Quofore Executive White Paper

DSD3: Driving new opportunity

How innovation helps drive productivity and competitive advantage in Direct Store Delivery

December 2010

This White Paper, prepared by Quofore, offers insights into practical strategies being implemented by Consumer Products companies around the world to transform their field representatives into agents of business value development.

2010, Quofore. All Rights Reserved

Contents

Introduction 1.1 Enter the world of DSD3

1 1 2 2 3 3 5 5 6 7 8 10 11 11 12 13

DSD and modern trade in transition 2.1 2.2 2.3 Better brand health on the shelf Proliferation of smaller, high frequency stores Purchase patterns of poorer shoppers

The critical contribution of DSD3 3.1 3.2 3.3 3.4 The retailers need: more efficient DSD The manufacturers response: blended roles Sales and merchandising models Being seen as tech-savvy by shoppers

4 5

DSD3 in a connected field presence Replacing older systems 5.1 What to seek in a next-generation handheld

6 7

In closing References

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1 Introduction
1.1 Enter the world of DSD3

WHY READ THIS PAPER?

Technology developments have the potential to redefine business as usual. In the right hands, powerful mobile devices, connected to high-speed networks, can drive innovative approaches to direct store delivery (DSD) that were not previously possible. If youre a Consumer Products company considering new systems for your DSD operations; looking for ways to better integrate your field sales, delivery and merchandising operations; or wanting to increase competitive advantage through higher levels of in-field service and productivity this white paper is in the right hands. Read on to learn more about DSD3 an advanced paradigm for the business of direct store delivery.

Here, direct store delivery (DSD) practices are crisply executed, store-aligned, and consumer-centric. Greater brand presence at the shelf showcases products for shoppers, strengthens category presentation, and accurately reflects strategies set by retailer and consumer packaged goods (CPG) trading partners. Good things happen when DSD3 delivers innovation. DSD3 drives multiple benefits through the power of in-field synergy: a fresh, cohesive approach that builds brand presence by providing capabilities to: a) expand the traditional role of DSD drivers; and b) to coordinate the efforts of complementary groups of field workers. DSD3 transcends the barriers imposed by rigid roles that have traditionally isolated the tasks of drivers, sales reps and merchandisers. Not only can drivers now do more in store, they can alert supervisors and central headquarters, as well as sales representatives and merchandisers in their regions, to any field situation they observe that requires prompt attention. Schedules can be reprioritized in real-time based on a constant flow of in-store information. Quick, coordinated responses unite field workers in their ability to achieve key business objectives and win at the shelf. No longer isolated individuals; they are interconnected teammates lifting their brands.

field sales

deliveries

in-store tasks

All members of the team can think and act as in-store brand advocates; each has a keener sense of the fierce competition around their brands (from traditional foes and private label alike). They know the roles their brands play in categories, and their need to align with shifts in customer needs store by store and in local consumer demand. They work more purposefully and positively to protect their brand sales, profits and market position. And in this new paradigm, everyone who touches a store on behalf of a brand is capturing data that can help Consumer Products companies make better strategic and tactical decisions. This is a giant leap for brand-kind.

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2 DSD and modern trade in transition

2.1
GLOBAL DEMAND DRIVERS
In a review of global demand for DSD Solutions1, industry analysts, VDC, estimated the market for next-generation solutions that provide sales and merchandising capability would more than double between 2007 and 2012. VDC highlighted specific factors that are contributing to this demand around the world:

Better brand health on the shelf

DSD3 could soon become the new performance standard for dairy, soft drinks, snacks, breads, juices and other core direct-store-delivered food and beverage categories. These staples, which people buy in any economy, are key to attracting trips. Trips are the lifeblood of retail stores, and superior DSD helps them attract more. In the United States and other Western trade markets, supermarket trips are under siege by mass merchants, supercenters, drug chains, dollar stores and wholesale clubs that are aggressive sellers of food and beverage. When deciding where to shop, the physical condition of DSD categories can be an important influence on consumer loyalty. But, while stores feel more pressure to present well, they still have the challenge of controlling costs and labor is one of the biggest. Better on-shelf brand display is an aspiration shared by CPG manufacturers, so it makes sense that any opportunity to optimize shelf presence is in everybodys best interest. Empowering DSD personnel to play an integral part in brand health provides field managers with more options for improving in-store performance. It also allows them to provide more value-add to their retail customers leveraging their DSD team to fill an in-store labor gap thereby driving the merchandising excellence that builds repeat shopper trips to specific retail destinations. Theyll also use the greater information power of DSD3 to collaborate with retailers on multiple levels2, such as to: Leverage DSD capabilities to enhance in-store merchandising. Coordinate with retailer marketing departments to unbundle consumer insights and bring both the innovation and consumer demand to life at the shelf. Drive sales, improve stock rotation and ease product choice in the store, and reduce unsaleables.

NORTH AMERICA
...economic conditions are opening up new opportunities as distributors turn to next generation mobile DSD solutions to streamline increasing operational costs.

EUROPE
EU driver regulations are expected to fuel growth as distributors look for ways to improve driver efficiency during their more limited work hours.

ASIA PACIFIC
Markets for mobile DSD are opening up among local distributors who perform a rudimentary DSD process. A SaaS offering combined with a commercial-grade device are expected to be popular components to meeting the needs of these local distributors.

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2 DSD and modern trade in transition

2.2

Proliferation of smaller, high frequency stores

In the US, the small, convenience-oriented format of Tesco Fresh & Easy has prompted Walmart, Giant Eagle, Albertsons and other chains to develop their own small stores in the 10,000- to 20,000-square-foot range to build trip frequency and penetrate urban or smaller markets. Indeed, Walmart is banking on this growth: it has been testing 10,000-square-foot Marketside by Walmart stores in Arizona and a 20,000-square-foot version of Neighborhood Market. The company also plans to open convenience stores similar to its 4,000-square-foot and up Bodega Aurrera Express stores south of the border.

Our group in Mexico and Latin America operates small formats very well and very profitably, and we are going to beg, borrow, steal and learn from them as quickly as we can.
Bill Simon, President & CEO, Walmart U.S.

Our group in Mexico and Latin America operates small formats very well and very profitably, and we are going to beg, borrow, steal and learn from them as quickly as we can, said Bill Simon, president and CEO of Walmart U.S.3 As food and beverage distribution outlets expand in numbers, DSD brands will be pressed to service more stores more expediently and theyll aim more intently to optimize routes and in-store tasks. 2.3 Purchase patterns of poorer shoppers

In 2009, 3.7 million Americans joined the poverty bracket (defined as families of four living on less than $22,000 per year). As a consumer group, they now represent 14% of the U.S. population and their purchasing patterns are also having an impact on the frequency of store visits.

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2 DSD and modern trade in transition

Visits are heavily influenced by the receipt of benefits from the Supplemental Nutritional Assistance Program (federally funded, state-administered) which post to their accounts at the start of each month. People making their replenishment runs to Walmart that first morning commonly fill baskets with hundreds of dollars worth of goods to restock their household pantries and refrigerators.4 Walmart understands the monetary ebb and flow of these low-income shoppers. It displays larger item packs at the start of the month when pantry reloads occur, and smaller sizes later in the month, when these families fill in as needed. For example, about one-fourth of Walmarts stores carry smaller pack sizes of household goods such as toilet paper, garbage bags and paper towels that cost $1 or less. Nevertheless, driven in part by food and beverage needs, trips to dollar stores rose 2.6% in the 12 months ended June 2010 while trips to mass merchants fell by 7.0%, noted SymphonyIRI Group.5 These households primarily purchase early in the month, and DSD brands that synchronize their in-store service levels with these demand surges will help retailers better satisfy the needs and significant opportunity of this demographic sector.

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3 The critical contribution of DSD3

3.1 The retailers need: more efficient DSD

The recession that flattened Consumer Products sales growth in the U.S. and other western trade markets has made retailers more demanding about lower net product costs. This heightened emphasis on lower costs threatens business as usual. DSD that fails to excite stores with added value; unimpressed merchants would rather move items from a backroom to a shelf with their own workers if they think it would be cheaper overall. Indeed, 7-Eleven president and CEO Joseph DePinto griped to Convenience Store News in 20086 about inefficiencies in the convenience channels DSD system, which was built for the grocery industry, and the way product is delivered today is basically the same as 30 years ago but costs are higher labor, credit card fees, distribution costs, fuel. His chain tested a different DSD model in 2010 one that had Coca-Cola Enterprises deliver soft drinks to 7-Eleven stores in southern California by using Costco Wholesale Corp. as an intermediary. CSN cited published reports for this description, Drinks will be shipped to a Costco business center, where a third-party logistics company will pick them up and deliver them to a warehouse. When 7-Eleven stores need replenishment, the drinks will ship to the stores with other products as well. By contrast, once unified and involved DSD3 practitioners bolster each others efforts and keep reproving their value to retailers, brands can more effectively counter such challenges. Since DSD teams are a highly public face of CPG brands, they affect the tenor of retailer-supplier trading relationships, from store-level up to headquarters. The importance of data-driven in-store merchandising and execution excellence, carried out by manufacturers, is underscored in a recent Grocery Manufacturers Association (GMA) report7: Many retailers scrambling to differentiate expect customized products, shelf sets and promotions and require CPGs [consumer packaged goods companies] to translate consumer insights into localized plans. Access to local information is critical for CPGs of all sizes a small CPG without store-level point-of-sale data is at a significant disadvantage.
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3 The critical contribution of DSD3

To augment POS data with near real-time insights on in-store conditions puts DSD3 brands in an optimal information state to deliver the customization retailers seek. Brands that consistently bring stores this edge often earn a warm seat at the category leadership table. 3.2 The manufacturers response: blended roles

CPG manufacturers commonly outsource support activities, yet questions loom over the most productive uses of sales and marketing agencies (SMAs). Relative to in-store activities, the latest findings (published in the same GMA report cited, above) suggest that: the most progressive CPG companies tailor in-store use of SMAs by retailer, season and category, and that best results are achieved through active and ongoing structure and management of the CPG-SMA relationship. In the U.S. more than 90% of CPG companies ($3 billion or less in annual revenues) outsource, as do nearly three-quarters (73%) of larger CPG. These users include DSD companies with greater in-store coverage needs than their own field forces can provide. In the world of DSD3, these companies can achieve many of their in-store objectives by implementing a blended role for their DSD drivers combining traditional road rep activities (such as mobile order taking, deliveries and replenishment) with a broad range of in-store merchandising tasks (such as price checks, promotions and POS ordering). This gives companies the ability to optimize the value of their mobile representatives by integrating on-road and in-store activities to best address their customer needs and business goals. In the face of a turbulent economy, CPG manufacturers are looking for new opportunities to improve efficiencies so they can continue to deliver maximum value to consumers, said Logan Kastner, GMA senior manager of industry affairs. A blended DSD3 approach helps deliver exactly those types of productivity gains. One center-store supplier told Quofore that it saves $6 million a year in outsourcing fees by having its own drivers and sales representatives hang POS materials8.

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3 The critical contribution of DSD3

WHAT MORE COULD BE DONE . IN THE FIELD?

Heres a quick sampler: Field workers use store printers to issue purchase incentives and coupons on the spot to offset a competitors two-for-one promotion. Field staff access Walmart Retail Link data to help stay in consistent compliance, and immediately reschedule labor priorities if needed. Product recall alerts beam to all DSD3 handhelds to remove affected items from store shelves, and real-time reports back from the field verify the action. (Rapid recalls can differentiate brands; nearly half of consumers have changed shopping patterns due to food safety concerns and they dont equate higher prices or brand names with safer food.9 Store-by-store memory of past performance, promotions and display preferences are instilled; this enhances productivity and brand presence, and makes field staff turnover a moot point. Field workers take photos of a competitors new packaging or promotion and transmit immediately to HQ. During periodic reviews with retailers, account teams can document that their field force spent, say, 20,000 hours servicing the chains stores; can detail achievements (e.g. no voids in endcaps, minimal out of stocks); and document category performance lift as a direct outcome of these efforts.

Already on-hand delivering product or filling shelves, the companys drivers also help merchandise in targeted stores and conduct short consumer intercept surveys, transmitting responses directly and instantly to the HQ marketing department via wireless. The surveys often relate to new product or packaging development and consumer preferences; time-sensitive questions that help formulate rapid responses to shoppers needs. This serves as an example of a CPG company redefining its use of mobile technologies and its performance expectations of DSD drivers. As CPG companies move to replace and update expiring technologies, more of them think broadly about ways to produce more within their organizations, drive costs down, build program compliance rates and share essential data quickly. Thats the mindset of DSD3. 3.3 Sales and merchandising models

DSD brands follow one of three sales and merchandising models: the driver does all tasks in one store visit; or two-tier (sales representatives take the orders, drivers deliver the next day, the rep returns to the store days later to build displays and merchandise); or pre-sales (sales representative schedules an order to be delivered and merchandised days later). The DSD3 approach empowers them all. Especially with scan-based trading on the rise, suppliers that feel they have a rightful place on the retail floor (since they own inventory until it goes through the cash register) are more motivated to closely manage stock and build compliance, and they want more capabilities in their hands. One key controlling element of DSD3: a store-delivery invoice may not be issued with scan-based trading, but CPG still needs to track what it delivered. The ruggedized handhelds can do stop counts by cartons on a truck, at a supplier-owned warehouse, or at a shared third-party freezer-refrigerator warehouse to enable timely, accurate replenishment. Better here than in a store to avoid counting items at the shelf although the day could come soon when a PDA reads low-cost RFID tags on items and does automated stop counts and issues exception reports.

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3 The critical contribution of DSD3

3.4

Being seen as tech-savvy by shoppers

According to recently published research10, most retailers (54%) say that more personalized attention from store employees is an absolutely vital component to differentiate the store experience from an online retail transaction. The biggest upside lives with technologies that empower in-store employees, those that help store associates save the sale, and those that make their employees more productive. The same research highlighted the top two business challenges: Improve customer service while holding the line on payroll costs (49% in 2010, up from 39% in 2009). More consistent store execution (45% in 2010, up from 40% in 2009).

And some of the in-store technologies rated as having a lot of potential value: Cross-channel customer and inventory synchronization (48%). Software that schedules the right mix of labor so employees can complete all activities (40%). Software to assign actions for specific stores/departments in response to underperforming Key Performance Indicators (38%). KPIs and alerts to store managers on mobile devices (22%).

Specific to merchandising execution, retailers say their top three operational challenges are:11 Getting merchandising and supply chain to work together (60%). Getting stores to execute merchandising plans (53%). Overall execution (45%).

While a majority of the retailers overall (53%) regarded store management execution technology as very valuable, just 20% say theyve had it in place for more than one year. Only 31% of fast-moving consumer goods retailers (grocery, for example) say if they had a budget for such technology, they
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3 The critical contribution of DSD3

would have an install underway. This indicates the historically significant gap between execution sought and execution fulfilled in stores will continue to be filled by DSD field forces, in particular those empowered to the DSD3 level. Atop these operational concerns, CPG brand manufacturers and stores should want consumers to perceive them as at least their technological equals. Increasing percentages of shoppers use cell phones and PDAs to compare products and prices, receive coupons, see reviews and glean nutritional and promotional information at the shelf, so it makes sense to visibly use wireless technology on the selling floor to optimize in-store conditions and improve the shopping experience. It likely matters little to shoppers if the wireless users belong to the store or the brand, as long as their presence on the selling floor results in smarter, easier shopping. This is another reason why retailers would view DSD3 brand teams as supportive assets.

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4 DSD3 in a connected field presence

DSD3 not only allows companies to blend the activities performed by deliver drivers, it also allows the drivers role to be integrated into an end-to-end field operations process. By utilizing mobile technologies and applications that interact across field managers, sales reps, in-store merchandisers and DSD drivers, companies can respond more quickly to brand performance issues in the field. These may be related to out-of-stocks, new product launches, in-store promotions and point-of-sale display, share of shelf or competitor activity. Co-coordinating field team members to address these issues in a timely manner (that can have a positive remedial impact on revenue and brand performance) is a significant challenge that can be addressed through DSD3, as illustrated in the scenario, below.
In this scenario (used for illustration purposes), the DSD driver is an integral, connected part of a coordinated field team, utilizing advanced mobile technology and business processes to achieve better outcomes for the customer and the brand .

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5 Replacing older systems

5.1
WHICH DEVICE TO CHOOSE FOR DSD3? Despite the media hype about Apple and Android, when companies choose ruggedized devices for their enterprise applications, Windows Mobile rules. 87% of rugged handheld devices shipped last year run Windows Mobile, and its dominance is expected to continue, says VDC Research.12 Microsofts commanding market share is expected to nearly double: from 2.3 million units shipped in 2009 to more than 4.3 million units shipped by 2014. VDC estimates the global installed base at 11.9 million units, with replacement or upgrade every 4.5 years on average. VDC found that enterprise users require higher performance standards than consumers with respect to, among others: enterprise lifecycle support; application development tools and application portability; integration with back-end enterprise platforms; device and security management; and data capture. Demand for handheld devices in the enterprise continues unabated as organizations look to equip their increasingly mobile workforce with the requisite tools to support realtime decision making and transaction processing in distributed or remote environments, noted VDC.

What to seek in a next-generation handheld

Several motives drive the decision of CPG manufacturers to replace older technology. First, the costs to continue to support end-of-life hardware and software become unwise or prohibitive. Second, increasing demands on CPG field teams to perform create the need for more powerful, advanced devices with new capabilitiesand ruggedized units with larger screens, higher resolutions, faster speeds and longer battery life are available at comparable costs. Third, todays more robust technologies enable DSD drivers to get more involved, to expediently complete and report on a broader range of tasks. The fast pace of technology advances keeps CPG seeking more robust solutions for their DSD teams. Devices with capabilities on this checklist will equip brands with the information power and industrial engineering their teams need in the field: well-supported sales and merchandising functions, such as compliance, distribution and share-of-shelf checks, competitor price checks, shelf resets, consumer intercept surveys, delivery and invoices web-based integration with SAP to ensure invoice prices are 100% accurate based on back-end systems pre-sales functions DSD solutions on a ruggedized PDA/smartphone choice of a tablet or laptop, which is sales and merchandising focused choice of a cell phone for simpler field condition audits the ability to barcode scan the outside of case cartons modern, scalable architecture that could fill needs for the next decade rapid deployment

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6 In closing
It is axiomatic to say that the world inhabited by Consumer Products companies is one of constant change. Anyone who has lived through the past few years would be hard pressed to argue otherwise. In modern trade markets, the seismic changes that have reshaped the competitive landscape have also created opportunities for companies to reshape their operations to service customers more efficiently and more productively. Direct store delivery, long regarded as a logistics function at the end of a highly optimized supply chain, is one such area of opportunity. New thinking about the role of the delivery driver as an agent of in-store brand presence and of DSD as an integral part of the consumer demand chain can be a powerful lever for competitive advantage. This kind of thinking is no longer just wishful. The availability of powerful handheld devices, high-speed mobile networks and innovative applications provide the tools that can drive game-changing initiatives for forward-thinking companies. With traditional DSD solutions nearing the end of their shelf life, and with a growing expectation from retailers that there is more value these systems can deliver, Consumer Products companies are in the position to drive a welcome change.

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7 References

Mobile DSD Solution Market Review: Executive Summary, VDC Slide Presentation, July 7, 2008. 2010 Survey of Collaborative Supply Chain Effectiveness Report, The Food Marketing Institute and Grocery Manufacturers Association Trading Partner Alliance and Kurt Salmon Associates, February 2010. Walmart lines up sites for smaller stores, Financial Times, September 19, 2010 Midnight Shopping on the Brink of Poverty, National Public Radio, October 2, 1010. Stores Scramble to Accommodate Budget Shoppers, New York Times, September 21, 2010. Teamsters Detail 7-Eleven DSD Plan, Convenience Store News, May 24, 2010. Maximizing the Impact of Outsourcing: How CPGs Can Best Use Sales and Marketing Agencies in a Changing Environment, Grocery Manufacturers Association, ASMC Foundation, and Bain & Company. Data on file, Quofore. Det Norske Veritas study, Food Safety Certification: A Study of Food Safety in the U.S. Supply Chain, and H. Christopher Peterson, director, Michigan State University Product Center for Agriculture and Natural Resources, September 20, 2010. The Customer-Centric Store: How Retailers Engage Tech-Enabled Customers, Retail Systems Research, June 2010. Defining Twenty-first Century Merchandising, Retail Systems Research, Benchmark Report: September 2010. Microsoft Extends Commitment to Enterprise Handheld Device Market with Release of Windows Embedded Handheld Platform. VDC Research Group, June 2010.

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Quofore Quofore is the worlds leading developer of mobile software solutions that help Consumer Products companies transform the effectiveness and productivity of their field teams. In use by leading companies in more than 30 countries, Quofore solutions automate and optimize field sales, marketing, merchandising, van sales, and direct store delivery operations. Working closely with customers, Quofore can demonstrate quantifiable increases in rep productivity, retailer compliance, brand performance, and revenue growth. Today, Quofore is recognized by leading industry analysts as the premiere top tier company delivering retail execution solutions across multiple geographies. For more information visit www.quofore.com

Quofore (kw-for) derives from the Latin Quo meaning to where, for what purpose, for which reason? and fore which means at the front. Quofore Americas
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