afﬁ liated. harles de Gaulle famously described China as “a big country, inhabited by Cmany Chinese”. Sad to say, the West’s understanding of this Asian superpower has The power not advanced as rapidly as the country’s economy. The West’s reaction has varied between demonization and goggle-eyed gee-whizzery. A similar confusion surrounds the state of the country’s luxury goods market. One way to understand what is really of China happening in this sector is to explore four of the most common misconceptions.

The world’s pivotal economy is still spending billions on luxury MYTH 1 goods. The next challenge is to develop its own luxury brands that The anti-corruption drive has brought China’s luxury goods market to a standstill the world wants to buy. We debunk four myths to ﬁ nd out how Not according to Burberry, which is opening three outlets in Shanghai after double-digit sales growth in its China stores. Not according to L’Oréal, which has doubled sales every four years in China. The group’s bestselling line, Lancôme, is available in 170 Chinese cities and the group’s Chairman and CEO Jean-Paul Agon says: “The slowdown in China is very limited – the penetration of luxury is just beginning.”

The forces driving the Chinese luxury boom haven’t really changed. Luxury magazine Hurun estimates that in 2012, 7,500 Chinese individuals were worth RMB 1bn (US$150m) or more, compared to 3,500 in 2011. For the ﬁ rst time, the number of Chinese worth more than RMB 10m (US$1.6m) topped one million. These individuals still want to clarify their status or pamper themselves by owning products with the requisite craftsmanship, heritage, prestige – and price tag. As the 2013 KPMG report Global Reach of China Luxury shows, the wealthy Chinese are becoming increasingly discerning. Jessie Qian, Partner in charge of Consumer Markets in KPMG China, says: “High net worth individuals in China have had a crash course in Western consumerism in the last decade. They increasingly look to stand out from the crowd with the brands they choose, and are interested in getting something extra for their money, acquiring a limited edition of a product or having their purchase customized in some way.” The passion for customization has been a boon for Rolls-Royce, whose CEO Torsten Müller-Ötvös said: “In China, people are investing substantial money in the interior of their cars – fridges, safes, humidors and partition walls are attractive.” Does this sound like a luxury goods market in crisis?

MYTH 2 The Chinese like to fl aunt their wealth The cliché that Chinese millionaires always buy the most expensive example of whatever Nick Debnam product they are interested in no longer [email protected] applies. Qian says: “Ten years ago, people liked to show off how rich they are. That is not Nick is the ASPAC Passion for fashion: are very trendy in China at the moment.” Regional Chair China’s designers about for the Consumer to make their mark? The public mood has changed – hence the Markets Practice government’s advice to offi cials to cut down and the co-author on banquets, travel and entertainment – so of the recent Global wealthy Chinese have found new ways to Reach of China underline their status. The shift from fl ashy Luxury report. The Chinese luxury goods market is said to exteriors to plush interiors in Rolls Royce cars Nick is an audit be worth around US$12bn and Nick Debnam, is a case in point. For many, status means partner based in Asia Pacifi c Chair, Consumer Markets KPMG moving away from the designer logos usually Hong Kong, China. China, says the Western media has lusted after by the newly rich. exaggerated the impact of a government HOME GROWN This change in taste has been accelerated campaign on corruption. “Gift-giving is Where the Chinese by hours of online research. The average age of embedded in Chinese culture. In the public expect to develop a Chinese luxury consumer is 39 – younger sector, behavior has changed but don’t forget domestic luxury than in the West – and 40% of those surveyed that 2012 was a record year for luxury goods brands (%) 2012 by KPMG said they would consider purchasing sales in China and even though growth has online. Qian says: “In China, fashion bloggers slowed signifi cantly, we still expect growth of 60 have become celebrities who can make a 5-10% this year, so 2013 will also be a record product.” Han Huo Huo is China’s most year for most brands.” 50 famous fashion blogger, with a million Jessie Qian The Western media often overlooks the followers on Weibo, the micro-blogging site [email protected] colossal spending by globetrotting Chinese 40 that is a kind of hybrid of Facebook and Twitter. consumers. They may not arrive in a tour bus Sun Yafei, CEO of Fifth Avenue Luxury Jessie is the and sweep en masse into Fifth Avenue stores 30 Network (5Lux.com), says Beijing is leading Partner-in-charge in the way they once did, but they spend as this shift in taste: “The well known brands are for the Consumer much – or more – abroad than they do in popular with white collar workers from cities Markets Practice 20 in China and the China. That’s one reason Hong Kong group such as Chengdu and Chongqing. In Beijing, co-author of the Trinity paid up to US$147.3m for Gieves and 10 consumers are becoming more individualistic recent Global Reach Hawkes, the most famous tailor in London’s and looking for unique products.” of China Luxury

Savile Row, and why Shang Xia, the Chinese 0 Alcohol Restaurant Spa/Beauty treatment Hotel/Resort Footwear The quest for something unique has, Qian report. Jessie is an luxury brand 75% owned by Hermès, is set to says, led many wealthy Chinese to look for audit partner based Source: KPMG’s Global Reach of open a store in Paris. China Luxury report 2013 experiences other people’s money cannot in Shanghai, China.

Time to change? Be it watches or jewels, many Chinese prefer to buy Western luxury brands

buy – exclusive hotels or spas, once-in-a- Chairman of Qeelin, says: “We expect lifetime events or lavish holidays. One US Chinese consumers to develop a growing travel consultancy recently rented a mansion awareness of their roots and, in time, to seek in the Hamptons, the exclusive enclave on “We expect Chinese brands that express their own values.” Long Island, for 21 Chinese who wanted to Until that happens, many Chinese experience the lifestyles of famous industrialists consumers to develop designers and companies will give their from the age of John D. Rockefeller. products a Western fl avor as they strive to China’s rich may be consuming less a growing awareness compete. Designer Mary Ching, known as the conspicuously but they are still consuming. By of their own roots and Louboutin of Shanghai, spent years in the UK 2015, some analysts predict, they will account and tries to marry Chinese decadence and for 25% of the world’s luxury goods market. to seek brands that British eccentricity in her clothes. Having a presence in London, New York and Paris (as MYTH 3 express their values” Shang Xia plans to do) will help Chinese China can’t make luxury goods brands impress their own consumers. As Hung Huang, the actress, publisher and The other way to compete with iconic businesswoman whose Beijing boutique Qeelin) and Richemont (owner of Shanghai global brands is to buy them, as Trinity has Brand New China (BNC) only stocks home- Tang since 2001) show that many luxury goods done with Gieves & Hawkes, Kent & Curwen grown wares, has pointed out: “The Chinese giants are spending millions in the belief that and Cerrutti. This strategy has also been do produce luxury goods like tea, baijiu [a China can, if you will, deliver the luxury goods. adopted by Shandong Heavy Industry (which Chinese spirit, like sake, which can sell for owns Italian yacht maker Ferretti), YGM (owner US$10,000 a bottle] and some health MYTH 4 of Acquascutum) and Heidan Holdings (owner products.” And if you have US$270,000 to China will never have a global luxury brand of Swiss watchmaker Corum). spend on a bespoke watch, you can place an Never is a long time, but Qian does not Debnam expects Chinese companies to order with the Tianjin Sea-Gull Watch Group. underestimate the challenge facing the make more acquisitions: “They have the These timepieces are so technically complex country’s luxury goods industry. “We do not fi nancial resources and these deals are a good that the company only makes two a year. have a luxury brand you can place alongside way of acquiring expertise and market China has never lacked craft. Ancient Hermès or Chanel. The key values of a luxury presence.” Yet, like Chan, he is confi dent Chinese lacquer-ware and ceramics once brand include tradition and prestige. We don’t China will develop global luxury brands too, inspired the West. In 1602, Ming dynasty blue have a brand with a 200-year history that has possibly in hotels, spas and apparel: “The and white porcelain was bought by the kings achieved global recognition.” Chinese are fi ercely patriotic and the right of England and France. Such traditions fell China has no shortage of emerging luxury fashion designer, maybe one who’s learned victim to China’s turbulent history but have brands but Qian says: “People are more their trade in the West, could do fabulously. been revived in the past 20 years. familiar with ‘made in China’ than ‘designed in That could happen in the next three years.” Investments by Hermès (which backs China’ so the transformation could take years If that did happen, a country once famed for Shang Xia), LVMH (which owns 55% of to accomplish.” Many wealthy Chinese equate its silk and Ming vases would once again be Wenjun Distillery), Kering (majority owner of luxury with European brands but Dennis Chan, globally synonymous with luxury.

© 2013 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member ﬁ rms of the KPMG network are afﬁ liated. Chinese luxury brands poised to go global As the country aspires to move up the value chain, these six companies want to become as famous and prestigious as Prada Shanghai Tang Sheme

he company started in 1994 as a of the company’s future growth will be here. heme makes high-end footwear, often Tcustom-tailoring business but soon Its huge new ﬂ agship store – the Shanghai Sembellished with hand-embroidery and moved into ready-made garments. In Tang mansion (pictured below) – opened last Swarovski crystals. Founded in 1986 by 2006, the brand was bought by Swiss ﬁ rm year in Hong Kong’s Duddell Street. Linda Liu, who began by selling shoes from Richemont, owners of Cartier, Chloé and The company has also branched out into her bicycle in Sichuan province, the Mont Blanc and one of the largest luxury homewares and accessories, with which it company exports US$50m-worth of shoes goods companies in the world. aims to embody “the modern Chinese a year. Liu is building a high-end brand, Of Shanghai Tang’s 45 stores, 30 are in aesthetic”, bringing Chinese culture and melding European know-how with Chinese mainland China and the company’s CEO, experiences to the world and making the culture. Sheme’s chief designer is Italian Raphael Le Masne de Chermont, says 80% most of surging home-grown pride. Leopoldo Giordano (previously at Chloé, Marc Jacobs and Kenzo). Much emphasis is placed on quality raw materials – Italian leather and Chinese silk – and most shoes involve handcrafting. Sheme now has four stores in China – and aims to open outlets in Hong Kong, London, Paris and Milan. Peninsula Hotels

he ﬁ rst Peninsula hotel opened in 1928 Tin Hong Kong and the name represents grandeur and cutting-edge design. Its ﬂ agship Hong Kong Peninsula pays homage to the ambience of 1930s Shanghai but with state-of-the art technology in each room – including an iPad to control the room settings – and an upscale shopping arcade. The family-owned Hongkong and Shanghai Hotels group focuses on super-luxury for discerning high-level travelers – it owns eight other hotels in Asia and the US – and has an annual turnover of US$3bn. Peninsula wants to open hotels in London, Paris and India. Qeelin Chow Tai Fook Shang Xia

ormed by Chinese designer Dennis Chan he Hong Kong company didn’t open a hang Xia (Mandarin for ‘up down’) sells Fand French entrepreneur Guillaume Tstore in mainland China until 1998, but by Sexquisitely made furniture, decorative Brochard – Qeelin gives traditional Chinese 2010 it had 1,000 in Beijing alone. Most of its objects and garments. Distanced from symbols a contemporary twist and, with products are traditional mid-range jewelry, but fashion and inspired by Chinese tradition the aid of a little French craftsmanship, it has a VIP program that creates unique and craftsmanship, these items range from turns them into luxury jewelry. The brand pieces for high-end customers, who it fl ies to yak-hair felt coats at US$1,900 to gold- launched in 2004 with a boutique in Paris, special events such as Paris Fashion Week. woven porcelain teapots that cost a locale designed to impress the elite These VIPs spend an average of US$128,000 US$45,000. The company was founded by Chinese shopper. Qeelin now has 18 a year and sales to them account for 30% of Chinese designer Jiang Qiong Er in 2008 boutique outlets, with seven in China which revenue. The company is valued at US$14bn but is owned and supported by Hermès accounts for half of its sales revenue on the Hong Kong stock exchange and the International. It has stores in Shanghai and (around US$38.5m). A majority stake in the founder’s Harvard-educated grandson, Beijing, and will be opening a Paris branch company was recently acquired by Kering, Adrian Cheng, recently joined to modernize later this year. Hermès Chief Executive whose CEO, Francois-Henri Pinault, the company. Last year Chow Tai Fook Patrick Thomas has said he plans to invest believes the Qeelin brand has great opened 269 stores, reaching out to new tens of millions of dollars in the brand, and potential and will develop rapidly. cities across the country. expects to see a profi t in three to fi ve years.

The mature consumer is emerging as a powerful economic force. How can retailers and manufacturers make the most of this?

he number of older people in the sports. Their spending power represents world is about to grow very quickly a huge opportunity. US census estimates indeed. According to United Nations for 2012 show households headed by Testimates, around 800 million 55- to 64-year-olds have a median income over-60s were either contemplating or of US$55,748, compared to US$49,659 beginning their retirement in 2012. By 2050, for those headed by 25- to 34-year-olds. that number will have soared to 2.03 billion. The gap keeps widening. Americans While the impact of such fi gures on aged 65 and above have seen their net worth government budgets is being fi ercely increase by 42% from 1987 to 2012, while debated, too few retailers and manufacturers younger Americans (35 and below) are 68% have focused on the revenue that could be worse off than 25 years ago. In the UK, 75% derived from this demographic shift. of the nation’s entire wealth, 60% of the This generation of seniors is more active, savings and 40% of consumer demand health-conscious and affl uent than ever. In belongs to the over-60s. the UK, for example, over-50s buy 80% of Seniors will always spend their money all high-end cars, while over-70s generated on food and drink. Mintel estimates that nearly a fi fth of injury claims from extreme 50- to 64-year-olds in the UK spend 50%

Top ﬁ ve countries with aging populations Percentage projections for countries with the highest ratios of citizens aged 60+ (among those with a population of 1 million or more in 2011)

2011 % 2050 % Japan 31 Japan 42 Italy 27 Portugal 40 Germany 26 Bosnia and Herzegovina 40 Finland 25 Cuba 39 Sweden 25 Republic of Korea 39 Source: UN, World Population Prospects, the 2010 revision The age-old story: a brief history of aging How older people have survived and thrived in society since ancient times

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© 2013 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member fi rms of the KPMG network are affi liated. “Given how affl uent senior consumers are, it is astonishing that only 0.1% of food and drink launches are aimed at them”

more on food and drink than the under-30s, so manufacturers and retailers would be foolish to disregard this segment of the market. “Older shoppers’ share of grocery spend will increase as the population ages,” says Michael Freedman, a shopper insight manager at global food-industry analysts IGD. “Food retailers and manufacturers who can tap into the needs of older shoppers stand to benefi t in the long term.” Seniors are signifi cantly more likely to scrutinize the products they buy in detail. A 2011 survey of more than 2,000 Americans by Harris Interactive found they were the most likely to focus on nutrition. Their awareness of health is much more likely to sway their purchases. Many chronic illnesses are largely preventable if people change their diets and more than 75% of the seniors in the study had some form of restricted diet, compared to 58% of those aged 47 to 65. “As shoppers get older, they change their approach to what they eat,” says Freedman. “They look for products to help them prolong an active lifestyle. Our research shows that over-65s are far more focused on buying healthier products than other age groups.” For example, in a three-month survey in early 2013, 67% of over-65s said they were likely to have bought a ‘fi ve-a-day’ item of fruit or vegetables (compared to 56% for under-65s). This trend was repeated over a range of healthier foods: 41% of over-65s had bought a low-salt product, compared to Japan’s Aeon 31% for the under-65s. supermarket group caters specifi cally Given how affl uent many consumers in for a growing base what one study calls “the silver segment” of aging consumers are, it is astonishing that, in 2012, only 0.1% of new product launches in the food and

1889 1934 1947 1971 1977 German chancellor Otto In the USA, President The small Japanese town In Phoenix, Arizona, radio Moraji von Bismarck (right) Franklin D Roosevelt of Taka declares 15 station Kool-FM begins Desai (right) introduces appoints September as Old Folks’ broadcasting a golden becomes a contributory a Committee of Day. Forty-three years oldies show. Because prime pension for Economic Security, later, the UN votes it has no archive minister of workers aged which recommends to establish of records, India at the 70 and over. that the retirement 1 October as DJ Jerry age of 81, age be set at 65. an international Osborne making him day for the plays music the oldest head of state elderly. from his own to take ofﬁ ce since collection. records began.

drinks industry inherent nutrients on an aging-well platform.” says, “and older women, who are most likely worldwide were Creating a targeted product is only half the to suffer from arthritis, seek cans, jars and targeted at them. battle. In 2012, seniors purchased over 40% packets that are easy to open.” Even when they of consumer packaged goods in the UK, yet At last year’s Anuga FoodTec trade fair, were, Mintel research food and drink companies spent less than global packaging company Tetra Pak launched suggests most 10% of their advertising budget on them. In six easy-to-open designs. launches were in the US, research by Nielsen suggests that This is important because older consumers Asia, where ready while those over 65 watch the most television, are changing the way they shop. “Much of the meals in small they are targeted by only 5% of advertisers. growth in internet access is being driven by Alton Adams portions with Worse, research by Involve Millennium in older age groups,” says Freedman. “In the [email protected] smooth textures March 2012 showed 68% of senior UK, for example, 12% of over-65s shop for Alton is an Advisory are very popular consumers in the UK could not relate to groceries online, so it’s important for food Principal at KPMG with older people. advertising campaigns on television. retailers to focus on developing easy in the US. He Some companies Manufacturers need to recognize that navigation on their websites and promoting specializes in have recognized this this group behaves differently than younger convenient delivery services.” helping consumer sector’s health shoppers. “It’s not just that they spend less Social media is infl uencing their companies with concerns by on clothing and accessories and more on food purchasing behavior too. As Adams says: their marketing modifying certain and health-related products,” says Alton “In the UK market, over-60s have been the and global growth products. As of 2012, Adams, US Lead, Customer Strategy and fastest growing demographic on Facebook strategies. General Mills’ Fiber Growth, at KPMG in the US. “Their use of in the last year.” One range of yogurts, toasts, and pancake media is not uniform but they have the time There is evidence that manufacturers and and muffi n mixes had generated more than and the will to research particular products. retailers are adjusting to the buying power US$300 million in annual sales; more than They are less swayed by advertising, they of senior citizens. It may be a sign of the a third of which was attributed to seniors. seek out quality, and are loyal to brands that times that the most popular commercial Other products have focused on health represent value. For seniors, shopping is a at the 2013 Superbowl was Taco Bell’s Viva concerns prominent among older people. In more leisurely activity, a social experience, so Young ad, in which senior citizens sung May 2011, Genesis Today (a US health foods the proximity of stores is crucial.” the Fun hit ‘We Are Young’. manufacturer) launched its Pomegranate and Marketing to older people presents some Innova expects the number of products Berries juice aimed at supporting heart health specifi c problems. In the US, the National aimed at the over-65s to rocket globally by and “anti-aging”. In November 2011, Unilever Council on Aging found that less than half 50% in the next 40 years. Likely launches relaunched Promise Activ, a spread with plant those aged 65 and over consider themselves include food products with reduced-acid, sterols (proven to lower cholesterol levels) and old, so companies need to think hard about age-related nutrition formulas, easy-to-eat potassium to control blood pressure. how they position products. textures and lightweight packaging. In November 2012, Yoplait launched Packaging, and the way information is In April, Aeon, Japan’s largest supermarket Cal-in+, a yogurt the company claims can presented, can make a difference. “Older group, opened its Chiba mall, which has improve the bone health of seniors, after an shoppers appreciate smaller pack sizes that features to appeal to older consumers, extensive study among older women living in suit their typically smaller including slower escalators for less stable legs. care homes to investigate its potential. households,” Freedman In Germany, Kaiser supermarkets cater for In China, chia seed products – extracted senior citizens by attaching magnifying glasses from a fl owering herb and said to help joint to trolleys and shelves. mobility – are being marketed to seniors. The rise of the senior consumer is not a Dutch global market researchers Innova fad, it is a fact of life. Sarah Harper, Market Insights have identifi ed ‘Gray But professor of gerontology at Oxford Healthy’ as a key trend for 2013. As more University, has pointed out: “It is consumers recognize the importance of a Age-targeted unlikely that we will see a return to healthy diet, there will, the company says, products, like population structures dominated by be “greater interest in cleverly marketed yogurts and young people. This will be the last anti-aging products, including the move of spreads, are likely century to see the youthful to increase by well-established medical brands into 50% over the demographies which the human race has mainstream aisles and the promotion of next 40 years experienced to date.”

A brief history of aging continued

2000 2008 2010 2011 2012 At the age of 76, L’Oréal launches what Aeon, Japan’s largest Nepalese climber The average it claims is the supermarket Min Bahadur Sherchan age of a US fi rst anti-aging group builds becomes the oldest cream that its fi rst shopping person to reach motorcycleorcy is sscientificien callyy mall targeting the summit of riderr is 49, provenproven to beb senior consumers. Space Cowboys, starring Mount Everest. effective.effective. About 5,000 people septuagenarians Clint Five years later, his up fromrom 41 iinn queue up for its 9am Eastwood and James record is broken by opening on 24 April 2012. Garner, makes US$129m 80-year-old Japanese 2001.1. at the box offi ce, more climber Yuichiro Miura. than double its budget.

Russia’s presence in the global trade for meat and grain. The Russian government’s responses to events reveal its internal focus. In 2010, after drought ruined the harvest and global grain prices soared, Russia banned grain exports to restrain domestic prices – which unnerved foreign markets and investors. When harvests fell in 2012, there was no ban – but the policy change was an attempt to boost production. “Exports and free prices are good economic incentives for producers,” explained Arkady Dvorkovich, the deputy prime minister. Soviet history gives one clue to Russia’s inward focus: bread prices are an emotional issue for people who remember the communist system. Another Soviet hangover is the huge farms – some up to 400 square miles. Russia doesn’t have enough state-of- the-art machinery to deliver economies of scale over such vast areas when conditions vary from fi eld to fi eld. Is Russia’s Yields from these fi elds are low, too: just one ton per acre for wheat. But global warming is on Russia’s side: with crop production being pushed towards the poles, future in food? Canada and Russia are likely to be the biggest benefi ciaries. If yields are improved by federal investment and climate change, With improved infrastructure, a favorable climate and land to and if Russia reclaims for crops its large tracts spare, the world’s largest country is ready to become a food giant of fallow land, surpluses could be huge. Add in the massive federal focus on livestock, a part of ussia is famous for oil and mineral agriculture program, passed last June, is agribusiness far less exports – and the billionaires that committing to spend US$50bn in federal weather dependent, go with them – but could its future funds from 2013 to 2020, with half as much and improved Rbe in food? Not borscht and blini, again to come from provincial budgets. supply chain and but meat and grain. This US$76bn is split almost equally infrastructure, and Russia has almost twice as much land three ways to support the crop, the country’s meat as the United States, but half the population livestock and poultry industries, and and grain exports – giving it huge agricultural potential. The all the support structures needed to could be set for US Department of Agriculture believes produce, collect and deliver the yields, massive growth. Russia could raise its wheat exports to including modernization, land reclamation, Russia’s Ian Proudfoot 55-66m tons to become the world’s irrigation and rural development. determination [email protected] second-largest exporter after the US. Livestock is the top priority for the to increase its The wheat market could avoid program, but funding on this scale will have food security Ian is KPMG’s destabilization from this major change, much wider consequences. Foreign direct could redefi ne Global Sector Lead says recent KPMG report The agricultural investment in seeds, machinery and food global patterns for Agribusiness and is the author of the and food value chain, if the extra Russian processing has been stimulated, and the of trade and KPMG Agribusiness wheat replaced the drop in production in huge Russian agribusiness, Rusagro, is help fulfi l the Agenda series the US and also helped meet rising demand now publicly listed in the UK. government’s (now in its 4th in Africa, the Middle East and Asia. Since 2011, Russia has been building strategic goal edition). Ian is However, taking a dominant role in global ports on every seaboard, with the aim of of reducing its an audit partner wheat markets is unlikely to be Russia’s increasing port cargo traffi c by 25% by 2015 economic reliance based in Auckland, goal. It may turn out to be a side effect of and 66% by 2020. This too will increase on energy. New Zealand. becoming self-suffi cient in food production. “Food security has become one of the biggest government concerns across Wheat production: leading producers* (million tons) the globe,” says Ian Proudfoot of KPMG Average 2012 2013 % Change: in New Zealand and the Global Lead for 2010-12 2011 estimate forecast 2013 over 2012 Agribusiness. “It’s driven by growing populations, an increased middle class and European Union 149.0 151.4 145.5 152.1 4.5 more urbanization. Add to the mix changing China (Mainland) 129.7 129.4 132.9 133.8 0.7 technology, more demand for traceability India 96.4 95.7 104.6 101.7 -2.7 and the effects of climate change and it’s US 64.8 60.0 68.1 63.9 -6.1 easy to understand the focus.” Russian Federation 49.8 61.9 41.8 58.4 39.7 This agricultural growth is being Australia 29.5 33.0 24.3 25.3 4.1 underwritten by massive state funding. The second phase of Russia’s state *Markets ranked according to average production 2010-12. Source: Food and Agriculture Organization of the United Nations

FACT FILE Name Strauss Group Founded 1936 Headquarters Petah Tikva, Israel Chairperson Ofra Strauss Website www.strauss-group.com A taste for the future Food and beverage fi rm Strauss Group is defying a fl at global that generates around 51% of sales from overseas (and 43% from emerging markets). economy and using strategic joint ventures to become a global That alone explains why group Chairperson player. Its Chairperson reveals the art to a successful alliance Ofra Strauss routinely features in Fortune magazine’s list of the 50 most powerful women in business. Yet the intriguing aspect he food industry is, as the old Chinese of Strauss’s success is that it has competed curse has it, living through interesting with brands and companies such as Nestlé Ttimes. The macroeconomic outlook is and Kraft by launching joint ventures with mixed. Consumers’ tastes are becoming corporate heavyweights Danone, Chinese almost as hard to predict as raw material white-goods giant Haier, PepsiCo and Richard prices. Energy costs are easier to read: Branson’s Virgin, among others. they’re going the wrong way – up. State For many companies, such alliances have intervention is increasing, as governments try been short-lived marriages of convenience, to avert an incipient epidemic of obesity. but Strauss’s have had more longevity: it has And, asa the major players try to position been working with Danone since 1986 and themselvesthems for growth, there is a fair degree PepsiCo since the 1990s. of corporatecorp turmoil in the industry. Partnering with such famous names is AgainstAga that backdrop, the performance of challenging but the relationships are the Strauss Group has been quietly fl ourishing. PepsiCo CEO Indra Nooyi said, imimpressive. In 2012, it set new records after the companies had negotiated one joint foforr sales (up to US$2.2bn) and profi ts. venture, “As far as I’m concerned, PepsiCo TTheh fi gures only tell part of the story. In and Strauss are partners forever.” Fine ththee last 12 years, the company has been words, and PepsiCo have acted on them. trantransformeds from one that relied heavily on Last year, the groups put their joint venture its hohomem market in Israel to a global giant in dips and spreads on a global footing.

So what is Strauss’s secret? In an interview, Ofra Strauss suggested the company’s success partly refl ects one simple Group revenues from sales (US$ millions) rule: “We never vote on anything. We never have. When you work closely with companies, you know from discussions whether everyone agrees on a proposal. If Coffee (1,149) it’s clear that no such agreement exists, you’re better off not having a vote, Dairy products (386) reconsidering the proposal or working out Sweets and baked products (222) what you need to do to get that agreement. Salads (214) I honestly can’t remember not getting an 2012 agreement in any of our joint ventures.” Water refi nery products & related services (115) You need, she says, the right chemistry to Other health and wellness (67) make alliances work: “Joint ventures don’t work in certain company cultures but they Salted products (46) work well in others. We have a lot of Other (37) experience and processes that help them succeed. Respect is key. We are particularly interested in ventures that help us access markets and strengthen our connection with consumers, where we and our partner share beverage business and provided the opportunity in 2007 and the business, being knowhow and risk.” springboard for Strauss to grow organically, developed with Virgin and Haier, experienced One aspect of sharing know-how is by acquisition and through strategic sales growth of 3.2% in 2012. The potential encouraging genuine debate. “If opinions partnerships, to become a global enterprise is huge, especially in China where, as Strauss don’t differ,” the Strauss Chairperson has with 29 plants in 19 countries. The business says: “The middle class is growing and so is said, “something is wrong. Some might voice now rests on six pillars: their demand for clean available water where concerns about risk, while others focus on Health and wellness. Foods and drinks they live, but we are just a small start-up.” the opportunity. It’s about learning to listen.” that are marketed to health-conscious Max Brenner chocolate. An Israeli brand That openness – and a desire to remain consumers, such as hummus, cereal bars acquired in 2001, run by franchises and innovative and entrepreneurial – inspired the and olive oil, in Israel, where the company’s Strauss – with 82 shops in total. company to launch Food Tech Alpha Strauss brands are market leaders. International dips and spreads. The to reach out to researchers, inventors, Fun and indulgence. A range of treats for US$275m-revenue joint venture between the academic institutes, capital risk funds and the Israeli consumer, such as bakery company’s Sabra business and PepsiCo has governmental organizations who might have products, chocolate and salty snacks, usually the bestselling brand of hummus in the US. good ideas it could develop into products. marketed under the Elite brand. Top-line growth in Sabra dips and spreads Historically, Strauss has focused on a few Coffee. With 83% of this division’s rose to 30% in 2012. Strauss and PepsiCo key alliances that deliver strategic value for revenues coming from outside Israel, Strauss are developing these products for other both parties. The fi rst partnership – with is the world’s fi fth largest coffee company. It markets, investing US$10m in the launch of Danone – originally started in the 1960s and has a joint venture with Santa Clara in Brazil the Obela brand in Mexico and making has been, Ofra has said, “a particularly useful and recently completed the acquisition of the acquisitions in Australia. alliance – we have learned a lot from them.” Le Café instant coffee brand in Russia. Looking ahead, the Strauss Chairperson The partnership was strengthened in 2012 Water. Management identifi ed the need says, the company expects to make more of when the companies agreed to extend the for bottled water as a global strategic what it has: “We have a nice rounded variety of services and knowledge Danone portfolio of products, with sales that have provides for Strauss. In exchange, the sum of kept growing even in the last two to three royalties will be updated accordingly. Strauss says: “We years. We will invest to make our portfolio It is easy to see why working with don’t vote on anything more profi table and help it grow, especially in Danone and PepsiCo would benefi t a group Brazil, North America and Russia.” keen to accelerate its global growth, but but I honestly can’t In Israel, Strauss’s goal is to become what do these giants see in Strauss? more competitive and, in 2012, it launched The group’s Chairperson sums up what remember us not 200 products in its home market. In the rest makes her company so sought after in two of the world, Strauss sees scope for dynamic words: “Entrepreneurial spirit.” That has getting an agreement” growth: sales grew by 27.1% in North been part of the company’s DNA since her America in 2012. Acquisitions are possible grandparents, Richard and Hilda Strauss, but managers are open to other partnerships launched a dairy farm in Nahariya, a small that strengthen its market presence or give it town on the Israeli coast. They started in a foothold in new countries. 1936 with two cows. Their son, Michael, Despite the pressures on the food sector, became CEO in 1975 and turned Strauss into it is easy to see why Strauss’s Chairperson is a national brand famed for cheese, ice cream so optimistic. Consumers are unlikely to stop and yogurt. In 2001, he handed over to Ofra buying its core products – healthier dips, (they are joint controlling shareholders). coffee, chocolate, water – anytime soon. The Three years later, Strauss consolidated its company has plenty of market share to position in its home market with an attack: in roast and ground coffee, for audacious merger with rival Elite, a group example, Strauss has a global share of just with sales twice as large as Strauss’s. The 4.1%. And as it seeks to accelerate growth, deal created Israel’s second largest food and it can call on some very powerful allies.

Retailers and owners across the world agree that the mall has a future. What they can’t agree on is what that future will look like

nyone who believes the shopping Roberts, chief executive of global architect mall is destined for imminent Aedas said recently: “In 20 years you will fi nd extinction should fl y to Chengdu. stores that sell books and DVDs replaced by AIn this city of around 14 million sites that give people a reason to go to the people, near the Tibetan plateau, 31 million mall... galleries, education centers, and health square feet of mall space is due to open in and spa treatments.” June 2013. The New Century Global Centre Roberts’ analysis is refl ected in (see panel, right) will fi ll a space almost three many of the malls which will supply an times the size of the Pentagon. unprecedented 344 million square feet of Mall of America Yet in the US, where only one new new retail space across the world in 2013. enclosed mall has opened since 2006 – Seven of the ten largest developments are West Edmonton in Salt Lake City – many analysts believe in China. In Europe, Turkey is building the these temples to consumerism will soon be most new malls this year. rendered obsolete by e-commerce, with one Many malls are increasingly likely to report predicting that a tenth of the country’s be reconfi gured to suit particular needs. 1,000 large malls will fail in the next decade. Landmark in Hong Kong has dedicated an So what is to be done? The consensus entire fl oor to men’s retail. Metrostav has is that malls need to do more than house a spent US$3.6m on a new mall in Prague that collection of shops, however desirable the caters exclusively to men. In Buenos Aires brand or the stock. David McCorquodale, there’s a Museum for Children in the Abasto Head of Retail for KPMG in the UK, says: shopping center, while the water park at “There is no one-size-fi ts-all solution for mall West Edmonton Mall in Canada boasts the owners and developers. Different markets world’s biggest wave pool. and countries will have different needs. Digital marketing specialist Mitch Joel The key to success feels that only those retailers who offer the will be how closely full range of experiences and who “evolve to they analyze – and meet the changing urban environment” will how deeply they be successful. In his Six Pixels of Separation understand – blog he explains how he sees a viable future consumer behavior.” for shopping malls, provided they ensure “Retail is not just e-commerce becomes a “horizontal activity” about shopping”, that is integral to the business. says Paul Smith, In the US, where the fi rst mall opened marketing manager in 1956 in Edina, Minnesota, some mall for Trinity Leeds, owners believe more is less. The owners of David McCorquodale a new retail the US$100m, 28,000 square-foot, Eagan david.mccorquodale@ kpmg.co.uk development in the Mall, due to open near Baltimore in 2014, are English city. “It’s aiming for a simpler, faster service. They are David is KPMG in the about taking the so convinced consumers want to shop quickly UK’s Head of Retail best from online, and leave, they won’t have a restaurant and and leader of its the high street and they refer to their walkway as a racetrack. European retail events venues and What does this mean for brands and transactions and bringing it all into retailers? In emerging economies, the restructuring one place.” chance for them to reach out through new practice. He has advised on That not only malls will be limited only by their ambition numerous high- includes food, and budget. In North America and Western profi le retail entertainment and Europe, where overcapacity is already an transactions childcare but so issue, they may have to make tough calls handled by KPMG. much more. David about whether certain malls remain viable.

Mall of America, Bloomington, Minnesota, USA Often said to be America’s largest tourist attraction, the Mall of America boasts 4.3 miles of store front for its 520-plus Box Park stores and an indoor theme park, aquarium, adventure golf and a wedding chapel.

Box Park, Shoreditch, London, UK The world’s ﬁ rst pop-up mall houses 35 shops and restaurants in reﬁ tted shipping containers. It will be there for the next four years championing creativity and fashion on a local and global scale.

Morocco Mall, Casablanca, Morocco Designed to resemble a seashell, this mall is the largest retail centre in Africa and stretches for nearly 2,000 feet along the seafront. It has a VIP shopping area, an aquarium (with sharks), landscaped outdoor Morocco Mall space and meditation pads.

Mall West Edmonton Mall, Alberta, Canada This entertainment center has indoor golf, a dolphin lagoon, a water park with waves you can surf and a full-sized replica of Christopher Columbus’ ship Santa Maria.

Mall of the Emirates, Dubai, UAE A ski slope in a desert? You’ll ﬁ nd one at the Mall of the Emirates, along with two ﬁ ve-star hotels, 400 stores, a 14-screen cinema and a theme park.

City Square Mall, Singapore An eco-friendly ﬁ ve-ﬂ oor retail mall combined with a 49,000 square foot urban park that tells visitors about its environmental performance in real time.

New Century Global Centre, Chengdu, China Mall of the Emirates This new mega-centre – due to open in June 2013, in time for the Fortune Global Forum City Square Mall – will reportedly be the largest free-standing building in the world, the size of 20 Sydney Opera Houses. It will be home to university complexes as well as shops and ofﬁ ce space.

JK Iguatemi, São Paulo, Brazil “Different markets Opened in 2012, Iguatemi’s São Paulo center houses South America’s ﬁ rst 4D movie and countries theatre and one of only six Gucci men-only stores in the world. It has hosted fashion will have different shows, book launches and art exhibitions.

needs. The key Meydan Merter, Istanbul, Turkey to success will Turkey’s ﬁ rst environmental shopping mall has many green features such as solar- be understanding chilling panels that feed into the cooling systems and a roof that automatically opens consumer behavior” and closes itself depending on the weather.

Hanging on his every word

The whole world is listening two other companies to become KDDI day to the fullest. This may sound like a – Japan’s second-biggest telecoms carrier. fl uffy cliché, but don’t be taken in. Inamori to the Zen Buddhist priest who Inamori’s business philosophy is based once said that to run a business you need to turned around JAL – but what on doing the right thing as a human being be mentally as tough as a karate champion can the consumer industry and developing the leadership potential of – but he’s more of a master of t’ai-chi, the every employee. With a simple yet precise fi ghting form developed by Daoist monks. In learn from Kazuo Inamori? system of micro-divisional management and karate, force meets force. T’ai-chi succeeds accounting, he distributes leadership and by knowing when to yield and when to strike. management responsibility all the way down At JAL Inamori fi red a third of the orporate gurus often refl ect the to small self-supporting units. He calls it the workforce, retirees took a 30 per cent cut country that made them great. In the amoeba management system. in their pensions payouts, and the remaining CUS, Steve Jobs brought rock-star Every amoeba group gets targets and employers had their benefi ts halved. But charisma to Apple’s boardroom. Australia’s real-time numbers that reveal how their part this hard man was famed for buying a tech entrepreneur Matt Barrie brashly tells of the business is performing. They are six-pack and drinking with people working his staff at Freelancer.com: “You either encouraged to work as if they are late. “After a beer or two, people opened up perform at A+ grade, or you don’t cut it.” independent within the company. “All and told me their honest opinions,” he says. And one of the stars of Japanese business employees have the same mindset as His handbook on business contains the is an 81-year-old ordained Zen Buddhist executives, and we run the company line: “Be frugal.” The JAL amoebas have priest whose managerial philosophy is together,” says Inamori. certainly been saving every possible yen. based on the amoeba, the microscopic One of his fi rst moves at JAL was to Crew members iron their own white shirts, single-cell organism that can move around issue a small book of his philosophy, and at one airport, mechanics reuse their and take on any shape. featuring such soundbites as: The ability to lunch bags to carry small aircraft parts, In 2010, Kazuo Inamori was given a see your way into the future is a result of saving a dime a time. Such frugality starts at task most thought impossible – fi xing applying effort and living today and every the top, where the amoeba management Japan Airlines. He had twice turned the system is run by Inamori and 80 executives job down on the grounds that he had out of a large hall with a wooden fl oor and “no clue about airlines”. When he took spartan desks and chairs. over, JAL had posted a net loss of JAL’s operating profi t margin has surged US$2bn in the past three quarters. LESSONS FROM KAZUO INAMORI to 17% – better than some low-cost carriers Despite the strong local fl avor of his – and the airline is, once again, one of the 1 Do the right thing as a human being management style, Inamori has rebuked his most profi table carriers in the industry. In a tough spot, going back to basics and doing Japanese peers for lacking “assertiveness, Since the global economic crisis, what you know is right is the way to succeed. vigor, energy and resolve”. Japan has a business leaders have faced relentless consensus-based corporate culture, where 2 Break it down to a single-cell culture public scrutiny over their ethics, maintaining the status quo is the norm. Amoeba management creates the smallest remuneration and lifestyle. Reputational Inamori is not like that at all – partly units possible, feeds them real-time data, issues are proving especially critical in the because he is at heart an entrepreneur. In sets targets, fosters their leadership potential, consumer sector where many organizations 1959 he founded Kyocera, a highly and gives them responsibility. are discovering, the hard way, that, as successful ceramics conglomerate that 3 Always look on the bright side of life Inamori famously observed: “No company makes non-metal kitchen knives. Then in Remaining cheerful, thankful and humble – and can generate long-term profi t unless it 1984 he founded DDI, which merged with working hard at all times – will ensure success. makes every stakeholder happy”.

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