The Fresh Market — Fresh Market — Investor Day (October 2014)
58 slides from The Fresh Market's investor day presentation, Oct 8, 2014
Slide 1: The Fresh Market Investor Day Analyst Day
The Fresh Market Investor Day Analyst Day October 8, 2014
Slide 2: Forward Looking Statement
This presentation contains, and statements made by The Fresh Market’s executives may contain, forward-looking statements. Any statements that are not statements of historical fact should be considered forward-looking statements. These forward-looking statements are based on Management’s current expe
Slide 3: Non-GAAP Financial Measures
This presentation also contains references to Earnings Per Diluted Share on an adjusted basis ("Adjusted Diluted EPS") and Earnings Before Interest, Taxes, Depreciation and Amortization on an adjusted basis (“Adjusted EBITDA”). Adjusted Diluted EPS and Adjusted EBITDA are non-GAAP financial measures
Slide 4: Agenda
Agenda Management Presentation: 10:30 am – 12:00 pm – The Fresh Market: “Positioned to Win” – Craig Carlock, President & Chief Executive Officer – Consumer Research Insights and Opportunities – Chris Miller, VP Strategy & Marketing – Merchandising Overview – Marc Jones, SVP Chief Merchandising & S
Slide 5: The Fresh Market: Positioned to Win
The Fresh Market: “Positioned to Win” Craig Carlock President & Chief Executive Officer
Slide 6: Today's Key Themes
Today’s Key Themes The Fresh Market Provides a Unique and Differentiated Grocery Shopping Experience Successfully Compete Head-to-Head Across Markets Robust Store Unit Growth Opportunities in Existing and New Markets Structural and Operational Initiatives = Strong Operating Margin Opportunities
Slide 7: A History of Steady Growth
A History of Steady Growth • Store Unit Growth • Comparable Store Sales Growth • Balanced Transaction / Basket Growth Strong Annual Sales Growth • Attractive Operating Margins • Leverage Growth to Realize Economies of Scale • On-going Improvement Processes and Systems Operational Discipline Drives E
Slide 8: Distinct Market Position
Distinct Market Position Customer View Unique, Enjoyable Shopping Experience High Quality & Curated Product Selection Strong Assortment of Fresh Perishables Stimulating Sense of Discovery Convenient, Relaxing Atmosphere High-touch Customer Service Customer Profile Customer Priorities 1
Slide 9: Competitive Positioning
Competitive Positioning • Enable Customers to Have Special Food Experiences More OftenInspire • Acquire Trip Share from Conventional Grocers • Sharpen Identity as First Choice Retailer for “Special” Differentiate
Slide 10: Competing Successfully
Competing Successfully Comp Store Growth Returns After Approximately 12 months We Are Competing Head-to-Head Successfully 2Q14 Comparable Store Growth ** Specialty A Specialty B Traditional A Impacted TFM Stores 9 8 23 Comparable Store Sales Growth 4.0% 3.2% 7.0% Pre 1 2 3 4 5 6 7 8 9 10 11 12 13 14
Slide 11: Unit Growth and Core Markets
Unit Growth • Operating Margin has Improved • Sales Levels Remain Solid • New Sites will have Lower Occupancy Costs Performance in New Markets • Extensive Growth Opportunity in Core Markets • Opportunity to Double Store Base in Southeast • Less Cannibalization • More Small Markets Core Markets
Slide 12: Margin Sustainability
Margin Sustainability • Purchasing Power • Supply Chain • Inventory Shrink • Promotional Effectiveness Gross Margin • Store Labor Leverage • Public Company Expense Stability • Corporate Office Expense Leverage SG&A
Slide 13: Consumer Research Insights and Opportunities
Consumer Research Insights and Opportunities Chris Miller, VP Strategy & Marketing
Slide 14: Current Consumer Trends in Grocery Retail
Shift from Health to Wellness Heightened Engagement with Food Quality Redefined as Fresh Smaller Baskets, More Trips Changing Eating Occasions – Focus on Solutions Current Consumer Trends in Grocery Retail
Slide 15: Consumer Trend: Shift from Health to Wellness
Consumer Trend: Shift from Health to Wellness Now… WELLNESS “Know thyself” Balanced Self-assessed Common sense Holistic Integrates emotional and physical wellbeing Then… HEALTH “Do as I say!” Authoritative Right vs. Wrong Narrow definition of Health Compliance Source: The Hartman Group
Slide 16: Consumer Trend: Heightened Engagement with Food
25% DISENGAGED Least interested in food for pleasure and inspiration Choices driven by price, convenience and familiar brands Level of food engagement 14% HYPER- GOURMET The most highly committed to elevating their food experiences Trends emanate from this group Chefs and foodies 33% MAINSTREAM Seek
Slide 17: Consumer Trend: Quality Redefined as Fresh
• Real Ingredients • Short Shelf Life • “Clean” Ingredient Lists • Minimally Processed • Somewhat Exclusive / Gourmet Cues Quality = Fresh Source: The Hartman Group Consumer Trend: Quality Redefined as Fresh
Slide 18: Consumer Trend: Smaller Baskets, More Trips
• 5+ Channels per Month • 2+ Retailers per Trip Consumer Shopping Behavior • More “Fresh” Trips • More Variety and Exploration • More Spontaneity, Less Planning Drivers Source: The Hartman Group Consumer Trend: Smaller Baskets, More Trips
Slide 19: Consumer Trend: Changing Eating Occasions
Consumers Increasingly Looking for Solutions Cooking Evolving From “scratch” to meal “assembly” New Eating Occasions Focus on Convenience Consumer Trend: Changing Eating Occasions – Focus on Solutions Source: The Hartman Group
Slide 20: TFM Consumer Research Methodology
TFM Consumer Research Methodology Quantitative survey - all TFM markets (n=3,549)
Slide 21: Strengths of The Fresh Market
Strengths of The Fresh Market Special Quality Health/Wellness Comfortable, Easy Fresh Source: The Hartman Group
Slide 22: Customer Frequency Shows Significant Upside
0-1 1-2 2-3 3-4 4+ # of trips per month # o f c u s t o m e r s Average “active” customer Top 5% (by spend) Top 2% (by spend) 1-2 trips/month 2-3 trips/month 4+ trips/month Source: TFM Transaction Data – 2012-2014 Customer segment Frequency TFM’s Customer Frequency Shows Significant Upside Growth Po
Slide 23: Targeting Customers for Frequency
Source: TFM transaction analysis Targeting Customers for Frequency • Top 20% by Spend • <10K per Market Top Customers • Personalized Marketing Proof of Concept • 200-400 Basis Point Comparable Store Sales Lift During Campaign • High Returns Post Campaign Small Scale Test (5 stores)
Slide 24: Aspirational Shopper Affinity Index
*Plotted index values show how much more or less likely Aspirational shoppers are to frequent each retailer compared to non-Aspirational shoppers, based upon the % share of shoppers visiting each retailer at least once a month. Aspirational Shopper Affinity Index* Conventional grocer Specialty small
Slide 25: Research Findings Paint a Clear Growth Opportunity
Shopping at TFM feels “special” Customers shop TFM infrequently – often for “special” occasions – and use conventionals for most other purchases TFM has ample opportunity to deepen customer engagement TFM naturally resonates with aspirational consumers wanting more “special” experiences, but looking
Slide 26: Our Positioning
Our Positioning • Food that enables customers to reach their goal • Customer service that is knowledgeableInspire • Food that is accessible • Healthy and indulgent • Not just for special occasions Everyday • Delicious, high quality, differentiated food • Attribute-driven choices are more and more re
Slide 27: Growth Paths
Inspiring customers to have “special” food experiences more often Acquire 1 more trip per month from conventional grocers Competitive separation from other specialty retailers Growth Paths Differentiating to become customers’ first-choice specialty grocer
Slide 28: TFM Video
TFM Video
Slide 29: Merchandising Overview
Merchandising Overview Marc Jones SVP Chief Merchandising & Supply Chain Officer
Slide 30: Merchandising Approach
Merchandising Approach Offer Unique, High Quality Product Selection Merchandise Assortment Lends Itself to Attractive Margins Customer Perception In-line with Merchandise Pricing Strategy Supply Chain Overview and Opportunities Margin Levers
Slide 31: Unique, High Quality Products
Unique, High Quality Products
Slide 32: Unique, High Quality Products
Unique, High Quality Products
Slide 33: Unique, High Quality Products
Unique, High Quality Products P r o d u c t Q u a l i t y Price Quality / Price Ratio Sweet Spot Conventional Grocer’s Honeycrisp Apple Size TFM’s Honeycrisp Apple Size
Slide 34: How Can We Achieve These Results?
How CAN We Achieve These Results? 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% Natural Specialty TFM Percent of Revenue from New Items Value Added Mix and Margin 10.0% 12.0% 14.0% 16.0% 18.0% 20.0% 22.0% 24.0% 26.0% 28.0% 2010 2011 2012 2013 P e r c e n t o f D e p a r t m e n t Key Product At
Slide 35: Pricing Approach
Sources: Perception – TFM Customer Surveys; Actual – Tracking Retail Data (N=861) Pricing Approach 70 80 90 100 110 120 130 Price Index to TFM Price Pricing Surveys Perception Surveys Like Items Differentiated Items Use of Promotions TFM Actual Basket Survey Perception Survey
Slide 36: Supply Chain
Supply Chain 17% 18% 57% 8% DIRECT STORE DELIVERY PRODUCE VENDORS PRIMARY DISTRIBUTOR 0 2 4 6 8 10 12 14 16 18 P r i c e Cases Distributed VENDOR VENDOR VENDOR VENDOR VENDOR VENDOR
Slide 37: More Long-term Margin Tailwinds than Headwinds
More Long-term Margin Tailwinds than Headwinds Value Added Private Label Fresh Focus Shrink Tell the TFM Story Grow Size Supply Chain Commodity Inflation Competitive Pressures
Slide 38: Real Estate Strategy
Real Estate Strategy Randy Young SVP Real Estate & Development
Slide 39: Real Estate Discussion
Consistent Historical Unit Growth Recent Actions Taken Southeast Whitespace Analysis Near Term Real Estate Objectives 3-Year Real Estate Plan Real Estate Growth Strategy Real Estate Discussion
Slide 40: Historical Real Estate Review
Historical Real Estate Review Deliver More Predictable Results • Demonstrated History of Growth • 8-Year Unit CAGR 14% Historical Unit Growth 53 63 77 86 92 100 113 129 151 Dec '05 Dec '06 Dec '07 Dec '08 Dec '09 Dec '10 Jan '12 Jan '13 Jan '14 Stores (End of Period)
Slide 41: Recent Real Estate Actions
Recent Real Estate Actions • Sacramento 3 • Houston 1 Closed Underperforming Stores • Internal Regression Modeling • Engaged Third Party for Analytics • Reduced Margin of Error by 40% Revised Forecast Approach • Adjusted Sales Projections • Evaluated All Approved Pipeline Projects (38) • Eliminated1
Slide 42: Southeast Whitespace Analysis
Southeast Whitespace Analysis • Reviewed Existing TFM stores • Evaluated Existing Competitor Stores • Considered Current TFM Store Sales Levels Established Initial Capacity • Received Local Broker Input • Validation by TFM Real Estate Managers • Potential Competitive Impacts Considered Filtered Targ
Slide 43: Near-term Real Estate Objectives
Near-term Real Estate Objectives • Use 2015 as a Transition Year • Deploy Resources from Western U.S. Replenish Store Pipeline • Unit CAGR 12% - 15% • Greater Emphasis on Eastern U.S. • Reduce CapEx and Occupancy Cost Focus on Reducing Volatility • Execute on Modified Strategy in 2015 • Mine Learnin
Slide 44: 3-Year Real Estate Plan
3-Year Real Estate Plan • 70+ New Stores in Next 3 Years • Annual Growth Rate: 12% - 15% • Regional Mix: Southeast ~50% Plan Highlights • Reduced Volatility • Reduced CapEx to Fund Remodels • Improved Returns Financial Implications Area Base 2014 2017 Mix Southeast 99 112 60%-65% Northeast 19 22 12%
Slide 45: Real Estate Growth Strategy
Southeast: Aggressively Pursue White-space Targets Northeast: Focus on Smaller Markets Outside Major Metros Midwest: Densify High Performing Single Store Markets New Markets: Maintain Measured Growth Opportunistically Weighted Regionality: SE (50%), NE and MW (30%); New Markets (20%) Limit Capital I
Slide 46: Financial Overview
Financial Overview Jeff Ackerman EVP & Chief Financial Officer
Slide 47: A History of Growth
A History of Growth $0.86 $1.07 $1.33 $1.40 2010* 2011 2012 2013 $974 $1,108 $1,329 $1,512 2010 2011 2012 2013 Sales ($ Million) Growth 14% Earnings Per Diluted Share* 14% • Strong Unit Growth • Consistent Comp Store Growth • Balanced Traffic and Basket Growth Strong Annual Sales Growth • Attractive
Slide 48: Gross Margin Evolution
Gross Margin Evolution • Pricing Net of Inflation • Inventory Shrink • Buying Costs Merchandise Margin • Rent • Maintenance, Taxes, Insurance Occupancy Costs • Distributor Case Rates • Contract Renegotiations • Fuel Supply Chain 32.8% 0.6% 0.3% 0.4% 34.1% 32.0% 32.5% 33.0% 33.5% 34.0% 34.5% 35.0% CY
Slide 49: SG&A Evolution
SG&A Evolution • Wages • Benefits • Marketing Store Operating Costs • Headcount • Administrative Corporate G&A • Professional Fees • Equity Compensation Public Co. Expenses 22.1% 0.5% 0.5% 0.4% 0.5% 23.1% 21.0% 21.5% 22.0% 22.5% 23.0% 23.5% 24.0% CY '10 SG&A Store Costs Corp G&A Public Co Exp CA/TX
Slide 50: New Store Sales Trends
60 70 80 90 100 110 120 Q 1 = I n d e x o f 1 0 0 Quarterly Trend through 16 Quarters New Store Sales Trends YOY Improvements in California & Texas • Gross Margin: Lower Inventory Shrink • Labor: Learning Curve, Productivity YOY Operating Margin Improving • Sales Reflect “J- Curve” Effect • Join Com
Slide 51: New Markets
New Markets • Seed Store Manager in New Market Earlier • Greater Flexibility with Initial StaffingStaffing • Selective Direct Mail • Advertising Campaigns (8-12 weeks) • Taste of TFM (post grand opening) • Food Blogger & Media “Tweet Up” Events • Local Field Marketers • Community Involvement Increas
Slide 52: Future Sales Growth Drivers
Future Sales Growth Drivers • 12-15% AnnuallyUnit Growth • Focus on Increased Trips from Existing Customers • Retail Inflation + Basket + Transaction Growth: 3% - 5% • Competitive Impact + Cannibalization: (1%) - (2%) Comp Store Sales Growth Solid Double-Digit Consolidated Sales Growth
Slide 53: Near-term Margin Drivers
Near-term Margin Drivers • Supply Chain • Opportunity to continue historical trends • Cash flow may be impacted, if insourced • Shrink Leverage • Sales Mix of Value Added Items • Scale Benefits COGS • Corporate Expense Leverage • Create funding pool for marketing investments • Store Operating Costs
Slide 54: Capital Expenditures
Capital Expenditures Expect construction capital expenditures and costs similar to FY14 adjusted for inflation Average New Store CapEx: $3.5MM - $4MM plus annual inflation of 2% Anticipate other capital expenditures to rise slower than sales Returns on investments in new stores improving All capital
Slide 55: Investment Thesis Summary
Investment Thesis Summary • Natural/Specialty One of the Fastest Growing Channels in Food Retail • Greatest Potential to Take Market Share from Conventional Grocers • Growing Consumer Demand for Fresh/healthy Shopping and Outpaced Trends in Perishable Categories Outstanding Industry Dynamics • Uniqu
Slide 56: Q&A
Q&A
Slide 57: Appendix
Appendix
Slide 58: Non-GAAP Reconciliation
Non-GAAP Reconciliation The Fresh Market, Inc. Reconciliation of Non-GAAP Items (dollars in thousands except per share amounts) December 31, December 31, December 31, December 31, December 31, December 31, January 29, January 27, January 26, 2005 2006 2007 2008 2009 2010 2012 2013 2014 Net income $