Karabus Management 2009 Grocery Benchmark Study Reveals Key Opportunity Areas for Cost Reduction



    TORONTO, May 20 /CNW/ - Retail advisory firm Karabus Management Inc.
(Karabus Management), a subsidiary of PricewaterhouseCoopers LLP, Canada,
today unveiled the findings of its recent Grocery Benchmark survey, which
compared the operational performance and cost structures of more than 20
leading North American supermarket operators including five Canadian
operations. The survey revealed that best-in-class retailers have worked hard
to realize significant savings in key areas throughout their organization,
including back office, utilities, goods and service contracts and shrink.
    "Retailers today must go above and beyond typical cost reduction measures
in order to meet the demands of one of the most challenging economic periods
to date," said Marty Weintraub, Vice President of Karabus Management. "To
achieve operational excellence, it's essential to implement a bottom-up
analysis of every cost in every area, with no exceptions or sacred cows."
    Karabus Management's 2009 Grocery Benchmark survey results revealed the
following key areas to reduce costs and improve operating performance.


    
    -   Reduce Utility Costs. According to the survey, utility costs are
        often overlooked by retailers, yet 10% savings in this area could
        represent operating profit versus loss. The survey found that an
        average supermarket chain spends approximately 1.5% of sales on
        electricity and natural gas, whereas a best-in-class retailer spends
        less than 1%.

    -   Optimize Marketing and Advertising Spend. Marketing and advertising
        spend at grocers surveyed ranges anywhere from 0.8 to 1.3% of sales.
        For a supermarket with annual sales of $1 billion, this translates
        into a spend gap of $8 - 13 million.

    -   Evaluate Service Contracts and Non-merchandise Goods Expenditures.
        While an average supermarket spends 8 - 10% of sales on goods and
        services not for resale, the study showed that retailers can reduce
        costs (in certain categories) by up to 25% through careful review of
        expenditures. According to the study, there is significant
        opportunity to reduce costs by examining areas where there is a
        combination of high levels of spending and incumbent vendors where
        services have not been competitively bid in years.

    -   Attack Store Shrink. The study showed that shrink (at retail) can
        vary between 1.3% and 3.5% of sales, suggesting a significant cost
        savings opportunity. In a time when consumers are demanding lower
        prices, food retailers, in the bakery, deli and produce departments,
        are protecting their margins and focusing on "production planning
        shrink." And while technology is available to help retailers control
        shrink, the survey revealed that some retailers have seen 10 - 20%
        reductions in shrink by redesigning production solutions.

    -   Fix Internal Processes to Improve Working Capital. The study found
        that inventory turns for grocers vary from 10 to 17, representing
        tens of millions of dollars in working capital that could be freed up
        in a time when liquidity is of paramount importance. Changes to
        business processes and policies can lead to material improvements
        often without the need to spend precious capital.

    -   Consider Elimination of Vendors or Products in Favour of More
        Profitable Offerings. Twenty-five per cent of the retailers surveyed
        said they were over SKU'd, and the increase in demand for private-
        label product only widens the challenge.
    

    Mr. Weintraub continued, "Understanding relevant industry benchmarks and
characteristics of best-in-class retailers greatly improves grocers' ability
to reduce costs and compete more effectively in today's environment. The
benchmark survey provides grocers with the tools needed to identify areas
where greater efficiencies could be achieved. In today's challenging
environment, those retailers that take a disciplined approach to their
financial and operational practices and get their balance sheets in order will
not only survive but will succeed."

    Notes on Methodology and Analysis

    Karabus Management surveyed more than 20 leading North American grocery
retailers to understand how different retailer strategies are being used to
optimize financial returns. As part of the study, Karabus discussed each
company's cost structure and business practices to determine areas where
retailers could achieve incremental cost savings based on best-in-class
performance.
    The survey findings provided by Karabus Management are solely intended
for informational purposes. Any actual application of best practices to a
particular organization requires consideration of many organizational specific
issues such as quality of leadership and talent, culture, strategy and
organizational life cycles. In addition, the statements above speak as of the
date of this release. Factors could arise after this date that could affect
the outcomes and forecasts set forth above. Karabus Management shall have no
liability to any party for any action taken or not taken, or results obtained,
in reliance on this information.

    About Karabus Management Inc.

    Karabus Management Inc., a subsidiary of PricewaterhouseCoopers LLP, an
Ontario limited liability partnership, is a leading North American retail
advisory firm that helps retailers significantly improve their operational and
financial performance. The firm's more than 50 dedicated retail consultants
work with many of North America's leading retailers. Karabus Management has
worked extensively with numerous retailers to develop and execute turnaround
and other business improvement plans in the face of challenging retail
economic climates. For more information, please visit the company's website,
at www.karabus.com.

    About PricewaterhouseCoopers LLP

    PricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance,
tax and advisory services to build public trust and enhance value for its
clients and their stakeholders. More than 155,000 people in 153 countries
across our network share their thinking, experience and solutions to develop
fresh perspectives and practical advice. In Canada, PricewaterhouseCoopers LLP
(www.pwc.com/ca) and its related entities have more than 5,200 partners and
staff in offices across the country.
    "PricewaterhouseCoopers" refers to PricewaterhouseCoopers LLP, an Ontario
limited liability partnership, or, as the context requires, the
PricewaterhouseCoopers global network or other member firms of the network,
each of which is a separate and independent legal entity.





For further information:

For further information: Carolyn Forest, (416) 814-5730,
carolyn.forest@ca.pwc.com, Kiran Chauhan, (416) 947-8983,
kiran.chauhan@ca.pwc.com

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