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What are we if we are not consumers?
No question about it -- at this year's FMI Convention the buzz
was all about understanding the consumer. Whether it was new
technologies, new products or new services they were all focused on
building the relationship with the ever-changing shopper. And for me,
that's the point.
Consumers change. Just when we think we have them figured out,
they change again. It's a constant process that the truly great
marketers understand. Consumers are not static. Some marketers dread
the fact, others embrace it and prosper.
As the economy shows hints of rebound, brands and retailers alike
are refocusing their efforts towards growth opportunities.
In this month's issue of F3 we highlight the results from the
FMI/McKinsey report that shocked attendees at FMI's MidWinter
Conference, and we suggest there is a new formula for success. James
Russo's Economic Snapshot includes a "scorecard" of the
Economy's leading indicators and which are noteworthy to follow.
Retail in Review is all about Grocery's "hits & misses,"
while the FMI/SupermarketGuru.com Consumer Poll adds new insights to
the Rx consumer.
As always, F3 is committed to helping bring you closer to the
consumer. Please let me know what issues are keeping you up at night,
and how we can help. Just a reminder...we continue our search for
those retailers that "sizzle" -- the most innovative and forward
thinking retail environments around the globe. Just
click here
to send me an email about them, and we will send you a "I've seen the
future" baseball cap as a thank you.
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May 12, 2003
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Building Your Brand
Although national brands still dominate, store brands are playing
an increasingly important role for retailers looking for one more way
to stand out from the crowd. A special FMI report recently completed
in cooperation with Daymon Associates found solid evidence of how
shoppers view the importance and impact of private label. The
results make it clear that store brands are a necessary part of any
retailers' strategy.
Some of the key findings are:
Highly loyal shoppers tend to be heavy users of store brands.
Their trust and faith in the store translates to the products they
buy. Likewise, loyal store brand shoppers are likely to become more
loyal to their store.
Store brand shoppers aren't just price shoppers. They put
high priority on selection, quality, location and service. In fact,
upscale shoppers are becoming increasingly interested in store brands.
Ethnic shoppers, an increasingly important and sizeable
market segment, tend to shy away from store brands unless
specifically targeted marketing efforts are made toward them.
In addition, premium private label lines are changing the market
by bringing in new users and creating a positive image for the store.
Yet, at the same time value-based shoppers continue to like the
lower prices so long as they receive the quality they are seeking.
Quality judgments can be influenced by packaging. Nearly 50% of
the shoppers surveyed said store brand packaging makes them believe
the product is inferior to national brands. Not surprisingly, good
packaging can turn this around and help the store brand win customer
trial, especially among younger consumers.
Some of the study's findings should come as no surprise, but that
doesn't diminish their value.
Shoppers make a wide array of choices based on many personal
preferences. They view value in unique ways, and they apply those
judgments differently to every product they encounter. The challenge
for operators is to understand the values in the communities they
serve and make sure they have the right answers for enough shoppers.
This new study, "Building shopper loyalty with store brands," is
available now from FMI.
Click here.
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The Opportunities Abound For Grocery Retailers
Much has been made of the fact that the Grocery channel has been
experiencing a decline in the number of trips that households make to
the channel each year. And, the channel's sales in the categories
tracked by ACNielsen were flat in the first quarter of 2003.
However, the channel still enjoys 100 percent household penetration,
and it still maintains a sizeable shopping frequency advantage over
competitive retail channels. Also, several macro societal trends
point to real opportunities for Grocery retailers.
Consider the rise of diabetes throughout the United States.
Sales of medical test products, including those for diabetics, total
nearly $600 million dollars in the combined Grocery/Drug/Mass
Merchandise (excluding Wal-Mart) channel annually. However, the
Grocery channel gets just 6 percent of that business. Nearly $63
million dollars worth of insulin syringes are sold each year with the
Grocery channel garnering just 7 percent of the total. Even in a
well-developed Grocery channel category like candy, there are
opportunities for growth. Of the $137 million dollars worth of
dietetic candy sold across the three channels, the Grocery channel
owns just 39% of the market.
General merchandise is another department where significant
opportunities exist. With widespread ownership of VCRs, DVD players,
and computers, sales of pre-recorded videos, printer cartridges, and
recordable compact discs are booming. This too is an area of
opportunity for the Grocery channel. Over $2 billion dollars worth
of pre-recorded videos are sold through the combined
Grocery/Drug/Mass Merchandise channel with mass merchandisers getting
the lion's share. What's the Grocery channel's share? Just 13
percent. Of the nearly $202 million dollars worth of ink jet and
toner cartridges sold each year, the Grocery channel accounts for
just 9 percent of sales. And of the nearly $100 million dollars
worth of recordable compact discs sold annually, the Grocery channel
captures a paltry 8 percent of sales.
For grocery retailers with their finger on the pulse of consumer
needs and desires, opportunities abound.
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The "Reality" Of Value
At last week's Food Marketing Institute (FMI) conference in Chicago
there was much ado about alternative channels stealing food dollars.
The FMI/McKinsey & Co. report,
Understanding The Value Based Consumer, offered grocery
retailers good news and a blueprint for success.
The message of the study:
Consumer attitudes toward value retailers and the relative
roles of price and quality have changed forever. There will be no
return to the halcyon days of yore.
Even as value-oriented food retailers are making enormous
inroads in the marketplace, they actually are moving beyond a simple
price message to differentiate themselves.
The strategy of differentiation is one that mainstream food
retailers have not embraced nearly as much as they should have, and
as time goes on, it will become increasingly difficult to make this
case to the consumer. Value retailers are building their reputations
not just on price, but on breadth of assortment, increasingly vital
private label programs, a better in-store experience, friendly
service and even, believe it or not, convenience, which often is
defined differently than in traditional c-store terms.
The FMI/McKinsey study suggests that once a category has been
"lost" to value retailing dominance, it is next to impossible for
mainstream retailers to recapture it. They suggest that what remains
for food retailers to do is simple, or maybe not so simple. Here's
their blueprint:
1. Decide what you are going to be famous for.
2. Achieve a leaner cost structure.
3. Get credit from the consumer for value delivered.
4. Out-execute the competition through simplification.
5. Grow through new categories and new formats.
Most importantly, retailers need to understand that consumers are
looking for a value experience -- and that experience can be defined
in a number of different ways. It can be defined as price but also
through selection and brands, through quality of product and quality
of the shopping experience. These are hardly insignificant details
in the American food shopping experience; rather, there are plenty
of examples of canny retailers that have chosen to define the "value
experience" their own way and to play the retailing game according to
their own rules.
Click on thumbnails to enlarge
Use this link if you've received the text version
for graph one (
http://www.factsfiguresfuture.com/enlarged/Mayvalue1a.jpg
) and this link for graph two (
http://www.factsfiguresfuture.com/enlarged/Mayvalue2.jpg
)
The F3 "value" equation, what we call QSRP, builds on this and
helps focus the retailer efforts on the consumer:
(Quality+Service+Relationship+Price)=CONSUMER VALUE
Understanding the consumer and then building a unique and strong
relationship with him or her, along with the other attributes of
value, will be one of the best tools for retailers to protect and
grow their customer base.
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ECONOMIC SNAPSHOT: Turning The Page
We begin this snapshot with a restatement of the key question
confronting economic growth, which was posed in the April 2003 issue
of F3. That is what will be the state of Demand, Sales and Earnings
post Iraq?
Well, almost like a light switch, the markets shifted their
attention from IRAQ to fundamentals and earnings on April 7th as U.S
troops marched into Baghdad. It is from this point that consumer
demand, retail sales and overall earnings will be measured.
Coincidentally, it was also the height of the 1st quarter earnings
guidance period, which can be described as one of the cautious
downgrades to an overall projection of 8.6% gains across the S&P 500.
Several weeks later and through the efforts of aggressive cost
cutting, two-thirds of the S&P 500 results are in with an average
earnings increase of 12%.
But just as many of the indicators economists review are often
lagging indicators of past behavior, the 1st quarter earnings can
also be categorized as backward looking. For insight into future
spending we have created a scorecard of forward indicators. This was
designed to present a concise and actionable view of the hidden gems
embedded in economic data. They have been selected based upon their
comprehensiveness and historical performance as they relate to
forecasting economic turnarounds. As consumers drive close to 70% of
the United States economy, the key factors are those tied to
employment and manufacturing. This scorecard will be a mainstay for
each F3 issue, and it will be updated with results and commentary to
assist in your planning process.
Click on thumbnail to enlarge, or click here.
Factors and Rationale:
Leading Economic Indicators: Most comprehensive
measure of indicators tied to future economic activity.
Stock Market Performance: Historically, Wall Street
leads the economy.
Expectations Index: Measures consumer outlook of future
conditions.
Building Permits: Insight in the level of future
construction and housing activity.
New Manufacturing Orders: Level of anticipated consumer
demand.
Factory Utilization: Capacity presents insight into
production levels.
Productivity: As output per man-hour increases,
companies soon follow with increased hiring.
4 wk moving avg of Jobless Claims: A key gauge of an
improving or declining job market.
Avg Weekly Hours Worked: As the number of hours worked
increases, companies often increase hiring.
Help Wanted Ad Index: An analysis into the number of
help wanted ads across the United States.
INDICATORS TO WATCH - (1st) Retailers, manufacturers and
Wall Street, are all watching the crucial jobs data. The Friday, May
2nd announcement covered the April period with further job declines
expected. (2nd) The Federal Open Market Committee met on May 6th,
which was to be their first post IRAQ meeting, and most assuredly
included a statement on economy.
For Further Information:
For further information or to arrange a comprehensive
presentation on the State of the Economy and its impact on the Retail
sector please contact James Russo at
James.russo@acnielsen.com
or 516-682-6068
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RETAIL IN REVIEW: The Grocery Channel
The following chart shows the Grocery channel's performance in 2002
by the departments tracked by ACNielsen. You can see that the most
important departments were all mostly flat in 2002. The only ones
that showed noteworthy growth - produce, deli, and fresh meat - may
appear to have done better than they actually did due to the fact
that many more products in those categories are now UPC-coded, giving
somewhat of a false sense of growth vs. 2001.
Click on thumbnail to enlarge, or click here.
Here is one of the key issues for the Grocery channel: While all
U.S. households continue to shop the channel, the number of trips
taken to the Grocery channel per household each year is continuing to
decline. With 100% household penetration, the Grocery channel has
more downside potential than any other channel, and other channels
definitely have been nibbling away at its shopper base.
Click on thumbnail to enlarge, or click here.
The chart below shows total consumer packaged goods sales across
the combined Grocery/Drug/Mass Merchandise - including Wal-Mart -
channels, and then it shows the 10 categories in rank order that are
most important to the Grocery channel. The Grocery channel has a 65%
share of all CPG sales and a dominant position in all of these
categories. However, its growth rate in each category except fresh
produce is flat. Wal-Mart, on the other hand, is making significant
gains in each of these categories.
Click on thumbnail to enlarge, or click here.
Another issue for the Grocery channel is the demographics of its
core shoppers - larger families. This demographic is in decline. In
1970, 21 percent of U.S. households contained 5 or more people. In
2000, that was down to 10 percent. Conversely, in 1970 46 percent of
U.S. households contained 1 or 2 people. In 2000, that was up to 59
percent.
Click on thumbnail to enlarge, or click here.
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The Change in Americans' Eating Habits as a Result of the War
The war in Iraq has had a direct effect on Americans' waistlines as
reports are showing that we are eating up to 20 percent more calories
per day since the war started. The Natural Marketing Institute (NMI)
released a survey stating that more than a third of US consumers - 34
percent - say that they gained weight during the first three months
of 2003. Two basic reasons for this sudden change in our eating
habits:
Eating food is comforting and can reduce stress.
We watch more TV during crisis - (for example, the
Today Show viewership went up 5 percent since the war began,
and combined network evening news programs are up 4 percent)
The NMI suggests that consumers are turning to fattening comfort
foods as global and economic situations become more severe. It's not
a new phenomenon. According to the American Institute for Cancer
Research, in the 2 months following the 9/11 attacks in New York and
Washington D.C., 20 percent of Americans found themselves eating more
"comfort foods" to help relieve anxiety and stress.
Harvard School of Public Health released a report on April 9,
2003 that was based on a study of 50,277 women that found that those
who watch the most TV are also the most likely to become obese and to
develop diabetes. The report found that the risk of obesity rose 23
percent and the risk of diabetes 14 percent for each two hours of
average daily TV watching. The average American watches 4 to 5 hours
of TV each day.
In a consumer poll on SupermarketGuru.com results
suggested that over half of all respondents had in fact gained weight
since the war began - on average 6.5 lbs! And while close to 90
percent of respondents said they wanted to lose that weight,
one-third said they probably never would.
SO WHAT ARE CONSUMERS EATING, AND WHY ARE THEY GETTING FAT?
Americans are eating more comfort foods - those "feel-good" and
hearty foods that are nurturing and have a tendency to remind us of
those foods they grew up with as children. Usually they are the
moist, soft, rich, creamy, mashed and warm foods that are loaded with
fat: ice cream, mac and cheese, beef stew, chicken soup, chili,
meatloaf, mashed potatoes, spaghetti, chocolate chip cookies and rice
puddings. And with more snack foods, it's only natural that
Americans are eating more hand-held foods that are easy to serve as
they are glued to the TV. Sales of chips and other snacks are up -
high fat, high sodium and high calories.
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COUNTRY-TO-COUNTRY: A Look at the Largest Categories Around the Globe
In this month's Country-to-Country, F3 compares the largest frozen
food categories in Australian and United States' supermarkets. The
top-selling frozen food categories look fairly similar, with the
exception of "savouries" - pies and sausage rolls that are uniquely
Australian - and the absence of Juices/Drinks on the Australian top
ten.
The column "Change vs. Year Ago," however, notes significant
differences. For example, Ice Cream growth in Australia is 9.2
percent vs. just 0.5 percent in the U.S. with Frozen Novelties in the
U.S. measuring a 7.4 percent rise.
Click on thumbnails to enlarge
Use this link if you've received the text version
for graph one (
http://www.factsfiguresfuture.com/enlarged/Mayc1c.jpg
) and this link for graph two (
http://www.factsfiguresfuture.com/enlarged/Mayc2c.jpg
)
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RFID: Good Idea or Bad Idea?
Radio Frequency Identification (RFID) is a technology that is coming
soon to virtually every packaged product that you buy -- but a
SupermarketGuru.com Quick Poll suggests that not all consumers
are in favor of its broad usage. Fifty-four percent of respondents
said that they believed RFID technology sounded like a bad idea - a
clear reflection on the privacy issues involved.
In addition, almost nine out of 10 people polled said they
believed that if RFID technology becomes commonplace it will be
abused; about two-thirds of respondents said they believed the
government should regulate it.
RFID tags allow companies to identify and track items from the
time they leave the factory all the way to the consumer's home...and
even beyond. It is the uses of the tags after the product leaves the
store that raises concerns among privacy advocates.
The tags currently cost about 30 cents apiece and are expected to
get as cheap as a nickel a tag, at which point they will be adopted
by every major product manufacturer.
Other discoveries from the SupermarketGuru Quick Poll:
That there is a fairly even split between people who believed
that RFID technology was appropriate for tracking products from the
manufacturer to the store, with 32 percent saying that was highly
appropriate and 28 percent saying it was highly inappropriate. Of
course, the other 40 percent fell somewhere in the middle, meaning
that there's a pretty sizable swing vote out there.
That when you change the scenario and talk about tracking the
product in the store for security reasons, objections to the use of
RFID drops a bit, with just 22 percent saying it seems highly
inappropriate, and another 11 percent saying it is inappropriate; 31
percent say it seems highly appropriate, with 14 percent saying it
seems appropriate.
However, when you shift gears yet again and ask how people
feel about RFID tracking products to the home, even if only for food
safety reasons, 43 percent say it is highly inappropriate and 13
percent say inappropriate; only 30 percent say it seems like a
highly appropriate or appropriate use of the technology.
Especially today, when concerns about terrorist attacks tend to
run headlong into questions about personal freedoms, these ethical
issues need to be considered by manufacturers, retailers, and
consumers. Ultimately, it will be up to the people to decide where
the lines should be drawn...and business will have to adhere to the
will of the customer... which probably is how it should be.
If industry expects RFID to be accepted by consumers, clearly there is a lot of work left to be done.
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How Do You Shop For Prescriptions?
The Pharmacy has turned into an ubiquitous part of the supermarket
shopping trip, with more and more supermarkets making this department
a core offering that consumers want and demand.
There is a lot of conventional wisdom in the retailing business
about how people shop for prescriptions...but conventional wisdom
isn't always accurate. SupermarketGuru.com conducted a poll
to learn more:
42 percent of respondents buy their prescriptions at a chain
drug store, with supermarkets in second place at 22 percent. A
"local independent drug store" was third at 15 percent. Important
note: four percent of respondents said they bought their
prescriptions online.
47 percent of respondents said that their supermarket has a
pharmacy in the back, with 31 percent saying the pharmacy was right
inside the front door. Only one out five people said that their
supermarket didn't have a pharmacy.
Click on thumbnails to enlarge
Use this link if you've received the text version
for graph one (
http://www.factsfiguresfuture.com/enlarged/MayRX1.jpg
) and this link for graph two (
http://www.factsfiguresfuture.com/enlarged/MayRX2.jpg
)
More than half of respondents (56 percent) said they could
get anything at a supermarket pharmacy that they could at a chain
drug store.
When asked why shoppers choose a pharmacy, the number one
reason cited was "location" (56 percent), followed by being "open 7
days a week" (53 percent) and "cheap prices" (39 percent).
A "knowledgeable pharmacist" and "knowledgeable staff" both
were rated as extremely important to most people, as was the ability
to call in refills anytime and the ability to have one's insurance
card accepted.
Finally, do you know why most people changed pharmacies
during the past year? The reason cited by most people is one that
retailers can't do anything about.
They moved.
Click on thumbnails to enlarge
Use this link if you've received the text version
for graph one (
http://www.factsfiguresfuture.com/enlarged/MayRX3.jpg
) and this link for graph two (
http://www.factsfiguresfuture.com/enlarged/MayRX4.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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