1. STOCK MANAGEMENT W. Frank Dell II, CMC September, 2003

2. DELLMART & COMPANY2 AGENDA INTRODUCTION DEPARTMENT / CATEGORY / ITEM REPLENISHMENT PROMOTING

3. DELLMART & COMPANY3 Objectives  Introduce stock organization and management  Present the science of buying  Identify promotion management

4. DELLMART & COMPANY4 Retail Strategy

5. DELLMART & COMPANY5 Product Quality BestBetter Good

6. DELLMART & COMPANY6 Target Market  Socio-demographics –Age –Sex –Education –Income  Household –Single –Married –Multi-generations

7. DELLMART & COMPANY7 Supermarket Evolution DEPARTMENTSGM % Dry Grocery19.9% Meat25.9% Dairy27.6% Produce38.7% HBC & GM29.3% Deli38.2% Bakery44.5% Home Meal Replacement50.0% +

8. DELLMART & COMPANY8 AGENDA INTRODUCTION DEPARTMENT / CATEGORY / ITEM REPLENISHMENT PROMOTING

9. DELLMART & COMPANY9 Department Drivers Dept. Store Size FormatLaw Target Customer

10. DELLMART & COMPANY10 Typical Departments PERISHABLE  Fresh –Meat –Produce –Fish –Bakery –Prepared Food  Package –Diary –Frozen NON-PERISHABLE  Edible  Non-Edible  Health & Beauty Care  General Merchandise

11. DELLMART & COMPANY11 Department Size ABC Sales - Cost Gross Margin + Direct Revenue - Inbound Costs - Outbound Costs = Net Profit

12. DELLMART & COMPANY12 Number of Departments MINIMUM  Perishable  Non-Perishable OR  Random Weight  Packaged MAXIMUM  Meat  Produce  Fish  Bakery  Prepared Food  Dairy  Frozen  Dry Grocery (ambient)  HBC  GM

13. DELLMART & COMPANY13 Department Percents

14. DELLMART & COMPANY14 Category Role  Destination - To be the primary category provider and help define the retailer as the store of choice by delivering consistent, superior target consumer value.  Routine - To be one of the preferred category providers and help develop the retailer as the store of choice by delivering consistent, competitive target consumer value.

15. DELLMART & COMPANY15 Category Role (Cont.)  Occasional/Seasonal - To be a major category provider, help reinforce the retailer as the store of choice by delivering frequent, competitive target consumer value.  Convenience - To be a category provider and help reinforce the retailer as the store of choice by delivering good consumer target value.

16. DELLMART & COMPANY16 Category Strategy Strategies Traffic Building Transaction Building Profit Contribution Cash Generating Excitement Creating Image Creating Turf Defending Characteristics - High share, frequently purchased, high % of sales - Higher Ring-up, impulse purchasing - Higher Gross Margin, turns - Higher turns, frequently purchased - Impulse, lifestyle oriented - Frequently purchased, highly promoted, impulse, unique - Used to draw customer base

17. DELLMART & COMPANY17 Category Drivers Category FormatSpaceImage Target Customer

18. DELLMART & COMPANY18 Category & Sub-Category  Grouping of like products and/or sub- categories Perishable Meat Beef Chicken Lamb

19. DELLMART & COMPANY19 Perishable Percents

20. DELLMART & COMPANY20 Non-Edible Percents

21. DELLMART & COMPANY21 Number of Categories  Categories –Minimum 1 –Maximum 85  Example –Juices  Sub-Categories –Minimum 0 –Maximum 9  Example –Fruit & Nectars –Powdered –Tomato

22. DELLMART & COMPANY22 Segment & Sub-Segment Source: ECR Category Management Category Sub-Category Segment Sub-Segment

23. DELLMART & COMPANY23 Item Drivers Item Target Customer Category Strategy SpacePresentation

24. DELLMART & COMPANY24 Item Planning  Support category role and strategy  Provide an eye appealing presentation  Minimum of 2 facings  Recommend full case stocking –Minimizes labor –Reduces damage

25. DELLMART & COMPANY25 Retail Price & Space Interrelated

26. DELLMART & COMPANY26 Shelf Holding Capacity  Average non-promotion movement  Replenishment cycle –Order to shelf time

27. DELLMART & COMPANY27 Space Allocation  Software –Apollo –Spaceman  Process –Assign minimum –Add for full case stocking –Adjust for replenishment cycle –Add for profit –Adjust for presentation

28. DELLMART & COMPANY28 Assortment  Components –Brands –Flavor, style and color –Size  Research –Excess difficulty to find item and shop –Shortage limits sales and customer satisfaction

29. DELLMART & COMPANY29 Measurement  Per linear meter  Per floor square meter  Per display square meter

30. DELLMART & COMPANY30 Per Display Square Foot

31. DELLMART & COMPANY31 Units Per DSF

32. DELLMART & COMPANY32 New Items  Match target market  Should replace existing item  Complete or fill in offering  Increase category sales and profits –Item cannibalization not productive

33. DELLMART & COMPANY33 Managing Multiple Formats  Formats –Hypermarket –Supermarket –Limited assortment –Hard discount –Warehouse –Club –Convenience –Organic  Issues –How to manage? –Who controls?

34. DELLMART & COMPANY34 Multiple Format – Plan A All Format Buyer  Advantages –Buying power –Lowest cost  Disadvantage –Lose focus –Conflicting decisions V.P. Buyer

35. DELLMART & COMPANY35 Multiple Format – Plan B Format Merchant  Advantages –Buying power –Dedicated focus  Disadvantages –Conflicting decisions V.P. Buyer Format Merchant

36. DELLMART & COMPANY36 Multiple Format – Plan C Format Buyer  Advantage –Greatest focus  Disadvantage –Fragmented buying –Added cost –Increase items –Increase transactions V.P. Format Buyer Format Buyer

37. DELLMART & COMPANY37 AGENDA INTRODUCTION DEPARTMENT / CATEGORY / ITEM REPLENISHMENT PROMOTING

38. DELLMART & COMPANY38 Holding Cost  Cube is the dominate supply chain cost driver  Display space is a scarce resource  Wide range of products –Health & Beauty Care –Paper products ( Cube * Rate ) + (Cost * Rate)

39. DELLMART & COMPANY39 Time Vs Quantity  Traditional –Weekly data –Fixed review –Vary quantity  Recommended –Daily data –Daily review –Fixed quantity

40. DELLMART & COMPANY40 Fixed Time

41. DELLMART & COMPANY41 Variable Time

42. DELLMART & COMPANY42 Supplier Economics  Economic Order Interval - Weeks  Balance –Holding cost Vs order cost 2 * Order Cost --------------------------------------------------------------------------- (Wk Int. Rate * Wk Dollars) * (Wk Cube Rate * Wk Cube)

43. DELLMART & COMPANY43 Cycle Stock  Quantity = Weeks * Average Movement –Round to warehouse pallet quantity  Balance –Holding cost Vs handling cost 2 * Pallet Cost --------------------------------------------------------------------------------------- ((Wk Int. Rate * Wk Dollar) * (Wk Cube Rate * Wk Cube)) * Wk Cases

44. DELLMART & COMPANY44 In-Stock Probability

45. DELLMART & COMPANY45 Safety Stock - Cases Per Week - Review Interval - Vendor Lead Time - Movement Mean Average Deviation - Lead time Mean Average Deviation - Lead Time - Service Factor CPW * (RI +VLT) * (( 1+MMAD / CPW) * (1 + LMAD / LT) ) ** SF - (( RI + VLT) * CPW)

46. DELLMART & COMPANY46 Item Order Point  Trigger point for ordering an item (( Rev Int + VLT) * CPW) + Safety Stock

47. DELLMART & COMPANY47 Replenishment Model

48. DELLMART & COMPANY48 Forward Buy  Quantity = Weeks * Average Movement –Excess inventory  Cut off –Management maximum –Next vendor promotion –Product dating –Round to pallets Savings – ( Extra Handling ) Holding Cost

49. DELLMART & COMPANY49 AGENDA INTRODUCTION DEPARTMENT / CATEGORY / ITEM REPLENISHMENT PROMOTING

50. DELLMART & COMPANY50 Why Promote ?  Create merchandising excitement  Attract customers  Present savings  Show value  Reward loyal customers  Increase sales

51. DELLMART & COMPANY51 Promotional Components

52. DELLMART & COMPANY52 Promotions are Difficult

53. DELLMART & COMPANY53 Breakeven on 11% Deal

54. DELLMART & COMPANY54 Promotional Effect

55. DELLMART & COMPANY55 Promotion Forecasting  Controllable –Category –Season –City Vs Suburban –Price –Support Advertising Display –Frequency  Un-Controllable –Weather –Competition

56. DELLMART & COMPANY56 Promotional Index

57. DELLMART & COMPANY57 Promotion % Dollar Sales DESCRIPTIONALL PRIVATE LABEL Feature Adv & Display5.6%3.4% Display only7.5%5.7% Feature Adv only9.1%10.5% Shelf Price Reduction8.7%9.3%

58. DELLMART & COMPANY58 Cannibalization  Rare across categories  Occasional across sub-categories  Common in sub-category –Item uniqueness  Current Vs future consumption

59. DELLMART & COMPANY59 Promotion New Rules

60. DELLMART & COMPANY60 Share & Volatility

61. DELLMART & COMPANY61 Promotion Planning  DO NOT –Promote slow selling items or categories –Over promote  DO –Track competition promotions –Feature your strength –Create consumer excitement

62. DELLMART & COMPANY62 Summary  Strategy determines items  Customer determine categories  Display space is a scarce resource  Vary time not quantity  Develop promotional indexes

63. DELLMART & COMPANY63

64. DELLMART & COMPANY64 W. Frank Dell II, CMC President DELLMART & Company 125 Hardesty Road Stamford, CT 06903 USA Tel: 203-968-8609 Fax: 203-968-8613 e-mail: Wfdell2@msn.com