1. Joint Value Creation Beyond Price ECR Europe Advisory – May 24

2. BACKGROUND Market place increasingly challenged by deflation and declining or stagnant market size. Manufacturers and retailers rely more and more on price as the only value driver. BOARD November 2004 The current trading environment, shaped among others by discounters, has emerged because ECR retailers and manufacturers have not yet been able to totally fulfil consumer wishes. Price is only one value driver. ECR Europe recognises the role played by other value drivers (e.g. health, convenience, proximity, changes in household profiles). Major roadblock to value creation, implementation of ECR demand creation processes: the buyer-seller relationship looking on quick return rather than looking to build sustainable value for o the consumers and shoppers o for the companies

3. THE RECOMMENDATION ECR Europe shall set up a project to improve Joint Value Creation Beyond Price. The project aims at: Review: explain/understand the environment Encouraging a wider usage of Joint Business Planning to increase shopper and consumer attraction and loyalty Present innovative solutions in the shopping experience and product offer which lead to market growth by addressing other consumer/shopper value than price.

4. 1. THE ENVIRONMENT / WHERE WE ARE TODAY

5. THE EUROPEAN YEARLY CONSUMER BASKET SIZE Source: Eurostat, Final Consumption Expenditure of Households, yearly spendings per inhabitant EURO PER HABITANT

6. THE EUROPEAN CONSUMER BASKET SIZE Source: Eurostat, Final Consumption Expenditure of Households, yearly spendings per inhabitant FMCG: Food, Drinks, Household maintenance products, Personal care products FMCG spend increasing but we are losing share of household consumption

7. DISCOUNTED PRODUCT LINE INTRODUCTION HARD PROMOTIONS P PRICE COMPARISON WHY ? - FOCUSING ON PRICE

8. How important is price to the consumer? Price identified as important issue Source: Eurobarometer – Spring 2003

9. Trade Marketing Consumer Advertising Consumer Promotion Percentage of U.S. Marketing Expenditures (2003 Total U.S. Marketing Expenditures - $1 Trillion) Sources: M.Sorrell – ECR Paris - Donnelley Marketing; PROMO, Veronis Suhler, Cannondale Associates, PoP Insights (Losin that lovin feeling) 0% 25% 50% 75% 100% 199019952003 47%51%54% 28%25%18% 25%24%28% Growing manufacturer investment in in-store marketing programs Focus Shift

10. Brand buyer Promotion buyer Private label buyer ALDI-buyer 23 % 15 % 17 % 11 % 10 % 15 % (28 %)* (37 %)* (17 %)* (18 %)* How to read the chart (example): 23% of 100 brand buyers in 2000 turned in 2001/2003 into promotion buyers source: Analysis based on GfK consumer panels in Germany In total, 1% of customers changed channel PLAYING ON PRICE DRIVE TO DISCOUNTERS

12. Leaders in communication

13. WHY? - LACK OF INVESTMENT IN INNOVATION Source: Eurostat, growth at constant prices. <The Economic portrait of the European Union » Eroding consumption can be linked to eroding investment in innovation

16. 2. Results of Survey

17. Do you see more focus on price than ever before?

18. Do you consider this price focus an issue?

19. Do you consider this an issue? …. 41% manufacturers and 47% retailers think it is the biggest issue but only 16% of others (consultants).

20. What do you consider the most important measure today?

21. Of the measures you use with your partner, which do you think is most important …. Manufacturers think it is gross margin, retailers total profit

22. What do you consider should be the most important measure today?

23. How much time do we spend talking together?

24. When you work with your partners how much time do you spend talking about consumer needs other than pricing and promotion?

25. How long is our current business model sustainable ? …. 50% of retailers do not think their business model will last more than 2 years

26. Do we have a good executable ECR framework to drive value beyond price?

28. 3. Encouraging a wider usage of Joint Business Planning to increase shopper and consumer attraction and loyalty

29. Value Creation beyond price Strategic Understanding Shopper Understanding JBP Execute Scorecard Basis for Value Creation Implementation CRM ECR Scorecard Category Management Promotion Tactics Shelf Availability NEW POS Management Using Traceability Shrinkage Consumer Direct Logistics Efficient Assortment Companies position, business objectives and KPI

30. Internal budget for sales and margin Internal budget fine tuning, match of category/ customer plans with resources allocation Tune potential by Customer/category to get target feasibility Fix customer budget and set customer plans Identifies potential to grow by Customer/category Supplier Strategy IMPLEMENTATION QUARTERLY REVIEW CUSTOMER STRATEGIC REVIEW CATEGORY/CUSTOMER PLAN Retailer Strategy Look for consistency in categories/ point of sales Define category objective on: Competitiveness Offer segmentation Own brand share CHANNEL STRATEGY Identifies a strategy by department/consumption occasion CHANNEL MARKETING PLAN category strategic plan Strategic Understanding

31. ECR31 Strategic Value Creation Options Innovate Effectiveness Customer specific Time specific Location specific SOLUTIONS Efficiency Supply Category Joined business process IMPROVE Volume Price Shelf space assortment/range OPTIMIZE

32. JBP template - opportunity

33. Co-operation is in all levels: Strategic planning KPIs and targets New Solutions/Innovations Processes Insights: consumer, shopper, market… Category Management Category Role Category Assessment Category Tactics: –Assortment –Promotions –Pricing New Product Introductions Supply Management Integrated systems and information Category Definition Category Role Category Assessment Category Performance Measurement Category Strategies Category Tactics Plan Implementation Category Review New levels for co-operation Working together beyond price

34. 4.Present innovative solutions in the shopping experience and product offer which lead to market growth by addressing other consumer/shopper value than price.

35. Conference Consumption driven trends Tassimo: Café quality beverages with convenience delivered with new technology Ferrero: Easier to use & added-value chocolate snacks combinations Retail Innovation Heinz: Different range for different time of the day Veropoulos: Shelf-space innovation

37. ….to drive sustainable sales and value growth we need to Go back to basics – understand shopper and consumer needs Collaborate on joint business plans and broader measures to impact ALL value creation drivers Provide genuine innovations beyond price that improve the shopping experience and the product offering …… Then we can deliver a win for our industry and a win for our shopper. NOW LOOKING FORWARD….

38. Value creation beyond price Program Framing the issue: –Deflation, commoditisation, reduce share of wallet for grocery –Definition of different values (consumer, manufacturer, retailer) –Roadblock: buyer-seller/cash/margin culture –The creation of long term value: economist and financial perspectives, benchmark with other sectors, benchmark across categories Process Strategic alignment (roadmap of joint value creation collaboration) Principles of Joint Business Planning Business Planning: how to integrate various business processes within your company and with your trade partners (Organisational design) Scorecard (measurement of value created and return ) Value Creation Case studies - Shifting money from price to other value drivers Benchmark categories: which are growing and how/what is driving their growth. A contrario : categories destruction by price strategy