POINT OF VIEW

Perfect In-Store Execution

Unlocking the Value for Retailers and Manufacturers

Rod Street Strategic Consultant, IRI

October 2013

POINT OF VIEW

Perfect In-Store Execution

Unlocking the Value for Retailers and Manufacturers

The In-Store Challenge What is it worth to your business to deliver a perfect in-store shopping experience every time? The answer will vary, but it is bound to be a big number. Poor execution reduces the market share of retailers and brands every time the shopper arrives at the shelf and their experience is not perfect. How would you define perfect in-store execution? We believe it is where: The right stores are holding the product the shopper wants The product is merchandised in the right place in-store (on shelf, bin or end) The brand is in stock, in the right pack size, at the time the shopper arrives The right price and promotional offer is made to the shopper Enough, but no more, inventory is available

shoppers, it also raises operational costs, making it doubly damaging! The increasing use of retailer point-of-sale (POS) data provides the fuel to get closer to perfection. Embedded in processes and used across categories and partners, retailer POS data enables maximum value to be extracted for all players and shoppers. Leading companies are now starting to target this pot of value aggressively. Since the 1990s, retailersupplier partnerships to exploit retailer POS data have generated acronyms like VMI, CRP and CPFR, all designed to move closer to a demand driven supply chain. Initially, most use of this data focused on simply improving onshelf availability and inventory management. But since the millennium, it has been used in a much wider variety of ways to improve both supply and sales operations, including promotional optimisation, product lifecycle management, and merchandising deployment. Case studies, company experiences and published analysis all attest to the significant joint value that can be created by initiatives in this space.

Despite the evidence of the power of POS data, it remains a bolt-on for most companies, used for a few categories or in specific projects, but not deployed rigorously as the foundation for day-to-day ways of working. Given the size of opportunity, the paucity of grocery growth in Europe and the maturity of the experience and supporting platforms, this is a major opportunity missed. Furthermore, as leading players begin to adopt and leverage POS data more broadly, there will be much greater pressure on all suppliers to deliver to new higher operational standards in these areas, if they are to compete successfully.

Sadly, despite nearly a hundred years of self-service grocery, creating this experience consistently remains an industry wide challenge. It is estimated that as few as one in 25just 4%of shopping trips end in complete success1. Ironically, failure not only disappoints

POINT OF VIEW

Perfect In-Store Execution

Unlocking the Value for Retailers and Manufacturers

The Nature and Size of the Prize The value to be unlocked is both broad and deep. It is not just about market share. It is also found in most of the key operational metrics for sales and supply chain: availability, inventory, voids, lead time, compliance, store performance tracking, forecast accuracy, promotional returns and waste. Retailer POS data sits at the heart of enhancing the performance of these processes in both retailers and suppliers. How does it do this? It achieves this by enabling the closer management of each of the shopping moments-of-truth in stores. POS data changes the basis for decisions being made, to be: More granular in geography, timeframe and point in the value chain; Demand driven, based on actual sales versus estimates; Integrated, to expose gaps between actual and plans or benchmarks.

Lost attention from promotions that did not appear in store on the right day or with the right inventory support; Replenishment that did not happen because the stock on the system did not really exist or was stuck in the back room and not on the shelf; Products that were not merchandised well because suppliers field staff were not calling on the right outlets; Store replenishment that is not tailored to meet the daily sales demands of individual stores.

All along the value chain, there are benefits that companies enjoy when they move to retailer POS data-fueled processes. These often include inventory savings of 10-15%, improved planogram compliance (where a 10% improvement reduces outof-stocks by 1%) or improved forecast accuracy and reduced operating costs as expensive and limited manual checks and gap scans are substituted. This scale of prizes cannot be ignored in a European grocery market that is stagnating and where value is being driven by price increases alone. Indeed, the scale and breadth of benefits (see inset table) is what is driving the increasing energy of leading retailers and suppliers in this area.

In short, POS data addresses all of the factors that undermine perfect in-store execution! Processes that use daily and intra-day retailer POS data as their fuel are a powerful enabler for improvements in retail execution and this is worth a lot of money to businesses. Grocery out-of-stocks run at about 8%2. Nearly one-third of these missed sales will be lost and the loss can be even higher to the store or brand that lets the shopper down in this way, especially on a repeated basis. Furthermore, with the growth of promotions and a continued value mentality in shoppers, the danger and impact of out-ofstocks is only increasing as competing promotions drive widening variability in daily demand.

POS data exposes the normally invisible lost opportunities of operational weaknesses, such as: Unfulfilled shopper demand from sales that did not happen because of stock-outs, voids or poorly ranged stores;

POINT OF VIEW

Perfect In-Store Execution

Unlocking the Value for Retailers and Manufacturers
Benefits Realised by Area AREA OF DATA USE Improved on-shelf availability (OSA) and void monitoring Better field team targeting and call objective setting BENEFIT RANGE ADDITIONAL FACTORS

2-10% of revenue. This is mostly Scale depends on the data from OSA. Void monitoring typically used and level of adds 1-3%. cooperation. Typical revenue increase included in higher-end estimates above. Field team can be critical to realise benefits, especially where certain stores are persistently out-of-stock in a category and local store managers carry more responsibilities. There is an additional 15-35% increase in field team productivity (cost per account covered) based on adjusting call patterns, more focused in-call activity and less time in compiling multiple data sources. The cost/productivity benefit varies across categories but is readily captured and typically used to widen the coverage of the team.

Revised promotional availability and planning

Increase on promotional uplifts of up to 30-50%.

Wide variations across category/channel/country. Depends on priority given in sales team to securing distribution, timing and channel.

Improved new product 5-15% of year-one sales for a sales (speed and successful new product solidity of distribution development (NPD) item. on shelf) Also provides significant lift in distribution up to 20% points higher in some channels/geographies. Improved inventory management (within retailer) from use of availability data in supply chain and better forecasting Promotional optimisation from analytics applied to category-wide retailer sales data 5-15% inventory reduction through store and distribution centre.

Value depends on scope.

3-6% revenue gain and much higher margin gains, plus higher return on investment (ROI) against promotional discounts and gate fees.

POINT OF VIEW

Perfect In-Store Execution

Unlocking the Value for Retailers and Manufacturers
Product is OOS in 100 stores Stores with stock 80 stores Stores with no stock 20 stores

In store visit required

No order placed 5 stores

Orders placed 15 stores

Phantom stock 35 stores

In-stock not on-shelf 35 stores

Other e.g. in wrong place or delisted 15 stores

Distribution centre check

Distribution centre has stock Why was stock not shipped?

Distribution centre OOS SS system check

Shipments issue?

Orders issue?

Stock issue?

A POS data driven loss tree pinpoints causes of execution issues.

Leveraging POS Data for Execution Excellence Applicability varies across departments and store types, with a bias to larger stores and faster moving lines where POS data is most powerful. But, leading players are already moving to use retailer POS data as a core part of key sales, category management and supply chain processes, bringing this data into the heart of the business. Those processes that have benefited most are: Promotional management Replenishment Field team call prioritisation New product introduction Store execution

Embedded effectively, the use of retailer POS data enables these to become truly demand signal driven, with a level of timeliness and granularity that enables a step change in performance of critical value. Executional excellence that enables the value chain to efficiently meet shopper needs on a day-by-day basis is a powerful advantage for both retailers and retailer-supplier partnerships in boosting earnings and securing shopper loyalty and trust.

The Current State of Play However, these benefits are still very narrowly enjoyed. Even on-shelf availability remains a significant opportunity area, despite extensive industry initiatives over the last twenty years (e.g. ECR Europe OSA, which was launched in 2001 and is still running). As recently as 2009, only two of the six leading grocery chains in the UK had store based on-shelf availability tracking3, and although this has progressed in the last few years, many European retailers still have no shopper-facing measures in place. However, it is gathering pace and as with all innovations, there are leaders and laggards across retailers, suppliers and categories.

POINT OF VIEW

Perfect In-Store Execution

Unlocking the Value for Retailers and Manufacturers
PRINCIPAL RETAIL DATA ITEM STORE SALES OUT Improve op OSA Optimise event ROI ID op problem stores/cats Price compliance Improve macro forecast STORE STOCK ON HAND RANGE PLAN RETAIL DC STOCK CATEGORY SALES STORE ORDERS SHELF CAPACITY/ FACINGS Optimise assortment/ space Improve op OSA ID case size needs STORE FORECASTS LOYALTY, TRANSACTION DATA Optimise assortment Improve OSA (manage parameters) Target trips Improve OSA

WASTAGE

OTHER

Mgnt over/ undertrade Improve OOSS Reduce voids Improve OOSD

Merchandising / Sales

Optimise price response Optimise media response

Retail store ops advice (OSA, price etc.)

Reduce VC inventory Manage days cover

Planning (D&S)

Improve store forecast Improve CPFR

Improve order fcst visibility Assist CPFR Reduce VC inventory Manage days cover Reccd stock allocation ID problem stores Reduce total VC inventory ID DC shrinkage Reduce phantom

Improve macro fcst Enhanced CPFR advice Reduce SC inventory Improve execution (DC-store) Improve OSA Improve DC stock mgmt

Improve OOS (fcst) Enhance CPFR

Improve macro fcst Improve store fcst Reduce VC inventory

Improve OSA (time of day) KVI ID & planning

Order to cash (from store to supplier)

Improve time to fix OSA

Reduce inventory Reduce waste Reduce phantom Reduce overstock ID store shrinkage

Enhance store delivery schedule

ID problem stores

Reduce waste

Inventory & shrinkage

Reduce total VC inventory

Reduce store inventory

Reduce total VC inventory

Matrix Examples of retail POS data that can be used to address a wide variety of sales and supply chain issues.

At least one-third of suppliers in Europe are already working with retail partners using retailer POS data4 and the widening field of data and uses leaves a lot of opportunities. In some respects, the state of play is perhaps more advanced in the U.S., where only 6% of retailers do not share data with partners and well over half have established programs with their core suppliers5 on at least the most basic items of data (POS and inventory). However, even here the picture is little different on the more extended range of data items and in the breadth of use beyond leading retailers and suppliers. Too often, retailer POS data remains siloed even inside companies. It is not widely viewed as a shared enterprise

resources and functional silos exist in both suppliers and retailers, partly related to infrastructure and partly due to the narrow day-to-day focus of managers. A 2011 U.S. survey by Consumer Goods Technology magazine on downstream data usage found that 50% more sales functions used this data than supply chain functions, and only 28% of trade marketing teams use it. Only in the most advanced players is this data now being used in operational systems embedded in the day-to-day processes that drive sales, category management and the supply chain. Most still treat it as one-off projects or bolt-ons, limited in scope, and are not progressing to integrate it better into day-to-day working.

The Challenges that Inhibit Progress There are many reasons for this. Genuine challenges have existed to embedding this data in businesses and these challenges present obstacles to those wanting to move forward. Many of these challenges concern the intrinsic nature of the data that are very granular, large and varied in format, generating difficult execution challenges in their complexity and integration. In one GMA forum, suppliers highlighted their three top challenges as the integration of data across organisations, the synchronisation of data and the variety of sources6. Specifically, the main challenges centre on four interlocking issues that serve to slow progress and inhibit the

POINT OF VIEW

Perfect In-Store Execution

Unlocking the Value for Retailers and Manufacturers

development of smooth operations: Data quality and availability: There is a patchwork to be managed with retailer POS data. Core POS data is robust and increasingly accessible. However, there are challenges in using it: Sheer volume; The attribution of meaning to this data; Alignment between supplier and retailer; The integration of additional data (e.g. promotional flags, store profiles, planograms). These issues make it difficult to handle as a programme across categories, partners and geographies. The challenge exists within retailers themselves and even more so across partnerships. This is compounded by data quality issues. The apparent uniqueness of the barcode is undermined by the fact that over 60% of codes can be duplicated within a typical retailers product file and over 80% are mismatched with suppliers files7. Data timeliness and frequency: The practical experience of those working with this data operationally shows that large volumes of data also present

challenges. For the value of daily or intra-day data to be unlocked, it must be accessed in a very timely way and processed quickly. This needs processes and capabilities that can handle large data files at speed. This presents problems even to those organisations that have invested in web portals and other sharing mechanisms, unless there is sufficient corporate support. Converting analysis to action: The presence of massive amounts of detailed data, especially when integrated from different sources, presents problems. Managers running an operational function (retail, sales or supply) must maintain stringent daily performance standards. They have little time to wade through masses of information or interpret a sea of metrics. It can be the equivalent of trying to find a valuable insight from the hundreds of pages received in response to a Google search. Addressing this requires good tools and integrated information for the right people. It demands clarity around what is needed. The increasing capacity and sophistication of systems like Tesco Connect or CarrefourNet must be matched by suppliers use of proper platforms for processing the large volume of data and retailers platforms

A prize worth having The challenge A leading manufacturer was already receiving daily POS and supply chain data from many retailers throughout Europe and Asia. The client wanted a consistent approach to leverage this assets to drive business improvements in key sales and supply chain business processes. The solution Using a consistent approach across retailers and countries it implemented IRIs in-store execution solution with the aim of improving availability. Using automated root cause algorithms and IRIs exception reporting has enabled the organisation to identify and focus on the highest value opportunities. The outcome The incremental benefit of the IRI solution has been calculated at over 1% in incremental sales, worth over 18m per annum. As the European Sales Director says, we can react more quickly to market conditions and are more proactive.

POINT OF VIEW

Perfect In-Store Execution

Unlocking the Value for Retailers and Manufacturers

that offer ease of use and a single version of the truth to multiple functions. A clear structure to reports, sorted into critical results areas and supported by automated algorithms that generate alerts and easy to assimilate redamber-green tables are some of the vital component that users need. Yet, this requires greater processing support than even the latest version of Microsoft Excel can offer. Partnering along the supply chain: The final area of challenge is simply that the benefits of these data sources can only be unlocked with co-operation across functions and partners. This demands trust and incentives for all sides on topics of commercial sensitivity. In the U.S., 2012 results from an annual data sharing study seem to indicate that retailers desire to charge for this sort of data has led to its more selective use by suppliers5. The sharing and use of this data is often pictured as an issue of trust between trading partners. Although this is undoubtedly the case, it is by no means the complete picture. The challenge is about clarity over the business case and a rationale for sharing and being able to specify how sharing will benefit the trading relationship and provide returns for the resource and effort

needed. Often, this argument is poorly made or the focus is not on the real pain points in the category that all parties can agree are a priority. The effort needed to orchestrate progress on top of day-to-day customer-supplier interactions is also a brake on progress for many. There needs to be continual support and a strong business focus to fuel the development.

Embedding Excellence As the use of retailer POS data grows, especially in leading suppliers and retailers, the competitive pressure to make effective and broad-scale usage a core capability becomes irresistible. So how do you start to progress this exciting agenda and embed this powerful data source into ways of working in the business and between partners? The process must move through several stages. These continually focus on incremental value targeting and capturing benefits in a recognised format for the organization. IRIs partnerships with organisations on this journey to unlock value has enabled it to observe a three step pattern that businesses typically move through as they progress. These stages of development, retain a constant eye on value with a focus that gradually shifts to incorporating these new measures into business-as-usual, once the best way to achieve the value in the specific situation is understood and proven. Whats the best starting point? We have found that success always begins with a competitive priority for your business; with a compelling near-term business benefitsomething that can be captured within a matter of

POINT OF VIEW

Perfect In-Store Execution

Unlocking the Value for Retailers and Manufacturers

PROVE THE VALUE

Identify business priority Establish team and scope Baseline benefit metrics Pilot new ways of working Capture the business case Make the case for change

EXPAND THE VALUE

Establish steering group Broaden pilot focus Expand portfolio of projects Standardise project approaches Capture and share business results Identify broader initiative focus/goal

EMBED THE VALUE

Establish hand-off criteria Standardise approach, reports and measures Capture and share learnings Build into processes Track benefits

Business go through three stages of development to reach embedding excellence.

component that users need. Yet, months. This benefit fuels success in and across organisations. There is no universal answer, but common early priorities are often: For retailers: optimise on-shelf availability for fast-moving lines or, once this is in place, increase effectiveness of key promotional events. These are the low hanging fruit for an initiative beginning in the right departments. For suppliers: on-shelf availability is a similarly powerful starting point, as can be driving inventory efficiencies through the supply chain. However, for those with some experience already, it is more likely to be the need to improve key

processes, such as new line introduction or promotional management, that provide a compelling opportunity. Regardless of the starting point, the first step is always to identify a clearly bounded opportunity and begin to assemble a coalition of all the necessary stakeholders (who are normally spread across functions). A tighter focus (as expressed by the product line, category and retailer/supplier) is important to help ensure a good return and minimise the inevitable additional cost and effort required to progress. It also aids pace which is important for momentum. This is where working with an experienced partner pays dividends both in terms of maintaining speed and in easing

the path with enabling solutions and insights. Our experience suggests that whatever the general case for progressing, the pressure on businesses today makes a strong specific business rationale vital. Nonetheless for success along the journey this step must also start to deliver the processes that can be developed beyond the initial phases. Once successfully begun businesses typically build out, developing the benefits and the supporting structure to ensure that value is developed and maintained. Efforts often remain as pilots or add-on structures whilst new or additional areas are addressed. This builds the investment case for broader changes and the essential solutions and support

POINT OF VIEW

Perfect In-Store Execution

Unlocking the Value for Retailers and Manufacturers

A single trusted source of information meets stakeholder needs and delivers reports to enable evidence-based collaboration across the supply chain.

for embedding new ways of working. If initiatives stall, it is often at this point, as the focus on value is lost, the diversity of initiatives grows and the difficulty of maintaining sponsorship increases. Only careful benefits measurement maintains momentum and carries organisations through to the third stage. At this point, organisations look at how best to serve up POS data as an enterprise-wide enabler and, whilst value is still at the heart of progress, the challenge is to create new processes, systems and standards. Only a few industry leaders are at this stage at any scale.

Conclusion and the Way Forward Over the next few years, there will be few initiatives in the European grocery industry that unlock significant additional value. The productivity of retail space is going to reduce, many categories will be in decline in volume terms or suffer under the continued economic pressure that households face both in and outside the Eurozone. However, better in-store execution is one such opportunity. Already being pursued by industry leaders, the challenge is for a broader range of businesses to capture the opportunities and start to transform the way that many category and supply processes work with a clear target of perfect in-store execution.

At IRI we have been working with retailers and suppliers for over a decade providing both expertise and flexible solutions to realise value quickly and scale up successfully. IRIs in-store execution solution enables retailers and manufacturers to work together to maximise sales and revenue growth by illuminating problem areas so that root causes can be identified and eliminated and shoppers needs better fulfilled. This solution provides a collaboration platform that addresses on-shelf availability, promotional efficiency, innovation and along the supply chain reporting in a suite of flexible modules with easy to tailor reports and workflow delivered through the IRI AdvantageTM platform.

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POINT OF VIEW

Perfect In-Store Execution

Unlocking the Value for Retailers and Manufacturers

Our data agnostic platform creates a shared single view of the truth that unlocks new insights from POS data and crosses the siloes within and between businesses.

If you would like to discuss any of the subjects raised in this paper or for more information about how IRI can work with you to deliver perfect in-store execution, please contact your IRI Consultant or send us an email at: EU.Marketing@IRIworldwide. com. We will be pleased to meet and demonstrate how our solutions are being used by market leaders today and how they could be used to drive growth and efficiency in your organisation.

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POINT OF VIEW

Perfect In-Store Execution

Unlocking the Value for Retailers and Manufacturers

Sources and references A CG Manufacturers guide to Retail Data Goldmines, VMT (2012) Retailer Direct Data Report, GMA (2009) Crystal ball 2.0, the state of retail demand forecasting, RSR (2011) ECR Europe/GS1 Forum Budapest (2011) ECR Europe POS data sharing presentation (2012) Demand Signal Repository - survey, CGT (2011)

1. 2. 3. 4. 5. 6. 7.

ECR Europe GMA (2007) and ECR Europe Cranfield Centre for Logistics & Supply Chain Management ECR Europe (2012) Shared Data Study CGT/RIS (2013) Capitalising on Retailer Data within the CPG organisation, GMA (2011) Data Crunch Report, GS1 (2009)

About IRI. IRI is a leader in delivering powerful market and shopper information, predictive analysis and the foresight that leads to action. We go beyond the data to ignite extraordinary growth for our clients in the CPG, retail and overthe-counter healthcare industries by pinpointing what matters and illuminating how it can impact their businesses across sales and marketing. Move your business forward at IRIworldwide.eu International Headquarters: 1 Arlington Square, Bracknell, Berkshire RG12 1WA, U.K., +44 1344 746 000
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