1. GfK Consumer TrackingGfK Bulgaria - Sofia / Wolfgang Twardawa 11. November 2009 „Discounters and Brands: the latest news from the home country of discounter“ Wolfgang Twardawa GfK Panel Services Deutschland · Nordwestring 101 · 90419 Nürnberg 0911-395-3360 · wolfgang.twardawa@gfk.com

2. 2 GfK Consumer Tracking GfK Bulgaria - Sofia / Wolfgang Twardawa11. November 2009 25,000 12.000 20.000 2,000 2,500 1,750 3,000 7,000 8,000 30,000 6,000 4,000 2,2502,800 5,000 2,000 1,000 2,500 1,500 2,500 3,000 5,000 1,500 1,000 Consumer Panels in Europe: Sample Sizes Copyright  2009 Europanel GIE Development of discounters in Germany - the home country of discounters Chances of German discounters in Bulgaria

3. 3 GfK Consumer Tracking GfK Bulgaria - Sofia / Wolfgang Twardawa11. November 2009 Discounters in Germany: Who are the main players ? Sales in €bn*) Discounter-share of total retail food trade in % *) incl. Non-food 41.5 44.9 49.6 52.5 54.2 55.9 59.6 15.1 20.9 33.5 62,0 66,7 19 2232273437384041424344 other discounters 14.7 6.4 11.2 28.7 3.7 Aldi

4. 4 GfK Consumer Tracking GfK Bulgaria - Sofia / Wolfgang Twardawa11. November 2009 What are the key factors to the success of the discounters in Germany? Basically, consumers move in a field of conflict between…….. price eventconvenience Saving money price-orientation Saving time convenience-orientation Event, enjoyment event-orientation Positioning of discounters

5. 5 GfK Consumer Tracking GfK Bulgaria - Sofia / Wolfgang Twardawa11. November 2009 Convenience-Orientation: reducing complexity In a world that is too complex, there is a longing for: Clarity Orientation Predictability Source: Rheingold

6. 6 GfK Consumer Tracking GfK Bulgaria - Sofia / Wolfgang Twardawa11. November 2009 Convenience: reducing complexity Clarity  A flood of products Germany > Approx. 300.000 different food retail products and 30.000 new products per year > 5.000 up to 20.000 FMCG-Products are listed in Super- and Hypermarkets > But: the average household purchases 438 different products Source: Rheingold Merits of the discounters: > Reduction to the essential > 1.500 up to 1.800 FMCG-Products are listed in discounter

7. 7 GfK Consumer Tracking GfK Bulgaria - Sofia / Wolfgang Twardawa11. November 2009 Convenience: reducing complexity Orientation  Crisis of the brand Brands have lost much of their marketing and orientation function due to the flood of > line extensions > product variations > private labels

8. 8 GfK Consumer Tracking GfK Bulgaria - Sofia / Wolfgang Twardawa11. November 2009 Convenience: Reducing Complexity Predictability  Flood of prices Constant price campaigns torpedo predictability > people are prompted to buy spontaneously only at first > later: increasing confusion and irritation > consumers no longer know what is really cheap and when they should buy Source: Rheingold Consumers flee to the stable-priced discounters world: > don‘t have to think about prices > permanently low prices > prices regarded as safe and reliable

9. 9 GfK Consumer Tracking GfK Bulgaria - Sofia / Wolfgang Twardawa11. November 2009 Convenience of discounters > reducing complexity > within easy distance source: Rheingold

10. 10 GfK Consumer Tracking GfK Bulgaria - Sofia / Wolfgang Twardawa11. November 2009 Unlimited choices of stores within 10 minutes driving distance, on average, every German houshold can reach > 4 Supermarkets/ Hypermarkets > 4 Discounters > 2 Drugstores of which the average household selects > 2 Supermarkets/ Hypermarkets > 2 Discounters > 1 Drugstore Source: 30.000 household panel Consumer Scan, 2008 broadening the number of subsidiaries doesn‘t generate additional turnover

11. 11 GfK Consumer Tracking GfK Bulgaria - Sofia / Wolfgang Twardawa11. November 2009 Non-food total: Development of food retailing discounter Market-shares in % > Increasing competition due to specialty shops, like etc. Discounters stagnate at non-food

12. 12 GfK Consumer Tracking GfK Bulgaria - Sofia / Wolfgang Twardawa11. November 2009 Broadening the assortment reaches a limit… > Range extension especially in fresh food (Bio) > Accepting credit cards > Extending opening hours > Selling railway tickets > Selling packed holiday tours > Selling prepaid cell phones cards Discounter-share of total food retail trade in % Source: GfK Consumer Scan* ) Jan–Aug 2009 … simoultaneously, discounters distance themselves from the bounded assortment principle

13. 13 GfK Consumer Tracking GfK Bulgaria - Sofia / Wolfgang Twardawa11. November 2009 Growth potential, Quality strategy and trading up Developement of discounter market-share (based on value) *) without market leader, * average price  price market leader (+ 5 %) (brands) Source: 30.000 GfK household panel ConsumerScan WW, base: 100 commodity groups

14. 14 GfK Consumer Tracking GfK Bulgaria - Sofia / Wolfgang Twardawa11. November 2009 The discounters´quality strategy The quality strategy of discounters… > adresses consumers who attach importance to quality > aims at gaining profit margins (Aldi gains a profit margin of about 4%)

15. 15 GfK Consumer Tracking GfK Bulgaria - Sofia / Wolfgang Twardawa11. November 2009 The evolution of discounters in Germany the classical Marketing principle is: “more for more“ the Aldi principle was: “less for much less“ (hard discounting) further developement of discounter principle: “the same for less“ new developement: “more for less“ (smart shopping)

16. 16 GfK Consumer Tracking GfK Bulgaria - Sofia / Wolfgang Twardawa11. November 2009 Resume > With a market share of 44%, Germany reached the highest discounter-share in Europe > The limit of growth imposes pressure upon German discounters on business expansion abroad

17. 17 GfK Consumer Tracking GfK Bulgaria - Sofia / Wolfgang Twardawa11. November 2009 Expansion of German Discounters in Europe * ) Plus with 6 stores. Penny will open first stores by the end of this month and Lidl by spring next year *)*)

18. 18 GfK Consumer Tracking GfK Bulgaria - Sofia / Wolfgang Twardawa11. November 2009 Market-shares of discounters in Europe Source: Europanel 2008 Discounters‘ share of turnover at food retail (without specialty shops) in % * ) including soft discounters like Kaufland

19. 19 GfK Consumer Tracking GfK Bulgaria - Sofia / Wolfgang Twardawa11. November 2009 Turnover at food retail (without specialty shops) in Bulgaria (in %) * ) including soft discounters like Kaufland and hard discounter Plus with 6 stores; Penny will open first stores by the end of this month and Lidl by spring next year

20. 20 GfK Consumer Tracking GfK Bulgaria - Sofia / Wolfgang Twardawa11. November 2009 Chances of German discounters in Eastern Europe and Bulgaria - Where are decisive differences to Germany image positive creation of image over the past decades image must be created first consequenzes for Private Labels imagetransfer to good price/ performance ratio of Private Labels lower acceptance of Private Labels

21. 21 GfK Consumer Tracking GfK Bulgaria - Sofia / Wolfgang Twardawa11. November 2009 locations easy-to-reach by car high mobility required 93% of all german families own a car and 36% own two cars or more High purchase frequency easy-to-reach by car high mobility required mobility rather low High purchase frequency Chances of German discounters in Eastern Europe and Bulgaria - Where are decisive differences to Germany

22. 22 GfK Consumer Tracking GfK Bulgaria - Sofia / Wolfgang Twardawa11. November 2009 sales area per store up to 800 sqm generally up to 1.500 sqm generally Due to the bound selection, the sales area can not be assembled optimally Chances of German discounters in Eastern Europe and Bulgaria - Where are decisive differences to Germany

23. 23 GfK Consumer Tracking GfK Bulgaria - Sofia / Wolfgang Twardawa11. November 2009 The strategic disadvantages of discounters in Eastern Europe and Bulgaria bound the potential of growth for the German discounters Thus they won‘t gain profits within the foreseeable future. Chances of discounters in Eastern Europe and Bulgaria

24. 24 GfK Consumer Tracking GfK Bulgaria - Sofia / Wolfgang Twardawa11. November 2009 Brands of discounters Manufacturers Discounters Other retailers > Do I get new buyers for my brand? > Do I cannibalize own sales? > Do I get new buyers for my category? > Do I cannibalize own sales? > Do I lose sales? To list or not to list?

25. 25 GfK Consumer Tracking GfK Bulgaria - Sofia / Wolfgang Twardawa11. November 2009... did not buy the brand before the listing... did buy the brand before the listing Good news Cannibalization Brands at discounters: manufacturer‘s persepctive Discount Brand Sales come from buyers who...

26. 26 GfK Consumer Tracking GfK Bulgaria - Sofia / Wolfgang Twardawa11. November 2009 Brands at discounters: discounter‘s persepctive Discount Brand Sales come from buyers who...... did not buy the category before the listing... did buy the category before the listing Good news Cannibalization

27. 27 GfK Consumer Tracking GfK Bulgaria - Sofia / Wolfgang Twardawa11. November 2009... did not buy the category before the listing... did buy the category before the listing Discounter Perspective... did not buy the brand before the listing Manufacturer Perspective... did buy the brand before the listing win-winwin-lose lose-loselose-win Brands at discounters Discount Brand Sales come from buyers who...

28. 28 GfK Consumer Tracking GfK Bulgaria - Sofia / Wolfgang Twardawa11. November 2009... did not buy the category before the listing... did buy the category before the listing... did not buy the brand before the listing... did buy the brand before the listing 20%61% 8%11% 23% 1% 67% 9% win-winwin-lose lose-loselose-win Discounter Perspective Manufacturer Perspective Discount Brand Sales come from buyers who... Brands at discounters: Always liners / Kinder chocolate at

29. 29 GfK Consumer Tracking GfK Bulgaria - Sofia / Wolfgang Twardawa11. November 2009 The exploitation of the buyer potential determines the cannibalization The degree of cannibalization depends on the respective degree of exploitation of the buyer potential of the category The higher the exploitation the larger the cannibalization and vice versa Lidl Always exploitation of brand exploitaton of discounter 1) Penetration for the brand in % of all buyers of the category 2)Penetration for the category in the discounter store in % of all buyers of both discounter and category

30. 30 GfK Consumer Tracking GfK Bulgaria - Sofia / Wolfgang Twardawa11. November 2009 Brands at Discounters: The perspective of other retailers ….did not buy category before the listing This is bad news for the other retailers, provided that the new buyers were so far buyers at other retailers. This applies especially for so-called “must categories”. For “could categories” listing at discounters also leads to an extension of the category through buyers who were so for non-buyers in the category. Good News Canni- balization Discount Brand Sales come from buyers who...

31. 31 GfK Consumer Tracking GfK Bulgaria - Sofia / Wolfgang Twardawa11. November 2009 Discounters and Brands > Ubiquity of brands means listing at discounters > But listing of discounters does not replace brand equity > On the contrary, brand equity is the prerequisite for their 1. being attractive for discounters and 2. not being denied by other retailers

32. 32 GfK Consumer Tracking GfK Bulgaria - Sofia / Wolfgang Twardawa11. November 2009 Thank you for your attention ! www.gfk.com

33. GfK Consumer TrackingGfK Bulgaria - Sofia / Wolfgang Twardawa 11. November 2009 „Discounters and Brands: the latest news from the home country of discounter“ Backup-Charts

34. 34 GfK Consumer Tracking GfK Bulgaria - Sofia / Wolfgang Twardawa11. November 2009 Private Label Share at Discounters Market shares of private label for packaged goods (without fresh food) Jan-Sep 2009 (base: value in %) Source: 30,000 household panel, ConsumerScan, Germany

35. 35 GfK Consumer Tracking GfK Bulgaria - Sofia / Wolfgang Twardawa11. November 2009 The growth of the discounters goes hand-in-hand with the growth of the private label brands Share of private labels for FMCG (excl. fresh goods) in % Source: 30,000 household panel, ConsumerScan