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February 9, 2004
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The New Ballgame
There's an old saying that figures don't lie, but liars can
figure. That's why so many statistics can be presented so many ways
to produce so many results. The readers of these columns (and
others) probably get more than their fill of numbers daily, each with
the promise of untold insights and the reality of unfulfilled
promises.
The problem, however, isn't with the numbers, but rather how we
look at the numbers. This industry is awash in data and yet we seem
to lack the critical pieces of information that help us understand
what shoppers want and why they make decisions that never seem to
square with our plans.
Two interesting bits of reading put me on this path this month,
both of which I'd recommend and neither requires understanding many
numbers. However, a working knowledge of baseball might be really
important. (More on that in a few paragraphs.)
The first is a new study coming from the Coca-Cola Retailing
Research Council of which I'm privileged to be a member. The study
approached consumers from the radical notion that they know more
about their own needs than anyone. Rather than use traditional
demographic breaks and industry jargon to analyze shopping, the
council examined the different states of mind that shoppers tell us
define them. The nine "states" capture everything: from a weekend
stock up trip, to a mission for new products, to a harried after-work
dash for food.
The full report, which will be issued at the FMI May convention,
will help retailers think like marketers in understanding what their
shoppers want and how to supply the right environment to meet that
need. The council is working to produce a tool that any retailer
could use to get a better sense of the opportunities in their market.
Understanding opportunities leads us to the second recommended
reading, but here's where baseball comes in. The recent bestselling
book "Moneyball" presents a very interesting picture of the national
pastime. The book details how one team, the Oakland Athletics, has
managed to stay competitive for the past few years, while running on
a budget that is a fraction of the size of some rivals.
The A's magic, it turns out, is using statistics differently,
adhering to new measures of productivity that fly in the face of
baseball logic and staying focused on a carefully crafted plan to
defy the odds and win consistently.
Then again, maybe that isn't all about baseball.
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Linking Marketing Strategy to Retail Execution
Two of the most powerful levers available to consumer packaged
goods marketers are the execution of their pricing and promotion
strategies with retail trading partners. Research done by the
ACNielsen Centers of Excellence analytics team is bringing new
understanding to differences in consumer behavior at the account
level. Previously, you'd be better off reading tea leaves than
crunching numbers when trying to predict how consumers will respond
to price or promotion changes. That's because most of the tools
designed to model such responses are based on the one-dimensional
logic of Bayesian Shrinkage.
Named after an 18th century statistician, Bayesian Shrinkage uses
a methodological approach that forces results to deviate only
modestly from a national average. If the Bayesian model produced an
unreasonable account-level sales estimate for a promotion, it would
"shrink" it to a more reasonable number based on national estimates.
The problem with Bayesian Shrinkage is that consumer responses to
price changes and promotions are not national. It's difficult to
know how much reliance to put on estimates that have been "shrunk"
and the risk this generates of making unprofitable decisions is
significant.
Utilizing Store Personality Profiles, which combine
geodemographic information about the people who shop at a store with
data about what they purchase, along with advanced data mining
techniques, the ACNielsen Centers of Excellence have developed a new
and much more accurate method of predicting consumer response to
price changes and promotions. It identifies retailer-specific
differences in consumer response and determines key price thresholds
- the points at which discontinuous changes in volume relative to the
change in price take place. Most importantly, it provides the
framework for manufacturers to translate national marketing
strategies into customized price and promotion tactics on a
retailer-by-retailer basis. No tea leaves required.
For more information about Store Personality Profile models, call
the ACNielsen Centers of Excellence at 800-988-4ACN.
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Low Carb Moves From "Fad" To "Trend"
More than 17 percent of U.S. households report in the latest
ACNielsen homescan panel survey that someone in their household is
currently on a low carbohydrate diet. Importantly, a slightly higher
number (19.2 percent) reported that someone in their household was
once on such a diet but is no longer. As reports show that more than
600 new 'low-carb' food products hit the shelves in the fourth
quarter of 2003, many retailers have already begun to both create new
sections and expand their offerings within current store sets. But
the big question that many retailers have asked is if this new
category has staying power, or is it more opportunistic and
short-term.
Click on thumbnail to enlarge, or click here.
Interest in low carb foods is showing up in many product
categories where simultaneously we are seeing numerous inherently
high carbohydrate foods showing sales declines and high protein, low
carbohydrate foods showing sales increases.
Click on thumbnails to enlarge
Use this link if you've received the text version
for graph one (
http://www.factsfiguresfuture.com/enlarged/Feb04lowcarb2.gif
) and this link for graph two (
http://www.factsfiguresfuture.com/enlarged/Feb04lowcarb3.gif
)
Proper interpretation of the above numbers must take into account
both dollar and unit sales trends. Fresh potatoes, for example,
shows strong dollar sales declines but flat performance on a unit
basis indicating that price declines are driving much of the overall
dollar sales declines. On the other hand, eggs and bacon are both
showing much stronger dollar sales growth than unit sales growth,
indicating that price increases in the categories are driving overall
category dollar volume up.
Watching carbohydrate consumption is not the only food concern
among American consumers. When asked about obesity, trans fatty acids
and saturated fat, most people are aware of and concerned about the
health risks surrounding each issue. However, awareness of trans
fatty acids is significantly below that of the other two which may
change as manufacturers change their labels to include that
information.
Click on thumbnail to enlarge, or click here.
Indications are that low-carb is here to stay -- most likely as
'reduced carbs' -- as many manufacturers decide to reformulate in
advance of the much anticipated federal regulations and definitions
for low-carb health claims.
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Dollar Store Update: Sales Up, Store Counts Up and the Top Ten Fastest Moving Categories
Store growth within the Dollar Store channel is unsurpassed by any
other retail channel and retailers within the Dollar Store channel
are moving from their rural and small town American roots into both
urban and suburban America. Since 2000, the five major players in the
channel (Dollar General, Family Dollar, Dollar Tree, Fred's and 99
Cents Only) have added over 4,445 stores. Since December 2000, the
top five chains in the channel saw a 44% increase in store count.
The primary Dollar Store formats can be found in shopping
centers/strip malls as well as in freestanding buildings. A no frills
format, these stores now range between 6,000 and 20,000 square feet.
The following chart ranks U.S. retailers by store count for the
year ending December 2003. Note that two of the top three retailers
(and three of the top eleven) are from the Dollar Store channel.
Dollar Tree is now number 11 on the list and climbing.
Click on thumbnail to enlarge, or click here.
Within our ACNielsen-defined mega-categories, we ran correlations
to identify those categories that had the best demographic fit or
match against the demographics of Dollar Store channel shoppers.
Given the skew to low-income households, the coefficients are
relatively low. The categories with the best fit were from a number
of basic staple categories.
Click on thumbnail to enlarge, or click here.
Given their strong fit to Dollar channel shoppers, these
categories may deserve more than just adequate shelf space and
merchandising support. However, we would recommend that this type of
analysis should also be done among frequent or loyal shoppers. Also,
regional or market comparisons would likely show different patterns.
Click on thumbnail to enlarge, or click here.
While this channel is currently over-developed among low and
middle income households (admittedly the primary target market for
these retailers), with the strong increases in household penetration
across all income groups it is likely that these retailers will begin
strengthening their customer base within other customer groups. We
would predict no change in the physical store, but with a different
advertising strategy and ad design (taking a lesson from both Trader
Joe's and Target) it is conceivable that the allure of Dollar Stores
can attract these other shopper groups; making this Channel even more
threatening to traditional food retailers.
A new report on the dollar store channel is now available from
ACNielsen, including a look at the fastest-selling items at the UPC
level. For more information and to order, go to
www.acnielsen.com/pubs.
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Channel Blurring: Grocery Continues to Lose Shoppers in 2003
The Grocery Channel has a significant advantage over other channels
in terms of shopping frequency. However, as seen in prior years,
shopping frequency within this channel is on the decline. By the end
of 2003, the average household made 72 trips to the Grocery channel -
six fewer trips versus 2000. However, the good news is that this is
the first time that we have seen Grocery channel shopping frequency
stabilize versus the previous annual period.
Click on thumbnail to enlarge, or click here.
On the surface, it may appear that shopping frequency within the
Mass channel is also on the decline, but it is important to note that
this is a result of the conversion of some Mass stores to
Supercenters and the closure of certain Mass chains.
Although new store openings may be holding down shopping
frequency in Supercenters, average shopping frequency within this
channel is relatively low, but growing. This finding may also be a
direct result of the distance with which rural shoppers must travel
to shop in Wal-Mart Supercenters.
Shopping frequency in the other channels remained fairly stable
over the past three years. With the rapid expansion of new store
openings in the Dollar Store segment, overall shopping frequency is
being understated as well.
We see that the Club channel has experienced an increase in
household penetration. Most of this growth has come from households
who can afford to shop the channel; for example, those households
with a household income of more than $70,000 show a household
penetration in 2003 of 67%, as compared to 33% for those with less
than $20,000 income.
When we examine the importance of weekly spending across all
major holidays, Mass Merchandisers, Supercenters and Dollar Stores
get a much bigger bump in weekly sales from holidays. For the Dollar
Store channel, weekly sales in holiday weeks are 15% greater than
sales that they typically generate in the average non-holiday weeks.
Click on thumbnail to enlarge, or click here.
For a complete analysis and consumer insight presentation on
Channel Blurring and its implications for your brands, please contact
Todd Hale at
thale@acnielsen.com.
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What Makes Shoppers Go Back To A Food Retailer?
As consumers continue to have more channel choices, it's critical for
food retailers to understand the motivations and "must-haves" of
their shoppers in order to keep their loyalty. In a new
SupermarketGuru.com Consumer Panel Survey of 1533 shoppers, of which
88% were female, we found that while alternative channels have
captured many food dollars, consumers continue to spread their
dollars across multiple food retailers, shedding additional light on
the trend of people shopping at traditional grocery stores less
often, as tracked by ACNielsen.
When surveyed as to which of the food stores they frequent is
their favorite store, our panel chose the Independent Regional Chain
Supermarket as its number once choice, by 39% of the respondents.
Second most favorite was the National Chain Supermarket with 26% and
third most favorite was the Super Center at 17%.
It could well be argued that the answer to this question is a
glimpse into the future of retailing. While the National Chain
Supermarket outranks the Independent Grocer in both location
availability and frequency - shoppers indicate they want more
personal attention, and traditionally the Independent Grocer channel
has outperformed the National Chains in these areas.
The following charts rank the attributes of our panel members'
PRIMARY food store. In the survey our 'report card' was better than
expected for customer service and friendly staff; reinforcing that
the human touch will always resonate with shoppers.
Click on thumbnail to enlarge, or click here.
In most of the categories listed the panel's primary grocery
store performs well with the exception of assortment in three
categories: Health Foods, Health & Beauty Aids and Vitamin Assortment.
Click on thumbnail to enlarge, or click here.
All three of these categories are among the fastest growing
within the retail channels, and based on the aging population, it is
predicted they will continue to grow for a minimum of the next 15
years. In particular, the ratings for Health Foods Assortment should
be viewed as below average and an opportunity for all food retailers.
As Americans (and food brands) move towards healthier offerings,
these categories deserve major attention and effort in order for
retailers to retain their customers and keep these shoppers from
seeking these offerings from competitive sources.
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ECONOMIC SNAPSHOT: Sustainability Of The Recovery
Fittingly, as we began 2003 with concerns over consumer spending, we
ended 2003 with a late surge in consumer spending which brought same
store sales over 4%. Clearly, the main economic message for 2003 was
one of recovery. Yes, a fiscal and monetary policy driven recovery,
but one that was broad based, which generated gains of 25%, 50%, 26%
and 43% across the Dow, NASDAQ, S&P 500 and S&P Retail Index
respectively. Without question, consumers, despite job concerns, went
shopping in 2003 and early indications from January point to a
continuation of this trend.
The question that we will watch closely for 2004 centers on the
sustainability of the economic recovery. While the wait and see
continues for robust job gains necessary to generate confidence and
discretionary spending, ongoing stimulus will allow consumers to
maintain spending in this election year. It is important to note that
prospects for job growth are in the pipeline -- specifically, 4Q
profits over 28%, productivity gains, lower jobless claims, increased
tech spending and improvement in the household measure of
unemployment.
The final look into the report of Leading Economic Indicators for
2003 paints a fascinating picture of the economic cycle of 2003.
First a slowdown followed by a ground swell of improving conditions,
and
ultimately the best monthly results reported in December.
So what is the forecast for 2004? Strong GDP growth driven by
business spending near the 4% level. Gains from corporate cost
cutting that stamped 2003 earnings, along with low inventories,
ongoing weakness in the dollar, aggressive stimulus, productivity and
solid demand should translate into a controlled recovery which in the
end is probably the best growth possible for US and World markets.
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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Big Trouble In The Fish Case?
The controversy about farm-raised salmon continues, as a new study
calls into question the standards established by the federal
government and takes supermarkets into court. The study, by the Pew
Charitable Trust, charges that farm-raised salmon contains
significantly higher concentrations of PCBs, dioxin and other
cancer-causing contaminants than wild salmon. The study recommends
that farm-raised salmon should only be eaten infrequently and said it
was making the recommendations based on guidelines published by the
US Environmental Protection Agency (EPA).
This is a huge blow to the salmon industry which has been growing
steadily as consumers understand the health benefits of eating
Omega-3 fatty acids. Salmon is now the third most popular fish in the
US, after canned tuna and shrimp.
Two major consumer groups - the Environmental Working Group and
the Center for Environmental Health - have filed notice of their
intention to sue 50 salmon farms, fish processors, and supermarket
chains for allegedly selling fish that contain carcinogens; bringing
into question what liability retailers should have, which may well
alter the way all foods are sold and merchandised. The suit is being
filed under the provisions of California's Proposition 65, the Safe
Drinking Water and Toxic Enforcement Act of 1986, which mandates that
companies must notify consumers if their products contain hazardous
levels of chemicals known to cause cancer or reproductive harm.
Sales in the supermarket frozen seafood cases indicate that
consumers are reacting. According to ACNielsen Scantrack, dollar
sales of frozen salmon had been increasing substantially. In 2000
sales were up 41.7% over the previous year, 2001 showed an increase
of 32.9%, 2002 showed the biggest gain with sales up 53.4%. But by
the end of 2003, the sales increase had dropped to just 16.9% after
the first report that questioned pesticide levels. The announcement
from the Pew Charitable Trust that they would be filing lawsuits
against manufacturers and retailers should also prove to have a
negative impact on both frozen and fresh salmon sales.
One of the latest SupermarketGuru.com surveys suggests that a lot
of education has to be done to convince consumers there is enough
scientific evidence to support some of the concerns about farmed
salmon. Of the consumers who responded to the poll, about a third
said that they would not eat farm-raised salmon because of the cancer
concerns, but 46 percent said they would eat farm raised salmon in
moderation, and 13 percent said they felt the situation had been
blown out of proportion.
Click on thumbnail to enlarge, or click here.
For about half the respondents, the issue isn't even on their
radar screens. About 23 percent said that when buying fish at a
store, they don't ask if salmon is wild or farm-raised, and 29
percent said they'd never even thought to ask the question. 49
percent said they do ask. Fewer people ask the question in
restaurants, however - 38 percent ask, 31 percent don't, and 31
percent said they'd never considered the option.
Click on thumbnails to enlarge
Use this link if you've received the text version
for graph one (
http://www.factsfiguresfuture.com/enlarged/Feb04salmon2.gif
) and this link for graph two (
http://www.factsfiguresfuture.com/enlarged/Feb04salmon3.gif
)
As more food safety issues make headlines, it is important for
retailers to be as knowledgeable as possible and, in order to limit
their exposure, be sure to inform their shoppers as to any possible
risk.
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COUNTRY-TO-COUNTRY: A Look at the Leading Non-Food Products in the United States vs. Mexico
When comparing the leading non-food products purchased in the United
States and Mexico there are many similarities, which further
reinforce the assimilation of both cultures with the other. While
certain items (such as insecticides in Mexico and Plastic Lawn & Leaf
Bags and Charcoal in the US) are unique due to geographical
environment; those non-food items that are focused on cleaning are
clear indicators of the similarity. One note to marketers: look at
the various fragrances that are used in these products in Mexico and
be sure they are available in products in those supermarkets with a
high percentage of Latino shoppers in order to build your brand
awareness and trial.
Click on thumbnails to enlarge
Use this link if you've received the text version
for graph one (
http://www.factsfiguresfuture.com/enlarged/Feb04C2C1.gif
) and this link for graph two (
http://www.factsfiguresfuture.com/enlarged/Feb04C2C2.gif
)
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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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