Truper Proposal March 2006 Final Draft

Evaluating Opportunities in North America

• Teleos Overview.
• Vulnerabilities within the North American lawn and
garden tool industry.
• North American retailers are entering Mexico’s retail
network.
• Changes within the North American retail market.
• Truper’s unique position will allow it to take
advantage of this situation.

The information contained in this presentation is CONFIDENTIAL INFORMATION and
is the property of Teleos, Inc. Unauthorized review, retention or duplication in any form or
fashion is strictly prohibited.

1

Teleos Corporate Overview


Your business is already successful, but you recognize that
in order to continue being successful, your business is
going to have to change.
Your first success was based on being the most cost
competitive in the market; but your market is changing
–more competitors are coming close to your price point,
and they are being entertained as viable vendors from
your customer.
Now, you want to innovate, to build a business strategy for
ensuring long term success, and you know that to
accomplish this, you will have to develop new products
and emphasize marketing.

2

Perhaps the first step is wanting to better understand
the North American market, or perhaps you want to
go through a more comprehensive analysis.
Many Teleos clients desire a review of their entire
channels to market, including a review of their sales
and distribution channels, an evaluation of potential
North American joint venture partners or a serious
investigation into expanding into the country.
Whatever yesterday’s success, the needs of your business
are changing. Teleos is your solution changing your
North American business model. Teleos is the
intelligent way to U.S. markets.

Family of Services
Teleos offers consulting services ranging from business plan
development to formal product design review including
code and regulatory compliance analysis (UL, FDA, NSF, USP, etc.).

Business Plan Business Plan Development services include complete competitor comparisons,
Distribution & Sales
Development marketing studies (from complete brand name recognition surveys to suggested Channel Analysis
product and marketing differentiation strategy analysis), and development of
ways for growing your business in North America.

Product Design & Development includes design review for acceptability
both at the regulatory and consumer levels. These services can be extended
to formal product development assistance in transitioning existing
technologies into new markets and applications.

Distribution & Sales Channel Analysis typically includes a review
of whether your business should employ an expansion
strategy in North America limited to informal representation,
establishing limited distributors, or formally opening your own
operation in North America.

Management Services offered by Teleos include searching
for candidates for you to interview and hire, and Teleos
can be retained on an on-going basis for managing new
hires as you expand your management team
Product Design & into North America. Management
Development Services

3

Vulnerability of North American
Lawn & Garden OEMs


Vulnerability of North American
Lawn & Garden OEMs
• North American Lawn & Garden OEMs are
characterized by:
– Various conditions of financial distress.
– High levels of management turnover, including key account
managers who are looking for new opportunities at other
OEMs.
– Antiquated manufacturing infrastructures.
– Over-reliance on low cost sourcing to perpetuate their
relationships with key customers.
– Poor brand-name recognition.
– Too little investment in product development, innovation
and marketing activities.


4

How This Vulnerability Developed
Retailers have begun to bump into one another:
The 90s led to extensive advancements in Wal-Mart is so large that it inevitably bumps into
logistics which allowed retailers to begin to retail space previously owned by segment leaders
develop a strategic advantage for the consumer. like Lowes or Bed Bath & Beyond. As each of
Because the vendors had not energized their these retailers attempts to grow and differentiate
product development and marketing activities itself from the competition, it must place emphasis
during this period of time, the retailers began on innovative products. Desiring new products
to become more dominant. At the same and brands consumers recognize, retailers are
time, high degrees of retail differentiation finding their vendors are, in many cases, so
initialized and segment leaders began to financially weak they can not provide this.
dominate (Wal-Mart and Home Depot especially). Consequently, new spaces are opening up for
1980s 2000s vendors capable of filling this gap.

During this period of time, the 1990s By 2000, the retail segment leaders had Current Day
dominant retail segment leaders become so dominant they had almost complete
were not as highly differentiated price advantage over their vendors. A number
as they became in the 90s. In of vendors serving the retail community
addition, the retailers did not have consolidated, but the newly formed companies
as dominant a size advantage over were financially not as strong nor as flexible
their OEM vendors as the retailers as they were in the late 70s and early 80s.
now possess. Globalization introduced a new competitive
This détente led to a status-quo on advantage which served the retailer and further
the part of a large majority of the depressed the prices of a variety of goods
vendors, who began to rest on the being sold.
laurels of their existing product lines
and brand status.


Deflation’s Aftermath
• Retailers have gained a significant price advantage through the
benefits of globalization.
• The cost to vendors who have not used this to their advantage
has been increasingly lower prices retailers are willing to pay.
• The underlying premise from the retailer is that lower prices
will induce the consumer to buy; however,
– This premise has a flaw: namely, it will not last forever. At some
point the consumer market will mature and consumers will need new
products to begin buying again.
• As can be seen in the Home Depot/TTI/Rigid/Ryobi deal, the
problem is that when the market finally deflates, the vendors
who remain are so financially and organizationally distressed
they have lost the ability to innovate and brand.

5

This Says Everything …
“ … a number of brand recognition studies have
showed both the retailers and the lawn &
garden companies that consumers have literally
no brand name recognition with respect to
gardening tools & products …”
- Union Tools
management team member


What This Means
• This is dangerous in that it is an indicator of a mature
market where price is becoming the sole driver;
however,
• It is also an indicator of a market ripe for innovation
and for basic branding activities.
• A company with four core capabilities: strong account
management, reasonable pricing, innovative product designs
and brand-building marketing, would be able to build a
dominant position within this market segment.


6

The Wrong Way
• New handle.
• Identified need to get consumer to interact
with product in order to maximize sales.
• Identified need to feature product in flyers
and point-of-purchase displays.
• Actually did neither.
• Used to strategically protect existing unit
volume potentially lost at major retailers.
– This meant getting high volume but losing ability
to leverage the value of the design.
• No branding activities were developed, no
new marketing efforts beyond introduction
at key retailers, no repositioning within the
real estate at North American retailers.
• Net Effect? Innovation without marketing is
a short term win.


The Right Way
• Truly new product (handle & attachment).
• New point-of-purchase displays.
• New marketing collateral.
• New ad campaigns.
• Product roll-out selected to find retail
customers sensitive to innovation, which
meant sacrificing initial volume to take the
time to build a brand and maximize
profitability.


7

Not a Stretch
• To some, this type of emphasis on innovation
and marketing may seem inconsistent with
what they hear North American big-boxes say
they desire.
• But looking at the new relationship forged by
Lowes and OXO, one example of the emphasis
on marketing and innovation can be clearly
seen.



8

OXO Good Grips®
• New relationship between Lowes & OXO announced in
October of 2005.
– Emphasis on line of short-handled garden tools and hardware tools
using OXO’s principle of universal design.
– Builds on OXO Good Grips® brand name from kitchen utensils.
– Builds on OXO’s innovative design.
• Why did Lowes have to get someone new to enter shelf space already
served by Stanley Tools, Lufkin, Ames, Union Tools and many others?
– Because for those companies, the emphasis on lowering product cost
forced them to lose their focus on product development and marketing
activities.
– Ultimately, Lowes knows they need new products with brands
consumers desire for their own health.
– The OXO style of opportunity is present for Truper in North America.
– Someone is going to fill the void, our hope is it will be Truper.


North American Retailers
Are Entering Mexico’s
Retail Business

The following “Strategy Canvas” mapping tool is taken from the Harvard Business Review
article, “Charting Your Company’s Future” by W. Chan Kim and Rénee Mauborgne.


9

North American Retailer’s
Strategic Position
• A saturated NA retail space means retailers must look elsewhere
for the growth their shareholders expect.
• Some retailers, probably those that will be more successful in
the long-term, are looking to change their business model
(Target emphasizing lifestyle design at reasonable cost, Lowes
emphasizing the female gardener / home hobbyist).
• The path of least resistance for most retailers is to take their
existing business model and project it into non-domestic
markets.
• Wal-Mart and Home Depot have been very public in their
intentions to perpetuate their growth by expanding into the
markets in China, Europe, Mexico and South America.


How Will Walmex Impact Truper?
May 31, 2005 – Wal-Mart Press Release:

“Mr. Solorzano said there would be no change to Wal-Mart's core business
approach in Mexico. ‘We are a very institutional, very disciplined company,’
he said. ‘The values of the company are not going to change.’
Walmex, one of Mexico's largest private employers with nearly 700 stores
and restaurants, has identified 200 cities and towns as potential new
markets. In 2004, Walmex had record sales of $12.5 billion, more than three
times the total sales of its nearest rival.
As Wal-Mart has increased it presence in Mexico, opposition to the big-box
stores has grown. Critics have said it brings cheap foreign imports that hurt
local business.”


10

What is the Balancing Point?
Truper has brand name recognition
by the Mexican customer, which it has
wisely used to expand into new product
lines primarily through active sourcing
projects.

Wal-Mart has low but growing
brand name recognition by the
Mexican consumer, but has a vast
array of product lines through its
own global sourcing infrastructure.


Wal-Mart’s Mexico Strategy Canvas
The following canvases are based on Teleos’ research; additional time with Truper would improve the analysis.

The traditional Wal-Mart business model is
primarily price driven, with very low
emphasis on brand or innovation. Quality,
Low to High Offerings

while somewhat important, is not as
significant a driver as price.

Price Brand Quality Innovation Service &
Support


11

Truper’s Mexico Strategy Canvas
Low to High Offerings

Truper’s business model emphasizes
brand recognition and quality, allowing
Truper to expand into new SKUs through
sourcing activities. This business
model will be impacted as Wal-Mart and
Home Depot bring a parallel competency
to bear in the Mexico retail market.

Support


Overlapping The Two Strategy Canvases
WM will exploit
price, turning
this into the core
of their
competitive
message.
Wal-Mart will attempt and make quality,
WM will narrow this gap.

innovation and customer service matter
less to the Mexican consumer because of
the over-whelming price advantage they
have over other native retailers and
manufacturing OEMs.

An Important Question:
given Wal-Mart’s price
advantage, how will Truper’s
advantages in brand, quality,
innovation and service
protect Truper as Wal-Mart
offers lower priced products
with increasing consumer
brand recognition and
quality?

Support

Truper Wal-Mart Mexico

12

Changes Within the North
American Retail Market


Wal-Mart As A Leading Indicator
• Communities resisting new Wal-Mart stores.
• Pressure on Wal-Mart to increase employee benefits
and hourly wages.
• Wal-Mart becoming a symbol for a demographic in
America who have lost their blue-collar manufacturing
jobs and who see a future of lower wages and less job
satisfaction.
• Politically astute leaders are beginning to use Wal-Mart
as an object lesson they can exploit to their advantage.
• New books and documentaries are feeding this
populism.

13

Wal-Mart’s Struggle as
Part of Larger Changes
• Wal-Mart’s political problems are
unique to its size; however,
• Its broader problems are related to
its business model – specifically two
things:
– Its resistance to OEMs who have strong
brand names,
– Its low-cost emphasis has stripped many
organizations of their ability to develop
new products as a consequence to
lowered overhead structures.


Changes to Expect
• The growing populism is going to force Wal-Mart to change its
employment and vendor practices.
• Wal-Mart is already attempting to change its image from “Every
Day Low Prices” to a more fashionable & new product driven
message.
– Other major retailers are going to follow this trend, as evidenced by
Lowes’ OXO deal and the continued emphasis on lifestyle products and
celebrity product marriages (George Foreman Grill, Martha Stewart
Living, Emeril Lagasse Cookware, etc.).
• Teleos anticipates large retailers placing greater emphasis on
brands and innovative products.
• The question is, for companies in the garden tool sector, do
they have the where-with-all to take advantage of this?
– Or are they sufficiently exhausted to miss this opportunity?


14

Truper’s Unique Position


Why Truper Is the Company to Take
Advantage of These Changes
• A corporate culture that values expanding at its own pace
through strategic moves that place it in a high degree of control.
• A management ethic that reinforces the opportunity to grow,
but only if growth is truly mutually beneficial for the retailer
and itself.
• A recent investment in a product testing center, creating an
infrastructure ideally positioned to both certify the quality of
every product with a Truper name as well as develop new
products.
• A company with sufficient stability to challenge the established,
but vulnerable, North American retailers who misunderstand
that their competition is only from Chinese knock-offs.


15

What Are the Opportunities?
• Teleos would not suggest a strategy of capturing
existing SKUs with existing products unless prevailing
business reasons make it necessary.
• The North American retail community is primed for a
brand-building investment.
• If a well-planned and well-executed marketing plan was
coupled with some innovative products, the result
would be lucrative.
• Innovation opportunities exist within the long-
handled tool, short-handled gardening appliance,
striking tools and climbing products.

Teleos would like to be one of Truper’s
partners for the next stage in your growth.
We would like to provide additional insight,
account management and product design assistance
as Truper continues to expand into the
North American retail market.
Teleos – The Intelligent Way to U.S. Markets.
Contact Information
Email: info@teleos-inc.com
URL: www.teleos-inc.com

16

Truper Proposal March 2006 Final Draft

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