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December 8, 2003
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History Repeats
Thirty years ago the food retail industry was on the verge of
vastly changing the shopper experience as technology moved
supermarkets to the advent of the UPC.
Fast forward to 2003 and the same discussions are taking place on
investments, technology and consumer impact. Only now, the
technology is vastly different. Today industry leaders are focused
on the adoption of the electronic product code (EPC), the next
generation - or quantum leap - of the UPC barcode.
In September, EPC specifications were launched at a global event
in Chicago. Like the UPC, the EPC is divided into numbers that
identify the manufacturer, product, version and serial number.
However, the EPC uses additional digits within its coding to identify
each unique item in the supply chain with a unique identifier
embedded into a microchip; residing on a tag attached to a pallet,
case or individual item.
The implications are enormous. The investment is significant,
but so are the potential savings throughout the supply chain in
myriad of areas:
Labor costs for the receiving process are reduced
significantly. EPC tags are automatically read as they enter the
dock; no need for item count.
Managing inventory levels is done automatically. EPC tags
eliminate the need to search, find and count any assets (shipping
containers, trailers, pallets, totes, cases or products) the tags
track location 24/7.
Sharing of product information is critical to the
retailer-customer experience. Retailers will be better equipped to
manage warranty and post-sales services in real time.
Reduce out of stocks. For store shelves with RFID chip
readers, the shelves' intelligence will react to stock levels and
send the network a message.
Deters theft. Each item (pallet, case, product) will have a
unique identifier, the EPC network will be alerted to items not been
paid for, or may have left the premises without authorization.
Product authentication. The history of each item, from the
time of manufacture until sold will be on the network. Tampering or
counterfeiting will be easier to identify due to RFID tracking.
Efficient product recalls. Since individual items are
identified and tracked they can be quickly found throughout the
supply chain.
In the future, EPC is being designed to facilitate product
recycling, and can be used to identify post-consumer waste for
sorting and reusability.
Just as with the UPC, consumer education is essential. In 1973,
consumer concerns about the UPC focused on the loss of individual
prices then stamped on every product. The UPC design required prices
be printed on shelf tags rather than the item. Consumers voiced
worries about unit pricing (which they did not trust or understand)
and pricing accuracy at the front end.
The issues are very different today, but once again consumers
must be educated by the food industry about the truths and myths of
RFID, especially when it comes to privacy and the benefits this new
technology will have for the average shopper. It's never too soon to
start.
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'Tis the Season
As you read these words many retailers are in the midst of their
most important selling season.
For sellers of consumer electronics, toys, clothing, and many
other items, the period between the day after Thanksgiving and the
end of the year accounts for one-third or more of annual sales.
Fortunately, most consumer packaged goods are not so dependent
upon the holidays; eating and cleaning one's house are year-round
activities.
However, some CPG items are very seasonal. Twenty percent of
canned mincemeat is sold during Thanksgiving week, for example.
Eighty-seven percent of all eggnog is sold between early November and
the end of the year.
Two questions emerge from the notion of highly seasonal CPG items:
1) Can retailers and their manufacturer partners do more to
encourage sales of such items throughout the year?
2) How can retailers take full advantage of the narrow windows of
opportunity that open for such products?
The answer to the first question is a definite maybe.
Extending baking soda's use to odor absorption is the classic
example of broadening a product's appeal. Could consumption of
cranberry sauce and plum pudding be expanded? Of course, but it takes
out of the box thinking that builds on existing consumer knowledge
and benefits. For example, while most shoppers understand the health
benefits of drinking cranberry juice, few think of cranberry
sauce as anything more than a holiday condiment.
However, the bigger opportunity lies with the second question.
While many retailers are already focused on destination
categories or departments (i.e., "Retailer X's outstanding bakery
makes it a destination department."), they would benefit from
expanding their "destination" thinking to include destination
holidays.
What if a store became truly committed to becoming shoppers'
go-to place for
all of their New Year's celebration needs, for example?
Wouldn't the store e-mail New Year's eve menu planning ideas to
its best customers, hold in-store party-planning workshops, sample
food items shoppers may not have thought to include
with their holiday meal, and display the items one needs for an
outstanding New Year's celebration in more concentrated seasonal
stores within stores?
That would be a far cry from the all-too-common "seasonal" aisles.
Mincemeat is not likely to become a household staple anytime
soon. But it's a good bet that more retailers can do a better job of
turning Thanksgiving, Christmas, New Year's Eve, Valentines Day and
other holidays into destination holidays for their stores.
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Linking Online Media to Offline Sales
We have seen the future of shopping, and it's online! Or at least
part of it will be, and Consumer Packaged Goods companies are focused
on being ready to serve and understand these online shoppers. Over
185 million people in the U.S. have Internet access, and that number
is growing rapidly. Grabbing an ever-expanding piece of the media
consumption pie, the Internet, according to SRI-Knowledge Networks,
now ranks #3 in media usage (defined as the percentage of one's time
spent per media out of all media) - a growth rate of 23 percent
versus a year ago with a 13 percent share behind radio (31%) and
television (48%). Newspapers and magazines lag far behind with 5
percent and 3 percent shares respectively. Perhaps more importantly,
the Internet, today, reaches the most valuable consumer - the highly
educated big spenders with kids.
Click on thumbnail to enlarge, or click here.
While it is true that consumers are spending more time online and
less time using traditional media, it is also true that online
consumer purchasing of CPG goods is estimated at a meager 0.6
percent, as reported by Ad Age. CPG brand managers are developing
the tools to insure that in the future online shoppers will enjoy the
optimal purchasing experiences. But they also need measurement tools
to properly target and understand the needs of these shoppers.
Consumer goods are underdeveloped relative to other segments and
media who advertise online. The good news is that in 2002, total
impressions grew 27 percent, but the share is still a meager 5.9
percent.
How do we find these shoppers? Who are they? Where are they
surfing? And what do they buy?
ACNielsen's Consumer Direct is the first scaled "closed loop"
online marketing tool. A subset of the ACNielsen Homescan consumer
panel has agreed to allow their online activity on the Yahoo! network
to be monitored. This "matched panel" enables online ads to be
directed to segments of consumers identified through Homescan as
heavy users of a particular category, as one example. By "scoring"
the Yahoo! user database of millions of visitors - that is, by using
computer models to find many more people with similar behaviors as
those on the matched panel households - we are able to reach sizable
well-defined segments of consumers with relevant communications and
promotional programs.
Then, at the back-end of the Consumer Direct process, we can go
back to the ACNielsen Homescan consumer panel to precisely measure
the retail sales impact of such campaigns among households that we
know were exposed to the targeted online marketing program.
CPG marketers who have partnered with ACNielsen on the first
Consumer Direct campaigns include Kraft, Unilever, Purina and Pepsi -
each of which has been very satisfied with the results; more Consumer
Direct campaigns are in process. A more complete discussion can be
found in ACNielsen's Winter 2003 "Consumer Insight" magazine
available at
http://acnielsen.com/ci/
Projections for online shopping this holiday season indicate an
increase by 20 percent to around $17 billion for the fourth quarter
of 2003. If those projections are correct, that will mean that US
online retail sales (not including travel) will top $55 billion. The
opportunity for CPG Brands is to be sure that the Internet is used as
a tool to build their Brand image and equity, and not merely be an
annoying pop-up ad that accomplishes just the opposite.
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Heavy Grazers: A New Classification of Your Most Valuable Shoppers
Grazing behavior, in terms of marketing, was first used to describe
the change in the way Americans eat. Used to describe the change from
the at home 3 square meals a day, to the 5 or 6 daily meal
occassions: instant breakfasts, drive thrus, take-out and even eating
while driving and talking on the phone. The model? A cow, grazing in
the field, taking smaller bites almost continuously.
Today, "grazing" extends beyond the meal occassion, to the way in
which consumers are shopping for all kinds of goods and services.
Our work in the area of "channel blurring" has shown us that
consumers do take advantage of their channel options. In many areas
of the country we are seeing a shift away from indoor shopping malls
to "outdoor" varieties where consumers can either walk or take short
drives between retail stores. In many instances you can find your
favorite Grocery Store right across the street or next door to a Mass
Merchandiser, a Drug Store, a Warehouse Club, a Dollar Store and a
host of other retailers. We know that consumers seek variety in the
categories and brands that they buy, so we decided to examine U.S.
consumers' thirst for variety in terms of the number retailer
channels or retail outlets where they shop. That is, we wanted to
understand:
- how many retailers or retail channels consumers include in
their shopping mix?
- if there are any differences in shopping behavior among
households who shop in many versus a few retailers and retail
channels?
- how household composition may impact the number of retailers
and retail channels where households shop?
Here is a quick summary of how we pulled this analysis together
as well as some key findings.
Within the ACNielsen Homescan panel, about 900 unique retailers
or retail channels are monitored to analyze national, regional, and
local market shopping and buying behaviors. We identified the number
of households who (annually) shopped in "1" to "n" retailers and put
them into three groups to define light, medium and heavy grazer
groups. Please note that we did not conduct this analysis at the
individual store level - we counted each retail banner once in this
calculation. This means that we are actually understating the number
of physical locations where consumers may be shopping.
As you can see, the light grazers (households who shopped in 19
or fewer outlets during the year) accounted for 35 percent of U.S.
households and drove 24 percent of retail dollar sales. The heaviest
grazers (those households who shopped in 29 plus channels) accounted
for 31% of U.S. households and drove a whopping 44 percent of retail
dollar sales. Heavy grazers, whether they be variety or value
seekers, are the biggest spenders at retail.
Click on thumbnail to enlarge, or click here.
Our work also showed us that:
- Heavy grazers shop in traditional as well as non-traditional
retail channels to a greater to degree than their light and medium
grazing counterparts.
- Shopping frequency is the key behavioral factor that separates
heavy grazers from other consumers. Heavy grazers make about twice
as many retailer trips per year as light grazers and while much of
their channel variety is absorbed by the Grocery channel, a
disproportionate number of trips go to the Mass Merchandiser and the
Drug channels.
- When we examine grazing across household lifestage groupings,
we see that grazing is more prevalent among families with children
(where more family members shop), but we also see that couples seek
variety, value or "shoppertainment" in their retail options.
- Grazing is more likely to occur in large metropolitan areas
where population density brings more channel options.
- When we examine responses to survey research that we have done
within our Homescan panel, we find some attitudinal differences
between light and heavy grazers. These provide insights into how to
reach consumers that love to shop. For example, heavy grazers tell us
that they will likely buy something on sale even if they don't need
it - so consumer promotions can be leveraged by manufacturers and
retailers to drive off-cycle purchasing.
- Other Heavy Grazer benefits include looking for value in the
food aisles of non-food retailers and a susceptibility to promotions
for those offerings, a greater likelihood of using coupons, and a
greater likelihood to try new products - 47 percent of the heavy
grazers disagreed with the statement "I prefer sticking with products
my family likes rather than experimenting with new products."
Finally, while both heavy and light grazers are split when it
comes to sacrificing quality for price, heavy grazers were less
likely to sacrifice quality. However, when we examine brand purchase
behavior across the grazing groups, we see that heavy grazers are
heavier buyers of private label products.
While retailers battle for consumer spending, these findings
suggest that there are opportunities to be had by both retailers and
manufacturers who can satisfy the buying and shopping needs of
consumers who like to shop until they drop!
For further information or to arrange a comprehensive
presentation on consumer shopping patterns, please contact Todd Hale
at thale@acnielsen.com or
859-905-4615.
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ECONOMIC SNAPSHOT: The Recovery Takes Hold
With the long awaited and much anticipated job growth and business
spending picking up, all economic drivers are now falling in line. As
we enter the 2003 holidays this growth comes at a critical time for
retailers. Cleary with the latest reading on Consumer Confidence up
10 pts since last month to 91.7, consumers are sharing the same level
of optimism as economists, and increasingly, corporate executives.
We have continued to stress in this Economic Snapshot column, the
trap one datapoint presents and therefore the necessity of analyzing
multiple datapoints to obtain a true gauge of economic activity. One
of the most visual methods to illustrate the shift in the economy is
to review the charts below. The first was created almost one year ago
during the November 2002 time frame. As you will see essential
components of an economic recovery were missing. Fast-forward to
November 2003 in chart #2, and the picture changes significantly.
While retail sales and housing remain the pillars, corporate earnings
(+22% for 3rd qtr 2003), gains in the equity markets, Manufacturing
growth, Consumer Confidence and yes, even the jobs picture is
improving.
Click on thumbnails to enlarge
Use this link if you've received the text version
for graph one (
http://www.factsfiguresfuture.com/enlarged/DecES1.jpg
) and this link for graph two (
http://www.factsfiguresfuture.com/enlarged/DecES2.jpg
)
What does this mean for Consumer Spending?
On the heels of strong fiscal stimulus (child tax credits and tax
withholding changes) and ongoing supportive monetary stimulus in the
form of lower interest rates, coupled with the aforementioned
drivers, consumer spending appears to be set for a solid run during
the holiday season. By most accounts the weekend after Thanksgiving
resulted in retail sales in the range of 3% - 5% above the previous
year. Imbedded in several reports, however, was insight that
consumers may not be purchasing on deal to the extent they were in
2002. While the extent of this is unclear as of yet, the impact to
corporate profits could be significant.
2004 Right Around The Corner
As we close this article, we take a quick look into what the
early part of 2004 offers. This analysis of Leading Indicators offers
a glimpse into economic actively 3-6 months forward, and as you can
see we are heading towards a firm, sustainable recovery.
Click on thumbnail to enlarge, or click here.
For further insight into the State Of The U.S Economy and its
implications on consumer spending, Please contact James Russo at
ACNielsen at 516-429-8086 or
James.Russo@acnielsen.com.
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Channel Blurring: Using Rx to Steal Back Shoppers
Two-thirds of the time, Drug Channel shoppers are going somewhere
else to fill their prescriptions. In an August 2003 Homescan Consumer
Panel report of 36,000 individuals, we find that among the customers
that shop in drug stores and have prescriptions (for any Rx drug),
only 33 percent actually fill their prescriptions in that channel.
That should say to drug retailers that these "captive," potentially
loyal customers are at risk - highlighting a huge opportunity for
traditional supermarkets that include a pharmacy.
This finding is important, as patient compliance behavior is
modifiable.
Click on thumbnail to enlarge, or click here.
Of the top reasons that the Homescan Panel selected for "reasons
to switch" from one retailer to another to fill their prescriptions,
very similar preferences were found across all traditional "brick"
outlets. Top reasons included: insurance plan acceptance, location,
speed of fulfillment and ease of ordering. However, as you might
expect, users of Mail Order and Internet ordering (which are the
fastest growing Rx Channels) reported that the ease of ordering, home
delivery and tracking of medications were most important.
Click on thumbnail to enlarge, or click here.
The opportunity for traditional retailers is two-fold: improve
operational efficiencies (in order to compete head-to-head with
Online) and put an emphasis on service, playing to the strength of
the Pharmacist communication and relationships.
It is important to remember that in all cases, Rx customers spend
more in all these channels during the course of the year versus the
average consumer. Even when the actual Rx dollars are pulled out of
the totals, they are still more valuable customers: in Drug Stores by
28 percent, Food Stores by 13 percent and Mass Merchandisers by 63
percent. In addition, these folks also bring an above index number
of store visits per household across all three channels as compared
to the average shopper. As the Baby Boomers age and their use of
prescriptions increase, it is probable that the Rx consumer will get
even more important, emphasizing that now is the time for retailers
to focus on their Rx benefits and relationship building.
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Does a Strong Private Label Business Help Retailer Loyalty?
The Progressive Grocer Annual Report (April 2003) asked grocery
retail executives about their number one subject of most concern and
focus. The largest number answered that they were most concerned
about their Private Label business. This concern took precedence
over e-commerce, technology, and even category management.
The question is - does a retailer's Private Label really help
draw consumers and eventually make them retailer loyal?
As food retailers continue to put an emphasis on Private Label
product and image development, it is import to understand exactly how
shoppers buy and feel about these offerings; along with understanding
if the past positioning of the store brand, as a lower priced
alternative, is still valid.
In a recent Homescan panel survey, we gathered consumers'
opinions about their primary grocery store loyalty, and overlayed the
actual sales and shopping behavior to further evaluate if there is a
correlation between a store's Private Label business and its
shoppers' retailer loyalty. Shoppers were asked to select from a list
the primary reason they shop at the grocery retailer they frequent
the most often. The retailer being in a convenient location was
reported as the number one reason, low prices and good assortments
were listed as number two and three.
Our methodology evaluated two characteristics:
A. That chain's Private Label development (x% of the chain's
dollar sales are through Private Label products).
B. That chain's Private Label loyalty (x% of the consumers'
Private Label dollars are spent on that specific chain's Private
Label offerings).
The findings suggest that there appears to be no relationship
between a retail chain's Private Label development and overall
consumer loyalty; and therefore, building sales of Private Label
alone does not also build retailer loyalty.
Click on thumbnail to enlarge, or click here.
However, analyzing the relationship between a retail chain's
Private Label loyalty and overall consumer loyalty to that chain, we
can see that there is a strong relationship. This suggests that
Private Label is quite important to a retailer's more important
customers (their "loyals").
These findings suggest that retailers who focus their Private
Label program around building loyalty (consumer recognition of the
store's exclusive item and consumer trust in the item's performance)
will build a stronger relationship with the consumer than retailers
who focus their Private Label program only toward driving additional
sales. Furthermore, store brand offerings must deliver in order to
build repeat business and product loyalty that will eventually lead
to an increase in overall retailer loyalty.
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COUNTRY-TO-COUNTRY: A Look at the Fastest Growing Categories in Canadian Grocery Stores
As the population of North America gets older, there is little doubt
that certain categories (in addition to Rx and OTC) will exhibit
double digit growth. In this month's Country-to-Country comparison we
note that in the U.S. "First Aid Packs" and "Dental Accessories" show
significant growth and in Canada both "Antismoking" and "Incontinent"
products are on the upswing as are "Dietary Aids."
Convenience and freshness continue to top the trends with
"Refrigerated Meal Starters" in the U.S. showing a 190 percent year
to year growth on a substantial base of over $30 million, and
"Refrigerated Yogurt Shakes & Drinks" continues its meteoric growth.
In both countries, convenience oriented and diet products
continue to populate the fastest growing categories.
Click on thumbnails to enlarge
Use this link if you've received the text version
for graph one (
http://www.factsfiguresfuture.com/enlarged/DecC2C1.jpg
) and this link for graph two (
http://www.factsfiguresfuture.com/enlarged/DecC2C2.jpg
)
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Facts, Figures and the Future is copyrighted and may not be
reproduced without prior permission. For more information about the
publication, please contact Phil Lempert at 323-860-3070 or via
e-mail at
PLempert@FactsFiguresFuture.com
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