Tilting the Playing Field Strategy for 2015 2016

Tilting the Playing Field Strategy for 2015 -2016

Today’s Purpose • suggest a strategic direction for 2015 • synthesis of information from our experience and analysis • shaped by outstanding results • discuss a new strategy

Concepts

Trading Customers “the market leader is the company with the lion’s share of the profitable accounts” ― Bruce Merrifield

Trading Customers Us customers Them

How Money is Made Really!

How Money Is Made $GP $CTS 9

What Makes Gross Profit $GP = $revenue X margin% + fees

What Drives Cost-to-Serve $CTS ≈ orders picks invoices deliveries

margin% add-on fees deliveries $revenue orders invoices picks

How Money Is Made $3 $7 $5 Bottom Line 13

How Money Is Made $10 ($25) ($50) Bottom Line 14

Whale Curve

Whale Curve PIP (Peak Internal Profit) $5. 5 M Realization 27%

Customer Cross-Subsidies 17

Customer Cross-Subsidies • entire basis of current business operations • good customers support their dysfunctional competitors • hidden by accounting systems: competitors without Way. Point can’t see this • would you say this to a great customer…?

Pricing

Can Confer Price Advantage Stokes Merrill Revenue $272, 743 Gross Profit $57, 703 Selling Exp $4, 454 Order Entry Exp $1, 611 Whse Exp $38, 212 Delivery Exp $8, 516 G&A $10, 279 Cost-to-Serve $63, 072 NBC ($5, 369) Millennium 22. 1% 3 orders / week 762 picks 4 deliveries / wk 3 invoices / wk 23. 1% Revenue Gross Profit Selling Exp Order Entry Exp Whse Exp Delivery Exp G&A Cost-to-Serve NBC $261, 580 $43, 161 $3, 589 $1, 243 $21, 212 $5, 076 $7, 709 $38, 831 $4, 331 15. 8% 2 orders / week 423 picks 2. 5 deliveries / wk 2 invoices / wk 14. 8%

Customer Cross-Subsidies 21

Competitor’s Whale Curve

New Strategy

Objectives • have all the most profitable accounts • have no unprofitable accounts • deliver the best customer experience • have a significant price advantage • lead in profitability • reward contributors

Strategy: Road Map 1. reform or trade profit drain accounts 2. reduce transaction counts (CTS) 3. build price advantage by reducing cross-subsidies 4. aggressively pursue target most profitable accounts with using service and pricing

Strategy: Steps 5. reduce margin-support policies and actively trade GM% for CTS% 6. incent by profit to motivate and share gains (extraordinary pay for extraordinary profit performance) 7. build GP with intelligent pricing and add-ons 8. build a better breed of customer

Competitors’ Limiting Beliefs • every sale adds increment to bottom line • must win every account • GM% = profit, therefore margins must be defended (lower margins will hurt profits)

Strategy: End State • 50%-75%+ of the most efficient (profitable) customers in the market • profit generation 2 x industry rates at margins 5%-10% below market • market-leading concierge service and corresponding reputation

Conclusion • use what we know about profit mechanics • new action on cross-subsidies • tilt the playing field: • get the best accounts • trade off money losers