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November 11, 2002
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Tim Callahan on the Changing Landscape of Rx
Earlier this year, retailers responded to our 11th Annual Survey
of Trade Promotion Practices. Among the top five issues cited as
critical to their business today was "Customer Loyalty/Retention."
Retailers looking for a sure bet on the revenue and loyalty
dimensions would do well to consider the pharmacy. To that end, we
devoted an entire five-page section of this year's Consumer and
Market Trends Report to the subject of the Rx consumer. Below is an
excerpt from that Report where I believe you will find actionable
insights.
"The U.S. pharmaceutical market posted healthy 2001 sales of
$175 billion, distributed along the Pareto Principle: the 20 largest
drug companies control 81% of U.S. sales.
While consumers and managed health plans may grumble about the
high cost of drugs and inflated margins, there is no denying the
$600+ million price tag attached to taking a pharmaceutical from
bench science through Food & Drug Administration [FDA] approval. The
process is costly, risky, and long. Industry sources peg the average
new product life at just nine to twelve years on the market after
approval when sales can be earned to pay for all the R&D.
That's assuming a drug actually gets approved. Only 27 new pharmaceutical products received the FDA stamp of approval in 2000."
Click here to read more.
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Solving the Shopper
What kind of shopper would wear an outfit including $400 shoes
and an $18 jacket? According to fashion editors around the country
that sounds like a pretty typical shopper. A number of leading
newspapers and magazines have written recently about shoppers mixing
high fashion (and high price) items in outfits with low-price items
from mass merchants. It's a trend they say is growing and, in fact,
some shoppers brag about it.
Supermarkets see the same scenario. Shoppers are price conscious
in one aisle and extravagant a few feet later.
To help retailers get a better handle on understanding and
merchandising to this quick changing shopper, FMI's Consumer Trends
2002 study examined different shoppers by behavioral patterns. No
analysis is perfect, but this goes a long way toward explaining what
is happening.
Our research broke shoppers into three fairly equal groups:
carefree spenders, time challenged and economizers. Some of the
findings are pretty obvious (carefree spenders are less concerned
about cost) but some aren't. Time challenged shoppers, for instance,
are as price sensitive as any group, even the economizers. And
carefree spenders go to the supermarket more times a week than other
shoppers.
There's no sure method to understanding today's complex shoppers.
But this is one more piece to help put the puzzle together. You can
find details about the study at fmi.org.
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African Americans Are Eating Healthier: How Are You Meeting Their Needs?
African Americans are at higher risk for high blood pressure than any
other race or ethnic group. According to the National Institutes
of Health's (NIH) recent report, this very serious disease tends
to be more common, happens at an earlier age, and is more severe for
the African American population. Current studies such as this one
from NIH that link certain diseases to ethnicity may be in part an
explanation for the rise in health and well-being consciousness (and
intent to eat "healthier") among African Americans.
Click on thumbnail to enlarge, or click here.
An ACNielsen Consumer Pre*View survey fielded in June 2002 found
37% of this group have eaten healthier in the past six months
(surpassing the White and Asian segments of the population). Clearly
this signals an opportunity for both retailers and manufacturers to
develop products to meet this group's needs. The successful offerings
will focus on the variety of foods, taste profiles, packaging design,
and even celebrity endorsers specific to this group. Retailers
should offer freshly prepared foods - that have a lower fat, lower
sodium, lower calorie profile - based on the African American palate.
Another key finding from this survey revealed that 46% of
African Americans cited plans to dine out for dinner "less often."
When
comparing this percentage to other ethnic groups, African
Americans appeared more likely to cut back than any other group
(Asians 30%, Whites 32%). This is a key opportunity for astute
marketers to meet these consumers' needs by developing and providing
healthy food selections for at-home consumption.
Consumer Pre*View shows a significant percentage of African
Americans plan to eat healthier over the next six months.
Click on thumbnail to enlarge, or click here.
'Health' has typically been mass marketed and based on the
profile of white Americans. Expect more targeted 'healthy' products
and 'health' advertising to the African American, Asian and Latino
populations.
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Tim Callahan on the Changing Landscape of Rx
continued..."Given the number of hurdles in the approval
pathway and the attenuated timeline, some question whether the
current 17-year patent protection is long enough to recoup costs and
fund new R&D activity. Especially in light of the fact that when
patent protection expires, generics capture as much as 50% of sales
within one year.
Investment spending against prescription shoppers reads like a
good bet even in these uncertain economic times. They spend more,
shop more often and display strong format loyalty. Retailers like
Jewel-Osco recognize the hidden potential and are offering low-cost
health screenings in-store to build stronger relationships with this
critical segment.*
The consumer cry for less invasive, less costly alternative treatments will continue to accelerate Rx to OTC conversions. Non-government organizations like AARP have adopted prescription drug issues as a cause celebre. When it brings the clout of 35 million members to bear on regulators and legislators, expect budget surgery to follow."
In light of the changing landscape of Rx and OTC medications,
ACNielsen launched its Rx/OTC panel this year, interviewing more than
91,000 consumers as to their ailments and linking it to their
purchase and usage behavior. Bottomline survey results validate that
Rx customers are worth more; they shop more often and they drive
larger baskets.
The pharmacy department is potentially a retail sales engine.
Stores with a pharmacy have a greater chance of gaining loyalty of
highly loyal Rx customers; as well as increasing total sales from
captive customers.
Sufferers of chronic ailments are motivated customers with
serious medical conditions [61% of the U.S. population suffer at
least 1 of 14 chronic ailments]. Chronic sufferers are regular
customers with monthly Rx to fill [68% medicate with Rx drugs]. They
are also customers with conditions that last for months, years, even
lifetimes. And yet like most consumers, their lifestyle needs are
just as strong for OTC products, health related products and other
household buying needs.
ACNielsen's newly launched Homescan Rx Retail Toolbox provides
integrated insights into actual purchase behavior and attitudes among
your competitors' Rx customers as well as your own customers. The
chart below summarizes the complete offering.
Click on thumbnail to enlarge, or click here.
"The pharmaceutical industry is just waking up to the value of
research in understanding consumers," says David Hoo, Director,
ACNielsen Homescan Rx Panel Services. "Sponsored education programs
about conditions and medications increase trial, assist
doctor-patient dialogue and ensure compliance, resulting in better
health outcomes and overall satisfaction. Drug companies are taking
note of the fact that small changes in consumer behavior have a big
impact on sales and profits. "
* "Jewel-Osco Rolls Medical Testing 'While You Shop' ", Drug Store News Online, June 3, 2002.
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Supermarket Store Openings and Closings : A Balance of Defense and Offense?
Facts About Store Development 2002, a new study from the Food
Marketing Institute (FMI) reports that, "the rate of supermarket
store openings in the U.S. recorded 10-year lows last year due
largely to the sluggish economy, but store closing rates also reached
decade lows as more food retail companies focused on expanding
services at existing stores." 24% of FMI's survey participants
stated remodeling was inspired by anticipation of competition
entering the market while another 24% said projects were designed to
meet the needs of changing consumer demographics and lifestyles. At
3.5% - new store openings reached a decade low, but still exceeded
store closings at 2.3%, also at a ten year low.
Although major remodeling projects have reached a low point
(2.1%), some retailers are embarking on minor remodeling projects and
improving in-store service options by adding pharmacies, banking
centers, take-home prepared foods, gasoline pumps, and dry cleaners.
38% of companies in this industry remodeled their stores, coming up
from 22% in 1997. Over three-quarters of these store renovations
involved expansion. The median size of a store before remodeling in
2000 was 21,500 square feet, and the median number of square feet
added was 10,000. In an attempt to offer one-stop shopping, the most
popular services new supermarkets have added are greeting cards,
deli, fresh seafood, prepared foods for takeout, and in-store bakery
stores. 16.9% of new stores added gasoline. (None of the store
improvements in 2000 included the addition of this service). Deli
departments were reported to be the most popular service being added
to remodeled stores.
Click on thumbnail to enlarge, or click here.
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Economic Snapshot
As we head into the final months of 2002, the resiliency of the
American consumer and impact of record housing activity have
continued to carry us though the current economic slowdown brought on
by the 11th post war recession. However, while these drivers
contributed to a strong but less than projected, 3.1% increase in
initial GDP results, there are signs of weakening.
Click on thumbnail to enlarge, or click here.
Concerns over employment, stock market performance, and
geopolitical uncertainty are increasingly weighing on the minds and
potentially wallets of consumers.
The Federal Reserve trying to:
- Stem a slow down in consumer spending, (which drives 2/3 of the
U.S. GDP),
- Head off ongoing weakness in the labor market,
- Stimulate Capital Spending
reduced the overnight federal funds rate .50 basis points for the
first time in 2002. Rates already at historic lows not seen since
1961 are expected to result in a psychological lift to the markets,
business expansion and spurred on consumer spending.
*Development to Watch
With manufactures questioning the strength of demand, this
holiday season with 6 fewer shopping days, is shaping up to be a
vital indicator of 4Q results and projections into early 2003.
*Fun Fact:
The Federal Reserve was established in 1913 by United States
Congress, and through periodically raising and lowering of the
federal funds rate directs the nation's monetary policy. Such rate
changes can take six to nine months to work completely through the
economy.
For more information on this topic please contact James Russo at
James.russo@acnielsen.com
or 516-682-6068
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PRIVATE LABEL: Outpacing Brands and Threatening New Categories
The truth is that even with all the marketing efforts utilized in
maintaining a brand's positioning, it is the retailer who can enhance
or destroy a brand's relationship with the shopper just through how
the product is displayed and presented. At times a retailer may
leverage the display or ad of a high equity brand to create sales of
other brands or store brands. Placing a store's own brand adjacent to
the brand most heavily advertised is just one example of this
strategy. Some retailers promote their own store brands by giving
shoppers a free package of their product when they buy the nationally
advertised or leading brand in order to force an at home comparison.
And the strategies are working!
According to the Private Label Manufacturers Association, one in
five products purchased in grocery outlets is a "store brand"
product. Store brand sales, according to ACNielsen Scantrack (R)
exceeded $53 billion in 2001.
Click on thumbnail to enlarge, or click here.
The perception of store brands has changed significantly over the
past 20 years, a vast improvement from the days where store brands
were thought of as little more than second tier low priced
alternatives. According to Gail Zielinski, Account Director,
ACNielsen Homescan Consumer Insights, and author of an annual study
on private label trends, "Retailers are increasingly using private
label not just as a way to boost margins, but as a way to
differentiate themselves in the market when it comes to consumer
shopping patterns." The efforts of retailers to improve quality and
packaging of their own brands has been rewarded with incremental
sales and profits...and has become a major factor in customer
loyalty. In some cases (like Trader Joe's), the store's own brands
have led to their consumers' perception of a higher quality store
overall.
Supermarket retailers are constantly tracking those potential
store-brand categories as new opportunities and introducing products
under their own banner that threaten categories that have been
dominated by brands.
Click on thumbnail to enlarge, or click here.
Question is... what other categories are soon to be challenged by
private label?
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Convenience Stores: Is Gasoline the 'Magic'?
In 2001, Convenience Stores had combined sales of $283 billion
dollars, up 5%. This industry is made up of over 82,000 chain stores
with 7-Eleven as the leader in overall store count. It is
interesting to note that the next largest retailers in this channel
are petroleum-based companies.
Click on thumbnail to enlarge, or click here.
In the last several years, the Convenience Store channel has made
significant changes in format to where many stores rely primarily on
gasoline sales to keep afloat. The National Association of
Convenience Stores (NACS) reports that the share of gasoline sales
from high-volume retailers is expected to grow from 5% to between 15%
and 20% within four years. Offering gasoline at other retailer
channels has developed incremental dollars and shopper visits.
According to NACS, "Costco testified at a recent public
hearing...locations with gasoline have a customer-repeat frequency of
four times per month. Locations without gasoline have a repeat
frequency of one time per month."
Other locations have chosen to compete by expanding their store
format and even including fast food retailers with drive-thru
windows. According to ACNielsen, this industry currently pulls in
60% of its income from gasoline sales. 65% of these stores use
pay-at-the-pump technology, which may appear to increase sales but
inevitably lessens in-store trips ( a trend we expect will shift as
retailers such as Jack-in-the-Box enter the Convenience Store
marketplace, and 7-Eleven rolls out their "Healthy Foods" sections).
The biggest threat to those retailers who survive on gasoline sales
may be the big box retailers that are adding more and more gasoline
pumps to their stores. In many locations the traditional Convenience
Store has eliminated much of its sales space that was historically
devoted to non-gasoline purchasing.
In the fight for customers, Claire Pamplin, Editor-in-Chief of
Convenience Store News magazine, points out that convenience stores
still have a key advantage. "While it's true in some markets big-box
retailers have gained share in gasoline sales, convenience stores
are banking on the fact that they still have what no other retail
format has: convenience. Operators are working hard to offer the
highest quality products and services in a quick in-and-out format,
something large stores just can't offer. Also, to compete within and
across channels, the smartest operators continue to improve their
store design and appearance as well as in-store offerings such as
foodservice."
The current Convenience Store shopper profile is over-developed
among low-education households, male-only households, low-income
households, households in rural counties, blue collar households, and
among African American households. Expect this customer base to
shift dramatically as shoppers of all kinds become more time pressed,
and the channel offerings become more in-line with a more educated,
more affluent shopper.
Click on thumbnail to enlarge, or click here.
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Retailer Support Is Essential For New Product Success
One of the most important retailer focused deliverables from
ACNielsen BASES is its unique ability to use consumer responses to
forecast the probability for a product's success in-market. With this
information, retailers can focus their efforts and attention (and
dollars) on those products which have the most viability for success.
There is a strong correlation between consumers' CLAIMED future
purchase behavior and what subsequently SELLS in the marketplace. As
anyone who has sat behind a one-way mirror in a focus group facility
can attest, consumers tend to overstate their intended purchase
behavior, but their level of overstatement varies by culture and
other measures. The BASES system adjusts consumer claims for
overstatement, and then uses them in a sophisticated forecasting
model to generate a period-by-period estimate of Year I sales.
Over the years, ACNielsen BASES has discovered several
commonalities for successful new product introductions and has broken
these factors down into some basic "truths":
1. The new product must deliver on the concept promise. (In
BASES' new products database, the products ranking in the top fifth
are SEVEN times more likely to survive in the marketplace than those
ranking in the bottom fifth.)
2. Advertising quantity and quality matter. (The relationship
between trial and awareness makes sense intuitively: if more people
are aware of a new product, it is likely more people will try it.)
3. Retailer support is essential! (If retailers lose interest in
a new brand, the resulting decline in sales can start a downward
spiral leading to certain failure.)
Click on thumbnail to enlarge, or click here.
4. New products must deliver incremental volume, not just volume.
(Most new products are actually stealing the vast majority of their
volume --as much as 95%--from other brands in the category, therefore
doing little to help the retailer.)
Click on thumbnail to enlarge, or click here.
5. Long-term manufacturer support is crucial. (Manufacturers are
often disappointed with lower sales in years II and III after a new
product introduction, but BASES data shows that the declining sales
in Year II is often a self-inflicted wound that is a direct result of
a decrease in marketing support dollars.)
The bottom line is that the failure rate of new product
introductions is well over 70%; while it's seemingly impossible to
accurately calculate the costs of these failures, estimates are well
into the hundreds of millions of dollars...which is why it is
critical to intelligently select new product "winners" from the
start. With a solid pre-market period-by-period forecast, retailers
(and brands) can minimize the costs of less successful initiatives
and assure adequate (but not excessive) inventories. This process
also supports a more collaborative relationship between retailer and
brand, assuring that new product launches are a "win-win" for both.
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Segmenting Exercise:
Another Example of Why "Knowing Your Shopper" is Important
The Institute of Medicine has for the first time issued a
recommended daily allowance (RDA) for exercise. With obesity (for all
ages) at epidemic levels, there is little doubt that Americans need
to get back on the treadmills and bicycles. The new RDA, issued in
conjunction with the revised nutritional allowances, is simple: one
hour of moderately intense physical activity for both adults and
children.
Perhaps the Institute's recommendation is a bit too simple, as we
recognize that people exercise at different times in their lives for
different reasons. An obvious analysis, substantiated by ACNielsen's
Consumer Pre*View Survey, is that younger people exercise to
lose/maintain weight and "look good" while older Americans exercise
"to stay (or be) healthy".
Click on thumbnail to enlarge, or click here.
This analysis translates directly for manufacturers and retailers
and how they should be merchandising 'healthy' and 'diet' foods; as
well as how the products themselves need to be packaged and marketed.
For example, traditional exercise supplements have been
merchandised together with the larger size protein powders. According
to the National Institutes of Health, 55% of shoppers over 50 years
old have arthritis. Therefore, products geared for older shoppers
should take into consideration how easy (or difficult) opening the
package may be. In addition, they need to be sensitive to where a
product is positioned on the shelves so that this consumer segment
can easily access and purchase them.
Drug retailers have led the way in understanding their shoppers'
ergonomic needs: lower prescription counters, lower gondolas and the
insight to place appropriate items at appropriate levels (e.g.,
denture and incontinence products). Our plan-o-grams must take into
account not only sales volume and potentials, but also the specific
shopper and how they shop.
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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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