1. Copyright © Information Resources, Inc. 2002. Confidential and proprietary. Copyright © Information Resources, Inc. 2004. Confidential and proprietary. The Collaboration Controversy: from Participation to Profit Mike Tracy Senior Vice President, West Region General Manager Retail Client Solutions IRI Rob Hill Senior Vice President, East Region General Manager Retail Client Solutions IRI

2. 2 2 What is Collaboration in the CPG Industry?  “Promoting my products is a losing battle – retailer gains, I lose.”  “ Collaboration should reduce the billions of dollars wasted w/ no ROI promotion.”  “It’s a way for suppliers like IRI and ACN to get more money.”  “It’s a way for retailers to outsource their work to ‘vendor partners’.”  “Collaboration is aligning our strategies and tactics for mutual gain and to reduce inefficiencies in the system.”  “Retailers and manufacturers, using their combined knowledge of the CONSUMER and category to build mutually beneficial businesses.”  “To improve Trade Promotion effectiveness, Retailers and Mfrs must align on the strategy of a particular event, and how trade promotions in general fits in with each other’s overall strategy.” – Accenture Trade Promotion study

3. 3 3 Agenda  Common Collaboration Elements  Collaboration Models  Case Studies  Success Factors

4. 4 4 Common Collaboration Elements MeasurementParticipationProfitCommitment

5. 5 5 Barriers to Retailer Collaboration Differing Business Objectives Time Consuming Planning TechnologyElusive Insights Metric Discrepancies Perception of ROI

6. 6 6 Collaboration Model Types: Retailer DrivenTopical SpecificIndustry Driven

7. 7 7 Industry Driven Collaboration Models “Category management is a distributor/supplier process of managing categories as strategic business units, producing enhanced business results by focusing on delivering consumer value.” 1 Category Definition Plan Implementation Category Tactics Category Strategies Category Scorecard Category Assessment Category Role Category Review 1 Category Management Report: Enhancing Consumer Value In the Grocery Industry, Joint Industry Project on ECR, 1995

8. 8 8 Retailer Driven Collaboration Models  Driven by a Retailer’s desire to leapfrog the industry  A profound focus for understanding consumers  Information and metrics alignment between retailer and manufacturer  Often viewed as “mandatory” with sensitivity to high costs  Develop consistent approach to business issues and category management

9. 9 9 Retailer Driven Collaboration Model: Success Stories Redefining Category Management & Supply Chain Best Practices “The Supplier Advisory Board is the foundation of collaboration between our suppliers, Rite Aid and ultimately, the consumer…” -Thomas G. Xhilone, VP OF CATEGORY MANAGEMENT SYSTEMS Micromarketing Market Basket Category RolesOut of Stocks Collaborative Business Planning Promo Optimization

10. 10 Monitor Business Plans Access Analytic Tools Price Optimization SKU Rationalizatio n Review & Analyze Sales and Inventory Syndicated Data Access (IRI) “We took a concept and made it happen… Catalyst is the driving force behind Category Management” -Thomas G. Xhilone, VP OF CATEGORY MANAGEMENT SYSTEMS Retailer Driven Collaboration Model: Success Stories

11. 11 Total US Food vs. Albertsons Sales % Chng YAgo Albertsons experienced a steady incline in Dollar Sales while Total US Food declined Albertsons significantly outperformed Total US Food by growing 13.5% while Total US Foods declined (1.5%) Retailer Driven Collaboration Model: Success Stories

12. 12 ACBP VP ROI – Vendor A ABS accounted for 24% of Vendor A’s Dollar Growth Time: 52 Weeks Ending February 22, 2004 vs. Year Ago; Geography: ABS Corporate-FOOD/DRUG (excl. SoCA) RMA, ROM CRMA  Vendor A’s Dollar Sales growth at ABS out paced Rest-of-Market growth by 6.2% (14.7% vs 8.6%)  ABS category Dollar Sales growth out paced Rest-of-Market 3.3% (5.0% vs 1.8%)  A win win situation for Vendor A and Albertsons *ABS Share of Vendor Category Sales versus Vendor Total Category Sales in the market (CRMA). $6,571,739 $20,610,133 $27,347,699 Vendor $ Value of Category Dollar Share Point Changes vs Year Ago $3,424,893 $9,078,069 ABS $ Value of Category Dollar Share Point Changes vs Year Ago This Year Last Year VP A direct revenue benefit of ACBP

13. 13 Top 10 Vendor Partners for Major Retailer Dollar Sales Growth All Vendor Partners Total of +$134,136,01 4 growth vs YA Vendor 1 increased profits $5MM across 4 categories

14. 14 Topical Retailer Collaboration Models  Collaboration projects with a few select manufacturers, to address a specific issue or opportunity  “Project” oriented, but strategic in nature  Examples: – Loyalty Building and Marketing – FSP Programs – Table Captaincy for Schematic Optimization – Price / Promotion Optimization – Store-Specific Plan-O-Gramming – SuperCenter Impact and Combat Strategies

15. 15 The most valuable customer's metrics Sales Trips Items Market Basket $1,300 42 935 $31.26 Average $5,598 123 3,938 $44.43 $148 8 100 $17.72 MVC 10% Bottom 40% Topical Retailer Collaboration Models: Customer Loyalty Marketing

16. 16 Loyalty Analytic Collaboration Program  Category Customer Information On Line And Ad-Hoc Access –For both retailer and manufacturer  Dynamic Segmentation Analysis And Target Identification: Online Access  Optional Advanced Analytic Projects  Best Practices Think Tank Participation

17. 17 Topical Retailer Collaboration Models: Customer Loyalty Marketing Mutual Benefits  A common focus against our customers  An ability to identify and exploit new customer segment opportunities  Higher promotion ROI driven by elimination of unproductive events  Higher sales, reduced OOS from localized assortment  Expanded analytical capability  Support to accelerate implementation speed  Improved Customer Loyalty

18. 18 1 HEAD QUARTERS POG Repository 2 3 4 5 Topical Retailer Collaboration Models Localized Assortment Vendor Access

19. 19 Collaboration Critical Success Factors: for Retailers  Top-down organizational commitment  Willingness to invest in solution  Leverage the manufacturers’ insights early in the process  Cross-functional organization commitment and change management

20. 20 Collaboration Critical Success Factors: for Manufacturers  Co-located with Retailer, consistent presence and support  Cross-functional interaction from the Top to Sales, Marketing, Category Managers, etc.  Expectations and metrics for mutual benefit gains defined up-front  Flexibility to change direction with Retailers

21. 21 The Number One Critical Success Factor for both Retailers and Manufacturers...