Wm Morrison Supermarkets — Investor Day (November 2014)
61 slides from Wm Morrison Supermarkets's investor day presentation, Nov 19, 2014
Slide 1: Analyst & Investor trip
19 November 2014 Analyst & Investor trip
Slide 2: Outline agenda
Outline agenda 1 2 Today: Tomorrow morning: Presentation and dinner Farmers Boy manufacturing 3 4 Tomorrow mid-morning: Tomorrow afternoon: Kirkstall store Lunch and Q&A at Hilmore House 1
Slide 3: Looking back: three areas of focus
Looking back MORRISONS Three areas of focus MORRISONS * Driving topline yg = m ° liicreasing efficiency re “y * Capturing growth MORRISONS
Slide 4: Our convictions remain
Our convictions remain 1 2 Value first Food focused not generalist 3 4 Fresh food Serving like a market customers with skill 5 Multi-format & multi- channel 3
Slide 5: We've recognised consumer behaviour has shifted
We’ve recognised consumer behaviour has shifted Seeking price transparency Shopping more often Visiting larger stores less Using personalised coupons Shopping at convenience stores Shopping at discounters Less loyal Wasting less food Having household budgets squeezed Focused on price Shopping at hig
Slide 6: We're very clear on what we stand for
We’re very clear on what we stand for A value led grocer focused on fresh food 5
Slide 7: Neutralise on price, differentiate elsewhere
Neutralise on price, differentiate elsewhere Neutralise Differentiate 6
Slide 8: We are generating £1bn over the next three years to reinvest
We are generating £1bn over the next three years to reinvest into our business Sources of the £1bn • £300m: Improved end-to-end operations 1 2 • £200m: Indirect procurement and loss prevention 3 • £500m: Promotional investment and improved sourcing Reinvestment of the £1bn • Invest and reinforce cor
Slide 9: Investing and reinforcing our core proposition
Investing and reinforcing our core proposition 1 Lower prices 2 More impactful 3 Match & More promotions 4 Own Brand 5 Product 6 Ease of shop 7 Better Quality communication 8
Slide 10: We continue to see early signs of improvement
We continue to see early signs of improvement Customers are re-evaluating our offer… …and it’s showing in the basket data Like-for-like number of transactions Like-for-like items per basket 0% 0% -4% -4% -8% -8% Q4 2013/14 Q1 2014/15 Q2 2014/15 Q3 2014/15 Q4 2013/14 Q1 2014/15 Q2 2014/15 Q3 2014/15
Slide 11: We have unique advantages
We have unique advantages 1 Strong strategic positioning 2 Defensible competitive advantages Acted on Greater supply structural shifts chain control Optimal store size Uniquely skilled craftspeople 3 Multiple growth opportunities 4 Solid financial platform Convenience Greater Estate self-help owners
Slide 12: Our systems journey
Our systems journey What does a world class retailer require? 11
Slide 13: Morrisons systems capability vs. UK benchmark
Morrisons systems capability vs. UK benchmark 2010 2014 2017 Retail Operations • Point of sale • Self-checkout • Online shopping • Store WIFI / colleague mobility Logistics & Supply Chain • Warehouse management system • Automated forecasting and replenishment (SBO – stores) • Automated forecasting a
Slide 14: Morrisons systems – steps towards excellence
Morrisons systems – steps towards excellence Smarter & Simpler Collaboration • Business lead • Cheaper to operate Last Mover • Agile • Cloud flexibility • Mobile Advantage • Collaboration – Google • Innovative • Retail communities of practice • Exploit our data • Mobilise workforce • Performance foc
Slide 15: The answer to two strategic issues
The answer to two strategic issues Putting customers at the Driving our value reality heart of our business and perception 14
Slide 16: Understanding our customers
Understanding our customers Insight & Media services Customer Value 9m 5m 2m Management tertiary secondary primary customers customers customers Range and Proposition Management Customer Data Collection 15
Slide 17: The power of understanding the customer
The power of understanding the customer Identification is key…but at optimal cost Marginal cost Cost per per customer customer Number of customers 16 Source: Morrisons analysis
Slide 18: Value is critical
Value is critical Expertise Service Price Environment Product choice Ease 17
Slide 19: The solution
The solution + = Getting closer to Delivering value Match & More customers 18
Slide 20: A unique proposition
A unique proposition Price match guarantee Promotional points Fuel points 1000 points = £1 19
Slide 21: Different from the rest
Different from the rest ‘Big 4’ matched Discounters matched Brands & Own- brand Log onto website Points How collected Paper coupon Till receipt Enter code Print coupon £5 voucher Expiry date 2 weeks 28 days 28 days 52 weeks At least 10 items At least 10 items At least 8 items £15 min. spend Minimum
Slide 22: Digital evolution
Digital evolution Match & More Personalised Shopping list points balance offers in aisle order 21
Slide 23: Now launched nationwide
Now launched nationwide Launched Strong media across the UK coverage 22
Slide 24: Just the first stage
Just the first stage Neutralise on price Differentiate elsewhere 23
Slide 25: Our value journey
Our value journey Q4 2014 and Q1 2014 Q2 2014 Q3 2014 beyond Price 24
Slide 26: We have introduced new sourcing techniques
We have introduced new sourcing techniques Cereal has unlocked £3m, a 10% saving Materials Processing Packaging Transport Total direct costs Indirect costs Total calculated cost Negotiation gap Current COGS 25
Slide 27: Developing our supplier network delivers two main benefits
Developing our supplier network delivers two main benefits More competition Capability and reduces cost quality improvement • Third supplier participated in • Product benchmarked poorly against e-auction brand leader and market • Incumbent supplier retained • Supplier development programme business
Slide 28: Upstreaming – Salmon, Cheese & Cooked Meats
Upstreaming – Salmon, Cheese & Cooked Meats • Salmon pin boning • Sliced cooked meats • Cheese blocks • All salmon sides and portions • 16 SKUs • Seven SKUs • One production line • Three production lines • One production line • Adding up to 10 days extra life vs. deli 1 Maximised capabilities 2 Remo
Slide 29: Upstreaming - Meat
Upstreaming - Meat 250 • Skinpack beef Weekly Sales of Upstreamed Lines • Seven new production lines • Doubling throughput by 2015 • Increasing SKU count by over 200 • Creating 200 new jobs Sales, tonnes • Adding up to 15 days extra shelf life 0 40 Time (weeks) 1 Maximised capabilities 2 Removed tas
Slide 30: Retail saves
Retail saves Market Street Centre of Store Checkouts Restructure 29
Slide 31: Market Street
Market Street MORRISONS Spy COTONG OUT 0 TET) «= More to come NORRISINS BUTCHERY DEPARTMENT 30
Slide 32: Centre of store
Centre of store Using electronic Created Availability Allocated order pad Champion Teams replenishment zones 31
Slide 33: Checkouts
Checkouts Improving Evolving main bank Exploring mobile self checkouts checkouts technology 32
Slide 34: Restructure
Restructure Before Fewer, better Undergoing restructure managers union consultation 33
Slide 35: Delivering Five Star performance
Delivering Five Star performance 34
Slide 36: Easier to shop
Easier to shop Removed trolley locks Easier to move around the store Clearer communication Introduced Match & More 35
Slide 37: Availability and checkout performance
Availability and checkout performance +0.5% -4.4% On shelf Checkout queues availability up down Year-on-year change shown 36
Slide 38: Customer feedback
Customer feedback ‘Talk to Morrisons’ Store-specific online survey customer reports 37
Slide 39: Five Star performance
Five Star performance +6% +2% +5% +4% Ease of moving Product Knowledge of Friendliness around the store availability colleagues of colleagues Talk to Morrisons customer survey October measures vs. benchmark 38
Slide 40: The role of Manufacturing
The role of Manufacturing 1 Provenance and quality 2 Competitive pricing 3 Better for our customers • Long standing relationships • Maximised yield • Freshness • Field to fork in as little as 24 hours • Cube fill/pallet fill • Value • Shorter supply chain • End-to-end cost visibility • Traceability
Slide 41: What makes Morrisons Manufacturing?
What makes Morrisons Manufacturing? A value led grocer focused on fresh food We make 57% of the fresh food we sell in store • 16 factories in the UK • 8,500 colleagues • 6 site acquisitions since 2010 40
Slide 42: Morrisons Manufacturing
Morrisons Manufacturing Woodhead Bros & Winsford Farmers Boy International Seafood • 5,100t per week • 2,200t per week • 215t per week • 428 SKUs • 522 SKUs • 125 SKUs • 2,200 colleagues • 2,500 colleagues • 340 colleagues • 80% sales to Morrisons • 99% sales to Morrisons • 94% sales to Morrisons 41
Slide 43: Morrisons Manufacturing
Morrisons Manufacturing Rathbones Wm Morrison Produce FlowerWorld • 1.2m loaves per week • 16,000t per week • 400k bouquets per week • 51 SKUs • 865 SKUs • 35 SKUs • 390 colleagues • 3,200 colleagues • 160 colleagues • 99% sales to Morrisons • 100% sales to Morrisons • 92% sales to Morrisons 42
Slide 44: Market performance
Market performance As the only vertically integrated major UK grocer, manufacturing represents a distinctive source of competitive advantage to Morrisons Volume market share 20% Morrisons overall market share 10% 0% Farmers Boy Meat Fresh Fish Bakery Produce Total Fresh Nielsen 12 weeks to 18th Oct
Slide 45: Manufacturing volume growth
Manufacturing volume growth 1 LFL & new stores +68,000t 2 New categories YOY 3 Online Total 4 Convenience volume 5 External sales Volume for 9 months to 2nd Nov 2014 44
Slide 46: Farmers Boy Bradford overview
Farmers Boy Bradford overview Biggest fresh food factory Six operations Operational 24/7 in the UK under one roof 363 days per year 45
Slide 47: A business at scale
A business at scale 12% year-on-year 99% of sales to 1,500 1,700t per sales value growth Morrisons colleagues week 46
Slide 48: Scale and efficiency
Scale and efficiency Weekly volumes by category • 44 production lines Sausage 15% Bacon • >300 SKUs 25% Quiche • One management team 5% • One logistics solution • High utilisation of overheads Pies Cheese • Warm and cold categories 24% 22% Cooked Meats 9% 47
Slide 49: Driving performance: continuous improvement
Driving performance: continuous improvement Daily Review Meeting Project Management Review 1 Involve 2 Empower 3 Perform 4 Engage 48
Slide 50: Raw material utilisation: maximising yields
Raw material utilisation: maximising yields Cheese Bacon Beef 49
Slide 51: Farmers Boy
Farmers Boy MORRISONS ,
Slide 52: Cheaper to operate, better for customers
Cheaper to operate, better for customers Compelling proposition Cash Growth focused Cheaper to operate 51
Slide 53: Day 2
Day 2 Potato line, Gadbrook manufacturing site 52
Slide 54: Farmers Boy, Bradford
Farmers Boy, Bradford History 1980 First production for Morrisons 1999 New state of the art building opens 2014 Quiche production brought in house Factory facts 390,000 Sq. ft. on a 10 acre site Area 1,525 No. of colleagues 24 hours a day, 7 days a week, 363 days/year Operation Key Products & tonnag
Slide 55: Morrisons Store, Kirkstall, Leeds
Morrisons Store, Kirkstall, Leeds Kirkstall Retail Park forms part of a retail cluster strategically located at the junction of the A65 and B6157 to the north west of Leeds city centre. 54
Slide 56: Morrisons, Kirkstall, Leeds
Morrisons, Kirkstall, Leeds Store facts Opened 25 May 2000 Sales Area 39,000 sq. ft. Freehold/leasehold Freehold Store Manager Scott Gilbert No. of colleagues 307 No. of car parking spaces 649 Facilities Product range Café Bakery Car Wash Butchery Disabled facilities Cake Shop Free car parking Chees
Slide 57: Colleague and customer engagement
Colleague and customer engagement • Operating Model – Biggest restructure in Morrisons history – Built platform and capability to enable change – Fewer levels – Liberate high performing colleagues • Colleague engagement – Fundamental change, using IT as an enabler – Online climate survey, 77k commen
Slide 58: Biscuits 2014 category change
Biscuits 2014 category change The opportunity Results • One of 50 categories reviewed this year • Range reduced by over 60 products • Reduced range & invested in price – Sales increased from -10% to +1% year-on-year – Segment performance varied • Price investment in core products – Too many products
Slide 59: Manufacturing 57% of Fresh food sales
Manufacturing 57% of Fresh food sales • Upstreaming • Quality plan – Maximising capabilities – Graders licence – Removing labour from store – Benchmarking – Yield control – Livestock assurance plan – Quality & consistency • Liberating ranges – Improved product quality – End-to-end margin enhancement
Slide 60: The journey to Sales Based Ordering
The journey to Sales Based Ordering • Depot infrastructure • Stock reduction programme – Right capacity – Laid the foundations for SBO • Bridgwater & Sittingbourne • New ways of working • Velocity based network – Availability champion teams, better for customers • From effective to efficient, cheape
Slide 61: In-store communication
M In-store communication MORRISONS 2014 The Value Journey Qi -—> Q2 — Q3 - I’m Cheaper - Match & More ids My) 60
Wm Morrison Supermarkets — Investor Day (November 2014) on 6ix