Fifth P Industry Viewpoint on Discounter Strategy

1. FIFTH P Strategy
Winning with Discounters
1

2. 1 The rise of discounters
2 The long-term impact for the industry
3 An effective way to leadership in price positioning
4 How to find out more

3. As the retail price wars evolve, suppliers will come under continuing
pressure to grow value simultaneously across all channels
What are the challenges?
 Long term price deflation
erodes profit margins
 Short term reactionary tactics
have a knock on effect in the
market, eroding further value
 Price match guarantee &
promo promiscuity
intensifying trade spend
pressure
 Evolving price war further
diluting brand loyalty and
reducing ability to charge a
brand premium
GROCERY
Profit
erosion
CONVENIENCE DISCOUNTERS
- Price deflation as other channels
expand their convenience offering
+ Price consortiums benefitting
from scale to rebalance supplier
negotiations
+ Rapid share gains
+ High shopper value
perception
- Mounting profit concerns
- Hypermarkets losing traction in
favour of smaller formats
- Shrinking ability to command a
premium for branded products
Channel leakage

4. 1 The rise of discounters
2 The long-term impact for the industry
3 An effective way to leadership in price positioning
4 How to find out more

5. Amid the rise of discounters value growth will remain tied to
pricing
DISCOUNTERS ARE THE NEW
PRICE BAROMETER
Morrisons will be joined by their competitors in
price matching against the discounters, as a new
price floor is established
PRICE DEFLATION
IS HERE TO STAY
Consistent competitive pressures, wage
deflation and shopper value perception will
further erode prices
TRADING WILL ONLY
GET TOUGHER
Retailers will expect suppliers to fuel the
price war through increasing trade
investment
2006
Introduction of loyalty schemes
and targeted consumer
promotions led to rapid value
growth in the top 4
2008
Recession severely affects
average basket spend and
promo promiscuity,
eroding value in branded
products
2009
Creation of revenue growth
functions allowed companies to
improve net price realisation
through quick wins
TODAY
Big four invest over £1bn in price war
Discounters gain significant traction
across the consumer landscape

6. 1 The rise of discounters
2 The long-term impact for the industry
3 An effective way to leadership in price positioning
4 How to find out more

7. Leading in pricing & winning in the discounters era:
What you can do to retain value?
Sales director need to lead the way in changing the mind-set
of the business towards channel pricing leadership
Achieve a well considered and rational consumer price
positioning and corridors; groceries VS discounters first and
foremost
Establish the right enablers to implement a defensible pricing
structure
1
3
4
Ascertain your future role as a category and as a business
within the discounters’ overall strategy
2

8. Sales director need to lead the way in changing the mind-set
of the business towards channel pricing leadership
1
TODAY TOMORROW
Adaptive approach
Less reactive
approach than in
the past but pricing
and promotion
decisions still
heavily adapting to
customer landscape
Pre-emptive
approach
New mind-set
across the business
in setting price
positioning and
clear level of
accountability in
the team as to who
manages it
Cultural Shift to
empower NAMs to
make effective and
considered channel-wide
decisions
A
Having the right
tracking and measuring
mechanism to provide
relevant insights
B
Embedding price
positioning as a critical
step in the sales
planning cycle
C
YESTERDAY
Reactive approach
Pricing and
promotion
decisions taken in
response to
external events
RESPONSIVE TO CUSTOMER CHANGES
IN PRICING STRATEGIES
PROACTIVE
STRATEGY
MANAGEMENT

9. Ascertain your future role as a category and as a business
within the discounters’ overall strategy
2
Apply analytical rigour to fully understand and monitor the discounter’s point of view
of the FMCG world via a mix of primary research and secondary data analysis. Clarity
on their priorities will better inform your price positioning decisions.
How do they identify
their main
competitors?
What are their national
plans in terms of
geographical expansion?
How do they want to price
position themselves in the
market and how can we
support the execution of
their pricing strategy?
What shopper
segments are they
after? How are they
changing their in-store
customer experience?
What role does the UK
market play in the group
global growth strategy?
What level of margins are
they prepared to operate
within?
What’s the role of
premium brands VS
private labels in
their overall brand
strategy?
To what extend are the
willing to dilute their
model by trading up their
merchandise assortment
to higher quality
products?
What are their overall
assortment priorities for
the future (breadth and
depth), outside the
beverage category?
What are their shopper
engagement programs
and how can we support
them via pricing and
pack decisions?

10. Achieve a well considered and rational consumer price positioning
and corridors; groceries VS discounters first and foremost
3
 Ensure consistent Target Price
positioning across channels and
against competitors in order to
achieve financial ambitions
 Clear channel and customer roles in
the current landscape and within
future trends
 Determine pricing relationships in
the market and identify key product
battlefields for customers
 Assess the impact of channel
leakages and identify the most
material products
DICOUNTERS VS GROCERY STORES PRICE POSITIONING
Do Grocery and Discounters need to be in the
same corridor?
Do we need to differentiate the packs so that
they don’t conflict?

11. Establish the right enablers to implement a defensible
pricing structure
4
 Define the right structural pricing to
help achieve and manage the
consumer price corridors in the
market
 Structure the pricing to your customer
in line with how you want them to
behave in the market.
 The key is to contrast customers’
strategy :
– Whom they are trying to compete
with?
– What do they want to price position
themselves in the market?
– What level of margins are they
prepared to operate within?
Lidl Asda
List
Price
Net
Invoice
Price
Triple
Net
Price
On-Invoice
Discount
Promo
Investment
Terms
Use Rate Card Pricing, promo and trade
investment by customer to support price
positioning

12. 1 The rise of discounters
2 The long-term impact for the industry
3 An effective way to leadership in price positioning
4 How to find out more

13. Interested? How to find out more…
+44 7521 012 923
info@fifth-p.com
We are Fifth P. Since 2011, we’ve worked with our clients in the FMCG & consumer product industries across
Europe to create growth strategies that sustain long-term growth & leave lasting legacies

14. STRATEGY CONSULTING
LEGACY • EXPERTISE • AGILITY • PASSION
www.fifth-p.com