W. Frank Dell II, CMC DELLMART & Company

DELLMART & COMPANY2 AGENDA INTRODUCTION ACTIVITY BASED COSTING PLMA MODEL MODEL APPLICATIONS

DELLMART & COMPANY3 Objectives Introduce PLMA Net Profit Model Explain Activity Based Costing Explore model applications

DELLMART & COMPANY4 Current State Category Management gaining acceptance –Most not true to concept –Result - Super Buyer not marketer Brand manufacturers claim leadership –Buying leadership Private Label losing voice

DELLMART & COMPANY5 Why Net Profit? Gross Margin ineffective management tool Simple relationship - cost Vs retail price Not a predictor of profit

DELLMART & COMPANY6 What is Net Profit? Sales - Cost of Goods Sold = Gross Margin + Direct Revenue - ABC Costs = Net Profit

DELLMART & COMPANY7 AGENDA INTRODUCTION ACTIVITY BASED COSTING PLMA MODEL MODEL APPLICATIONS

DELLMART & COMPANY8 Definition ABC is a cost allocation or assignment methodology Cost assignment based on: –Activities - Tasks within a process –Drivers - Factors creating costs

DELLMART & COMPANY9 ABC Vs DPP

DELLMART & COMPANY10 Allocates All Costs Headquarters –Management –Merchandising –Finance & Accounting –Human Resources Warehouse –Management –Labor –Benefits –Space –Utilities Transportation –Labor –Equipment –Supplies Stores –Management –Labor –Benefits –Space –Utilities

DELLMART & COMPANY11 Primary Processes

DELLMART & COMPANY12 Costs Follow Product Flow

DELLMART & COMPANY13 Greatest Cost is Display Space Display Square Feet

DELLMART & COMPANY14 Cost and Drivers

DELLMART & COMPANY15 Cost and Drivers (Cont.)

DELLMART & COMPANY16 AGENDA INTRODUCTION ACTIVITY BASED COSTING PLMA MODEL MODEL APPLICATIONS

DELLMART & COMPANY17 Start PLMA Model

DELLMART & COMPANY18 Enable Macro

DELLMART & COMPANY19 Navigation Buttons

DELLMART & COMPANY20 Input Data Screen

DELLMART & COMPANY21 Input - General Item Description - Identification Units Per Week - Average per store Retail Per Unit - Normal, Promotion or Average

DELLMART & COMPANY22 Input - Case Cost - Normal, Promotion or Average Pack - Units per case Dimensions - Height, Length, Width (inches) Weight - Pounds

DELLMART & COMPANY23 Input - Store Facings - Unit presentation at shelf level Shelf Height - Bottom to Top inches

DELLMART & COMPANY24 Input - Payment Terms Discount - Percent Days - Number

DELLMART & COMPANY25 Input - Per Case Billback - Dollars per case Backhaul - Dollars per case (Pick Up)

DELLMART & COMPANY26 Input - Delivery 1 - Distribution Center 2 - Direct Store Delivery 3 - Drop Ship 4 - Percent mark-up

DELLMART & COMPANY27 Optional Input Screen

DELLMART & COMPANY28 Optional Input - Labor Store direct labor rate and benefits percent Distribution direct labor rate and benefits percent

DELLMART & COMPANY29 Optional Input - Customer Annual interest rate Number of stores in chain Distribution mark-up percent

DELLMART & COMPANY30 Results Screen

DELLMART & COMPANY31 Results - Dollars Sales - Revenue per week Gross Margin per week Net Profit per week

DELLMART & COMPANY32 Results - Per Unit and Percent Net Profit per Unit Net Profit per Display Square Feet Gross Margin Percent Net Profit Percent

DELLMART & COMPANY33 Results - Activity Based Costs Direct Revenue per week Activity Based Costs –Headquarter –Distribution & Transportation –Store

DELLMART & COMPANY34 Model Tips Develop, load and save standard data Collect and load customer data Copy and paste data set for comparison Limit analysis to pertinent items Be reasonable and conservative in assumptions

DELLMART & COMPANY35 AGENDA INTRODUCTION ACTIVITY BASED COSTING PLMA MODEL MODEL APPLICATIONS

DELLMART & COMPANY36 Success Factors Logical presentation Reasonable assumptions Demonstrate knowledge of business Promote benefits –Consumer sales –Customer profits

DELLMART & COMPANY37 New Products Life blood for retailers and suppliers Primary driver of growth Replacement Vs Cannibalization Strategy

DELLMART & COMPANY38 Approach Select items for replacement –Low sales –Matching consumer target markets Collect customer and competitive data Run model Present –Current sales and net profit –Projected sales and net profit

DELLMART & COMPANY39 Retail Space Most coveted merchandise element Interacts with pricing Shelf space is greatest item cost

DELLMART & COMPANY40 Balance Space Too Little Consumer can’t find Reduced sales Lost sales Too Much Lower profits

DELLMART & COMPANY41 Diminishing Returns Excess space does not increase sales Minimum - Case plus order cycle –Minimizes stocking labor

DELLMART & COMPANY42 Approach Determine minimum units and facings Identify net profit Test & evaluate alternatives –Increase unit sales –Increase facings Present –Current sales and net profit –Projected sales and net profit

DELLMART & COMPANY43 Retail Pricing Price discussions should not be taboo Price too high –Lost sales Price too low –Lost sales –Lost profit

DELLMART & COMPANY44 Retailer Goals Low Price Image Gross Margin Quality Ratio High

DELLMART & COMPANY45 Consumers Recall up to 200 item prices Frequently purchased items High consumables Translates to ,000 items creating store’s price image

DELLMART & COMPANY46 Low Retail Not The Answer

DELLMART & COMPANY47 Value is King Value = Price Quality

DELLMART & COMPANY48 Approach Compare product quality Load model Test & evaluate alternatives –Change retail price –Hold constant and change unit sales Present –Current sales and net profit –Projected sales and net profit

DELLMART & COMPANY49 Promotions Most frequently used promotion tool –Advertising –Display –Price reduction Private Label under- represented –Accrual funds –Lack targeted program

DELLMART & COMPANY50 Why Promote? Create merchandising excitement Attract customer Foster consumer trial Load pantry Reward loyal consumers Present value proposition

DELLMART & COMPANY51 Promotions are Difficult

DELLMART & COMPANY52 Many Promotional Factors

DELLMART & COMPANY53 Research Question

DELLMART & COMPANY54 Low Private Label Share

DELLMART & COMPANY55 Moderate Private Label Share

DELLMART & COMPANY56 Promotional Index

DELLMART & COMPANY57 Promotion Conclusion Low Private Label share Moderate Private Label share Private Label Natl. Brand

DELLMART & COMPANY58 Approach Research past promotions Load model Test & evaluate alternatives –Change price –Change index Present –Current sales and net profit –Projected sales and net profit

DELLMART & COMPANY59 Summary Net Profit is the ultimate sales tool PLMA Net Profit Model –Easy to use –Provides great flexibility –Great learning tool Coach customer to increase profits

DELLMART & COMPANY60 W. Frank Dell II, CMC President DELLMART & Company 125 Hardesty Road Stamford, CT Tel: Fax: Thank You