Travel Retail and Duty Free Business Intelligence    Wednesday 17 September 2014

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The Moodie Report Interview: Nestlé unveils path to prosperity

Published: 28/07/03

28 July, 2003; Source: The Moodie Report EXCLUSIVE

By Rebecca Horne

SWITZERLAND. Many critical industry issues were aired at June's Trinity Forum, and confectionery, for so long a support act in duty free, found itself on centre stage. Can confectionery provide the inspiration to address the key dilemma of how to improve footfall and penetration and build sales per passenger?

Nestlé International Travel Retail general manager Stewart Dryburgh has some provocative views on the subject. He talks exclusively to The Moodie Report staff reporter Rebecca Horne about how the category should move forward and gives a taste of Nestlé’s plans for the TFWA World Exhibition in Cannes.

The Moodie Report: One of the key issues raised at the Trinity Forum in June was the lack of data sharing. What is being done about this in the confectionery category?

Stewart Dryburgh: Nestlé is at the forefront of wanting to do something about it. I am currently in discussions with Generation about this and we want to move things along as swiftly as possible.

But Nestlé cannot bear the whole cost of bringing things forward. There are other suppliers - without giving out any names - who are like-minded but it is difficult because some pockets are not deep enough and perhaps some suppliers cannot see this short-term cost as long-term gain.

As you know, Moodie International has been facilitating discussions between the major confectionery suppliers to sponsor a travel retail category workshop to be run, possibly in October, by an external consultancy, specifically for the benefit of retailers.

The focus of this will of course be on the category as a whole - not as a benefit to any individual supplier. Obviously all suppliers have their own battles to fight - but we have to do what will be of long-term benefit to our industry. Those that don’t participate will also benefit, it always however takes a few to get the world moving. And hopefully it will not be for nothing.

The Moodie Report: You spoke at June's Trinity Forum about category building through partnership (Dryburgh's full speech is shown at the foot of this article - Ed). How does Nestlé plan to drive this concept forward?

Stewart Dryburgh: Basically, category management is all about identifying the shoppers' needs. We are talking about shoppers as opposed to consumers because so much of confectionery purchases are about gifting - where the shopper is not always the consumer.

A speech I did at the ACI in Italy in March this year outlined the complex needs of the shopper and how Nestlé works to serve the various needs of the shopper through its product range.

The gifting category obviously responds to an emotional need. For example, KitKat chunky 12-pack works as an informal gift for friends, work colleagues etc. Cailler is our premium brand which works on a more personal level for a loved one, and of course our children’s gift range works on a range of emotional levels, including birthdays and returning home. The snacking category responds to a simpler functional need: either immediate consumption in single units at the cash point or large share packs for friends or family on a long journey.

Gifting is obviously more complex and stressful because it gives this emotional message. Partnerships - for example, our success with Disney and Smarties - work well in this category because they give added value to a gift. A partnership pushes up the price poin, which is good news for the retailer, good news for the shopper as they give a gift which is more than just confectionery, and good news for the supplier’s margins.

Our successful partnership also works on the safety of global brands - the recognition of Winnie-the-Pooh and Smarties evokes familiar memories of childhood for the adult giver, so in an emotional sense the shopper is giving a bit of themselves to the child.

Our Nestlé Swiss bars work on a different level - the Swiss chocolate association and the fact that it is not available in domestic markets makes it a bit different, and the pack format means that it does not give too much of an emotional message.

The Moodie Report: So where does the ‘destination’ concept fit into this? Nestlé ceo Peter Brabeck talked about the importance of finding a ‘local flavour’ in his speech at The Trinity Forum (click here to read his speech)- how does Nestlé, a global brand that builds its success on the security of the familiar, build this into its travel retail philosophy?

Stewart Dryburgh: Nestlé is a global brand and, similarly to Diageo’s Johnnie Walker, you cannot build a local flavour into a product that depends on recognition. It therefore falls on the retailer to build a local flavour into the passenger experience - Mr Braebeck identified this as finding a local flavour in the airports rather than necessarily the products you find there.

So, for example, in Bahrain International Airport there is a large ‘Souk area’ which evokes for passengers the Middle East experience and is somewhere they can purchase locally-made products.

Nestlé responds to the issue in part by making sure that the display units for the brand convey destination appeal, for example branded gondola display units for our products in Venice airport.

The destination concept also works better with informal gifting - people are not going to spend a lot of money on something they are not familiar with, like locally-made confectionery. Premium gifting relies on the better known brands, like Godiva.

The Moodie Report: Let's talk about Nestlé’s stance on the premium confectionery category. According to data from Mintel, the premium and super-premium chocolate categories are outstripping the mainstream category in terms of domestic market growth. Is it not important for Nestlé to be responding to this, or does Nestlé have a problem conveying a premium message now it is so well-established globally with so many mainstream brands? You do so well with children’s branding - but is there some excitement missing for the adults that the premium category could convey?

Stewart Dryburgh: Yes, it is a big problem for us, and this brings us on to our future intentions for our premium brand Cailler, which we have big plans for, all to be revealed at Cannes this year.

The Cailler brand is a hidden gem for us, as we have not done much so far to internationalise this brand. It is the biggest-selling chocolate brand in Switzerland - not many people know this - and it is also the oldest, originating in 1819. Nestlé is planning a major re-design and re-launch for the brand which we will show you more of at Cannes.

The quality image has to be communicated through price point and packaging.

The Moodie Report: Chocolate enthusiasts - like wine connoisseurs - would argue that this should also be communicated through tastings… like you have in Belgian airports.

Stewart Dryburgh: To be honest, the quality has to be a given before you taste it - for us the price and packaging are more important because once shoppers spend over a certain point and if the box looks premium enough, they expect it to taste good. Tastings are difficult in a 24-hour airport retail environment, and suppliers can squander a lot of money on them.

But the premium market is one with huge growth potential. Lindt has done well in this market but it now needs some healthy competition! Globally it is hard to identify trends due to the lack of data, but it is a significant market segment that is growing.

It also has a lot of potential to work in the travel retail segment. Retailers like it because there is an opportunity to cross-categorise with other brands in the premium gift sector.

Travelling businessmen have deeper pockets, and by adding premium confectionery to other products, such as champagne or perfume, you increase spending and drive up profits. It could work as an individual unit or joint promotion - how we will work with Cailler in this is not decided. We remain open-minded about it but are keen to develop future partnerships for the brand.

ON THE RECORD: “THE PREMIUM CHOCOLATE MARKET IS ONE WITH HUGE GROWTH POTENTIAL. LINDT HAS DONE WELL IN THIS MARKET BUT IT NOW NEEDS SOME HEALTHY COMPETITION!” – STEWART DRYBURGH

The Moodie Report: So Cailler is the king brand for Cannes this year?

Stewart Dryburgh: Yes, Cailler will be our main point of focus at the show this year. I am afraid you will have to wait until nearer the time for me to elaborate.

The Moodie Report: Finally, which are the key markets that Nestlé is focusing on this year?

Stewart Dryburgh: About 50% of our business is based in the Middle East and Asia. The Americas are an untapped market with regards to travel retail; it is not really a mind-set over there.

We now have to work with our retailers to help build recovery in our European, Middle East and Asia markets. And the potential for the Russian market is huge - Nestlé is doing well out there, especially domestically. As Mr Brabeck said in his speech - Nestlé stayed when other suppliers left, as it was such a difficult market to break into, but now it is growing rapidly and Nestlé is reaping the benefits.

"BRAND BUILDING THROUGH TRUE PARTNERSHIP” - BY STEWART DRYBURGH

Here is an edited version of Stewart Dryburgh's Trinity Forum speech, in which he argues that confectionery can be “the springboard to draw the widest range of shoppers into the shops", and that category management is the driver to achieve this.


When Martin Moodie asked me to speak on the subject of brand building through partnership, I thought "fantastic", I've got some superb material on a classic partnership.

I can talk about Smarties and Disney.

Two huge global brands, they share the same target market, they create really positive attitudes in our channel where adults, as donor purchasers, buy them as a gift for their children.

Plus it’s an award winning partnership, recognised by our industry. Nestlé was very proud to become the very first confectionery supplier to win the coveted "Star Product" prize at the Frontier awards at Cannes last October.

But at Nestlé we have an even bigger picture than just driving the world's leading children’s brand.

At Nestlé we have a vision for building the whole confectionery category. We believe that there is a fantastic opportunity to double the sales of confectionery in the next five years.

This will not however happen by accident, or by doing the same things that we have been doing up to now.

In this presentation therefore I intend not to talk about brand building through partnership, I'm going to take a slightly different approach. I'm going to take the chance to talk about building a whole category that has massive potential.

To do this however I'm going to talk about a rather dry and boring subject, the process of category management. The stuff on Smarties and Disney would be far more glamorous and sexy, huge brands big budget, big media, just the sort of stuff we all like.

But I'm going to talk about category management for three reasons. First of all it works... and I'll give you some numbers to prove it. Secondly I've seen it work at close hand in three different retailers where I've been involved. Finally, as a result, I know that if used correctly, category management can help our industry tremendously.

So, first of all I'm going to explain why it is important.

Then I'm going to take you through a definition of what category management is all about.

Fundamentally I'm going to take you through how it works, and within this I'm going to raise two practical suggestions which would allow the industry to make progress in this area this year. Then finally have a look at what this could all mean to us.

Why should you be made aware?

The simplest reason for being made aware is that category management is a proven tool for improving business results. In measured programmes across both the US and UK grocery industries, category management has succeeded in improving gross margins, reducing inventory levels and the number of SKUs, and improving category sales. And it has achieved this for both retailers and suppliers alike.

In addition, these programmes do a great job of cementing relationships between suppliers and retailers.

So what is category management? It is a phrase often used but in truth rarely understood in our industry. There are many different definitions around the same theme, but one of the simplest and best, belongs to the UK's Institute of Grocery Distribution, a body which represents the top grocery retailers and suppliers in the UK.

This body defines category management as "the strategic management of product groups through trade partnerships, which aims to maximise sales and profits by satisfying consumer needs."

This has four, simple constituent parts - the identification of clear product groups, trade partnerships, maximising sales and profits and finally satisfying shopper needs.

Well I'm sure that no one has any problem with any of this in principle. What category management does is provide a working tool to bring it to life.

The key questions for travel retail are "Where can it help?" and "How do we do it?"

Where does it fit in travel retail?

The best summary of a business model that I have seen for this industry is this slide that Bob McFadyen of Sydney airport used at the MEDFA conference last December. It tracked the movement from PAX on the left to income on the right.

In the middle, are the key measures of penetration, or footfall, conversion and average transaction value. And these are the very specific areas where category management can be targeted to help.

How does it work?

There are a number of variations on the same theme, but I am going to walk you through a shortened six-step process. This is not meant to be definitive in any way. The IGD run a three-day basic course on this subject with a three-day advanced course follow-up. It will however give you a flavour of what's involved.

Firstly we need to identify shopper needs and insights, starting with the simple act of gifting.

Gifting is a very emotional and stressful thing to do, and any gift is just the means by which an emotion is being expressed. It says as much about the purchaser and giver of the gift as it does about the recipient.

As many men in the audience will recognise, we prefer not to shop for gifts but we will spend more and play it safe. Women on the other hand buy more gifts and just love browsing.

Where confectionery works so well in our industry is that it works across all barriers of age, sex, colour, or creed, everyone loves it.

This is all good stuff to understand the shopper in general, but what about in travel retail?

Confectionery’s opportunity in travel retail

TWFA's industry research presented at Cannes last October showed that of the people who buy confectionery, 43% planned to buy into the category whilst 57% purchase into confectionery on impulse. This is great news for all of us as the category as it provides two great big targets to go for.

And what about the shopper mindset when in shopping mode? How do they decide what to buy?

Shoppers see distinct categories and sub-categories. These are driven by differing shopper needs, being either the emotional need to buy a gift, or a functional need to eat something now.

Within confectionery gifting, shoppers classify products into children’s gifts, such as Smarties & Disney, premium gifts, such as Cailler or Lindt, and informal gifts such as KitKat or Toblerone.

These three simple sets of insight can thus be deployed in differing ways, depending upon the needs of the shopper and the retailer in their particular airport.

To this end retailers need to decide what role the confectionery category plays in their business.

Identify the category role in-store

There are differing categories which can impact on depth of range.

Is it there to be a destination category where shoppers will go out of their way to buy at the airport?

Is it a core category or maybe a convenient one? And then within these choices, which categories will drive incremental footfall? Which can drive image and which incremental profit? These questions are all important.

If the suppliers can provide the insight, the retailers need to know and share how they want to develop their business, by category.

Once this is all done the next step is to benchmark performance.

Benchmarking current performance

Normally there are a number of key questions to be asked here, such as:

- What are the market share norms?
- Where do we over-trade and under-trade?
- How do competitors perform and why?
- Where are the opportunity gaps?

These are the everyday questions used in mainstream FMCG retail as a practical and measurable means of building business.

For us however in travel retail, the lack of data means this is where things start to come unstuck. So, let me share a personal perspective on this with you.

When I arrived in travel retail, everyone kept telling me that relationships here are extremely important. I have to tell you, from my one year in travel retail, that it this channel is a great place to work in. Personally I enjoy working in travel retail more that any channel I've ever worked in.

But there is a down side which we cannot continue to ignore, and the thing that makes personal relationships here all-important is that, compared to other retail environments; there are no external benchmarks of performance to measure trading relationships upon.

Now I readily understand and accept the dynamics of the industry and why it has been so in the past. But the fact is, that's the past. The industry needs to find the way to better share the fantastic data it holds and can access.

So this is the hub of the issue in category management. Not treating information as a weapon of power, but as a means to really un-tap the potential of what could be in our industry.

So what if there were external measures and we could benchmark performance?

We could then benchmark and identify areas of strength and weakness, opportunity and threat. We really could exploit that massive potential.

The step beyond that involves building a joint plan.Here we could take the available data, and in partnership build a joint plan with key targets for the category. So what would that involve?

Build a joint plan with key targets

The basis of this revolves around getting it right in the key areas of ranging and pricing. This means ensuring that the products on offer meet the specific needs of shoppers and priced to meet the margin requirements of the retailer.

Stock levels can be tracked and monitored to ensure efficient supply chain and reducing capital tied up in stock.

NPD development is something that I will give an example of in a second, along with effective POS and merchandising.

Finally, and rightly lastly, we should then get on to talking about promotions. Promotions will always be important in driving volume, but if we do the others well it will increase the base from which we are promoting.

New Product Development: Product range and price points

For example on the Smarties range we have sought to develop a range of different offers to meet differing shopper needs, from pacifier to play, gift to premium gift. At the same time these are designed to meet differing shopper needs across differing price points.

From there we need to merchandise effectively, bringing life to the category with eye-catching POS.

At Nestle we started by developing point of sales which do a great job of brand and category communication. An example of this is at Heathrow terminal two where the point of sale really lets shoppers know exactly where the confectionery category is.

From there we have sought to bring fun into the category by bringing the product to life at the fixture, for example in Dubai where Smarties cascade out of the tube.

Effective point of sale – tapping into emotion

The next step for us is to tap into that emotion which is driving the shopper to buy, linking the brand with call to action imagery, pulling on that emotional need to buy a gift, by showing how the product will be received at home.

These are the things that we will continue to work on and develop in conjunction with our retail partners. Ensuring that we are bringing shoppers into the category and then giving them every reason to purchase the product.

Getting it right in category management needs a joint plan with clearly measurable key targets.

These can and should involve measures for the shopper, the retailer and the supplier.

For the shopper this may mean measures of footfall, penetration, average weight of purchase, market share and shopper satisfaction.

For the retailer this may cover revenue, gross profit, inventory and service levels and out-of-stocks.

Suppliers could also measure revenue and gross margin alongside market share, brand share and efficiency savings.

At the most developed level, all of these could have a key performance measure put against them.

Once we've got the plan built and put the key measures in place we can then collectively work on implementation through execution in store.

Here it is all about making sure the plans get executed with the retail operations teams. Even an average plan well executed can have great impact in store. Retail disciplines are essential and all important to the success of any piece of category management work. As a result, the involvement of someone from operations in the creation of the plan is essential to its success.

From there it is a matter of reviewing the results at an agreed point in time, and building a follow-up plan to take things further.

From experience I can tell you that the reality is that the process can be confusing, messy, difficult and frustrating.

So why do it?

I bring you back to the results at the very start of this presentation.

It works.

It brings concrete improvements and more satisfied shoppers.

So what could travel retail do now to get started on this?

What could travel retail do?

First of all we need to develop a shared level of understanding between both retailers and suppliers as to what this is all about and how it can help.

To this end Martin Moodie has been facilitating discussions between the major confectionery suppliers to sponsor a travel retail category workshop to be run, possibly in October, by an external consultancy specifically for the benefit of retailers.

Development of this is under discussion and is focused on developing the confectionery category as a whole, not the business of any one supplier.

Now the fact that support for this is even being considered by the major suppliers in the industry at such a difficult time indicates the importance that they have for this business tool.

Should this happen, I am confident that this will be for the benefit of the whole industry, retailers, suppliers and shoppers.

The second thing that could be done in travel retail is to provide better data for benchmarking.

So today I make a proposal to my peers on the supplier side.

Let us get together and share sales-in data. Let’s build an industry data bank which builds a picture showing what we are selling into the market.

We can do this by brand and SKU, by category and sub-category, by region.

This will then provide a working tool for external benchmarking of performance which is currently so sorely lacking.

All suppliers recognise that sales out information from retailers would be preferable, and that should be the long-term goal, but in the meantime this would provide a decent start point to measure performance.

We could start this year and have something in place by the year end.

What could it all mean?

It would mean a shift from just brand and SKU management to a mix of category and brand management. As suppliers we will still develop our brands, but we will need to do it in light of the category need in this channel.

A shift from retailer focused tactics to shopper based strategies where meeting shopper needs is considered first. From purely deal-based decisions to data and deal based decisions. Everyone still needs to make a good deal, but the appeal of any offer to the shopper will factor far more highly than it does now.

From 30% footfall and 15% conversion to 60% footfall and 30% conversion. It is all a fundamental shift from a struggling industry to a vibrant shopper-focused one.

Confectionery can be the springboard to draw the widest range of shoppers into the shops and category management can provide a means to achieve this. Get them in, get them purchasing and then trade them through into other categories, driving average weight of purchase and profitability.

If we can do all this, we can achieve the category vision.

The confectionery category vision

We will double the sales in the next five years. We just need to start now, work together, share data, plan together and act differently. It can be done, it needs to be done and it’s in our hands.