Potential for 35-50 percent retail margin improvement

A.T. Kearney sees opportunities for UAE food retailers

Dubai (1 August 2009) — A potential 35-50% margin improvement in the food retail sector has been identified by A.T. Kearney, one of the world’s leading management consulting firms. According to A.T. Kearney, expert retail analyses indicate that the bottomline can be improved through focused integrated store operations, presentation, assortment and promotions.

Despite reported global decreases in consumer confidence levels, regional retail spending indicates the current mood is optimistic. According to analysts the food retail segment represents the largest segment within the UAE retail sector and accounts for more than 40 percent of total consumer retail spending. Dubai in particular is seeing positive trends in spending largely due to, Dubai Summer Surprises (DSS), with participating malls experiencing increases in footfalls and retailers reporting positive sales. It is expected that food retailing will remain high through the month of Ramadan.

“While it is key for retailers to find innovative ways beyond price discounts to keep driving sales beyond Ramadan, store operators can benefit from simultaneously considering opportunities to increase the bottomline of food retailing. Key success drivers for retailers to sustain sales and bottomline performance can be found by digging deep into stores’ operational excellence and merchandise productivity,” said Robert Ziegler, Vice President, A.T. Kearney Middle East.

A.T. Kearney assesses that food retailers can realise a 35-50 percent margin improvement by adopting an integrated store operations framework, with effective presentation, assortment and promotion tactics. There are three elements to an integrated store operation approach which will allow retailers to generate margin growth.

The first element of the integrated approach focuses on assortment, pricing, placement and promotion. “Retailers have to review their category roles, adapt the Consumer Decision Tree and change the final shelf plan accordingly,” recommended Christian von Tschirschky, principal at A.T. Kearney Middle East. Replacing low rotating products with new innovation or products meeting untapped consumer needs alongside management of exisiting products can bring improvements of 15-25 percent on the store bottomline. “In addition, by using smart POS and Loyalty Card data, retailers can identify specific shopping behaviors which reveal cross selling and direct mailing opportunities. These not only reduce the cost of promotional activities but also increase efficiency,” he added.

The second element of focus A.T. Kearney sees as enabling further margin improvement includes operational efforts to improve the value chain of fresh food categories. “Controlling the overall shrinkage of fresh categories is one of the vital aspects during a change of consumer shopping behavior. Retailers should not only adapt the fresh assortment but also look for new sourcing and logistical opportunities in the market,” added von Tschirschky. “A further bottomline improvement of 15-20 percent is generally possible with this approach,” he confirmed.

The third element points to fact based supplier management. Analysing the hard data enables the supplier assortment to be reviewed based on performance. New products can be benchmarked before introduction and bad performing products can be indentified and delisted where required. “With this approach a potential bottomline improvement of a further 5-10 percent is generally achievable,” said von Tschirschky.

“Retailers can drive earnings with integrated tools and strategies. An integrated store operations framework drives the achievement of excellence in retail operations and can guide companies, measure progress and maximize margin performance, while at the same time increasing sales” concluded Mr Ziegler.

About A.T. Kearney

A.T. Kearney is a global strategic management consulting firm known for helping clients gain lasting results through a unique combination of strategic insight and collaborative working style. The firm was established in 1926 to provide management advice concerning issues on the CEO’s agenda. Today, we serve the largest global clients in all major industries. A.T. Kearney’s offices are located in major business centers in 33 countries. During our 80 year history, we have provided management consulting services to most major corporations and governments around the world. From our fast growing Middle East offices in Abu Dhabi, Bahrain, Dubai and Riyadh, A.T. Kearney actively contributes to the operational excellence and profitable growth of industries and services in the region. For more information, visit www.atkearney.com.