- 2013 Global Retail Development Index™
As developing markets mature, retailers are expanding more carefully.More
As film production budgets shrink, visual effects and 2D-to-3D conversion services are poised to become stars.More
- Chain Drug Review, 17 June 2013
As consumer desire for organic beauty products increases, drug retailers need to take full advantage of consumer demand while understanding the risks of product availability, quality, and reputation and collaborating along the value chain.
China’s apparel industry continues to expand rapidly in all categories—with some major challenges. While there is no one-size-fits-all strategy for success, finding the right fit is vital.
It is never easy to spread a brand’s presence across a national market, let alone one as heterogeneous as China’s, where disparity of spending power and brand awareness persists. As the country's apparel industry continues to flourish and grow at an estimated rate of 14 percent, established and aspiring players face a number of challenges. Multinationals are trying to penetrate tier 3 and 4 cities, where local players compete at lower price points. In megacities, higher rental and labor costs are squeezing retailers’ margins and making it more difficult for low-performing brands to survive. The rapidly expanding fast-fashion segment has not only piqued consumer interest in affordable, edgily fashionable clothes but is also compelling mass-brand players to reconsider how they do business. This paper charts the main issues confronting the apparel industry in China today, discusses the strategies leaders are employing to capture growth opportunities, and outlines three key prerequisites for a successful brand launch.Close
- The 2013 Achieving Excellence in Retail Operations study
The retail market is changing, but the priorities remain the same.
As we developed A.T. Kearney's 2013 Achieving Excellence in Retail Operations (AERO) study, we were aware of the huge changes that had occurred just since our previous study in 2010. Three years ago, we did not ask retailers anything about social networking. We covered far fewer options for deploying technologies to customers—and for getting information back from them. And although we asked about multiple channels, the notion of integrated channel retailing was at best a distant mirage. But look what happened with our results in 2013: Despite the changes, the AERO study demonstrates the importance of many traditional core principles of retailing. It confirms that running a successful retail operation is all about people: employees, customers, and the interactions between them. One of the biggest secrets to success is the simple notion of engagement: listening to your staff and your customers. Another is cutting back on administrative burdens to get managers out in the field. And although the new wealth of technologies and available data is a great boon, often the most productive uses of it are in addressing familiar challenges such as managing shrink and out-of-stocks.
Sure, it is both fun and important to look at new technologies and the insights you can gain from them. Yes, there is some value in the gee-whiz imaginings of a Jetsons-like retail future. But when you dig deep into what actually generates profits for today’s most successful retail companies, it turns out that they’re simply good at what great retailers have always been good at: the nuts and bolts of operations. They identify the right metrics, analyze them appropriately, and act intelligently. They support field leadership with tools and processes to improve their decision making. They rely on, and seek insights from, front-line staff. And they view technology as neither a threat nor a toy, but as a tool that better enables them to achieve ancient ambitions such as customer insight, operations efficiency, and customer service.
In a sense, then, the more things change, the more they stay the same. In an information-soaked environment, amid the emergence of multiple retail channels, it’s important to understand how to take advantage of the changes. But it’s equally important to keep a hand on the pulse of core principles: people, customers, and physical store layouts. This report examines the insights from our 2013 AERO Study to show how retailers are turning great operations into profits.Close
How global food companies capture diverse opportunities.
Global food companies, from seed producers to quick service restaurant (QSR) operators, from agrochemical enterprises to branded food manufacturers, have built business empires in the developed world. For the largest among them, developed markets typically account for as much as two-thirds of their business turnover. But as growth slows across much of Europe and North America, attention has turned to emerging markets.
The record is clear. We know that replicating business models, products, management systems, and processes used in developed economies does not work in emerging countries and that success belongs to those that identify the singularities of each market and adapt accordingly. Our client experience, coupled with our examination of many of the best-known cases of profitable internationalization among food manufacturers and QSR operators, has led us to develop a six-point framework to assess different food markets and their specific needs. The paper discusses these points in more depth:
- Know and address consumers’ health and nutrition needs.
- Cater to shoppers’ tastes and preferences.
- Remember that volume trumps margin.
- Drive the trend in packaged food consumption.
- Innovate, adapt, and (re)configure to solve supply chain issues.
- Understand and comply with regulations.
- CPG matters, March 2013
Learn how to better evaluate and prioritize value chain improvement in corporate decision-making and unlock benefits that support both growth and cost reduction.
As emerging economies seek to influence global standards, Europe's role as a shaper becomes a priority.
Standards are the rules, guidelines, and definitions that describe repeatable ways of doing things. Standards are a crucial element in the EU's industrial strategy as Europe seeks to remain a shaper of global standards rather than a follower.
The European Round Table of Industrialists worked with A.T. Kearney to study the issue of developing and implementing standards. We found six recommendations for establishing standards in European industry:
- Establish performance targets to foster innovation. Standards spread collective knowledge, bringing together industry players in a working environment of sharing and collaboration. The use of standardized parts and business processes can reduce early investment costs and risks, and provide a platform from which industries can innovate.
- Consult with experts. Involving technical and industrial experts, even when standards are initiated by governments, can help build standards on solid foundations.
- Coordinate industry players. European standardization bodies can play a larger role in facilitating standard-setting along the value chain and across industries.
- Balance speed and consensus. Standards must be put in place quickly in the face of accelerating technological change and market competition, and they must be built on a foundation of consensus to broadly address the requirements of all players.
- Encourage a global approach. European companies that adopt and participate in setting global standards increase their market access to other countries.
- Encourage SME participation. Despite their importance to the European economy, few small and medium-sized enterprises (SMEs) are actively involved in setting standards.
Supply chain performance is a measure of competitive advantage—both immediate and long term.
Today, CEOs and supply chain executives continue to ask important questions:
- How do we control mounting complexity?
- How can we balance size and efficiency with flexibility and responsiveness?
- Is it possible to plan for demand volatility?
- Which of the many companies in our supply chains should be our closest and most trusted partners?
Answering these questions requires taking a closer look at the pressures on today's supply chains, the different improvement measures available, and the reasons why companies often fail to take the appropriate measures.
Executives know they need to improve their supply chain performance and that simply cutting costs and improving service is no longer a viable option. Yet those who move beyond the basics to take the larger leap of seeking transformative change often fall short. There are several reasons why:
- After picking the low-hanging fruit, what's next?
- Benchmarking is analogous to goal setting.
- Trouble getting past unfulfilled promises.
- Measuring beyond cost and service.
Next, supply chain objectives must be closely aligned to overall business objectives, especially if the goal is to gain competitive advantage. At this level, it is important that your supply chain capabilities can carry you into the future.
Once you are looking beyond cost and service and including "new" capabilities among your strategic targets, the result is increased and growing competitive advantage.Close
An innovation blitz can help consumer goods firms build momentum for ongoing innovation.
A 100-day open innovation (OI) blitz is a powerful tool to drive immediate wins, build momentum, and engage employees in ways that instantly begin to break down traditional work constraints. The blitz intensively restages open innovation efforts under a unified program, and it ties the different strands together with a purposeful communication and change management approach. Launching sequential waves of OI tactics and events shapes how the organization approaches innovation going forward.
The tactics and events can range from local to global in scope. They can include everything from innovation summits, to internal or external innovation competitions and dialogues, to online forums.
Following are the main elements:
- Lay out an innovation strategy and OI needs. Start with a strategy that sets out an overall aspiration for innovation, the role that OI plays within that aspiration, and specific, measurable OI objectives.
- Match challenges to tactics. Once the challenges for the 100-day blitz are defined, match them to suitable OI tactics, such as crowdsourcing, key supplier or employee involvement, or even collaboration with companies in other industries facing similar challenges.
- Refine good ideas and drive them into the pipeline. Apply techniques such as rapidly developing business cases to get to those high-potential ideas fast.
- Change the way you work. Allow the space or environment for supporting true OI by integrating innovation into the culture of the organization.
The local food movement is spreading from rural farm market stands to supermarket shelves. Can large grocers tap into this growing market?
Grocery shoppers are returning to their roots, seeking “local food” that travels a shorter distance from farm to table, supports local farmers, offers fresher produce, and reduces the environmental impact of transporting food over long distances.
It’s little surprise then that large grocery chains and big-box retailers worldwide have begun to take notice, as more shoppers are willing to pay a premium for local food—seeing it as better-tasting, more trustworthy, and more sustainable. Yet people tend to question how “local” the food really is at those large grocery stores compared to the roadside farmstand where it is clear the products—vegetables and fruits—were just harvested from the field a few feet away. And the grocery chains have a long way to go operationally to deliver local food and make a profit on it.
We recently surveyed grocery shoppers to determine how shoppers make their decisions about buying local versus non-local food and examine the strengths and weaknesses of large grocery retailers compared to other formats when it comes to local food. The survey results emphasize the importance of local grocery for shoppers. Following are some of the major findings:
- Grocery shoppers are embracing the increase in local food options.
- Shoppers will switch stores for a better local food selection.
- Shoppers don’t trust national and big-box retailers for local food.
- Shoppers will pay more for local food.
To capture a larger share of this market, there are several steps large grocers can take. First, understand that "fresh" matters when it comes to local food. Second, convey the authenticity of your local products. Third, consider the implications local food will have on your buying and category management. Lastly, don't underestimate the supply chain impact.Close
A.T. Kearney has crafted a framework that P-O-P companies can use to systematize and coordinate their in-store marketing efforts.
Based on decades of point-of-purchase and marketing operations consulting work with top CPG companies, A.T. Kearney has crafted a framework that P-O-P companies can use to systematize and coordinate their in-store marketing efforts. Marketers who've already implemented these P-O-P recommendations report sales increases of up to 12 percent, unit cost reductions as high as 45 percent, and speed-to market increases of up to 50 percent.
As a means to better understand P-O-P compliance rates, spending, and the delegation of tasks within company structures, A.T. Kearney and the Path to Purchase Institute created a survey underwritten by RockTenn titled the P-O-P Excellence survey.
In this survey, respondents indicated that, on average, 20 percent of all P-O-P is wasted—a figure that rose to 50 percent for some programs. Common factors include specific programming demands of individual retail chains and excessive customization, a lacking or nonexistent system of cost accountability, and the fact that various sales, brand, and support teams may be empowered to pursue their own game plans. The net result is too many players on the field.
The primary issues that must be addressed are: strategy, planning and development, supply chain, and the improvement of execution. If there's any consensus about P-O-P, it's that not enough of it shows up in the stores.Close
- The right way to think about network optimization
Networks are complicated, and managing them requires an expansive strategic imagination.
The conventional way of looking at a network is through the direct-value lens: How much does it cost to run the network? Networks are a great deal more complicated than that, and managing them—or, more fittingly, optimizing them—requires an expansive strategic imagination.
No matter what kind of network one manages—hospitality, retailing, banking, leisure, telecommunications whatever it might be—once the network is built, it immediately begins its evolution. Even within a single local market, the network is evolving all the time. As the network goes through its life cycle, perspectives on sustaining it must change as well. The means for doing this are distilled in A.T. Kearney’s Network Optimization Tools, or KNOTs, comprised of eight elements, each focused on a strategic element of the network.
The English word knots translates as les nœuds in French, or nodes. This is an apt image for thinking about the symbiosis of the local and the networked—the balance of savoir-faire métier and savoir-faire local, of the collective intelligence of the network and the specific intelligence of the individual.
Think of KNOTs not as a laundry list of best practices used to build an optimal network but as electrons—each one discrete and at the same time interacting around the nucleus. A national bank develops financial products centrally, but the local branch manager manages the relationship with customers. The national bank maintains good relations with the regulators while the branch manager cultivates the good will of the town mayor. A manufacturer’s leverage with suppliers may be directly proportionate to its number of plants, yet procurement is not only about concentrated volume. It is also about expertise the manufacturer owns in a multitude of categories and brings to bear in the local nodes of its network.
A sobering counterexample is the flameout of video retailer Blockbuster, which channeled its energies into adding thousands of stores and tens of thousands of employees in North America and Western Europe only to be caught off guard by competitors such as Netflix and the rapid adoption of streaming video. In hindsight, Blockbuster’s history suggests an unbalanced emphasis on its real estate network and not enough on the customer experience. The result was catastrophic.
We organize our network nomenclature into three types: production networks, service networks, and distribution networks. La Poste, for example, is a production network in that it operates like a factory producing a product: collecting and distributing mail. Taxi companies, railroads, and airlines are other good examples of production networks. The nodes in these networks are more than just infrastructure. One must own the nodes or there is no business to manage. Closely related to the production network is the service network, typified by telecommunications and hospitality. A hotel network, for instance, cannot deliver a night’s sleep over the Internet. The consumption of its product is done at the local level even though each node in the network is supported by the expertise of the whole. The service is the network.
A distribution network is retail in all senses of the word, especially in its tailoring of products to meet the needs of local customers. Distribution networks are high touch and in certain ways are the easiest networks to think about in terms of nodes. The most familiar example, literally the most concrete, is a brick-and-mortar retail chain. Find a Wal-Mart, and its distribution center will not be very far away.Close
An integrated approach to commodity risk management separates those who react to volatility from those who manage it.
When volatility hits the financial markets, investors shudder. When volatility hits the commodities markets, corporations shudder. The recent U.S. drought reinforced this message as it affected the price of corn, soybeans, animal feed, and other inputs to the food supply. The drought and its impact on future commodity prices are expected to have serious repercussions on all food prices.
We recently surveyed 21 chief procurement officers (CPOs) and heads of the commodity risk management functions of major food and beverage companies. This is the first in a series of studies to assess the impact of rising commodity prices and gauge corporate approaches to commodity risk management. Study participants were asked a range of questions, including: What impact is the rise in commodity prices having on your company? What are your expectations for the future? How do you approach and manage risk? How is your company positioned for the future if commodity prices remain volatile for the next several years?
Overall, our participants know that increased volatility in commodity pricing is not a short-term phenomenon. In a global marketplace, weather shocks—hurricanes, tsunamis, floods, or drought—are recurring events that will increase price volatility. Other factors such as increased global demand, geopolitical conflicts, and biofuels are causing a host of new headaches.
They have largely relied on hedging to manage their risk, maintain costs, and ensure a more predictable source of supply. Now, however, given the size and scope of the influencing factors and recognizing that commodity volatility cannot always be controlled, they say hedging alone is no longer a sufficient risk management approach.
Most CPOs believe volatile commodity prices will affect consumer pricing, and 43 percent believe the volatility will also impact company profitability (see figure 2). Most believe that the impact will not go away anytime soon—80 percent think the price hit will last more than a year, and 60 percent say they should increase their buying coverage. Tight supplies at the end of 2011 and lower than expected yields mean that stock will be depleted going into the 2012-2013 marketing year.
No good risk management strategy begins without discussions with senior executives about expectations and appetite for risk. Is the company inclined to ride out the market or more interested in predictable costs? Is the objective to beat the competition or to dominate the market? In our work with clients, we often recommend the following:
- Understand market dynamics and what “value” is at risk. Know your markets, your position in them, and your value drivers.
- Have a mitigation strategy in place. Have a plan in place that outlines the potential risk mitigation strategies—deflect, transfer, hedge, or operate—for all commodities.
- Reach market-driven decisions. Make decisions about risk factors and mitigation tactics with your markets in mind.
- Manage execution and governance. Manage major risks cost-effectively while also considering the residual risks, such as foreign exchange.
As more people interact with more companies in more channels, CIOs are delivering value in the form of cross-channel integration.
As customer engagement gains importance in most every business, across industries, companies are threatened by the potential defection of customers to competitors that have mastered new and more convenient dotcom channels. Yet, while these channels might be profitable, they are often isolated from the brick-and-mortar business. Without links to other parts of the business, customer engagement cannot take place. Consumers have become multichannel shoppers, which means companies must have comprehensive strategies in place to engage them within and across a portfolio of channels.
This is where the IT organization and its chief information officer (CIO) have something to bring to the table. With unique expertise and resources, CIOs can lead the way in understanding how customers interact with companies in these newer, IT-enabled channels—and how companies can more effectively please their customers.Close
Consumer-focused healthcare is becoming a battleground for giants in the consumer goods and pharmaceutical industries.
Many factors have combined to create a new market for healthcare products. And the world's leading pharmaceutical and consumer goods companies are eager to do battle for the seemingly unlimited potential.
Both industries bring different strengths and weaknesses to the battle. We believe the consumer health company of the future will be an amalgam of the two industries, able to engage consumers and prove the clinical effectiveness of their products and as adept at dealing with medical professionals as negotiating supermarket shelf space. Even more important, the company will know how to identify unmet consumer needs and develop innovative ways to unlock true value in the marketplace.
In this second paper in a series on the consumer health industry, we explore answers to questions our consumer health clients are asking. Which categories should we focus on? Can we succeed with global products and brands, or is this a local market play? How should the product be positioned between consumer goods and prescription drugs? Where should we focus—on developed or developing markets, or both?
The fight for the consumer health market is a war with multiple fronts, and participants will have to organize effectively, move swiftly, and know which battles they must take on and which tactics will ensure victory.
A healthcare segment is emerging between mass retail-based consumer goods and pharmaceuticals. The winning model will borrow capabilities from each.
Big changes are afoot in consumer markets. It seems that most food companies are keen to persuade consumers that their products are tasty and healthy. Personal-care companies are following a similar path, emphasizing that their products have a scientific basis. At the extreme end of this trend, emerging new products promise to deliver health benefits traditionally offered by pharmaceutical products. These products are scientifically tailored either to address specific health needs or increase some dimension of performance—and it is big business going beyond the traditional over-the-counter (OTC) market estimated at approximately $125 billion globally.
Why is everybody so interested in consumer health and what is required to succeed in this market? This paper examines the global demographic changes that are leading to demand for mass-market consumer-focused healthcare products. It also looks at how these changes are affecting markets, creating a huge new battleground for the 2010s. Finally, it analyzes what consumer goods and pharmaceutical companies need to do to win.Close
Green energy can lead to profits, but only with the right incentives and balance of price, technologies, capital, and operations.
Green energy is at the heart of all ecological strategies because it affects companies in three vital areas: environmental, economic, and social.
A company's core activities will determine the size of its energy footprint, but reducing greenhouse gas emissions, which have a sizable environmental impact, is an essential element for any sustainability pledge.
Economically, conserving energy can have a huge impact and mitigates risk around fossil fuel costs. After a company has picked the low-hanging fruit—the well-known, no-cost energy-conservation measures—the question becomes how to further reduce energy consumption, especially in an environment of volatile commodity prices and supply.
On the social front, the sustainability argument focuses on community impacts, such as how open-pit mining or hydroelectric dam construction can affect life in a small town or how energy projects can create jobs.
With this trifecta of factors in mind, many firms recognize the value of going green and want to build renewable-energy initiatives into their corporate goals without negatively affecting the bottom line. Yet, going green can positively affect a company's bottom line through energy efficiency and financially feasible renewable projects.Close
In beauty, the customer experience is where the sale is won or lost, where interaction with the brand comes to life, and where the seeds of loyalty are planted.
As the beauty and cosmetics industry continues its global growth spurt, there is more of everything—more competition from new entrants in luxury and mass prestige, more distribution channels, and more customer touch points. While similar issues are plaguing most other industries, beauty is different. As a U.S. marketing executive in the beauty care industry so aptly puts it, "the time has passed when consumers were intrigued by brand alone."
In beauty, the experience at the point-of-sale (POS) remains the most important. It is where the sale is won or lost, where interaction with the brand comes to life, and where the seeds of loyalty are planted. To differentiate beauty products in a crowded and competitive environment, best practice companies have several things in common. There are five beauty secrets:
- Understand all aspects of the point-of-sale experience and its impact on brand performance
- Know what matters most to your end customers and retailers
- Identify the specific touch-and-feel experiences across geographies
- Ensure a consistent experience in all distribution channels
- Use the right organizational model and competencies to maximize the point-of-sale experience
This article discusses all five in more detail.Close
From the devastation of March 11, 2011, may come a new birth for Fukushima and Japan.
On the Richter scale, the quake is 9.0, the most powerful ever to strike Japan. Even as the aftershocks rumble, none of us imagines the approaching tsunami traveling behind the quake, across the Pacific, toward Japan's eastern coast. When the waves break, the news is immediately horrifying, and only grows more so. More than 20,000 people are dead or missing.
The catastrophe is not over. Three reactors at the Fukushima Daiichi nuclear plant flood and suffer core meltdowns. Radiation levels rise. An estimated 150,000 people move out or are evacuated while municipal officials impose a 20-kilometer exclusion zone around the power station. Around the world Fukushima becomes a household name for the worst possible reasons.Close