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How to sustain and benefit from the crisis –
Strategies for retail chains
Moscow, March 2009
Retail_Anti_Crisis_Strategies_Mar2008_ENG_final.pptx
Contents
Page
A.
Economic crisis in retail sector:
Who will win, who will lose?
B
B.
Anti-crisis
Anti
crisis actions in retail sector:
How effective and sufficient are they?
13
C.
Individual approach to each company:
How can Roland Berger Strategy Consultants help?
21
D.
Roland Berger Strategy Consultants:
What are our advantages?
53
© 2009 Roland Berger Strategy Consultants GmbH
3
Retail_Anti_Crisis_Strategies_Mar2008_ENG_final.pptx
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A.
The economic crisis in retail:
Who will win, who will lose?
Retail_Anti_Crisis_Strategies_Mar2008_ENG_final.pptx
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The current economic crisis is much more severe in its scope and
duration than previous crises that occurred over the past 20 years
Overview of the global crises and forecasts
GDP GROWTH FORECASTS FOR 2009 [%]
CRISIS DURATION AND SCOPE OF LOSSES
?
14
12
10
8
> Nobody is able to forecast the duration and
depth of the crisis in Russia
> However, experts do agree that the bottom
hhas nott been
b
h d
yett reached
> GDP growth forecasts for 2009 are regularly
adjusted towards decreased growth
6
4
2
0
Black Monday Junk bonds
(1987)
(1989-90)
Mexico
(1994-95)
Asia, LTCM, Dotcom, Enron
Russia
(2000-01)
(1997-99)
Subprime,
liquidity
(2007-?)
Q2/08
Q3/08
Q4/08 Q1/09
USA
0.6
0.1
-0.9
-1.6
Eurozone
1.2
0.2
-0.5
-2.0
Russia
6.6
6.7
2.4
-2.2
Duration – Number of quarters until profitability reached pre-crisis levels again
Depth – Number of quarters with losses
Source: The Economist (17.05.2008), Standard&Poor's, MER, IMF, EIU, Roland Berger Strategy Consultants
Retail_Anti_Crisis_Strategies_Mar2008_ENG_final.pptx
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The crisis has significantly affected the financial markets – capitalization of the consumer sector in Russia has declined by 80%
Capitalization of the consumer sector
DEVELOPMENT OF RTS INDEX AND "CONSUMER GOODS/ RETAIL" INDEX
> Capitalization of the consumer sector
declined almost two times
– Volumes of investment programs
decreased due to lack of credit
resources
– Problems with debt refinancing
emerged (especially, for companies
with high debt levels)
– Quantity of traders increased at
exchanges with critical indicators
(share of short-term debt >50%, net
debt/EBITDA >3)
+5
0
-10
-20
-30
Change [%]
COMMENTS
-40
-50
> In spite of the fact that circulated
shares in Russia amount to only 27%
of total capitalization (as compared
with 55% in Germany and 90% in the
UK), the financial crisis quickly hit the
real sector in Russia
-60
-70
-80
-85
01/08 02/08 03/08 04/08 05/08 06/08 07/08 08/08 09/08 10/08 11/08 12/08 01/09 02/09
RTS11)
RTScr2)
1) RTS 1- RTS Index 1
2) RTSCR- "Consumer Goods/ Retail" Index
Source: MER, RTS, Roland Berger Strategy Consultants
Retail_Anti_Crisis_Strategies_Mar2008_ENG_final.pptx
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As a result of decline in overall household income, the overall
growth rates are decreasing and consumption patterns are changing
Household income levels and retail turnover
DEVELOPMENT OF RETAIL AND PRIVATE REVENUES IN RUSSIA, 2002-2010
COMMENTS
Annual growth in RUB [in % to the previous year]
> Due to growing unemployment and personnel cost
cutting measures (unpaid vacations, salary freeze)
as well as due the ruble devaluing, real population
income levels and purchasing
p
g ppower substantiallyy
decreased
30
25
> Analysis of the historical development and
behavior models indicates that consumers first
eliminate purchases of premium products and
durable products – fast-moving goods are less
affected
20
15
10
6.0
6.1
5.5
4,6
4.8
2004
2005
2006
2007
2008
5
6.1
6.3
20091)
20101)
> Share of food retail in total retail turnover is higher
in Russia than in developed countries (45% in
2008) – after the crisis, the non-food sector will
quickly start to "make up for lost time"
0
1) Forecast
Unemployment [m]
Private revenues
Source: Rosstat, JPM, Renaissance capital, Roland Berger Strategy Consultants
Non-food retail
Food retail
Retail_Anti_Crisis_Strategies_Mar2008_ENG_final.pptx
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Food retail and essential goods suffered from the crisis the least
Impact of the crisis on various consumption segments in Q4 2008
Commodity
groups
Growth rates of retail
turnover
Sensitivity
to the crisis
27%
Foods
27%
Pharmacy
29%
30%
Household
chemicals /
cosmetics
Commodity
groups
Household
appliances
pp
/
electronics
25%
7%
49%
39%
Furniture
19%
Construction
materials
18%
17%
Printed products
32%
27%
17%
Cloths and
footwear
17%
Jewellery
24%
31%
ALL SEGMENTS
18%
45%
30%
26%
21%
Average inflation level in Q4 of 2008/Q4 of 2007 = 18%
Growth rate:
Growth by period, RUB
Q4 2007 / Q4 2006
Q4 2008 / Q4 2007
Sensitivity
to the crisis
Comments
> Q4 of 2008 indicated that all
segments actually suffered due to the
crisis – Considering inflation, growth
rates declined in all sectors
16%
Textile
24%
Tobacco
Growth rates of retail
turnover
Sensitivity to the crisis:
Change of growth dynamics in Q4 of 2008 compared to Q4 of 2007 caused by the crisis
> The crisis influences the demand
structure: expenditures on food,
pharmaceuticals and essential goods
will be the last to decrease
> Expenditures on electronics and
domestic appliances abruptly
declined after a boom in December
2008; a further drop in consumption is
expected due to a rise in import prices
and a lack of available consumer
credit
> The segment that has been hit the
hardest by the crisis is that of durable
products and luxury goods
> In general, consumption of premium
products decreased inside of each
segment
Low sensitivity – preservation of growth rates (change › 0%)
Medium sensitivity – decrease in growth rates (change <-15%)
High sensitivity – substantial decrease in growth rates (change > - 15%)
Source: Rosstat, Roland Berger Strategy Consultants
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The most severe consequences are expected for companies selling
imported durable goods
Impact of the crisis on various retail chain formats
DEPENDENCY
CONSUMPTION PROFITABILITY ON RUB
DEVALUATION
LEVEL
RETAIL FORMAT TREND
STATE
INVOLVEMENT
> Outflow of buyers to more low-cost formats of the retail
chain
> Consumer preferences shift towards cheaper products
> Profitability decrease in formats with a high share of import
and non-food segments
> Expected counteractions on the part of retailers:
substitution of imported goods with domestic products,
development of own brands, reduction of non-food
assortment
FOOD
Hypermarkets
Supermarkets
NON-FOOD
Discounters
Household
Appliances /
Electronics
Clothes/footwear
> Further decline in revenues due to decreasing purchasing
power and lack of consumer credits
> Premium segments shift towards cheap brands
> Relative stability in the super luxury segment
> Sustainable consumer demand
> Partial substitution of expensive imported products with
generics and domestic products
Pharmacies
Falling
TRENDS
Stable
Source: Roland Berger Strategy Consultants
Growing
High
Medium
Low
Retail_Anti_Crisis_Strategies_Mar2008_ENG_final.pptx
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The crisis has substantially changed the "rules of the game" in the
retail sector – consolidation is expected
Impact of the crisis on the business environment and key retail trends
THE NEW "RULES" IN RETAIL
> Increasing
interest rates by
4-8%
SUPPLIERS
> High dependency
on imports
> Complexity in
matching supply
conditions
TRENDS IN 2009
BANKS
> Change of growth
rates/consumption
structure
RETAILER
CONSUMERS
INVESTORS
> Unwillingness to
pay high prices
> Sale of shares to
banks
1
Consolidation
> Main wave of bankruptcies and M&A deals is expected in Q2 of 2009
> Business value will decrease 2-3 times, with the main reasons related to
declining EBIT and an increase debts
2
Slow down of operating indicators
> Declining demand will initiate a drop in revenue volumes
> In spite of the reduction in some kinds of expenses, profitability will
decrease even at leading companies (by a minimum of 1-2%)
3
> The crisis affected all key players in the industry – need for a
solution to a new type of day-to-day problems in all areas at once
and on a tight timetable
> Lack of internal resources and experience in implementation of long
term and effective crisis mitigation measures
Source: Roland Berger Strategy Consultants
State support
> Within the framework of state support, major food chains are credited in
order to replenish working capital and finance M&A deals
> Absence of measures to support companies that focus on non-food retail
Retail_Anti_Crisis_Strategies_Mar2008_ENG_final.pptx
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1
CONSOLIDATION
Companies interested in consolidation expect to buy "on the cheap" –
retail business values dropped by 2-3 times during the crisis
Impact of the crisis on retail consolidation
COMPANY VALUE/ REVENUE
INDEX1)
COMPANY VALUE / EBIT INDEX1)
-67%
-50%
0,72
11,60
5,41
0,24
JanuaryAugust
2008
SeptemberDecember
2008
JanuaryAugust
2008
POTENTIAL CONSOLIDATORS
POTENTIAL CONSOLIDATED
Federal retailers
> The largest companies of the
industry in winning formats
(hypermarket, discounter)
supported by the state
> Q5, Magnit
Federal retailers
> Large players in "problem" formats
(supermarket)
> Companies with liquidity problems
(share of short-term debts >50%,
net debt/ EBITDA >3)
Foreign retails
> Large players of the market
(Auchan)
> Companies looking at the situation
as a profitable one for market entry
(Walmart, Casino, Carrefour)
Regional retailers
> Companies with liquidity problems
and limited access to financial
resources
SeptemberDecember
2008
1) Average multiple for the corresponding period
Source: company data, M&A Journal, SPARK, Roland Berger Strategy Consultants
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2
OPERATING FIGURES
Profitability will decrease in spite of companies implementing costcutting measures
Impact of the crisis on operating figures in retail
KEY FIGURES
Marginal profit
EBITDA
MAIN POSITIONS AFFECTED BY
EXTERNAL DRIVERS
EXTERNAL DRIVERS
Revenue
> Drop in traffic in many formats and segments of retail
> Decline in amount of average store receipts
Commercial
Co
e c a margin
ag
> Probable regulation of prices for some goods
> Unwillingness of buyers to have prices increased
Price cost of the product
> High dependency on import (40-80% in different sectors)
> Dependency of suppliers on devaluation (imported raw materials)
Personnel costs
> Decline in salary expectations
> Increased supply in the labor market
Energy costs
Logistics costs
Rental costs
Net profit
>
>
>
>
>
>
>
REQUIRED
MEASURES
Increasing energy tariffs (+13% by 2008)
Further increase is possible in terms of general market liberalization
Decline in rental fees for warehousing premises (3-5%)
Decreasing gasoline prices (5-6% since the early 2009)
Increasing tariffs for transportation (railway tariffs)
Decrease in rental fees (20-30% since the beginning of the crisis)
Easier to locate suitable areas
CAPEX
> Increasing supply and decreasing prices for land plots
> Decreasing prices for construction materials (8-10%)
Cost of loan capital
> Increasing value of loan capital
> Rise in repayment rates of USD credits (devaluation)
Source: Roland Berger Strategy Consultants
> Programs on
assortment
management and
customer loyalty
y y
> Bundled programs
on performance
improvement –
innovative
approaches
> Professionalization
of management
and utilization of
best global and
domestic knowhow
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3
STATE SUPPORT
The government will support the food retail segment – others
segments will have to count on themselves only to survive
State anti-crisis measures
IMPLEMENTED MEASURES
EVALUATION OF IMPACT ON THE
INDUSTRY
STATE SUPPORT
> October 2008: The largest state banks (Sberbank and VTB) started to provide credits to food
retailers – in terms of the state support program during the Q4 of 2008,
2008 the loans are issued for a
total amount of RUB 26.8 bn. (9 loans)
> December 2008: The list of 295 Russian enterprises that will be supported by the federal government
is published. The list included 7 major food chains (X5 Retail, Magnit, Dixi, Lenta, 7th Continent,
Victoria, Kopeyka)1)
> The loans are issued in order to replenish working capital, as well as to finance M&A deals
> At the same time, the Government specified that the companies need to submit convincing crisis
mitigation programs to be financed in the future
> Crediting major food retailers will speed up the
consolidation process in the industry; however,
however it
might distract the attention of management from the
necessity of taking measures to improve
business performance
> The non-food sector is completely without state
support – problems will have to be solved by
attracting financial and strategic investors and/or
from business restructuring
REGULATION
> Customs and tariff support of Russian manufacturers – The Ministry of Commerce is considering
the possibility of increasing duties on imported goods, provided that this will not lead to an increase in
prices and deterioration of quality (milk, footwear, electronics)
> Currently, the government refused to regulate food prices, although it positively responded to the
possibility of introducing price celings on medicines
> Increasing customs duties could become a
damaging measure due to the low performance of
domestic manufacturers and will result in a further
decrease in consumer demand
1) The list could be reviewed In particular, credits of state banks have been issued also to Mosmart and Holiday Classic chains
Source: Roland Berger Strategy Consultants
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B. Anti-crisis measures in retail:
How effective and sufficient are they?
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The general economic crisis revealed gaps in corporate governance
and business performance of Russian retailers
Retail sector crisis matrix
CORPORATE CRISIS
Liquidity
crisis
Russian food retailers with high level of shortterm debts, aggressively growing at the expense of
loan capital nominated in foreign currency
Regional food chains without access to financial
resources
Crisis of
operational
performance
Russian food chains in
the low-cost formats
Russian non-food retailers with high
dependency on imports as a source of sales
(electronics, cloths)
Russian food
retail chains in the premium segment,
chains with unclear positioning
Strategic
crisis
Russian non-food retailers aggressively increasing qty of stores at the expense of loan capital, with high
dependency on import and low turnover
International non-food chains in the
premium segment
International food chains with high dependency
on import / high share of non-food
Not represented
GENERAL ECONOMIC CRISIS/ GENERAL LIQUIDITY CRISIS (CONSUMERS)
Source: Roland Berger Strategy Consultants
Strongly represented
Retail_Anti_Crisis_Strategies_Mar2008_ENG_final.pptx
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Module und
All retailers implement fast response measures – only a holistic
anti-crisis concept will stabilize the business
1 INITIAL SITUATION
> General economic crisis and crisis of
liquidity superimposing with a corporate crisis
revealed inefficiency and gaps in
management systems and business
organization
> Stabilityy of the system
y
is damaged
g –
chaotic flow, attempts to implement fast
response measures
2 RESPONSE OF COMPANIES:
FAST RESPONSE MEASURES
The most popular anti-crisis measures
> Closing non profitable stores
> Reducing staff (20-30%)
> Reducing assortment (till 50% SKU)
> Freezing investment plans (30-50%)
> Measures implemented
p
are focused on short-term
liquidity improvement; however, hasty decisions
without serious assessment of feasibility may lead to a
trust crisis, loosing consumers and negatively influencing
the competitive position of the company in the
medium term
3 NECESSITY:
HOLISTIC CONCEPT
> To ensure liquidity, stability and larger
resilience towards crisis situations, it is
necessary to develop and implement a
holistic anti-crisis concept including both
strategic, operational and financial aspects
> Availability of the holistic program is one of
key trust factors for creditors and potential
investors
BUT IT WILL REALIZE ONLY
A PART OF POTENTIAL!
THE SYSTEM
REMAINS UNSTABLE!
Realized
potential
Source: Roland Berger Strategy Consultants
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1
INITIAL SITUATION
A relaxed attitude towards corporate governance during times of
growth resulted in an inability to respond to the crisis efficiently
Unbalanced investment strategy
> Extensive growth financed at the expense of loan capital led the company to take on a high level of indebtness amidst the
absence of correspondingly high growth in revenues while maintaining high levels of expenditures in order to maintain the
overall retail chain due to the incomplete integration of acquired assets within a unified operational concept
Fuzzy positioning, no understanding of the target client
> Duringg the crisis,, a polarization
p
of consumers between low-cost and premium
p
niche formats arose. The largest
g problems
p
will be
faced by retailers with fuzzy positioning from the viewpoint of combination formats, assortments, price and service levels
STRUCTURAL
PROBLEMS
INLFUENCING THE
SENSITIVITY OF
RETAILERS TO THE
CRISIS
Source: Roland Berger Strategy Consultants
Unoptimized business processes and low operating performance
> During the crisis, companies need to use all cost-saving methods; process optimization may lead to significant cost savings,
whereas at the same time there are also ways to better manage/negotiate procurement prices, energy tariffs etc. The largest
potential is in improvement of supply chain management (including the procurement concept) and in-store process
optimization
Absence of effective assortment management tools
> In terms of changing consumption patterns, retailers need tools that will enable the adequate assessment
and fast response to the new needs of consumers; at the same time, no Russian retailer has yet to
completely implement the most efficient assortment management system – category management
Absence of a transparently-controlled holding structure
> Complex holding structure with several levels of management and holding companies results in fuzzy
responsibilities and often no formal control capabilities by shareholders (via Management Board etc.)
Retail_Anti_Crisis_Strategies_Mar2008_ENG_final.pptx
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2
RESPONSE OF COMPANIES
Most of retailers are already implementing a standard set of anticrisis measures focused on cost-cutting and liquidity increase
Anti-crisis measures of retailers
Revenue
>
>
>
>
>
Reducing assortment
Product range optimization (low-cost segment, STM1) )
Special offers, discounts
Performance improvement through promotion campaigns
Development of new segments (of growth)
Costs
>
>
>
>
>
Closing
Cl
i non-profitable
fit bl stores
t
Reducing personnel costs
Reducing other administrative costs
Procurement optimization, programs with suppliers
Streamlining the supply chain, logistics cost cutting
Liquidity
>
>
>
>
>
Debt restructuring
Engagement of new loan capital (for instance, on shares)
Reviewing investment programs
Programs on improvement of working capital and cash cycles
Implement a cash monitoring system, cash management
Management
> Constant anti-crisis management
- Systematic scenario planning
- Anti-crisis team to control and implement measures
> Pro-active and transparent communication policy
> Strategic review, further development of the business model
Measures are widely popular
Measures in use by individual companies
POPULARITY OF
MEASURES
COMMENTS
> Most measures implemented
are focused on cost cutting
and the enhancement of
liquidity, and are short-term
measures
> Stimulating sales supported by
marketing policy improvements
is used selectively and not by
all companies – their key focus
is on assortment reduction
> Major gaps are in
implementation of efficient anticrisis management, as well as
in planning programs that will
result in long-term effects
Measures are not applied actually
1) Own brand
Source: Roland Berger Strategy Consultants
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2
RESPONSE OF COMPANIES
While implementing quick-wins, it is important to assess their longterm implications
Transformations focused on quick wins and long term results
Assets
Quick
wins
Closing nonprofitable stores
Product range
Supply chain
Personnel
Reducing product
assortment
Negotiations with
suppliers, logistics
costt cutting
tti
Lay-offs, vacations,
freezing salaries and
variable parts of
wages
Priorities in saving and
developing competitive
advantages
Long term results
Starting position for the
new development stage
Strategy audit,
restructuring from
the viewpoint of
priority formats and
regions
Product range
optimization
considering changed
needs (STM1),
category
management)
Streamlining the
supply chain,
collaborative
programs with
suppliers
Increasing
productivity via instore process
optimization
COMMENTS
• Temporary actions are often necessary to prevent bankruptcy and increase liquidity in the short term – companies need to sell assets and reduce headcount
• By planning these measures, it is necessary to assess probable negative implications at once (in particular, loss of customers) and prepare the core business for the
next development stage
1) Own brand
Source: Roland Berger Strategy Consultants
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3
NECESSITY: HOLISTIC CONCEPT
After the most critical problems are solved, attention of the
management should be turned to holistic "recovery"
LOGIC OF THE HOLISTIC DEVELOPMENT OF THE CHAIN
Focused investment concept/
re-positioning
Mission, vision, targets
Strategy of the target client and format
Regional strategy
Marketing strategy (focus on the client)
CATEGORY MANAGEMENT
Product range
Prices
Location
Promotion activities
Functional strategies (focus on performance)
Supply chain management
In-store processes
HR Management
Planning and controlling
Evaluation systems for efficiency and motivation
Information technologies
Finance
Source: Roland Berger Strategy Consultants
MAIN ISSUES FOR TOP MANAGERS IN 2009
> On what formats, regions, segments, markets should we focus on?
> How can we achieve a profitable growth?
> How can we assess candidates for M&A and integrate them efficiently?
Balanced assortment management
> How should we optimize our product range without losing loyal customers?
> How can we generate sales that will be spurred from our own brands?
> How can we build a flexible marketing policy in order to increase revenue and
gross margin of the chain and free up operating capital?
Increasing operating efficiency
> How should we decrease operating costs and improve the productivity of
available resources via improvements and standardization of processes
(procurement, logistics, in-store processes, regional representative offices and
the central office)?
> How should we secure manageability and efficient implementation of actions
planned?
Financial concept
> How should we change the capital structure and attract financing?
> How can we efficiently manage liquidity?
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3
NECESSITY: HOLISTIC CONCEPT
Roland Berger experience indicates that a holistic approach ensures
ensures a double potential for optimization
Compare results of selected measures and holistic approach
UNUSED POTENTIAL OF COMPLEX RESTRUCTURING1)
150%
COMMENTS
+ 136%
100%
Unused
potential
50%
+ 54%
> Standard set of anti-crisis measures
takes into consideration cost reduction
and operating efficiency improvement
programs
> Operating programs generate a large
potential for business improvement (on
average 54%)
> A multi-faceted approach (including
strategic, operational and financial
restructuring) might ensure twice the
amount of optimization that can be
reached (on average 136%)
0%
+ 2 years
-50%
1) DPhil by K. Lafrents on restructuring focusing on shareholder value creation and based on research of public companies
restructuring. Incomes of interested parties.
Source: Roland Berger Strategy Consultants
Re-positioning of key business
Only operating measures
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C. An individual approach for each company:
How can Roland Berger Strategy Consultants help?
Retail_Anti_Crisis_Strategies_Mar2008_ENG_final.pptx
21
The crisis influenced all companies in the industry to some extent –
it is crucial to choose the appropriate means for recovery
A matrix to select means of crisis transformation
LOW
RESTRUCTURING
> Occurrence of business results
crisis
– Occurrence of losses
– Negative profitability
– Threats of liquidity problems
> Intensification of strategy crisis
> First symptoms of strategy crisis
– Slowdown of the growth of main
business indicators due to
changes of externalenvironment
EVOLUTIONARY MANAGEMENT
> Occurrence of liquidity crisis
– Acute liquidity problems
– Threats of bankruptcy etc.
> Aggravation of business results
crisis
> Aggravation of strategy crisis
> Occurrence of a strategy crisis
– Decreasing market share
– Drop in sales and turnover
– Reduction in profits
– Absence of new
concepts/products
– Increasing stocks of finished
goods etc.
INNOVATIVE
DESTROYING
OYING
CRISIS STAGE
READJUSTMENT
> Being in conditions of a quickly progressing crisis,
Russian retailers faced the necessity of
implementation of differentiated anti-crisis
measures on a tight timetable
> The crisis affected all retailers – in spite of
various severity degree of crisis symptoms,
there is a necessity to for all to act
> Many companies lack internal resources or
experience to implement effective crisis
mitigation programs focused on long-term results
THREATENING
CRISIS STAGE
SEVERITY DEGREE OF
CRISIS SYMPTOMS
HIGH
COMMENTS
> Our aim: achieving quick and measurable
results for our customers basing on 40-years
long experience in driving companies out of
crisis
MANAGEMENT
LOW
Source: Roland Berger Strategy Consultants
DEGREE OF
CRISIS SYMPTOMS
HIGH
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Roland Berger has extensive experience in implementing projects
that assist companies in getting out of the crisis
Range of Roland Berger Strategy Consultants projects in retail
I
II RESTRUCTURING
> Complex restructuring of the company, including strategic, operational
and financial concepts
> Companies severely affected by
changes of environment and under
the effects of liquidity crisis / on
the verge of bankruptcy
III BOOSTING LIQUIDITY
> Cost reduction programs
> Programs for improving working capital and liquidity management
> Companies not severely affected by
changes of demand are
experiencing liquidity problems
due to financing problems
regardless
ANTI-CRISIS
AUDIT
IV PERFORMANCE IMPROVEMENT
> Management of profitable growth: improvement of assortment/suppliers/prices, category management, introduction of private labels
> Process optimization: supply chain management, logistics, in-store
operations
> Companies forced to respond to
changes in demand at once and to
increase profitability indicators
V STRATEGY
> Client-oriented strategy (customer centric retailing)
> Investment strategy (formats, regions)
> Due diligence, post merger integration
> Leading companies find themselves
in a winning position due to the
crisis and aimed at strengthening
their competitive position
Source: Roland Berger Strategy Consultants
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23
I
ANTI-CRISIS AUDIT
It is essential to evaluate the "risk group" of the company and adjust
one's short-term action plan
Approach to anti-crisis audit
PHASES
SCHEDULE
MODULES
I Determination
of risk p
profile
I.1 Detailing risk factors
I.2 Evaluate the risks of
I.3 Evaluate the risks of
II Scenario
development
II.1 Development of
II.2 Quantification of
II.3 Comparison of scena-
III Definition/
estimation of
actions
III.1 Determination of core
hypotheses
for various
development scenarios
Source: Roland Berger Strategy Consultants
potentials from the
viewpoint of growth,
costs and liquidity
the company
market and company
development
scenarios
III.2 Adjust plans of the
company considering
indicated potentials
from competitors
rios with existing plans
of the company and
estimation of "gaps"
~ 4 weeks
III.3 Determination of
necessary actions and
their prioritization
Retail_Anti_Crisis_Strategies_Mar2008_ENG_final.pptx
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II
RESTRUCTURING
Complex restructuring focused on quickly overcoming a liquidity
crisis and the long-term recovery of the company
STEP 1:
STEP 2:
STEP 3:
STEP 4:
BRIEF AUDIT
RESTRUCTURING CONCEPT
DEVELOPMENT
COMPREHENSIVE
BUSINESS PLANNING
IMPLEMENTATION/
CONTROLLING
• Strategic concept
• Operational concept
– Measures to improve
operational effectiveness
– Measures to improve
liquidity
• Financial concept
• Identifying the planning
system – Developing
scenarios key assumptions
scenarios,
• Establishing a business
model, taking into account of
current situation and effects
of anti-crisis measures,
including P&L, balance sheet,
cashflow, liquidity planning
• Implementation plan: team,
responsibility allocation,
mapping of action steps
• Implementation control:
reporting system,
monitoring and support
(feedback communications,
adjustment of future steps,
etc.)
• Analyzing initial situation
• Analyzing crisis causes and
symptoms
• Analyzing the market and
competitors
• Identifying key target P&L and
balance sheet indicators
PRIMARY CONCEPT – QUICK WINS
1-2 months
1-2 months
Source: Roland Berger Strategy Consultants
Approx. 6-9 months
Retail_Anti_Crisis_Strategies_Mar2008_ENG_final.pptx
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Module und
II
RESTRUCTURING
Restructuring implies a set of individual measures, ranging from
operating issues to structural transformations
Restructuring concept – scope
FINANCIAL CONCEPT
OPERATIONAL CONCEPT
• Re-checking the major initial crisis
conditions and measures that need
to be taken
•
•
•
•
•
• Balance sheet management
– Debt restructuring
– Liabilities management
"Structural clean-up"
• Injection of shareholder equity
– Shareholder capital increase
– Private Equity, etc.
• Injection of borrowed funds
• Sale of assets
Measures to improve liquidity
• Other sources and forms of financing
STRATEGIC CONCEPT
• Strategic positioning
Supplier portfolio optimization
Assortment optimization
Product flow optimization
Store portfolio optimization
Cost cutting, e.g. personnel
–
–
–
–
–
–
Format strategy
Regional strategy
Store portfolio management
Category management
Trade unions, franchising
Resources
Measures to improve operational
• Structural changes (strategy
effectiveness drives structure)
– Functional analysis of
organizational structure
– Value chain analysis
(outsourcing, insourcing)
• Decreasing/freeing up working capital
– Investment cuts
– Stores and warehouses closures
– Inventory optimization
– Outsourcing
– Accounts payables/receivables management
• Optimization/shaping of
major processes
Measures to improve liquidity
QUICK WINS AND LONG-TERM MEASURES
Source: Roland Berger Strategy Consultants
Retail_Anti_Crisis_Strategies_Mar2008_ENG_final.pptx
26
Module und
II
RESTRUCTURING
As one example, Roland Berger successfully performed a
restructuring project for an Eastern European food retailer
Example 1: Restructuring of a food retailer
INITIAL SITUATION
> European retailer – it took him two years to
become a leader in sales in a country of Eastern
Europe at the expense of active M&A activities
(around 400 stores with the total area of
135,000 sq.m, 7,000 FTEs)
PROJECT RESULTS
Profit from
sales (ROS)
-0,1%
Sales
Source: Roland Berger Strategy Consultants
4.6%
USD 0,48
0 48 bn
Potential improvement of costs:
USD 39 m
1
3
> Too rapid growth resulted in profitability
problems
> Major causes of profitability problems
– Rapid growth of the company over the past
latest 2 years at the expense of M&A
activities (sales increased more than three
times)
– Lack of integration of previously acquired
stores in the general scheme of the retail
chain
– Inefficiency of organization of business
processes
– Complexities in selecting appropriate
formats for stores and range of products
– No clear system of staff motivation
AFTER RESTRUCTURING
BEFORE RESTRUCTURING
USD 0,76
0 76 bn
35
46
11
7
28
-1
-3
2
1
EBIT 2002 Expected Purchasing Sales/
marketing
decline in
EBIT
3
Logistics
4
Overhead EBIT after
charges
optimization
Potential EBIT
of
after
additional strategic
sales reorientation
IMPROVEMENT LEVERS
> 4 improvement areas were identified (procurement, sales, logistics, overhead costs) and 5 areas for
qualitative improvements
> The largest impact was achieved at the expense of improving the range of products and suppliers:
decreasing the quantity of products by 34% and decreasing the quantity of suppliers by 33%
Retail_Anti_Crisis_Strategies_Mar2008_ENG_final.pptx
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II
RESTRUCTURING
The effect from the proposed measures has been quantified and
allocated according to specific time frames
Example 1: Restructuring of a food retail company
Implementation complexity
Long-term potential
1.5 Improve centralized procurement
1.6 Optimize meat sales
39 m USD
Middle-term potential
V2.2
High
V1.5
1.2 Optimize the assortment/suppliers list
1.3 Improve the use of own brand
1.4 Combine pricing with store formats
2.1 Reduce costs in the least efficient stores
V1.6
3 m USD
V1.2
V1.4
V3.3
V 2.1
V3.4
Average
2.5 Improve the replenishment in the
stores
3.1 Reduce stock levels
3.3 Increase the vehicle usage rate
3.7 Automate supplier orders
4.4 Outsource cleaning and security
4.5 Reduce legal dept. staff
V2.5
V3.7
V1.3
Short-term potential/emergency measures
V1.1
V3.5
V3.1
V3.2
V3.8
2.2 Improve store indicators with average
cost levels
V2.3
V3.6 V4.2
V4.5
V4.4
V2.4
23 m USD
V4.3
V4.1
V4.6
13 m USD
Low
Short-term
Middle-term
2002
2003
2004
Potential savings size
Source: Roland Berger Strategy Consultants
Long-term
2005
Implementation period
1.1 Use the strong negotiation position with the
suppliers
2.3 Close single stores
2.4 Optimize customer loyalty program
3.2 Automate orders from stores
3.4 Complete the installation of the WMS
system
3.5 Improve the quality of the staff
3.6 Reduce overtime-related expenses
1 –procurement measures
2 – sales measures
3.8 Outsource packaging services
4.1 Bundle invoices
4.2 Change the procedure of product
withdrawal
4.3 Reduce the supplies between stores
4.6 Improve payroll accounting
processes
3 – logistics measures
4 – overhead measures
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II
RESTRUCTURING
Restructuring program implementation for one of our clients has
lead to bank debt restructuring
Example 2: Restructuring of a department store chain
CURRENT SITUATION
> European turnover of the department stores has
been continuously decreasing since 2001 – a
slight drop of financial indicators was expected
in 2004
00
(net profit: -10%)
> Own capital of the company was rapidly
decreasing, dependence on credits and liquidity
crisis risk growth
> Main reasons for this situation arising
– Not focusing on key growing service
segments
– High administrative expenses, incl. personnel
– Inefficient portfolio management of the
stores, suppliers and product range
– Unprofitable and non-core assets
– Poor structure of bank financing
OPTIMIZATION LEVERS
MEASURE PACKAGES
REPOSITIONING, focus on
1. selected stores
DISINVEST, optimization of
Net revenues and profit after restructuring, [EUR
m]
Profit
-10%
14,20
2. portfolios and non-core assets
0
2%
3%
3%
12,90
13,00
13,10
13,30
2005
2006
2007
2008
3. COST CUTTING
WORKING CAPITAL REDUCTION,
4. turnover increase
FINANCIAL RESTRUCTURING, own
5. capital increase, debt restructuring
2004
PROJECT RESULTS
Solid restructuring concept helped the company to persuade a consortium of 20
investment banks to restructure the debt in the amount of 1.75 bn EUR and
achieve significant improvement of the financial situation
Source: Roland Berger Strategy Consultants
Retail_Anti_Crisis_Strategies_Mar2008_ENG_final.pptx
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II
RESTRUCTURING
Restructuring of a book retail chain helped to realize internal
liquidity increase potential
Example 3: Restructuring of a book retail chain
CURRENT SITUATION
PROJECT RESULTS
> European book and multimedia retail chain (leading
positions on national market) faced liquidity crisis
> Chain losses reached -11% – not enough finances to
cover operational activities
> Diffused positioning – offer and marketing mix didn’t
comply with the selected concept
> Low operational efficiency
EBIT dynamics after restructuring, [EUR m]
75.1
-62.1
-385.7
01/02
OPTIMIZATION LEVERS
>
>
>
>
>
>
>
Format and concept of the stores
Stores portfolio
Product range
Staff costs
Procurement system
Staff training
Organizational structure
Source: Roland Berger Strategy Consultants
147.6
02/03
03/04
04/05
> 3-year plan of company financial restructuring developed
> 19 stores selected for closure
> Program consisting of 430 efficiency improvement measures for
improving efficiency at the store sales point level developed
> Product range optimized towards better correspondence with the
selected concept of the stores
> Procurement and sales structure reorganized
> Merchandizing and sales space use optimization measures proposed
Retail_Anti_Crisis_Strategies_Mar2008_ENG_final.pptx
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III
LIQUIDITY INCREASE
In contrast with simple cost cutting measures, Roland Berger's
program simultaneously increases overall efficiency
Liquidity improvement program implementation approach
AZBB - ACCELERATED ZERO-BASED BUDGET APPROACH
STAFF COSTS
OTHER COSTS
SERVICE LEVEL
Cost cutting
potential by
12-30%
ORGANIZATION
>
>
>
>
>
Savings in frames of efficiency and productivity
Service level optimization
Organizational and work schedule changes
Spin-off/sale of non-core functions
Functional costs reduction
Source: Roland Berger Strategy Consultants
ACCOUNTS
PAYABLE
MANAGEMENT
TERMS
(CONTRACTORS)
FUNCTIONS
PROCESS
CASH4GROWTH
PROCESS
INFRASTRUCTURE
ACCOUNTS
RECEIVABLE
MANAGEMENT
STOCK
MANAGEMENT
82 optimization levers
in the segments of purchasing, ordering,
invoicing, payment, warehousing and
logistics,
sales and controlling
ORGANIZATION
> Inventory reduction, turnover increase
> Optimization of the purpose of payment, increase the difference between the
turnover and targets of accounts receivable
> Reduce working capital
> Increase the liquidity
Retail_Anti_Crisis_Strategies_Mar2008_ENG_final.pptx
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III
LIQUIDITY INCREASE
Inventory decrease as well as profitability increases can be reached
by introducing integrated inventory management …
Example: Inventory management
Product range planning
Scheduling
1
Traditional
retailers
t il
• Traditional purchasing
• Distributing goods
• Early
E l receipt
i t off goods
d
2
Optimized
inventory
management
• Traditional
• Traditional
3
Optimized
scheduling and
inventory
management
• Traditional
• Systematic store
distribution
• Rigorous limit
management
4
Integrated
management
process
• Component-based product • Rigorous limit
range planning
management
• Systematic store
• Systematic volume
planning
distribution
source: Roland Berger Strategy Consultants
Inventory management
• Late, high write-downs
• Low
L sell-off
ll ff rates
t
• Assumption of large old
inventories
• Rigorous marketing
leftover seasonal items
• Early, needs-oriented writedowns
• Rigorously marketing old
goods and leftover seasonal
items
• Early, needs-oriented writedowns
• Rigorously marketing old
goods and leftover seasonal
items
Change in
gross profit
Drop in
inventories
±0
±0
-18%
-20%
-1%
-11%
+7%
-15%
Retail_Anti_Crisis_Strategies_Mar2008_ENG_final.pptx
32
III
LIQUIDITY INCREASE
…which covers purchasing, ordering, distribution and warehousing
processes
Example: Inventory management
Order management
High
1
6
1
2
29
20 21
3
19
18
7 4
POTENTIAL
2
9
30
13
22
27 12
15
26
31
10
25
14
Low
IMPLEMENTATION EFFORT
Source: Roland Berger Strategy Consultants
Streamlining range
Integrating customer planning
3
Requirement forecasts
7
Returns/complaints
4
Order segmentation
8
Reducing scheduling stages
9 Ordering strategy
14 Buyback
10 Customer order-related
scheduling
11 Order batch size
15 Order stop
12 Modular/system sourcing
17 Supplier base
13 Standardization
18 Consignment stock mgt.
19 Supplier
integration
16 Quality control/returns
Distribution/warehousing
5
24
High
Selling off excess inventory
6
Purchasing/procurement
17
16 23
32
5
11
8
28
Sales volume planning
Low
20 Stockpiling strat.
25 Cross-docking
30 SC differentiation
21 Buffer stock
26 Direct delivery
31 Outsourcing
22 Inventory harmon.
27 Continuous replenish.
32 Customer integration
23 Clear. sale/scrap.
28 Warehouse structure
24 Distributors
29 Warehouse network
Retail_Anti_Crisis_Strategies_Mar2008_ENG_final.pptx
33
IV
EFFICIENCY IMPROVEMENT
Efficiency improvement programs help to achieve sustainable
competitive advantages
Efficiency improvement program implementation approach
CATEGORY MANAGEMENT
SUPPLY CHAIN MANAGEMENT
HQ
SUPPLIER
IN-STORE EFFICIENCY
LOGISTICS STORE
OPERATOR
Shelf
Delivery
Invoice
Order
> Traditional approach: staff reduction, shift
schedule optimization
> Traditional approach: product range
reduction
> Traditional approach : logistics
optimization[ (costs: 4-9% of revenues)
> Roland Berger approach: product range
optimization in combination with supplier,
price and sales campaign optimization,
implementation and management of XYZ,
as well as full-range category management provide higher long-term results
> Roland Berger approach: store operation
> Roland Berger approach: integrated
efficiency increase by optimization in 4
optimization of the whole supply chain
dimensions – service level, on-shelf
starting with the supplier until the store
availability of goods, processes, personnel
shelf helps to achieve higher cost reduction
motivation and planning
potential (costs: 10-30% of the revenues),
while keeping the service level
> Revenue growth ~10% (5-25% by
categories)
> Margin growth ~12% (12-24% by
categories)
> Revenue growth 2-4% (reduction of OOS
~50%)
> EBITDA increase by 4-6%
Source: Roland Berger Strategy Consultants
> Client loyalty improvement by 15-20%
> Staff cost reduction by 10-30%
Retail_Anti_Crisis_Strategies_Mar2008_ENG_final.pptx
34
IV
EFFICIENCY IMPROVEMENT
Optimization increase programs help in establishing sustainable
competitive advantages
Product range, price and supplier optimization approach
Product range
optimization
(PRO)
Product range
analysis by key
indicators (grouping,
comparison of
groups)
Detailed analysis of
the groups with low
values (cat. VI, V,
IV) on commodity
item level
Supplier
optimization
(SO)
Supplier analysis
(qualitative and quantitative),
supplier portfolio creation, definition of the
necessity of actions
Price optimization
(PO)
Classification and
definition of selected
clusters for analysis,
competitive analysis
Source: Roland Berger Strategy Consultants
Price review in
balanced product
groups by taking into
account strategic
perspective
Definition of the
reduction
candidates and
substitutes,
potential evaluation
Analysis of the
product range of
low-performance
suppliers and
reduction potential
estimation
Price change
potential estimation
for selected product
groups
Integration of
results by PRO, SO,
PO: decision
making on product
range matrix
(reduction,
replacement);
development of
options for supplier
optimization
(pooling based on
volumes)
Potential
evaluation from
procurement price
reduction or
improving the
terms by
increasind the
order volume,
definition of the
target supplier
portfolio
Retail_Anti_Crisis_Strategies_Mar2008_ENG_final.pptx
35
IV
EFFICIENCY IMPROVEMENT
A project dealing with optimization assortment for a Russian food
retailer concluded with outstanding results for the client
Project example: Optimization of the “spirits” category in a supermarket chain (Russia)1)
PROFIT EFFECT FROM PRODUCT
RANGE, PRICE AND SUPPLIER
OPTIMIZATION [RUB m/month]
EFFECT ON PROFIT,
EXTRAPOLATED BY 10 CATEGORIES
FOR A YEAR [RUB m/year]
12
0,1
6,0
6,1
Effect from product
range, price and
supplier
optimization
OPTIMIZATION EFFECT: REDUCTION OF SALES ITEM
LIST [units of sales items]
3752
2212
Current number
To be reduced
1542
Planned number
OPTIMIZATION EFFECT: WORKING CAPITAL BY
PRODUCT STOCK [RUB m]
0,1
Monthly effect
for “spirits”
category
21,5
4,3
17,2
Current stock
Stock to be
reduced
Planned stock
OPTIMIZATION EFFECT: SUPPLIERS
[no. of suppliers]
Revenues by
category (as of
today)
Revenues by
category
(planned)
Yearly effect by 10
categories
99
10
89
Current number
To be reduced
Planned number
1) 2002
Source: Roland Berger Strategy Consultants
Retail_Anti_Crisis_Strategies_Mar2008_ENG_final.pptx
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IV
EFFICIENCY IMPROVEMENT
One of the key success factors of Western retailers – professional
management of private labels
Own brand architecture, relevant margins and shares
THREE LAYER OWN BRAND
ARCHITECTURE
MARGINS OF DIFFERENT BRANDS
[PROJECT EXAMPLE]
OWN BRAND SHARES OF SELECTED
RETAILERS
Premium segment
Gross margins 2008 [in %]
Own Brand Label shares of sales [in %]
36%
33%
30%
Costco (USA)
11
Metro (GER)
(
)
12
20
21
25
25
26
29
30
40
46
48
Rewe (GER)
Auchan (FRA)
Middle price segment
Casino
22%
Intermarche (FRA)
16%
Ito-Yokado (JAP)
Safeway (USA)
Carrefour (FRA)
Wal-Mart (USA)
Ahold (NEL)
Discount segment
Tesco (UK)
A
brands
Source: AC Nielsen 2005, Roland Berger
B/C
brands
Own
brand
discount
Own
brands
middle
price
Own
brand
premium
price
Schwarz
JC Penney
Aldi (GER)
63
65
95
Retail_Anti_Crisis_Strategies_Mar2008_ENG_final.pptx
37
IV
EFFICIENCY IMPROVEMENT
Roland Berger supports retailers in private label listing on the basis
by analyzing consumer behavior and using best practices
Own brand (OB) strategy – Illustrated approach
OWN BRAND ARCHITECTURE
Premium segment
DEFINITION PROCESS OF OWN BRAND ARTICLES
1
Definition of
category targets
• Benchmarking of OB sales shares per category
• Adjustment in order to account for specific conditions of assortment
and customer structure
2
Replacement of
existing OB articles
• Replacement of OB articles in the discount segment by middle priced
and premium products
• Definition of brand article as references in terms of quality and price
• Pricing that takes into account internal architecture and competition
3
Listing of new OB
articles
• Identification of potential niches by the use of a ranging tool
• Identification of weak brand articles by looking at key figures such as
penetration, loyalty, margins and sales
4
Delisting of other
brands
• Delisting of less successful brand articles in order to create space for
OB articles (Price-architecture, shelf space, promotions/ flyer)
Middle price segment
Discount segment
Source: Roland Berger Strategy Consultants
Retail_Anti_Crisis_Strategies_Mar2008_ENG_final.pptx
38
IV
EFFICIENCY IMPROVEMENT
We also developed tools aimed improving efficiency in private label
management
Tools of own brand management
PRICING AND DELISTING
Supports pricing of OB articles that is
needed for listing and delisting
decisions
Consisting of key indicators for each
good:
• Data from the warehouse: turnover,
gross margin, ad share, etc.
• Customer insights: loyalty, penetration,
willingness to pay, etc.
• Competitor: prices of brands and own
brands
Source: Roland Berger Strategy Consultants
CONSTRUCTION AND ARCHITECTURE
OF PRIVATE LABELS
Transparency of the process regarding
the management of private labels within
categories
• Information related to corresponding
discounts of branded goods and
privately labeled goods
• Overview of corresponding price
architecture
PLANNING & MONITORING
• Coordinates the international
cooperation between different regional
user groups
• Clear structures and responsibilities
increase efficiency of processes
• Standardized and user-specific formulas
for the management of different goods
titles/names
• Data quality and security
• Full transparency increases efficiency
levels of cooperation between regions
Retail_Anti_Crisis_Strategies_Mar2008_ENG_final.pptx
39
IV
EFFICIENCY IMPROVEMENT
Category management: a process that covers the whole value chain
from purchasing to sales by category
Category management implementation approach
Processes
Category managers
Product
Procurement
development
Category 1
Logistics
Promotion
and merchan- Accounting
dizing
Service units Sales channels
`ab. acbdefghei
Other
services
Sales
Value creating chain – Category 1
Profit
center
Value creating chain – Category n
Profit
center
...
Category n
Cost centers
Source: Roland Berger Strategy Consultants
Report on profit
and loss by
channels
Retail_Anti_Crisis_Strategies_Mar2008_ENG_final.pptx
40
IV
EFFICIENCY IMPROVEMENT
Supply chain optimization always requires a holistic approach
covering every element of the retail supply chain
Overview retail supply chain
PRODUCT FLOW
Ordering
Delivery
Preparing for
restocking
> O
Optimize
ti i
> Transport
T
t
> Optimize
O ti i
ordering times
planning planning –
Schedule
maximizing
> Implement full
deliveries
precision of
EDI coverage
according to
foreseeing
additional
> Define ordering need
volumes
responsibilities
> Improve shelf
needed upon
(store vs.
ready
filling the
central)
packaging
palette
> Optimize
> Adjust delivery
process
times and
routes
> Optimize order
volumes
> Increase share
of central
warehouse
delivery
Source: Roland Berger Strategy Consultants
Receiving
goods
Storage at the
store
warehouse
Preparation
Restocking
> R
Reduce
d
errors > Optimize
O ti i
> Optimize
O ti i
> Optimize
O ti i
in receiving
warehouse
coordination of
storage
structure –
internal and
process
> Increase
Install wareexternal
efficiency in
> Vendor
house controls
storage
receiving
management
and
inventory organization
Define rules for
> Create loading
using external
areas in each
stockers
store
> Ensure
warehouse
constant
> Integrate
restocking
picking areas in
(internal or
each
external)
warehouse
> Adjust
> Reduce
employee
inventories
schedules to
flow of items
Shelf
replenishment
Handling
returned
goods
> R
Restock
t k> Reduce
R d
return
t
shelves when
rates
they empty
> Integrate
(optimize time
returned items
on shelf)
into picking
> Create displays shelf
in line with the
logistics of the
store
> Install OOS
warning
systems
> Reduce out-ofshelf situations
Retail_Anti_Crisis_Strategies_Mar2008_ENG_final.pptx
41
IV
EFFICIENCY IMPROVEMENT
Optimization of the supply chain influences different cost items as
well as improves the availability of goods in a store
Supply management projects: Roland Berger experience and expertise
ORDER PROCESSING
TIME
STOCK
-68%
-25%
100
TRANSPORTATION
COSTS
75
SUPPLY
COSTS
-41%
100
32
-50%
-25%
100
100
59
> Reduction of
financing costs
> Simplify the
processes
> Reduction of the
number of trips
> Reduction of stock
costs
> Reduction of staff
costs
> Reduction of fleet
costs
SERVICE
LEVEL
ABSENCE OF
GOODS
75
+6%
100
93
99
50
> Reduction of standby and unloading
time
> Availability of highdemand goods in
stock
> Reduction of drawing
supplies costs
> Availability of highdemand goods on
shelf
> Goods availability
increase
> Satisfied clients
(competitive
advantage)
> Sales increase
Source: Roland Berger Strategy Consultants
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IV
EFFICIENCY IMPROVEMENT
Product range and supply chain optimization helped a French
department store chain to reach a new business development level
Project example: Optimization of a French department store chain
CURRENT SITUATION
OPTIMIZATION LEVERS
> High share of out-of-stock goods
> Product range structure optimization
> Logistics optimization
– Supply reliability improvement
– Improved planning and forecasting of
the deliveries
– Reduction of the delivery time from
warehouses to the stores
> Optimization of the supply chain
management
– Reduction of stock level in the stores
– Alignment of the procurement
structure with the sales structure
> Increase the number of sales
personnel and service quality
> Merchandizing optimization
> Unreasonably high discounts
> Low stock turnover level by certain
categories of goods, high balance depot
stocks
> Long supply duration
> Redundant stock list
> Low use of available sales space
Source: Roland Berger Strategy Consultants
PROJECT RESULTS
> Revenue growth by 5-40% by
categories
> Sales per sq. m. increased by 15%
> Warehouse stock reduced by 17%
> Store turnover increased by 18%.
> Own brand number reduced
from 11 to 6
Retail_Anti_Crisis_Strategies_Mar2008_ENG_final.pptx
43
IV
EFFICIENCY IMPROVEMENT
Store activities can be significantly improved with four levers
Store operational efficiency improvement levers of retail networks
1
2
4
3
Customer service
On-shelf availability
Process efficiency
Survey of the target
customer needs and
adaptation of the service
level
Analysis of OOS1) causes
and improvement of onshelf availability level
Optimization of in-store
processes and
breakdown of the working
time
LOYALTY
SALES / MARGIN
COSTS
Staff planning
and motivation
Efficient staff planning
and stimulation for the
staff in the sales floor
COSTS
1) Out-of-stocks
Source: Roland Berger Strategy Consultants
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44
IV
EFFICIENCY IMPROVEMENT
Turnover increase can be achieved by increasing customer loyality
and elimination factors that cause out of stocks
Store efficiency project examples (1)
1
CUSTOMER SERVICE
2
ON-SHELF AVAILABILITY
Company
Company
• Leading European chain of
shopping
h i centers
t
• Russian supermarkets chain
Optimization objectives
• Customer loyalty increase to the brand
• Revenue increase
• Development of a concept for sales staff
Optimization objectives
• Sales increase trough OOS1) reduction
• Initial on-shelf availability due to inventorization data–
96%, actual level – 85%
Optimization results
Optimization results
•
•
•
•
• Sales increase between 5-15%, depending on the
category
• Marginal profit increase by 5-10%
Customer loyalty increased by 15%
On-shelf availability grew by 15%
Motivation increased, personnel costs dropped by 12%
Productivity increased by 15%
1) Out-of-stocks
Source: Roland Berger Strategy Consultants
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IV
EFFICIENCY IMPROVEMENT
Process efficiency and staff planning and motivation systems
guarantee cost reduction in stores
Store efficiency project examples (2)
3
PROCESS EFFICIENCY
Company
• Large Brazilian food chain
operating supermarkets and
hypermarkets
Optimization objectives
• Optimization of delivery acceptance and shelf
replenishment processes being the main reasons for
OOS
• Cut the level of stocks and write-offs
Optimization results
• Shelf replenishment rate doubled with the further
improvement potential
• Cost cut by 15 m USD
• Stock level cut down from 45% to 20%,
• Write-offs decreased from over 2% to 1,3%
Source: Roland Berger Strategy Consultants
4 STAFF PLANNING AND MOTIVATION
Company
• Leading world fashion chain with head
office in the USA
Optimization objectives
• Cut down personnel costs that are 1,9% above the
competitors‘ level
• Increase sales staff motivation, decrease illness rates
Optimization results
• Personnel costs cut down by 1% of overall revenue
• Cost-saving potential - ~300 m USD
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V
STRATEGY
Amidst the crisis, it is important for companies to focus their
strategy while being very selective towards M&A transactions
Roland Berger Strategy Consultants retail project portfolio (selected examples)
FORMAT / REGION STRATEGY
> Highest damaged caused by crisis in the
companies with vague positioning (compliance
of product range, prices, service level with the
clients’ expectations). Focus on formats and
regions required
CLIENT-ORIENTED STRATEGY
> Companies have to react on changes in customer
behavior in order to avoid significant revenue and
target KPI decrease. Focus on most attractive
segments required
> Format selection with the largest potential, adjusting key elements (product range,
prices, processes) based on best practices
> Evaluation of the potential of the region (buying power, format capacity,
competition), regional expansion plan
THE CRISIS
HAS FORCED
COMPANIES
TO ADJUST
STRATEGIES
> Client segmentation based on the loyality maps and other available data, target
segment selection
> Marketing mix and operational activities adjustment to reach most attractive
segments in the best way possible
DUE DILIGENCE OF M&A CANDIDATES FOR PURCHASE
> Evaluation of the current network situation (strategic, operational, organizational and
financial aspects)
> Assessment of the strategic compliance, valuation, recommendations on stransaction
and further integration
PMI
> Definition of the key integration directions, measures implementation plan
development
> Coordination of integration process (project office)
Source: Roland Berger Strategy Consultants
> Transactions completed without a proper prior
evaluation lead to chain profit drop – economic
audit required as well as financial and legal audit
> Experience shows that less than 50% of
transactions bring expected results for the
buyers due to missed opportunity to integrate
the purchased company into existing network
structure in a logical manner
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V
STRATEGY
Focused development allows one to rationally use resources in
crisis conditions
Network positioning diagram
National players
2
NATIONAL
FORMAT LEADER
WEAK GIANT
START UP
Low share – one
format
REGIONAL
FORMAT LEADER
Large share – one
format
SCALE OF PRESENCE
Source: Roland Berger Strategy Consultants
1
“NATIONAL GIANT"
Economies of scales
High recognition
Vague positioning
Problems of integration and management
2
“FORMAT LEADER"
Experience and high recognition
Clear positioning
Economies of scales compared to the giant and
regional leader
3
“REGIONAL LEADER"
Strong positions in the region
Economies of scales
Manageability/transparency
4
“REGIONAL FORMAT LEADER"
Clear positioning
Economies of scales
5
6 “WEAK GIANT AND START UP"
Small number of operations
1
NATIONAL GIANT
4
6
Regional focus
REGIONAL COVERAGE
5
STRENGTHS AND WEAKNESSES
3
REGIONAL LEADER
Large market share
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48
V
STRATEGY
Customer Centric Retailing – we’ve developed a new retail approach
that takes into account changes in consumer behaviour
Customer Centric Retailing – Overview
TARGETS
PROJECT CONTENT
COMPANIES
> Growth amidst stagnating markets
> “Client understanding is absolutely
necessary for growth. If our customer
changes,
h
then
th we mustt change
h
with
ith
him"1)
> Increase customer loyality
> Increase "wallet share"
> Attraction of new customers
> Promotion costs reduction
> Margin increase
> Optimization of supplier budget
• Understanding the client
– Using client data
– „Tell me, what you buy, and I tell you who you are"
(segmentation)
• Client-oriented strategy
– Segment potential evaluation
– Definition of target clients
• Development and testing of measures
– Optimization of the marketing mix (product range.
prices, in-store location, promotion)
– Optimization of store design
• Integration of key suppliers
– Partners can buy results to optimize their budgets
> Retail sales (food and non-food)
> Consumer goods manufacturers
> Fashion companies
> Retail financial services
> Transportation
> Generally all companies that have
loyality maps and/or customer data
gathering systems
3 largest projects
RESULTS
• Understanding of how to reach most attractive client segments in the best way
• Additional value creation not only by profit and margin growth, but also marketing and organization costs optimization
• Solid base to implement client-oriented organizational approach (top-down)
1) Sir Terry Leahy - Chief Executive Tesco
Source: Roland Berger Strategy Consultants
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49
V
STRATEGY
We’ve defined an efficient due dilligence approach based on our
extensive project experience
Project approach – due diligence
QUALITATIVE ANALYSIS
QUANTITATIVE ANALYSIS
W STRATEGY AND MARKET
B ORGANIZATION AND TOP
MANAGEMENT
C PROCESSES
D Business plan
2009
2010
2011
2012
2013
Sales
COGS
Bonuses
Gross margin
Rent
Personnel
D BUSINESS PLAN
Depreciation
Other
EBIT
Key questions:
How attractive is the target market, How good is the target company
positioning and Is the network ready to grow fast and profitable?
Source: Roland Berger Strategy Consultants
Key question:
Are the key assumptions of the target company business plan
sustainable?
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50
V
STRATEGY
How to perform successful integration? – Clear targets along with
fast and result-focused actions are required
CLEAR TARGETS, COMPLETE UNDERSTANDING OF
THE TASKS
MIXED MANAGEMENT GROUP WITH HIGH LEVEL
OF TRUST
> Target setting is crucial for correct integration
management process
> Company management participation in the new
organization
One has to avoid long discussions, implementation
process has to run actively from the "first day"
TIME MANAGEMENT – QUICK SPECIFICATION,
CLEAR RESPONSIBILITIES
> Time is crucial; simple allocation of responsibilities,
quick definition of the works and phases
Time wins up to 6 months per module possible
(difference between good and bad time management)
Source: Roland Berger Strategy Consultants
> The concept of “Mine and Yours” should be replaced
by “Ours”; it is extremely important to keep all the best
of the companies
Company
integration
success
factors
One needs to keep all key managers and know how –
focus on the creation of new elements
CONSERVATIVE SYNERGY POTENTIAL
> Conservative integration plan development, definition
of additional synergy potential as reserve stock (min.
20%)
Sufficient stock volume planning for unpredictable
problems during the integration – resistance vs.
negative external influences
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51
V
STRATEGY
We’ve developed a pragmatic approach to ensuring productive
company integration based on several success factors
Project approach - PMI
1 CONCEPT PHASE
A Main integration segment development
2 IMPLEMENTATION
A Preliminary phase
Project office
ff set up
B Detailed functional integration concepts
development
C Implementation plan development
Source: Roland Berger Strategy Consultants
Monitoring system set up
Steering committee reporting system
set up
B Realization of the implementation plan
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D.
Roland Berger Strategy Consultants:
What are our advantages?
Retail_Anti_Crisis_Strategies_Mar2008_ENG_final.pptx
53
Roland Berger Strategy Consultants is the optimal partner for retail
companies during the crisis due to five reasons
Roland Berger Strategy Consultants…
… is a global company with many years of experience in Russia
… has a large client base consisting of largest international companies from the
food-and non-food retail sector
… has branch and functional expertise in the consumer goods sector in Russia,
which is supported by many projects
… uses international best practices, know how and innovative technology
development in its projects
… has leading positions among strategic consultants specializing in
insolvency management
Source: Roland Berger Strategy Consultants
1
2
3
4
5
Retail_Anti_Crisis_Strategies_Mar2008_ENG_final.pptx
54
1
Roland Berger Strategy Consultants is a truly global company
Key facts
36 offices in 25 countries,
countries with approx.
approx 2,100 employees
76% of the projects with cross-border assignment
International teams with specialists from 15 Competence Centers
Amsterdam I Bahrain I Barcelona I Beijing I Berlin I Brussels I Bucharest I Budapest I Casablanca I Chicago | Detroit I Düsseldorf I
Frankfurt I Hamburg I Hong Kong I Istanbul I Kyiv I Lisbon I London I Madrid I Milan I Moscow I Munich I New York I Paris I Prague I
Riga I Rome I São Paulo I Shanghai I Stuttgart I Tokyo I Vienna I Warsaw I Zagreb I Zurich
Source: Roland Berger Strategy Consultants
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1
Our company is one of the fastest growing strategy consultancies in
the world
Our company's entrepreneurial success since 1967
OUR SALES GROWTH
OUR MARKET POSITION 20081)
> EUR 670 m
1970
1980
1990
Germany
No 2
No.
Growth regions
China and Russia/CEE
No. 2
Core markets
Western Europe
No. 3
World
No. 5
2000 2008
1) In the strategy segment
Source Roland Berger Strategy Consultants
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56
1
For more than 15 years we have assisted our clients in overcoming
all crises and expanding successfully in Central and Eastern Europe
Roland Berger Strategy Consultants in Central and Eastern Europe
Poland
Established 2000
Russia, Ukraine, Baltic states
No. of employees: >40
qer edfesgft[: 1994
utdhe devbwrftxes: >100
Moscow
Riga
Czech Republic
Established 1993
No. of employees: >30
Warsaw
Romania
Kiev
Prague
Hungary
Established 1996
No. of employees: >15
Established 1992
No. of employees: >30
Vienna
Budapest
Zagreb
Croatia
Bucharest
Established 2003
Source Roland Berger Strategy Consultants
No. of employees: >10
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57
2
Our projects are conducted along the entire value chain and across
all categories of consumer goods
Industry/functional expertise – Coverage Consumer Goods & Retail CC
FMCG
SUPPLIERS
MANUFACTURERS
RETAILERS
FOOD AND
Confectionery, chocolate, frozen food, ready meals, tobacco, health, dairy
BEVERAGES products, meat & fish, dry food, beverages
NON FOOD
Personal / household care, health & beauty care, OTC drugs
SMCG
FASHION
& SPORTS
Textiles, apparel, luxury goods, shoes, sports
DURABLES
Domestic appliances, consumer electronics, professional appliances
OTHER
Optical, DIY, toys, household goods, stationery, furniture
Source Roland Berger Strategy Consultants
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58
2
Our clients are the top players in the Consumer Goods & Retail
industry – Companies that are known for industry best practices
Consumer Goods & Retail client base1)
WE SERVE…
… 7 out of the world top
p 10
FMCG manufacturers
… 18 out of the world top 25
FMCG manufacturers
… 4 out of the world top 10
food retailers
… 6 out of the European top 20
apparel manufacturers
… 7 out of the European top 10
department stores
1) Based on company value 2006
Source Roland Berger Strategy Consultants
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2
Our extensive project experience with the international leaders enables
us to implement the retail projects with the constant success
International client base in retail
FMCG-RETAILERS– SELECTION
Source Roland Berger Strategy Consultants
FASHION AND DURABLES RETAILERS - SELECTION
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3
In Russia and CIS, we supported retailers and FMCG companies on
issues ranging from strategy to operational excellence
Selected clients in Russia and other CIS countries
CLIENTS IN CONSUMER GOODS AND RETAIL - SELECTION
PROJECT TOPICS
> Strategy development
– Market entry strategy
– Target customer and brand strategy
– Regional, format and assortment strategy
– Purchasing strategy
– Investment and financial strategy
> Optimization of organizational structures and core business
processes:
– Category management
– In-store efficiency
– Customer satisfaction programs
– Supply chain management
– Controlling system
– Staff planning and motivation
> Restructuring and anti-crisis management
> Due diligence, M&A and partner search, Post-merger integration
(PMI)
Source: Roland Berger Strategy Consultants
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3
We have profound project experience in both strategic and
operational issues along the retail value chain in Russia and CIS
Industry/functional expertise – Selected retail projects in Russia and CIS
MARKET ENTRY / GROWTH STRATEGY
ORGANIZATION
> Development of a Greenfield strategy for a new hypermarket chain
in the Moscow region
> Development
p
of a comprehensive
p
market strategy
gy for one of the
leading Russian retailers
> Development of a new organizational structure, KPI system and
motivation system for a large regional supermarket chain
REGIONAL/FORMAT STRATEGY
> Development of a regional approach based on thorough analysis
of regional retail competition and consumption patterns for one of
the Russian top discounters
> Development of a concept for a shopping center chain in Ukraine
OPERATIONAL EFFICIENCY
> Development of a store efficiency concept for a regional Russian
supermarket chain, incl. in-store process optimization, better staff
planning and motivation, reduction of Out-of-stocks, improvement
of service quality in stores
CATEGORY MANAGEMENT
DUE DILIGENCE
> We conducted several strategic due diligences of the Russian
retail chains for leading European investment funds and strategic
investors (both food and non-food retail)
> Assortment, supplier and price optimization for a Russian
supermarkets chain
> Category management concept development and pilot preparation
for a Russian discounter chain
> Category management implementation in a Ukrainian chain of
pharmacies
Source: Roland Berger Strategy Consultants
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4
With ongoing studies and market analyses, we possess state-of-the
art knowledge in Consumer Goods & Retail
State-of the art knowledge and frameworks – Selected studies
Successful
brand
management
through
premium
strategies
Growth based
pricing
strategies
Supply-chain
management
for fashin
companies
Customer
centric retailing
Non-Food
excellence
Corporate
head-quarters
International
sourcing and
collaboration
with grocery
retailers
Go to Market
Excellence for
Fashion
Companies
Fashion
online
retailing
Source: Roland Berger Strategy Consultants
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4
Leading international companies have selected Roland Berger to
support the most important ECR projects in Europe
ECR member companies in Europe
UK
Finland
• Kraft Foods
• Marks & Spencer
• Masterfoods
• Reckitt Benckiser
• Safeway
• Somerfield
• Tesco
• Unilever
• Walker's Snacks
• Kesko
Sweden
• ICA Handlarnas
• Abba Seafood
Germany
• Bahlsen
• Coca-Cola
• Henkel
• Karstadt
Benelux
• Albert Heijn
• CPC
• De Boer
• Delhaize "Le Lion"
• Procter & Gamble
Austria
• Julius Meinl
• Spar
France
• Auchan
• Carrefour
• Casino
• Colgate-Palmolive
• Groupe Danone
• Promodes
Spain
• Continente
• Purina
• Prica/Carrefour
Source: Roland Berger Strategy Consultants, ECR Europe
• Kellogg
• Metro
• Rewe
Switzerland
CGl company initiative for efficient dialogue with the
customers
• Nestlé
• Hofer-Curti
Roland Berger Strategy Consultants has facilitated
many projects, incl. category management
Italy
• Johnson & Johnson
• Benckiser
Retail_Anti_Crisis_Strategies_Mar2008_ENG_final.pptx
64
5
Trusted consulting studies confirm Roland Berger as the No 1 in
restructuring and effective turnaround implementation in Germany
RESTRUCTURING AND ANTIRating CRISIS MEASURES
Score1)
IMPLEMENTATION
Rating COMPETENCE
Score1)
1.
Roland Berger Strategy Consultants
400
1.
Roland Berger Strategy Consultants
382
2
2.
M Ki
McKinsey
& Company
C
397
2
2.
D
Droege
& Company
C
332
3.
Droege & Company
337
3.
A.T. Kearney
332
4.
The Boston Consulting Group
332
4.
Bain & Company
326
5.
Bain & Company
324
5.
Booz Allen Hamilton
318
1) Scoring method: 100 = very low competence – 500 = very high competence
Source: DGMF Deutsche Gesellschaft für Managementforschung, Management and Consulting Analysis Institute, Prof. Dr. Dietmar Fink
Retail_Anti_Crisis_Strategies_Mar2008_ENG_final.pptx
65
5
In ACQ Financial Magazine1) Awards, Roland Berger was named
"Insolvency and Restructuring Advisory of the Year"
ROLAND BERGER – INSOLVENCY
AND RESTRUCTURING ADVISORY OF
THE YEAR
1) ACQ Financial Magazine – a high-ranking British business magazine on M&As
Source: ACQ
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66
5
Roland Berger has accumulated significant international experience
in anti-crisis, restructuring and turnaround projects
Selected clients of the Restructuring Competence Center
Aerospace
Automotive
Metallurgy and
machine building
Construction and
real estate
Petrochemicals, oil &
gas
Transportation
Telecoms and high-tech
Pharmaceuticals
Energy
FMCG/retail
Source: Roland Berger Strategy Consultants
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67
We would be happy to give you further information and answer your
questions!
Dr. Olga Sagirova
Georgy Babilashvili
Svetlana Shcherbinina
Partner
Head of Consumer Goods and Retail
Competence Center in Russia and CIS
Principal
Head of Private Equity unit in Russia and CIS
Competence Center Consumer Goods and
Retail in Russia and CIS
Senior Project Manager
Competence Center Consumer Goods and
Retail in Russia
Phone:
Fax:
E-Mail:
Phone:
Fax:
E-Mail:
Phone: +7 (495) 721 1951
Fax:
+7 (495) 721 1954
E-Mail: [email protected]
+7 (495) 721 1951
+7 (495) 721 1954
[email protected]
Source: Roland Berger Strategy Consultants
+7 (495) 721 1951
+7 (495) 721 1954
[email protected]
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68
We deliver results.
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