“WHAT GOT YOU HERE…….wont get you there” The London Produce Show June 2016 Bruce T. Peterson Jr. President- Peterson Insights

The Idea Transcends People In 2007, Marshall Goldsmith with Mark Reiter wrote “ What Got You Here Won’t Get You There”. It discussed how successful people become even MORE successful. I think about that title when I get asked “ What’s wrong with ASDA”. Or “..what’s wrong with Tesco?”, or “ what’s wrong with Walmart”. The simple answer is NOTHING! But clearly performance has been an challenge. Understanding the “red flags” can help any company navigate an evolving market place.

The “ Red Flags” Come Back to Haunt You! When I get asked about the current ASDA situation, I see 4 areas that can be managed. Arrogance Core Value Propositions “Cheese” getting moved Evolving channels of distribution NONE of these are unique to ASDA! The history of retailing has manifested this time and time again! If you’re not careful, IT WILL HAPPEN TO YOU!!

Arrogance There is a fine line between CONFIDENCE and ARROGANCE. In the case of ASDA, they had EARNED the right to be supremely confident! They had successfully competed against the best retailers in the UK, and in the case of Tesco, the best in the WORLD. They went from a dairy company to the #2 retailer in the UK. They ran great stores. They had great colleagues. They had a compelling consumer value proposition. They were the darling of the investment community.

Sam Walton’s Biggest Fear Do you know what Sam Walton’s feared the most about Wal-Mart? SUCCESS!! The quality of management decisions often goes down as the company becomes successful. Poor decisions may not show up immediately because of size, but collectively can cause major problems. No company is bullet proof! When you start believing that you have it all figured out, that’s when you cross over from confidence to ARROGANCE!

Core Consumer Value Proposition There are essentially 5 consumer propositions: Value ( Price) Convenience Health/Wellness Indulgence Social Consciousness ( * recent) You have to dominate in 1 of these to be viable. 2 or more to be unassailable.

ASDA’s Consumer Value Proposition ASDA’s consumer value proposition was VALUE ( Price) The “Pocket Tap” absolutely resonated with shoppers. Great prices and great assortments drove their sales and market share. One thing that has always puzzled me….. Why do retailers always want to be “upscale”? There will always be more poor people than rich people! So how did ASDA begin to lose sight of their value proposition?

It’s Easy to Lose Focus One of the biggest reasons was the Wal-Mart bought them out! Now capital was available to do any number of things. “George” stores and Supercenters began rolling out. Revenue went up and the UK consumer got new shopping experiences. But 2 other things happened: the focus was taken off what made them successful and fixed expenses went up. All of that is fine if all things stayed the same. But “ someone moved the cheese”!

“ Who Moved the Cheese?” “ Who Moved the Cheese” by Spenser Johnson was a popular business book in the 1990’s. The book talked about how a company falls into turmoil when their working business model changes in a market disruption. And the UK has just experienced a BIG market disruption called ALDI an LIDL! Now ADSA is in a tough place. They can’t be the price leader , and still maintain margins due to their expense structure. And Waitrose and M&S have the high end of the market place. That puts ASDA in a bad place, called “ the MIDDLE”. Not a good place to be!

Evolving Channels of Distribution It’s no secret that the internet provides are real challenge for brick and mortar retailers. Consumers have unlimited assortments and the convenience of shopping from home. This hits hard at the value proposition of a Supercenter. “ One stop shopping” is the key calling card. Between Aldi, Lidl, internet shopping and the other major retailers, ASDA is experiencing “ death by a thousand cuts”!

So What’s Challenging ASDA? Overcoming arrogance. ( poor financial performance fixes that in a hurry!) Articulating their core value proposition. Adapting to new market challenges by the deep discounters. ( cheese getting moved!) New aggressive channels of distribution. I still maintain that the real answer to “ what’s wrong with ASDA” is NOTHING!

Nothing is Wrong With ASDA ……. that isn’t wrong with most retailers! What I’ve just described about the challenges to ASDA have challenged retailers forever! Tesco, Sainsbury, Morrison's, M&S have all had similar issues. And lest you think size gives you a pass, Walmart US is just starting to get some financial traction after numerous consecutive quarters of poor year on year sales and declining traffic counts. And being “upscale” is no protection either! Whole Foods has been having challenges in making their numbers. So what are retailers doing about it?

Some Common Trends Most retailers are “investing” in price. Margins have been taking a hit, but the deep discounters are having an impact everywhere. Most retailers are investing in small store formats. Floor space will be redeployed. Most retailers are merging internet shopping with in store pick up. Most retailers are ( claiming) that they are going to “ win at FRESH”. Most retailers are “leaning” more heavily on their suppliers. Price and Terms are the key pressure points. Most retailers are rallying around various social issues : sustainability, organic, free range, cage-free, non GMO, “local”, food waste, and fair trade are just some of them. Public Relations has gone into overdrive!

What Does the Future of Produce Look Like? Produce departments will become smaller. Packaging will continue to proliferate. Produce will be used more and more to market social issues. Buyers will be more demanding of variety specific procurement. Longer contracted growing relationships will grow in order to secure quantiles of specific items. Private label in produce will continue to proliferate. This will be a challenge for grower/shippers.

“What Got You Here – Won’t Get you There!” ASDA is not unique to retailing when it comes to understanding this! Regardless of your business, you need to be aware of 4 things: Arrogance – spend more time worrying about how you can be better that how good you may already be. Core Value Proposition – Growth is a good thing, but don’t take you eye off the ball! Watch for “moving cheese”- Leadership needs to constantly be looking for potential market disruption and have a thought process on what steps need to be taken to deal with it. New Channels of Distribution – who or what can do what you do more effectively. And never forget… PRICE MATTERS!

A Final Thought on ASDA I’ve discussed some of the challenges that I see have impacted ASDA, but they are not unique to that company. One of the best things ASDA has going for them is their PEOPLE! They have always had an “ us against the world” mentality and a willingness to take challenges had on and resolve them. It’s easy to criticize any company when they are under stress. But I would offer one thing to anyone who might want to write them off…. DON’T BET AGAINST THEM!!

THANK YOU! The 2016 London Produce Show Bruce T. Peterson Jr. President – Peterson Insights, Inc.