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January 12, 2004
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Spreading The Blame
America's health or lack thereof is clearly on the mind of
shoppers as demonstrated by virtually every survey of New Year's
resolutions. Topping the list this year are widely stated goals to
improve diet and exercise.
Clearly, this is going to be a major issue for the entire food
industry, even if shoppers rarely follow through on resolutions. But
if they do, the industry is going to be expected to help.
A special survey on consumer attitudes recently conducted for FMI
by Qorvis Communications and Wilson Research Strategies, found that
most shoppers believe that while individuals are mostly responsible
for their poor health and eating habits, industry and the government
share a large portion of the blame.
Asked who they blame the most for health problems, 57% of the
respondents blamed themselves, while 13% blamed the government, 10%
food manufacturers and 5% blamed food retailers and the educational
system equally. The respondents said individuals should take care of
themselves and their families, but aren't doing a good job.
Food producers were blamed for misleading consumers and for
failing to exert the proper influence on the government. Retailers
received similar statements. Lower income and less educated
consumers gave almost as much blame to suppliers and the government
as they did to themselves. Shoppers of convenience stores held
similar opinions.
Shoppers believed they should take control of their diets to
improve their health. Forty percent said they alone will have the
biggest impact on their health. Nearly 20% said either the
government or the educational system has to get more involved in
helping shoppers know more about making the correct choices. Only
11% put the burden on food manufacturers and less than 5% on
retailers.
Despite those low percentages, the entire issue clearly looms
large for the industry. When asked what factors are most important
in selecting products to buy in the store, nutritional information
ranked only behind price. Caloric content was cited by as many
shoppers as those basing choices on ease of preparation. Shoppers
said they are regularly reading nutritional labels on products and
that the information may impact their choice more than 80% of the
time.
The complete result of the Qorvis study will be available from
FMI after the Midwinter Executive Conference in mid-January. Check
FMI.org for more details.
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A Peak Through the Front-View Mirror
Predictions are all the rage this time of year, with people
weighing in on everything from the economy to the Super Bowl. I
won't venture into either of those areas, but here are a few trends I
feel confident will impact the CPG industry in the year ahead.
On-line shopping will take another tremendous leap forward as
harried consumers get used to buying online and increasingly trust
the process - and that includes buying CPG items online. Savvy
retailers will offer their customers the option to shop online or
risk losing an important segment of their customer base.
The corollary to online purchasing of CPG items is online
marketing by the CPG industry. To give you a sense of how small this
activity is right now, in December of 2003 the largest CPG online
advertiser had just 5% as many ad impressions as the largest online
advertiser overall, according to Nielsen//NetRatings AdRelevance. In
2003, with our Yahoo! Consumer Direct initiative, we proved that CPG
marketers can measurably move the offline sales needle with
intelligently-targeted online advertising. In 2004, as we expand
that program and roll out our new Homescan Online service, it will be
easier than ever for the CPG industry to utilize the Internet
effectively.
Customers who still prefer bricks to clicks will continue to
reward the retailers who enhance their shopping experience. While
most consumers choose their grocery store based on the convenience of
its location, people go out of their way to shop at Costco and Trader
Joe's. What are their secrets? Both retailers offer high quality
private label products. Costco also is known for its outstanding
sampling program. Grazing from one side of the large warehouse
stores to the other makes the journey enjoyable. On the other end of
the size spectrum, Trader Joe's makes the most of its small stores by
offering unique items at reasonable prices. It doesn't hurt that its
employees are among the most energetic, helpful, and friendly in the
industry. In too many other stores the folks working the cash
registers look like they'd rather be someplace else.
Lastly, health issues will grow in significance, going beyond
diabetes and obesity. I've been waiting for a smart retailer to
strike a co-branding deal with a prestigious hospital such as the
Mayo Clinic or the Cleveland Clinic - offering in-store educational
programs for healthy eating, credible answers to shoppers'
health-related questions, and perhaps a number of medical services.
Here's wishing you much success in 2004.
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Revitalizing the Center Store: A Consumer View
With more and more retail channels leveraging fast moving consumer
packaged goods to drive shopping trips and shopping baskets in their
stores, the battle for share of Center Store departments and
categories is raging. The ACNielsen Strategic Planner service and
the ACNielsen Homescan Consumer Panel provide insights on Center
Store department and category sales trends.
Within the Food, Drug, and Mass Merchandise channels, including
Wal-Mart, sales of UPC-coded products tracked by ACNielsen (for the
year ending 11/29/03) reached $418 billion and were up 2.3% versus
year ago. On a department basis, two of the five primary Center Store
departments (Dry Grocery and Refrigerated/Frozen) grew at a faster
rate than all departments combined. Alcoholic Beverages, Fresh
Produce and Packaged Meats showed healthier growth rates. For the
Produce and Meat departments, sales trends are driven in part by the
move to more UPC-coded products in these categories (away from
random-weight or bulk items).
Within large supermarkets, sales were flatter (up 0.9% versus
year ago) and those same two departments (Dry Grocery and
Refrigerated/Frozen) also grew at a faster rate than all departments
combined.
Click on thumbnail to enlarge, or click here.
Wal-Mart banner stores showed a healthy growth of 11.5% versus
year ago. The same two Center Store departments excelled at Wal-Mart
too and the move to Supercenter formats is clearly driving Food &
Beverage sales at Wal-Mart.
This chart ranks the top selling sub-categories within the Dry
Grocery department and then depicts the channel shares held by
Grocery, Drug and Wal-Mart - treating these three as the total
universe.
Click on thumbnail to enlarge, or click here.
In the Dry Grocery Department, the Grocery channel dominates in
terms of market share. However, when we examine sales change (in
terms of the percentage change in annual dollar sales), we see that
Drug retailers and Wal-Mart (in particular) exhibit the greatest
growth.
Center Store departments clearly drive shopping trips - no wonder
retailers outside of the Grocery channel have been placing greater
emphasis on Center Store categories and departments. The Dry Grocery
department is purchased (on average) over 100 times per year per
buying household - almost twice a week. Other Center Store categories
(Non-Food, Frozen, and General Merchandise) drive strong shopping
frequency as well.
Click on thumbnail to enlarge, or click here.
Center Store departments can also be leveraged to drive overall
shopping basket rings. Both General Merchandise and Dry Grocery add
over $11 (on average) to each shopping basket where they are
included.
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Impact of "Gift Cards" at Retail
The National Retail Federation (NRF) reports that gift card sales
have doubled in the last year; accounting for $17 billion of holiday
retail shopping. While these cards have replaced gift certificates
for both retailers and shoppers, an estimated 10 percent of gift card
users will not use the whole amount, which adds up to bottom-line
profit for the retailer. Those odd dollars and quarters add up, and
for the retailer it means millions.
SupermarketGuru.com conducted a Quick Poll in December on gift
card shopping and found that 61 percent planned on giving a gift card
during the holiday season. 69 percent said that they had in the last
six months received and/or used a gift card that they received from
someone else.
Click on thumbnail to enlarge, or click here.
Survey participants were asked if they preferred giving a gift
card to an actual present, a paper certificate, or cash. 35 percent
said they preferred giving a gift card over cash. However, 31
percent said they didn't prefer giving a gift cards at all.
Click on thumbnail to enlarge, or click here.
NRF also reports that shoppers who do spend the entire card
generally spend an incremental 30 percent of the gift card total on
other products - creating a unique - and identifiable coveted
customer niche. The opportunity is for retailers to create special
programs and services for those customers; and forge an on-going
relationship.
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The Wal-Mart Shopper Base
To illustrate the types of Wal-Mart shoppers that are having the
biggest impact on the Grocery channel, ACNielsen segmented Wal-Mart
shoppers based on their Wal-Mart annual spending as well as their
total spend on an all-outlet basis. We used four individual Wal-Mart
spending groups (with the households in the 0-25% group representing
their lowest annual spenders) and did the same for total retail
spenders - which yielded 16 individual Wal-Mart consumer segments. In
many instances retailers have used techniques to identify their top
spenders by limiting investigations to spending in their stores.
However, that approach can be misleading because it ignores potential
opportunity associated with maximizing shopper loyalty by quantifying
spending in other retail channels and retailers.
Insights from this type of shopper segmentation can be leveraged
by manufacturers looking to drive their Wal-Mart business. This can
be done by selecting products with strengths in driving certain
behaviors (e.g., buying frequency and per trip spending) that can
help Wal-Mart enhance their position within a particular shopper
segment. Another approach is to leverage products that have similar
demographic skews as found in one or more of the Wal-Mart shopper
segments. Retailers seeking ways to better compete with Wal-Mart
store expansion can explore Wal-Mart shopper segments to identify
vulnerable segments that are ripe for cultivating and harvesting.
Our work in this area shows that the top four Wal-Mart shopper
segments (25% of their total shopper base), drive two-thirds of their
annual sales. And, the top two spending segments (high Wal-Mart
spenders as well as high total retail spenders) drive 54% of their
sales.
Click on thumbnail to enlarge, or click here.
This segmentation also yielded results that show that top
Wal-Mart spenders make frequent Wal-Mart trips. However, except for
the top four Wal-Mart shopper segments, heavy total retail spend
doesn't drive higher Wal-Mart trips - meaning that many households
with high spending rates don't derive the same value out of Wal-Mart
shopping trips and they offer opportunities for both Wal-Mart and
Grocery stores to drive sales. We also see that top Wal-Mart
shoppers spend more per trip and that heavy retail spend does lead to
more per trip spending. Probably no surprise that consumers who
account for the highest overall spending at retail also drive this on
a per trip basis.
Click on thumbnail to enlarge, or click here.
As illustrated in the above graph (please note shift in axes),
top Wal-Mart shopper segments devote less dollars to the Grocery
channel - this is particularly true among lower total retail spenders
(i.e., the low and middle income consumers). Wal-Mart's emphasis on
their Supercenter format is driving share losses for Grocery stores
as shoppers offset trips that they used to make to the Grocery
channel with trips to Wal-Mart. Those shoppers are still making
trips to the Grocery store, but we know that those Grocery trips tend
to be for smaller dollar basket rings (more emphasis around fill-in
shopping trips) than those that they make at Wal-Mart.
Grocery retailers can expect a real battle with Wal-Mart among
low and middle-income consumers. However, there are high income
households within the various Wal-Mart shopper segments. As a matter
of fact, the highest Wal-Mart shopper segment has a large percentage
of high income households, while the second largest segment is skewed
to lower/middle income households. On the other hand, Grocery stores
have ample opportunity to grow and defend their turf among the
Wal-Mart shopper segments who have higher total retail spending
levels. These consumers have more dollars to spend, are less loyal
to Wal-Mart, and have lots of shopping trips up for eager Grocery
retailers to grab.
So, how do Grocery retailers leverage these kinds of shopper
insights to drive their sales? How about understanding the Center
Store products that are most important to fill-in shopping trips and
maximizing those "non-Wal-Mart" shopping trips coming to your stores?
Most importantly, increase your focus on your perimeter department
heritage and build upon what has made you different, while holding
off financial urges to cut service levels. Also, consider adding new
services to enhance the shopping experience or basket ring in your
stores.
Please be sure to attend our Consumer 360 conference to learn
more about how to leverage your sales through understanding shopper
segmentation.
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New Food Labels On the Way
The release of the long awaited updated Dietary Reference Intakes
(DRI) from the Institute of Medicine have been delivered to the Food
& Drug Administration; and brand managers are getting ready to use
the report to build their brand strategies.
Consumers have come to depend on the Nutrition Facts label, which
appears on all our foods; problem is that the majority of the Daily
Values that currently appear date back to 1968. The new
recommendations from the Institute of Medicine are well thought out
and will have a significant impact. The committee reported 13
separate life stage and gender groups for each reference value
setting the stage for shoppers (and food brands) to be aware that
there are distinctive life stages based on age, during which nutrient
needs differ.
Although no one expects that every food package could contain all
this information, the smart food companies will offer this
information on their web sites. The new DRI will also set the Daily
Values for saturated fatty acids, trans fatty acids and cholesterol
at the lowest possible levels. Some changes to the Recommended
Intakes are significant, for example the current Daily Value (DV) for
Total Carbohydrates (based on a 2000 calories diet for adults and
children 4 or more years of age) is 300 grams. The new DV for Females
and Males aged 9-70+ (not including Pregnant or Lactating Women)
drops to 130 grams; a significant message to the population that it's
time to reduce those carbs; additional fuel to stoke the fire for one
of the fastest growing categories in 2003.
More and more consumers seem to be interested in labeling these
days whether it be for obesity related reasons, allergies, country of
origin, or genetically modified foods. In a poll conducted on
SupermarketGuru.com in June of 2003, 90 percent of respondents said
that they found the Nutrition Facts label helpful. When asked which
information should be mandatory on labels, it was no surprise that
"fat" was listed as the number one, by 89% of the respondents.
Click on thumbnail to enlarge, or click here.
It is likely that with the new revisions there will be a renewed
interest in reading the entire label, rather than just focusing on
one or two items, such as grams of fat or calorie count; giving an
edge to those brands that promote a well-balanced nutritional profile.
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Large Families Leaving Traditional Grocery
We know that large households drive a disproportionate amount of
dollar sales within the Grocery channel. With more "mouths to feed",
large households shop the Grocery channel frequently and they drive
larger Grocery baskets. Unfortunately, however, the largest declines
in Grocery channel shopping frequency has been among the larger
households. Are larger households shifting trips to value retailers?
Click on thumbnail to enlarge, or click here.
We do see that Supercenter shopping frequency growth is highest
among the larger households, while there is mixed performance among
the other "value" channels (i.e., Dollar and Club) in driving more
trips from large households.
If large households are important to Grocery retailers, they can
leverage Center Store categories with high development among large
families (like those listed below). Translation, if a Grocery
retailer wants to appeal to the category needs of large families,
then they had better devote sufficient space and merchandising
support to these categories. What else can Grocery stores do to win
back trips from large families? How about quantity discounts,
special check-out lanes or check-out to car delivery for shopping
baskets over a certain dollar amount???
Click on thumbnail to enlarge, or click here.
We also know the importance that households with high income
levels have in the Warehouse Club channel. Club channel penetration
growth is mostly coming from households who can afford to shop the
channel. Households who shop Warehouse Clubs must be able to afford
the annual membership fees as well as the high cost associated with
buying products in super-sized packages. Both household penetration
and shopping frequency nearly double from the lowest to the highest
income level. Additionally, higher income households spend more per
trip.
We also know that high income households are very important to
Grocery retailers. If a Grocery retailer wants to appeal to the
category needs of high income families, then they had better devote
sufficient space and merchandising support to Center Store categories
with strong development among high income households. What else can
Grocery retailers do to capture trips from Warehouse Clubs? How
about leveraging some of the great merchandising tactics that Costco
and Sam's Club deploy in the area of product sampling or in the area
of group buying of high ticket seasonal items (targeted against your
most valuable customers)? Get some fun and excitement back in your
stores and consider leveraging your frequent shopper membership lists
to solicit wish lists for seasonal goods.
For further insights on Consumer Shopping Behavior please contact
Todd Hale at
thale@acnielsen.com.
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ECONOMIC SNAPSHOT: Roots Of A Sustained Economic Recovery Take Hold
With the close of the 4th quarter, we focus on the key economic
events that shaped 2003 and offer insight into the drivers of a
sustainable recovery in 2004.
Retailing benefited from the strengthening in the recovery with
many of the leading retailers across each class of trade hitting near
52 weak highs in the 3rd qtr. Discounters; Wal-Mart and Target along
with leading drug retailers Walgreen and CVS and Dollar stores
continued strong sales and earnings during the better part of the
year. The multiple challenges facing Food retailers clearly impacted
sales and earnings throughout the year and with increased competition
and ongoing pricing pressures, strong cost control initiatives along
with customer driven innovation will be keys to success and in some
cases survival. At the forefront of consumer trends are low carb
diets, concerns of rising obesity and ongoing time pressures offering
opportunies and challenges across retailing.
The overwhelming positive is that with growing output per
man-hour, corporations are producing more with less and taking those
gains to the bottom line. The short-term downside is that hiring will
be restrained until sustainable demand is achieved. We are seeing
those signs now.
As the economy improved, so to did corporate earnings. On the
heels of the 11% gain in the 1st qtr, 2nd qtr results were being
revised upward and the recent 21% gain in the 3rd qtr blew away the
initial expectations of 13%. While the weaker dollar and cost cutting
contributed, sales gains also became a strong factor in the results.
While consumer spending has been the one bright spot in the
economy, business spending has lagged. With a slew of positive
manufacturing reports in the 2nd and 3rd qtr it became evident that
this trend was reversing. This is highlighted in the 3rd qtr GDP
figures which were up 8.2% overall, driven by the 16% gain in
Business Spending.
The following chart of leading economic indicators visually
represents the improving economic outlook.
Click on thumbnail to enlarge, or click here.
Bottom Line - In the absence of any "event" (i.e. Terrorist
attack, Corp Scandals etc), look for moderate, but respectable levels
of economic activity in the range of 4% to 4.5% GDP in 2004.
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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The Future of "Light" is "Reduced"
Although shoppers seem to be focused on "extreme diet" foods these
days, many CPG companies are introducing lighter versions of their
products. In 2004, consumers will be exposed to new formulas based
on reduced carbs, reduced calories and reduced fat.
While certain categories (such as beer) have done well with a
"light" strategy, for the most part shoppers have been dissatisfied
with the taste profile for those food products. Lots of trial, but
little repeat business indicates a huge potential for those products
that can deliver a better nutritional profile with a taste comparable
to their full fat/full carb versions.
SupermarketGuru.com conducted a quick poll in December to find
out what light versions of foods consumers found most appealing.
Click on thumbnail to enlarge, or click here.
When asked if they could taste the difference between light and
regular foods, 82 percent said yes. The primary reason people gave
for not purchasing light foods was texture and consistency (24%) with
taste following (18%).
Click on thumbnail to enlarge, or click here.
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COUNTRY-TO-COUNTRY: A Look at the Fastest Growing Categories in the Grocery Channel
Reviewing Australia's fastest growing categories indicates a huge
growth in Health & Beauty Aid products, indicating that country's
desire to look as good as they can. Two of the largest categories on
their top ten list, Nutritious Snacks and Sports/Energy foods
corollate with their above average of outdoor activities.
Health related categories (Allergen Control, Diet Chocolates and
Refrigerated Yogurt Shakes & Drinks) still rank among the fastest
growing in the United States. The size and growth of the Yogurt
Category continues to reinforce the opportunity for additional yogurt
based product extensions that mirror the convenience and taste
profile of the shakes and drinks. While still a small base, the
Household Allergen Control category should continue to grow as the
combination of declining air quality and the ills of the aging baby
boomer population intersect.
Click on thumbnails to enlarge
Use this link if you've received the text version
for graph one (
http://www.factsfiguresfuture.com/enlarged/Jan04C2C1.jpg
) and this link for graph two (
http://www.factsfiguresfuture.com/enlarged/Jan04C2C2.jpg
)
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Is Charles Shaw Attracting New Wine Buyers?
New research from ACNielsen provides insights into one of the biggest
stories in the wine industry: Two-Buck Chuck. There is little
question that Trader Joe's is selling considerable volume of Charles
Shaw (affectionately nicknamed Two-Buck Chuck in trade circles), but
the question is whether or not this strategy is attracting new
consumers, or just rewarding present wine buyers with more value.
According to an analysis of ACNielsen information, Charles Shaw
is sourcing the vast majority of its volume from other brands. As the
chart below shows, nearly 90% of its volume is coming from brand
switching. Another one in seven purchases of Charles Shaw represents
an incremental category purchase (that is, existing wine category
buyers are buying more wine via Charles Shaw.) None of its volume is
coming from new wine category buyers.
Click on thumbnail to enlarge, or click here.
The 750 ml $4-$7.99 price segment appears to be most affected, as
42% of Charles Shaw's shifting gains came from brands in this
segment; proving the value of a Private Label that delivers on its
promise.
Where Charles Shaw wines have been especially successful is in
generating trial and repeat rates among current wine buyers. Repeat
purchase dynamics for the brand are unprecedented, obtaining levels
that would be the envy of most brand managers. In most categories the
target repeat ranges would be in the 30-40% range. After some initial
fluctuations, Charles Shaw's repeat purchase rates have been
averaging in the phenomenal 50+% range.
Click on thumbnail to enlarge, or click here.
Charles Shaw buyers purchased nearly five bottles on their
initial trip, and nearly eight on a repeat occasion.
Clearly, Charles Shaw and 'extreme value' wines are here to stay.
Perhaps with more merchandising, such as in-store sampling and wine
seminars, new wine buyers will be attracted to the category via such
wines as well.
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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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