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0 FIAne – 020220A – GCro - P0 Competitive Strategy Geoff Crossley CEO, Eurocash Food Service & Gas Stations Group Director, Investor Relations October.

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Presentation on theme: "0 FIAne – 020220A – GCro - P0 Competitive Strategy Geoff Crossley CEO, Eurocash Food Service & Gas Stations Group Director, Investor Relations October."— Presentation transcript:

1 0 FIAne – A – GCro - P0 Competitive Strategy Geoff Crossley CEO, Eurocash Food Service & Gas Stations Group Director, Investor Relations October 2009, Poznan

2 1 FIAne – A – GCro - P1 Objectives today  Give you a brief introduction to Eurocash  Share a personal view of the changing context we strategize in  Sum up the teachings of Prof.M. Porter of Harvard Business School  Illustrate how to apply basic concepts  Get some interaction with you

3 2 FIAne – A – GCro - P2 Eurocash – Market leader consolidating a fragmented sector Source: Rzeczpospolita 500, Polityk a 500, GfK Polonia, company data, own estimates * Makro FMCG turnover estimated at app. 60% of Makro total ** Emperia - wholesale sales only; *** Ruch: non-press FMCG; C&C – Cash&Carry; D: Direct delivery; T: Tobacco; A: Alcohol; E: estimated data Strategies in place to be leader in :  C&C in small/medium cities  Franchise systems, nationwide  Impulse and Convenience for Traditional Shops and Gas Stations  Food Service and HoReCa EUROCASH GROUP  Self-financing, net cash position  Relatively limited credit exposure  Central head office synergies  Experienced management team Eurocash Group sales and market share evolution Wholesale market – key players (2008)

4 3 FIAne – A – GCro - P3 Outlook for 2009 Cost & price leadershipSources of future growth Strict cost control and focus on productivity gains LFL and market share growth Low CAPEXCash&Carry: 6-8 new stores p.a. Low exposure to credit sales Delikatesy Centrum: 80+ new franchise stores (new regions) No debt – cash + unutilized credit lines available McLane: more sales to gas stations development of food service Stable earnings and focus on cash (negative working capital) KDWT: growing non-tobacco impulse „Our strong balance sheet allows us to look at 2009 as a year of opportunity, when weaker market participants will face real challenges” Luis Amaral CEO

5 4 FIAne – A – GCro - P4 Phases in recent memory of working life The changing context for Strategy formulation Postwar to 60s Business Context General growth Common Market Job was for life Business trends Diversify Divisionalize 70s, Oil-shock80s90s Discontinuity Different impact depending on energy- intensity of industry Portfolio Planning Resource allocation Uk led privatisations Defeat of unions First use of Pc.. Outsourcing Productivity thru People Arrival of Private Equity in Europe Collapse of Soviet Union Europe 92 open borders EU enlargement, Euro Oil at 9 USD Financial deregulation Globalisation, emerging mkts Start of Venture Capital in EU Technology-based productivity growth Cost cutting Operational excellence 00s? Securitisation Leverage Bubbles Oil at 140 $ Crashes ?????

6 5 FIAne – A – GCro - P5 XXI st Century Competitive Context Company Falling barriers to competition TechnologicalProgress Supremacy of Knowledge Assets & Skills Compression of Time and Space Decreasing Scale effects More exigent customers & micro- segmentation

7 6 FIAne – A – GCro - P6 Europe in the Era of Total Competition Porter’s Themes : 1. Distinguishing Strategy from Operational Effectiveness 2.Shaping Industry Structure 3.Choosing a Distinctive Competitive Position 4.Positioning and the Value Chain 5. Trade-offs 6.Continuity in execution

8 7 FIAne – A – GCro - P7 Determinants of Company Performance Functional (e.g., marketing, production) excellence Eliminating waste and achieving greater output from existing resources Stimulating continuous organisational improvement Executing closer to the productivity frontier Operational Effectiveness

9 8 FIAne – A – GCro - P8 Determinants of Company Performance –Improving operational effectiveness preoccupies companies a lot of the time –..but Companies must shift their attention to strategy to secure long-run success Strategy Creating a unique and sustainable competitive position Transforming or redefining competition in the industry Operational Effectiveness

10 9 FIAne – A – GCro - P9 Competitive Strategy –The central goal of a firm is superior long-term return on investment –The fundamental unit of strategic analysis is the industry –Company performance results from two distinct causes Industry Structure Relative Position Within the Industry

11 10 FIAne – A – GCro - P10 Determinants of long term sector profitability Threat of subtitute Products/services Threat of new entrants Rivalry between existing competitors Bargaining Power, Suppliers Bargaining power of Oil Cos Emperia LogPol Tobacco and beer/ strong alcohol producers Use of Bid dynamics and contractual service penalties High Street outlets with location Fast Food outlets Supplier direct delivery Outsourced Chain Operators Slowdown, Wholesale consolidation Rivalry of Category specialists, Regional and Full-range players, Petrol Convenience Stores

12 11 FIAne – A – GCro - P11 Positioning and Segmentation Customer Group (Needs, Accessibility) Value Chain (Activities) Positioning is the simultaneous choice of  which group of customers to serve,  which array of product varieties to offer, and  the particular mix of value (price and non-price) to deliver

13 12 FIAne – A – GCro - P12 Actionable segmentation: basic principles Dimension A? Dimension B? ClientsOccasions Consumers Products Geographical areas Needs Services Competitors Transactions Channels Chosen dimensions must be exhaustive –Demographics –Situational –Behavioural Requires intuition to map primary dimensions Must produce differentiated segments that are actionable –Recognizable clients groups –Needs versus observable discriminating characteristics Facilitates understanding of needs, how to serve Allows segments prioritisation

14 13 FIAne – A – GCro - P13 Positioning and Segmentation Customer Types / Purchase Occasions Product / Service Varieties Positioning choices show in the particular configuration of activities adopted Essence of strategic positioning: making choices that are different from those of rivals Competition occurs primarily in the areas of overlap Competitor A Competitor C Competitor B

15 14 FIAne – A – GCro - P14 Positioning and the Value Chain –Companies are collections of discrete activities, in which competitive advantage resides –Discrete activities are often complementary –Positioning choices are reflected in an internally consistent configuration of activities Firm Infrastructure (e.g. Financing, Planning, Investor Relations) Human Resource Management (e.g. Recruiting, Training, Compensation System) Technology Development (e.g. Product Design, Testing, Process Design, Market Research, Material Research) Inbound Logistics (e.g. Data Collection, Material Storage, Customer Access) Operations (e.g. Component Moulding, Branch Operations, Underwriting) Outbound Logistics (e..g. Order Processing, Warehousing, Report Preparation) Marketing & Sales (e.g. Sales, Proposal Writing, Advertising, Trade Shows) After-Sales Service (e.g. Installation, Customer Support, Repair) M a r g i n Procurement (e.g. Raw Materials, Advertising Space, Health Services) Support Activities Primary Activities

16 15 FIAne – A – GCro - P15 Positioning and Competitive advantage - Eurocash service to Petrol Chains Groups of clients,Needs, Differentiation (Non-Price Value ) Lower Cost Competitive Advantage Competitive Advantage Value Chain (Activities)) Buying Power Logistic cost Service level All in one truck E-invoice Error reduction Are Petrol Chains interested only in minimised Bid Prices ? (other factors only “Nice to have”) ? Are factors reducing Total cost for the Client relevant? Is “Lowest Total Cost” a relevant Strategy for the Wholesaler? Is there scope for a Value-Added Service Strategy, (implying a price premium) ? Positioning choice:  which group of clients to serve?  which range of products to offer?  what mix of Value(price/non-price)

17 16 FIAne – A – GCro - P16 Positioning and the Value Chain Eurocash Petrol Stations service –Hi volume in common producers gives buying power –Full-range means bigger drop and greater Warehouse throughput –Multi-temp allows consolidation of chilled and frozen volume with ambient –Common, hi volume skus means better use of space and capex –Use of technology to make life simple ties the client –Multi-client back-office dilutes cost to serve Firm Infrastructure Human Resource Management Technology Development Inbound Logistics Operations Outbound Logistics Marketing & Sales After- Sales Service M a r g i n Procurement Support Activitie s Primary Activities Long term advantage depends on the complementarity of multiple activities that exceed specific skills or resources McLane’s particular mix

18 17 FIAne – A – GCro - P17 Positioning - IKEA, Sweden Customer Group (Needs, Accessibility) Value Chain (Activities) IKEA focuses on young, price sensitive, first-time buyers –Low-priced, modular, ready-to- assemble designs –In-house design of all products –Wide range of styles in huge warehouse stores –Self-selection / Large inventories –Extensive information in the form of catalogues, do-it-yourself videos, explanatory ticketing, and assembly references –Long hours of operation –Suburban locations with large parking lots –Self-transport

19 18 FIAne – A – GCro - P18 Complementarities at IKEA Staff Productivity Customer Behaviour Modular Kit ConceptLow Manufacturing Cost Limited Sales Staffing High traffic store layout designed for impulse purchasing Explanatory catalogues, informative labelling and displays Self-selection from warehouse; self-assembly Suburban locations with large parking lots Most items in inventory More impulse buying Self-transport by customers Ample inventory on site ‘Knock-down’ kit packaging Modular designs Ease of transport and assembly Increased variety with ease of manufacturing Increased likelihood of follow-on purchase Ample year-round stocking In-house design focused on cost of manufacturing 100% sourcing from long-term suppliers

20 19 FIAne – A – GCro - P19 Positioning Tradeoffs - IKEA, Sweden IKEATypical Furniture Retailer Higher priced, fully assembled products - some customization of fabrics, colours, finishes Furniture purchase and merchandising only Primary design and manufacturing focus on image / style / materials Medium sized furniture showrooms Low inventories / order placement typical Urban / suburban locations Product information provided by store sales personnel Low-priced, modular, ready-to- assemble designs - no custom options Centralised, in-house design of all products Furniture design and manufacture driven by cost Wide range of styles in huge warehouse stores Self-selection / Large inventories Suburban locations with large parking lots Extensive information in the form of catalogues, do-it-yourself videos, explanatory ticketing, and assembly references

21 20 FIAne – A – GCro - P20 Complementarities and Competitive Advantage –The presence of complementarities make competitive advantage far more sustainable than advantages arising from discrete activities or “competencies” Rivals must match a whole array of activities and the way they are integrated Complementarities amplify the competitive penalty of small shortfalls in matching individual activities Achieving complementarities is difficult organisationally –Strong complementarities also elevate the tradeoffs between positions –Complementarities also allow organisational structure and management process to be better aligned with strategy

22 21 FIAne – A – GCro - P21 Why Companies Fail to Choose Strategies Economic –The need to choose is not understood Operational effectiveness is confused with strategy Better productivity creates the illusion that the best of all worlds is possible –Choice appears to constrain sales growth –Choice limits flexibility Organisational –Stalemate between factions / functions within the organisation who are championing different objectives –Organisational incentives punish choices but tolerate mediocrity (if the competitors are doing it...) –Denying tradeoffs is seen as motivating greater organisational improvement

23 22 FIAne – A – GCro - P22 Strategic Mindsets Strategy is a race to one ideal position Strategy is the creation of a different position where competitors are unable or unwilling to compete Key success factors or core capabilities determine the winner Long-run advantage depends on complementarities across many activities that transcend (and give value to) discrete capabilities or resources

24 23 FIAne – A – GCro - P23 Strategic Continuity and Continuous Improvement –Strategic continuity over sustained periods contributes strongly to sustainable competitive advantage Reinforces identity with customers and channels Builds truly unique capabilities and skills Sharpens understanding of tradeoffs Fosters strengthening of complementarities Facilitates improvements in operational effectiveness –Strategic continuity must be combined with continuous improvement in implementation –There is often a tension between achieving sustainable advantage and maintaining the flexibility to respond to any structural change

25 24 FIAne – A – GCro - P24 Fundamental Errors in Competitive Strategy-M. Porter –Operational effectiveness instead of strategy –Ignoring or only reacting to industry structure –“Best of all worlds” instead of tradeoffs –Competencies instead of strategies –Flexibility instead of continuity –Sloppy, incoherent implementation

26 25 FIAne – A – GCro - P25 Final Words of advice Watch macro-economic game-changers: build your own memory for later déjà vu moments –Use of Debt, health of Balance sheet, –Relative interest rates, Exchange rate swings –Opening of Trade Barriers –Drivers of the price of Oil... Etc Watch for the Herd instinct of managers  All Rush into new markets, then overcapacity results, and withdrawal  Blind copy of their home business model, not adapting to new country  Corporatist, not entrepreneurial  Prone to buzzwords and fads- form your own view.  Nothing stays the same: When in doubt, steer with your Values and a simple check-list

27 26 FIAne – A – GCro - P26 Thank you for your attention!


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