Shaping the future SALES 2015

Shaping the future SALES 2015 Results of the study conducted by Markenverband and Roland Berger Strategy Consultants Munich/Berlin, November 2010

Page 1 Background of the study 3 2 Participants and structure 9 3 Selected results 13 4 Contacts 40 2

1 Background of the study 3

The smaller playing field for branded products and the driving-force retail trends will influence the future of selling 1 2 "SMALLER PLAYING FIELD" PLAYING FIELD FOR BRANDED PRODUCTS EUR -20 bn "DRIVING-FORCE RETAIL TRENDS" What does this mean for the future of Sales? Source:Roland Berger 4

1 Undifferentiated brands are losing ground TODAY FUTURE 2015 Manufacturer brands 25% Private labels 75% 80% 20% Manufacturer brands Private labels 15% 85% 60% 40% Discounters Other food retailers Discounters Other food retailers FMCG total, sales (volume) PLAYING FIELD FOR BRANDED PRODUCTS EUR -20 bn Source:BBE; BTE; Roland Berger 5

2 10 major retail trends are driving this development 1 Efficient priceoriented formats are on the rise 6 Less is more 2 Bargaining power is increasing 7 From bargaining to bargaining "plus" 3 Retailers want to become brands 8 Managers are moving from manufacturers to retailers 4 5 Retailers are learning to understand shoppers better and better Professionalization and growth of private labels 9 10 Selective backward integration New services and business models Source:Roland Berger 6

The resulting challenges for Sales Management organization > Is there a "real" organizational structure? > Is a constant willingness to adapt needed? > Is the customer a management issue? Key account management Field organization Trade Marketing > What is ideal international customer support? > How can one best deal with discounters? > What new forms of cooperation are needed in addition to terms and conditions? > Does the field organization justify its existence (POS impact vs. costs)? > What is the best organizational model? > How important is it to further develop skills? > How far advanced is the development (in terms of tasks)/ upgrading of the function? > Which structural foundation is being pushed? 7

especially with a view to marketing "When Sales and Marketing work well together, companies see substantial improvement on important performance metrics: sales cycles are shorter, market entry costs go down, and the cost of sales is lower" Philip Kotler Ending the War between Sales and Marketing, Harvard Business Review, July 2006 Philip Kotler Source:Business Review 8

2 Participants and structure 9

The issue is highly relevant, so many top players took part in the study COMPANIES (extract) PARTICIPANTS 46 top FMCG managers in Germany CEO 10% Marketing/Sales director Head of Sales/ Sales director Head of Key Account Management Other (e.g. Business Development) 5% 17% 28% 40% The study covered 30% of German FMCG sales 10

BACKUP It encompassed a wide range of company sizes and categories Characteristics of participating companies SALES [EUR m] CATEGORY COVERAGE >1,000 11% 500-1,000 13% 100-500 <100 28% SALES GROWTH [%] <0% 9% 0-5% 48% 63% Beverages 18% Confectionery/ baked goods Frozen foods/ ice-cream Oral/personal hygiene Fresh meat/ sausage 8% 9% 11% 17% 5-10% 15% Other 37% >10% 13% 11

The cogent structure of the study led to high response levels > COMPREHENSIVE 55 detailed questions, interviews integrated > SIMPLE Modular, can be filled out both on and offline > FORWARD LOOKING Integration of trends, challenges, etc. 25% response rate 12

3 Selected results 13

Summary of the main results CHALLENGES RESULTS Management organization > Real structure? > Constant willingness to adapt? > The customer a management issue? > Matrix organization! > Never stagnation in the organization > Clearly a management issue Key account management > International customer support? > Great dissatisfaction, the future is in > Dealing with private labels and "International Lead KAMs" discounters? > Ever more focus on discounters > New forms of cooperation vs. histories? > Fix the basics Field organization Trade Marketing > Justified existence (POS impact vs. costs)? > Organization model? > Future skills? > Further development (of tasks)/"upgrading"? > Structural foundation? > Many field organizations lack the critical size > New cooperation concepts are needed > Traditional visit concepts and KPIs > Develop skills! > Almost no further development > Great potential not yet being exploited > Further development toward integrated planning, shopper insights 14

General conclusion: Individualized solutions are needed Ideas have to be embedded in the category context What does that mean for MY company and the future of OUR Sales unit? > FROM historically grown structures, characterized by > Slow processes > Little understanding of the retailer > Little knowledge of shoppers > Historically grown organizational structures > > TO individualized and effective solutions, adjusted to the > Brand positioning > Category drivers > Customer and retail structure > Corporate culture > 15

3 Selectecd results Detailed 16

Organizational changes must lead to a better understanding of the customer Management organization 1. Matrix organization is replacing functional organization 2. Organizational development never stops. Constant adjustment is needed if growth is to be achieved 3. The cost component of Sales varies greatly 4. Sales is being recognized as a CEO management issue 5. Manufacturers still have too little understanding of retailers 17

1 Matrix organization is replacing functional organization Management organization Structure of Sales [%] TODAY FUTURE Functional organization Divisional organization 13 70 35 11 > The choice of organizational structure is independent of how the FMCG categories are covered Matrixorganization International customer-business teams 0 13 7 33 > In particular smaller companies (< EUR 100 m in sales) today have functionbased organizational forms Other 4 14 18

2 Organizational development never stops Constant adjustment is necessary for growth Management organization Organizational changes [%] FREQUENCY MAIN REASONS Fundamental, major change 4 2 59 17 17 7 35 18 59 Drive growth Reduce costs 46 17 35 2 Fine tuning 4 4 27 4 39 Speed up realization Sales excellence at POS 30 26 46 39 17 26 7 9 No change 2 Sales excellence at the customer Internal excellence of Sales 35 24 33 44 23 28 9 4 Category excellence 20 39 34 7 Every year Every 1-2 years Every 2-3 years >3 years Essential Important Less important No response 19

3 The cost component varies greatly, due to varying category coverage and market penetration Management organization Cost component [% of sales] SALES COSTS >10% 7.5-10% 5-7.5% 3-5% <3% No response 11 11 14 16 21 27 > The share of sales costs varies greatly across all company sizes. No surprise because of respondents' varying category coverage > Sales costs account for more than 5% of total sales revenue at half the companies 1) FTE = Full time employees 20

4 Sales is being recognized as a management issue CEO is "CCO" Management organization Customer orientation (industry viewpoint) Orientation of the company toward customer needs Clear mirroring of customer structure/ allocation of contacts Less clearly defined 87% Role allocation/clear separation of tasks Clear definition of roles, which are then also realized accordingly Clear definition of the roles, but these are not lived out accordingly 91% 13% 9% ROLE OF THE CEO Feels responsible as the "Chief Customer Officer" (75%) Delegates tasks/ customer responsibility to the Sales Manager (25%) 21

5 Manufacturers do not understand retailers well enough yet Good cooperation at operational level, less knowledge of their strategies Management organization Customer orientation (retail viewpoint) [positive net value] 1) EVALUATION OF FMCG MANUFACTURERS Overall evaluation 16 Business relationships 6 STAFF ORGANIZATION Understands our specific strategies/goals and reacts to them -1 Staff organization Category development Consumer marketing 11 16 47 Visits are productive CATEGORY DEVELOPMENT 25 Trade marketing Logistics/Supply chain Customer service 7 18 18 Makes objective category recommendations Offers category development plans that help us achieve our growth/revenue goals 5 11 1) Evaluation of 20 leading makers of brand-name articles by German food retailers in 2009. Difference between positive and negative evaluations Source:Advantage Group; Markenverband; Roland Berger 22

Great need for improvement in KAM Key account management 1. KAM is highly relevant for sales 2. Satisfaction with international customer support is very low 3. "International Lead KAM" is today seen as the solution for the future, with clear responsibilities as the main challenge 4. More focus on supporting discounters 5. Fixing the "basics" is still a challenge. Companies try to overcome their past instead of being future- and shopperoriented 23

1 The high sales revenue relevance of KAM is driven by retail consolidation National key account management Structure NATIONAL REGIONAL Structure [%] Existence of regional KAM [%] Independent KAM 87 YES 70 Interdivisional KAM 13 NO 30 Coverage [% of sales] Organizational foundation [%] 90-100% 70-90% 50-70% 9 28 43 Regional KAM is part of a national KAM team Regional KAM reports to the head of the field organization 7 53 <50% 10 Other/no response 40 No response 10 24

2 Great dissatisfaction with international customer support Very few have found the best model International key account management Structure [%] Support of international business Satisfaction with the organizational foundation of the international KAM activities 41 59 Highly satisfied 7 Satisfied 52 Not satisfied 41 NO YES 25

3 "International Lead KAM" is seen as the future solution Clear responsibilities are the main challenge International key account management [%] Organizational structure One KAM for both the national and the international business One "internat. Lead KAM" in charge of a team of nat. KAMs for the international business International KAM team One KAM for international business Other Support of international key accounts TODAY FUTURE 23 15 23 48 19 15 17 7 18 15 > International Lead KAMs will increasingly take over the management of international customers > A purely international perspective from one single KAM is becoming less relevant > Responsibilities have to be clearly defined between countries, divisions and customers 26

4 Discounter support is more in focus Specific management of the customers and the format National key account management Responsibility for discount [%] Support of discounters (multiple resp. possible) TODAY FUTURE One KAM for each discount customer 13 22 > Specific management of discounters One KAM for the discount format One KAM for each retail group, across all formats 44 48 37 48 > Discount support either by single KAMs or format KAMs depending on the size of the discount customer Other 7 4 27

5 Basics are a big problem One key challenge is learning to understand the customer better (1/2) National key account management Challenges [%] Responsibility/competence Customer and shopper orientation More empowerment of KAMs Improved understanding of 45 22 74 22 33 0 the customer and clearer mirroring 0 4 Ensuring category competence in crosscategory teams More responsibility for managing the agreed activities from beginning to end 30 38 28 4 37 41 22 0 Clarifying the own role with customers Building up internal skills for the customer Focus off conditions and on shopper orientation 13 50 37 0 26 59 15 0 67 23 8 2 Essential Important Less important No response 28

5 Basics are a big problem The focus is still on overcoming the past, rather than on shopper-oriented cooperation (2/2) National key account management Challenges [%] System of conditions Incentives/Internal efficiency Reducing the growth of the share of terms and conditions in sales 70 26 4 0 More incentives/ performance orientation 33 41 26 0 and cost transparency Optimizing the terms and conditions system through customers 70 20 8 2 Standardizing processes, tools and KPIs 22 54 20 4 More support of KAMs by IT, stricter control 20 65 15 0 Essential Important Less important No response 29

More impact can be achieved at the POS Field organization 1. Many field organizations lack the critical size 2. There is more confidence in external service providers than in intercompany cooperation 3. Traditional criteria determine the visit concept 4. Little formulation of variable incentives 5. The focus is on developing skills 30

1 Many field organizations lack the critical size Field organization Structure Own field organization within the unit Travel time per sales rep [minutes] Yes 80% No 20% Size of the field organization [# sales reps] 0-80 80-120 >120 No response 11% 70% 3% 16% Greater efficiency! No. of sales reps [#] 31

2 External service providers are trusted more than intercompany cooperations Alternative organizational models for the field organization [Share of companies without their own sales reps] Intercompany cooperation of field organizations 0% Outsourced to an external service provider 86% Other 14% 32

3 Traditional factors dominate the visit concept Field organization Management [%] Relevant criteria for defining the visit concept KPIs for managing the field organization (multiple responses possible) Format type 39 26 13 22 Assertion of service 61 Revenue potential 50 26 2 22 Number of customer visits Distribution 55 57 Category driver Levels of freedom at the outlet Support of the outlet 9 15 30 30 37 33 Essential Important Less important No response 39 28 17 20 20 22 Out-of-stock/ availability of space Shelf share Adherence to the planogram Speed of implementation 43 39 36 36 33

4 Often inadequate variable incentivation for sales reps There is upward potential here Field organization Management Share of variable remuneration for sales reps 0% 9% 0-10% 10-20% 38% 44% > Little incentivizing of sales reps through variable remuneration 20-40% 40-60% 0% 9% > Little use of KPIs that have a major influence on the impact at the POS 60-100% 0% 34

5 The focus is on developing skills Field organization Challenges [%] Responsibility/competence Efficiency/benefit Management/incentives Further develop the sales reps' skills Increased need to Improved 50 28 0 22 justify the use of 30 30 15 24 management of the 26 37 15 22 sales reps activities at the POS Separation into simple" and complex" skills 24 22 22 24 Focus on raising efficiency 30 33 15 22 More incentive through less/ more simple KPIs 22 41 13 24 Better support through IT systems 20 41 17 22 Essential Important Less important No response 35

Further potential can be realized in Trade Marketing Trade Marketing 1. Hardly any development beyond classical category management and Trade Marketing 2. The great potential of this function is seen but not yet anchored in the role 3. Commercial planning and shopper insights are the key challenges 36

1 Hardly any development beyond classical Category Management and Trade Marketing Trade Marketing Structure [%] Tasks within the org. unit under consideration (multiple responses possible) STRUCTURE OF THE DEPARTMENT TODAY FUTURE Category Management Trade Marketing Shopper insights 50 67 67 All grouped in one function Divided up between two functions 32 50 23 59 Channel management Integrated commercial planning Other 2 28 35 Divided up between more than two functions Other 3 15 10 8 None 9 37

2 Great potential is seen in the function, but it is not yet anchored in the role Trade Marketing Role CATEGORY Developing category know-how and category trends 75% CUSTOMER SHOPPER/ CONSUMER Designing and evaluating retail-related customer analyses Developing and evaluating insights and anchoring the knowledge of consumers/ shoppers 65% 63% CHANNEL TOOLS Developing channel-specific know-how and deriving retail strategies/tactics from it Developing tools, guidelines, manuals, etc. 53% 50% PLANNING Integrated planning of channel, shopper, category and customer objectives 35% 38

3 Commercial planning and shopper insights are key challenges Trade Marketing Challenges [%] Role of the function Responsibility/competence Systems/personnel Clear role definition as link between division, country, customer and brand 17 50 22 11 Putting together the commercial plan 50 31 8 11 Improved use of tools/ IT systems 15 46 28 11 Anchoring and introducing the function 28 37 22 13 High level of planning precision 28 29 28 15 Establishing overarching career paths 20 37 30 13 Developing shopper insights 50 28 11 11 Reducing the no. of promotions (fewer, bigger, better) 30 41 17 11 Essential Important Less important No response 39

4 Contacts 40

Don't hesitate to contact us if you have any questions Contacts PATRICK MANNSPERGER Roland Berger Strategy Consultants Partner E-mail: patrick_mannsperger@de.rolandberger.com Tel.: +49 89 9230-8798 Mobile: +49 160 744-8798 MARIA CONZELMANN Roland Berger Strategy Consultants Project Manager E-mail: maria_conzelmann@de.rolandberger.com Tel.: +49 89 9230-8590 Mobile: +49 160 744-8590 ANDREAS GAYK Markenverband Head of Sales Policy/Retail E-mail: a.gayk@markenverband.de Tel. : +49 30 206 168 30 MARIA FÜRNHAMMER Roland Berger Strategy Consultants Senior Consultant E-mail: maria_fuernhammer@de.rolandberger.com Tel. : +49 89 9230-8488 Mobile: +49 160 744-8488 41

Shaping the future SALES 2015