The Private Label Proposition
            Dublin, April 22nd 2009




Basic Guide to selling Private Label in
  Germany


...
Germans shop around – smart shopper!




                                       2
German FMCG-Retail:
Private Label + 15 %-points in 8 years!




         FMCG Brands




              Private Label (incl...
Development of PL-share 2004 – 2008
in Germany

          total   Food Retail Hypermk Discount Supermk   Drugstore




 Br...
Aldi´s PL-dominance:
40% of all PL in Germany sold through Aldi!




                                              5
Share of Private Label within categories
    examples (01 – 06 2008)

Dairy (white)
Non-perishables

Staple foods

 Frozen...
Development of Private Label share
per discount retailer (Germany)




                                     7
Pioneered by Aldi, discounters are the dominant
retail format in Germany.


          50s-70s                       80s-90...
Key success drivers discount in Germany




             • Limited, but covering all
Assortment     essential needs
      ...
Half of German consumers can almost
            exclusively be reached through discounters

                              ...
German Discount Retailers




                            11
Germany: Discount Retailers Ranking 2008


Company                         Turnover in bn.                  outlets   rema...
Two Aldis in Germany:
Division Aldi Nord/ Aldi Süd
                                     Nord: 35 subsidiaries incl.
      ...
TOP 6 german retailers (in bn. €)
(total Market: 151 bn. € in 2008)


EDEKA Group          37.606         90 % food
(incl....
The relative price increases in 2008 accelerated the growth
  of discounters – Aldi back on a growth path

  share of sale...
Retail formats cost comparison


                  Total costs as % of gross-
                  price


       VAT



    ...
Growing consciousness of German retailers
 to become retail brands



   Pricing is not the right means to differentiate f...
German food retail (full assortment):
consciousness to become a Retail Brand




                                         ...
Some Touch-points of a Retail Brand (EDEKA):
overall performance of brand is most important!




                         ...
Key success factor Private Label –
focus on Retail Brand


  EDEKA: since 2005

  REWE: since 2007

  Globus: since 5/2008...
EDEKA frozen Pizza
>old               <new




                          21
Original Positioning of Private Label (2007):
cheap me-too brand




                                                22
Key economy brands:
benchmark Aldi for quality & price




 Aldi movements in price & product are carefully observed and
 ...
2009: Discounters start again Price War as
Means against recession & new challenger




                                  ...
Germany: The Hard Discount Price War
Q 1/2009: Aldi leads the gang!




                                       25
Food Retailers (full assortment) with reasonable
Private Label Business (>10% share)

                EDEKA               ...
EDEKA Private Label structure:
cover all price tiers

  Premium



  Wellness/Organic


  Convenience



  Standard


  Ec...
PL-structure EDEKA. Meaning for supplier



                   Top-quality in product and packaging,
                   be...
New Launches EDEKA (2007-2009)




     Even for standard Private Label, retailers look for new product
     concepts, the...
EDEKA GUT & GÜNSTIG



Philosophy: Benchmark Aldi in
- assortment of core-products (ca. 500-700 sku)
- Identical in qualit...
Real.-: new Private Label structure (2008)




    Potentials on all tiers - problems to find „selection“-products
       ...
REWE Privat Label structure (2008):


  Processed Meat/Meat
  (net-margin: 35-45%)



  Wellness/Organic
  (net-margin >35...
Kaufland Private Label
(Hypermarket Schwarz-Group, 11.8 bn. €/2008)


                                    K-Classic Label:...
Which part do private label products
play in Discount stores?

   Besides price, discount retailers seek a differentiation...
Aldi & Lidl create categories!


Fast adoption of trends: smoothies




                                     35
Aldi: keeping up with trends
wellness & organic




                               36
Aldi Süd: Co-Branding with Brand!



                                                co-branding. Co-
Brand manufacturers ...
Products you wouldn´t expect in Hard
Discounters




                                       38
Hard Discount: new Luxury Private Label
„Luxury for everyone“




                                          39
Aldi: strict quality standards




                                 40
Country-Promotions at Aldi, Lidl, Penny




 What about an Irish Week?!
                                          41
Many ways to do business with Aldi (Nord +
Süd)

  National Listing = become part of the normal assortment; one-
  year co...
Aldi´s internal listing process: Trial & error
example cheese

 Best customer is the one who shops regularly and buys much...
The other ones (Lidl, Netto, Penny, Norma)
act similar to Aldi

  National Listing = become part of the normal assortment;...
Private Label Suppliers have to be innovative


   As neither German discount retailers nor full assortment
   retailers h...
Whom to start with?
(Details depend on particular retailer)


   Discount:
   high turnover/sku, good structure and organi...
Thank you very much!




Hermann Sievers, smk consulting, D-Hamburg
info@smk-beratung.de www.smk-beratung.de



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  1. 1. The Private Label Proposition Dublin, April 22nd 2009 Basic Guide to selling Private Label in Germany Hermann Sievers, smk-consulting, D-Hamburg 1
  2. 2. Germans shop around – smart shopper! 2
  3. 3. German FMCG-Retail: Private Label + 15 %-points in 8 years! FMCG Brands Private Label (incl. Aldi) Brands Private Label 3
  4. 4. Development of PL-share 2004 – 2008 in Germany total Food Retail Hypermk Discount Supermk Drugstore Brands PL 4
  5. 5. Aldi´s PL-dominance: 40% of all PL in Germany sold through Aldi! 5
  6. 6. Share of Private Label within categories examples (01 – 06 2008) Dairy (white) Non-perishables Staple foods Frozen/icecream non alc beverage cereals sweets 6
  7. 7. Development of Private Label share per discount retailer (Germany) 7
  8. 8. Pioneered by Aldi, discounters are the dominant retail format in Germany. 50s-70s 80s-90s 2008 • Aldi as discount pioneer • New format and • Expansion into new assortment strategies assortments and services • Market entry of other (e.g., non-food) (e.g., travel, M-Commerce, discounters fresh products, bio) • Strong focus on • Limited assortment with internationalization • Beginning consolidation focus on food < 2,000 stores ≈ 12,000 stores 15,000 >15,000 stores < 5 % market share ≈ 30% market share > 44% market share 8
  9. 9. Key success drivers discount in Germany • Limited, but covering all Assortment essential needs • Enriched by seasonal items • High standards, confirmed • 98% penetration Quality e.g. by Stiftung Warentest • Accepted by all consumer segments • Each household can reach three •Low complexity, high different discounters within 10 Image continuity and convenience minutes • High degree of Efficiency standardization • Attention to details 9
  10. 10. Half of German consumers can almost exclusively be reached through discounters 98,0% of all German households bought at discounters in 2006 51,0% 47,0% regular purchase “sporadic” purchase at discounters at discounters 97 trips p.a. 37 trips p.a. 65% demand 24% demand coverage coverage at discounters at discounters Today: Distribution at discounters in Germany is a success factor for brands 10 source: GfK ConsumerScan, Nov.2005–Oct.2006
  11. 11. German Discount Retailers 11
  12. 12. Germany: Discount Retailers Ranking 2008 Company Turnover in bn. outlets remarks € Aldi Süd 13.3 1,700 Aldi Nord 11.2 2,500 Lidl 14.8 3,000 Netto/Plus 11.0 4,000 Merger in 2008 (EDEKA) Penny 7.0 2,300 300 outlets from Plus (2008) (Rewe) Norma 3.3 1,250 Focus on South/ Southwest Germany Netto North 1.0 300 Focus on Eastern (Dansk Germany Supermarket) source: Trade Dimensions, Lebensmittelzeitung, own estimations 12
  13. 13. Two Aldis in Germany: Division Aldi Nord/ Aldi Süd Nord: 35 subsidiaries incl. distribution centers 2.500 stores Simple store- and poduct design Limited assortment < 850 sku Turnover/store: 4,3 Mio € Turnover/sku: 6 Mio € Süd: 31 Subsidiaries incl. distribution centers 1.700 stores More sophisticated product- and store design Broader assortment <1.000 sku Turnover/store: 7 Mio € Turnover/ sku: 7 Mio € Some identical products can have different pricing in Aldi Nord/Süd 13
  14. 14. TOP 6 german retailers (in bn. €) (total Market: 151 bn. € in 2008) EDEKA Group 37.606 90 % food (incl. Netto) Metro Group 31.575 42 % food (incl. real.-) REWE Group 29.580 83 % food (incl. Penny) Schwarz Group 26.500 82 % food (Lidl + Kaufland) Aldi Group 24.500 81 % food (Aldi Nord+Süd) Tengelmann Group 13.990 61 % food (incl.Plus) 14
  15. 15. The relative price increases in 2008 accelerated the growth of discounters – Aldi back on a growth path share of sales (in %) change value (%) ** 2002 2003 2004 2005 2006 2007 2008 ** 2008:2007 drugstores 7,8 7,9 8,0 8,2 8,5 8,7 8,6 +2,4 23,6 23,6 23,6 24,6 24,4 24,7 24,1 +2,7 hypermarkets total (> 1500 sq m) 28,7 24,6 23,6 23,3 +4,0 31,8 30,1 26,3 supermarkets (< 1499 sq m) 42,5 43,0 44,0 +7,6 38,4 39,7 40,9 discounters 36,8 Aldi 18,3 18,8 19,1 18,9 19,6 18,7 18,9 +6,5 Lidl 6,4 7,1 7,1 7,9 8,6 9,2 9,7 +11,2 bn. € 134,7 136,7 136,6 136,6 140,2 144,2 151,6 +1,5 +0,0 -0,1 +2,7 +2,8 +5,1 share of retail chains* in retail food trade 15 source: IRI universe, always at end of year * according to retail panel system ** own calculations based on GfK ConsumerScan, total till roll fmcg
  16. 16. Retail formats cost comparison Total costs as % of gross- price VAT Profit Advert Headq Logistic POS 16
  17. 17. Growing consciousness of German retailers to become retail brands Pricing is not the right means to differentiate from competition. German shoppers differentiate only 3 types of food retail outlets: supermarkets, big supermarkets (hypermarket) and cheap supermarkets (discounters). But only discounters are synonymous for cheap prices. Therefore, during the last 2-4- years food retailers have started developing positionings and concepts to differentiate from competition. There is a trend of becoming a retail brand like Tesco, M&S or Sainsbury in the UK 17
  18. 18. German food retail (full assortment): consciousness to become a Retail Brand 18
  19. 19. Some Touch-points of a Retail Brand (EDEKA): overall performance of brand is most important! 19
  20. 20. Key success factor Private Label – focus on Retail Brand EDEKA: since 2005 REWE: since 2007 Globus: since 5/2008 real.- (Metro): since 8/2008 Privat Label is not only another „Touch Point“ , but it is an ultimate expression of the Retail Brand, because customer takes it home and taste it! 20
  21. 21. EDEKA frozen Pizza >old <new 21
  22. 22. Original Positioning of Private Label (2007): cheap me-too brand 22
  23. 23. Key economy brands: benchmark Aldi for quality & price Aldi movements in price & product are carefully observed and instantaniously copied („GUT&GÜNSTIG“=EDEKA, „ja“ = Rewe, „Tip“ = real.-) 23
  24. 24. 2009: Discounters start again Price War as Means against recession & new challenger 24
  25. 25. Germany: The Hard Discount Price War Q 1/2009: Aldi leads the gang! 25
  26. 26. Food Retailers (full assortment) with reasonable Private Label Business (>10% share) EDEKA > 2 bn. € (75% GUT&GÜNSTIG) REWE >1,5 bn. € Kaufland > 1,2 bn. € real.- (Metro-Group) > 1,0 bn. € Tegut > 0,2 bn. € (focus organic) Globus (St. Wendel) > 0,3bn. € There are more chances for innovative product concepts than with commodity products for economy brands 26
  27. 27. EDEKA Private Label structure: cover all price tiers Premium Wellness/Organic Convenience Standard Economy 27
  28. 28. PL-structure EDEKA. Meaning for supplier Top-quality in product and packaging, better/different than brand, innovative, create trends, create value mostly me-too, low grade of innovation, sophisticated packaging, Low-cost, added value Me-too of 400 – 600 Top-Aldi products, low cost producer, hard price negotiations, small revenuel, not innovative 28
  29. 29. New Launches EDEKA (2007-2009) Even for standard Private Label, retailers look for new product concepts, they try product and packaging innovations 29
  30. 30. EDEKA GUT & GÜNSTIG Philosophy: Benchmark Aldi in - assortment of core-products (ca. 500-700 sku) - Identical in quality (packaging & product & taste) and price! Umbrella-brand design, „cheap“-looking Placing: medium to low No innovations, only me-too Aldi Suppliers: usual 1-year contract Supermarkets: 7 regional wholesalers, 40 distribution centers General PL Framework-Contract: responsibilities design, law, cost, licensing, quality assurance/management (acc. IFS), audits, test results („Stiftung Warentest“, „Ökotest“), liability, quality of deliveries (Logistics), penalties, recall of defective products etc. Multi-tier-retailers like EDEKA and Rewe have more than one decision maker, that adds complexity to the buying process 30
  31. 31. Real.-: new Private Label structure (2008) Potentials on all tiers - problems to find „selection“-products 31
  32. 32. REWE Privat Label structure (2008): Processed Meat/Meat (net-margin: 35-45%) Wellness/Organic (net-margin >35%) Standard (net-margin >30% or rather beyond category-average) Economy (net-margin >20%, but depending on Aldi-price) 32
  33. 33. Kaufland Private Label (Hypermarket Schwarz-Group, 11.8 bn. €/2008) K-Classic Label: Economy Brand, introduced 2004 Share: ca. 10% K-Classic „WellYou“ Wellness- Range, introduced 2008 Centralized and efficient decision making 5 distribution centers Successful Hypermarket-concept in Germany: „Discount-Hypermarket“ 33
  34. 34. Which part do private label products play in Discount stores? Besides price, discount retailers seek a differentiation through special products, esp. within fresh/chilled products Aldi and Lidl – try to distinguish themselves through private label Private label products in discounters are no longer only me-too, but besides the basic assortment (still me-too) there are additional assortments to deliver profit and competence. Typically, there is no distribution of new product launches ofbrands (fmcg) in discount stores. Therefore discounters have to launch new concepts/products via private label. In some areas, discounters like Aldi & Lidl made markets resp. create new categories. 34
  35. 35. Aldi & Lidl create categories! Fast adoption of trends: smoothies 35
  36. 36. Aldi: keeping up with trends wellness & organic 36
  37. 37. Aldi Süd: Co-Branding with Brand! co-branding. Co- Brand manufacturers can avoid confrontation by co-branding. Co-branding as a result from co- groups. co-operation with manufacturer brands to tailor their offers to their target groups. Aldi PL-brand PL- French brand + = 37
  38. 38. Products you wouldn´t expect in Hard Discounters 38
  39. 39. Hard Discount: new Luxury Private Label „Luxury for everyone“ 39
  40. 40. Aldi: strict quality standards 40
  41. 41. Country-Promotions at Aldi, Lidl, Penny What about an Irish Week?! 41
  42. 42. Many ways to do business with Aldi (Nord + Süd) National Listing = become part of the normal assortment; one- year contract Local Listing = become part of the normal assortment of one or more warehouses (>local products and for testing) Promotional Listing: Listing for one – usually weekly - promotion incl. national advertising in the particular week Seasonal Listing: Listing for a special period, f.e. a barbeque- product will be listed from April – September Thematical Promotion: become part of a special advertising („America“, „Italian Week“, „Wellness“, etc) Usually, you don´t need a contract Centralized distribution Net/net-prices (incl. your delivery cost to depot/warehouse) Promotional listings could lead to normal national ones! But it is always a matter of low price and high quality! 42
  43. 43. Aldi´s internal listing process: Trial & error example cheese Best customer is the one who shops regularly and buys much Which varieties of cheese are really needed? Strong demanded, easy to handle-products for every day Best quality Internal consideration, talks with some potential suppliers* Check the suppliers offer Test in some outlets or one region for some months Analysis of test results, perhaps check another variety Decision, to introduce into all stores or refrain from it *suppliers too can suggest a new product If necessary (big category/avoid risk), Aldi takes more than one supplier per product 43
  44. 44. The other ones (Lidl, Netto, Penny, Norma) act similar to Aldi National Listing = become part of the normal assortment; one- year contract or no time limit Promotional Listing: Listing for one – usually weekly - promotion incl. national advertising in the particular week Seasonal Listing: Listing for a special period, e.g. a barbeque- product will be listed from April – September Themed Promotion becomes part of a special advertising („America“, „Italian Week“, „Wellness“, etc) At Lidl, you have to sign a PL-contract. In general, not much paperwork with discount headquarter Centralised distribution Promotional listings could lead to a standard national listing! But it is always a matter of low price and high quality! 44
  45. 45. Private Label Suppliers have to be innovative As neither German discount retailers nor full assortment retailers have NPD-departments at their disposal, they need innovative and creative suppliers who deliver more than just me-too. In most cases, responsible person is the buyer/ category manager = decision maker. There is no Marketing/Product Management at Aldi, Lidl etc! Retailers expect ideas and suggestions for category development by private label suppliers UK PL food retail is still seen as leading in Europe. Therefore suppliers with experience to UK Private Label have an asset against competition from continental Europe. (compared to the U.K. and Ireland, German food retail is not so sophisticated. Price is still the key means to do the business) Don´t consider commodities, think of innovations! 45
  46. 46. Whom to start with? (Details depend on particular retailer) Discount: high turnover/sku, good structure and organization of decision & supply chain, fast, only centralized distribution+assured distribution into each outlet, not much paperwork, quickly follow and sometimes (Aldi) create trends, introduction of „luxury“- brands, no Marketing, spectrum from single local promotion to long lasting national listing, sometimes individual packaging/content/size required (mixed tray etc.) Supermarkets: low turnover/sku, complicated structure (strategic, national, local buying), slow decision, mostly centralised distribution but no assurance for distribution in each outlet, expect innovations from brands+ but also open for PL-innovations, listing at Aldi is advantage (positive argument!), much paperwork In „discount country“ Germany try Discount Retailers first! 46
  47. 47. Thank you very much! Hermann Sievers, smk consulting, D-Hamburg info@smk-beratung.de www.smk-beratung.de 47
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