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For more information and to order your copy of the new 2003 ACNielsen
Consumer and Trend Report click on the report cover
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October 13, 2003
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The Two Faces of Value
For many Americans value retailers hold a special lure. The hunt
for the bargain is very powerful, and everyone does it. In large
part that explains why on many weekends you can find upscale vehicles
in the parking lots of many down-market stores. What's more, it
explains why value formats from Sav-A-Lot to dollar stores are among
the fast growing retailers in the country these days.
For other Americans, however, the hunt for bargains is a way a
life. Down-market is how they meet their needs, and it is incredibly
important that we understand this.
As an industry serving the entire population, the food industry
needs to understand the challenges of America's poorest to recognize
the special challenges and opportunities in this growing marketplace.
This was brought home painfully clearly in some recent statistics
released by the U.S. Census Bureau.
In 2002, 12.1 percent of Americans were living below the
poverty line, which translates into nearly 35 million people. The
poverty line falls at various annual income thresholds: from $8,628
for an individual 65 or older to $29,601 for a family of eight with
six minor children. The percentage of people living in poverty rises
sharply for African-Americans, Latinos and youths.
Half of all American households get by on annual incomes of
$42,409 or less.
The challenge posed by these numbers is clear. This is a large
portion of the population for whom value equals price, and it is
likely that no retailer can compete for this market without a
tremendous focus on low pricing. But there is also opportunity.
These shoppers also have busy lives and while price may be paramount,
they will also look for clean stores, time savings and even some
excitement in their shopping trip and daily meals.
This is rarely a group that draws the focus of marketing, yet it
is an enormous group with significant needs and opportunity.
This past January, FMI was pleased to premier a new study from
McKinsey that detailed just how powerful value retailers have become
and the incredible impact price merchandising is having in a number
of product categories. The report (still accessible at
FMI.org) is must reading for a sense
of the competitive challenge today.
McKinsey made it clear that winning in today's marketplace
requires focus, differentiation and an ability to stay competitive on
price in any environment, even upscale areas. For economically
challenged consumers, these issues are even more important.
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Taking a Lesson From TiVo
In a recent New York Times article, Michael Powell, the head of
the Federal Communications Commission, was asked about TiVo. "We're
moving to a world of incredible intimacy in mass media," he said.
"I'm my own programmer, not NBC. I've got a system looking all
around the 300 channels I have. And picking out the stuff I like,
putting them together and letting me decide whether '24' is on at 9
o'clock or 9:45."
"Intimacy" is not a term that most people would use when talking
about the consumer packaged goods (CPG) or marketing information
worlds; nor is "technology" a term most people would pair with
"intimacy."
However, "intimacy" is a vitally important concept when it comes
to serving consumers because it connotes a sense of the personal, of,
in this case, tailoring unique offerings to people based on their
individual needs and doing so in real time. Today, technology is the
key to making that happen.
ACNielsen and all of the VNU Marketing Information companies are
heavily focused on this area. Our investments are all about
integrating and customizing the consumer packaged goods industry's
most comprehensive information assets to offer a 360-degree view of
consumer behavior, and doing so in as close to real time as possible.
The more you can understand the value drivers for your consumer,
the more relevant you can make your store or brand. In short, it's
about the same type of intimacy that Powell used to describe TiVo.
This process of integration and customization has already led to
innovative new solutions from VNU such as ACNielsen's Consumer
Marketing Mix models, Launch Manager for new item introductions from
Spectra and ACNielsen BASES, media targeting capabilities through
Volume Rating Points analysis from Spectra and our Media Measurement
Information companies, and the recently announced Consumer Direct
initiative. But we're just scratching the surface and the
opportunities are significant.
So, while "Technology" and "intimacy" are two terms that, at
first glance, don't seem to go together, in the dawning of this new
age of information-based marketing solutions they go hand in hand.
VNU is uniquely positioned in the marketplace to provide you with the
solutions to tailor programs for your most valuable consumers and
build your brand's equity, based on an intimate knowledge of their
needs.
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The World View: How the World is Shopping
Globalization is a key to business today. But what are the true
implications? Perhaps the adage, "think global, act local" is
correct as we take a look at just a few of the distinct differences
in food shopping behaviors and preferences among consumers around the
world.
Who are the Power Shoppers? The French may not have
invented shopping, but they've certainly developed it into an art
form and an expensive one at that. The average French household
dropped the equivalent of $5,106 at retail in 2002, attributable in
large part to its higher proportion of affluent households. The Swiss
followed suit posting an annual spend per household of $4,865 with
the Italians not too far behind at $4,382.
Click on thumbnail to enlarge, or click here.
Hong Kong recorded the lowest spend per shopping trip at $8.08
with a shopping frequency rate of one trip every 1.2 days. The
fragmented retail scene also prompted shoppers in Germany and Italy
to hit the stores at about the same frequency (once every day and a
half or so). At the opposite end of the spectrum, you'll find
Chileans who market about once a week or every five days and
Australians who stretch the time between shopping trips to almost
four days. Notably, Australia holds the honor of patronizing
supermarkets almost exclusively, with a remarkable 96 percent
purchase rate in that channel. Statistically, Germany and the United
Kingdom look like the yin and yang of household purchasing patterns.
Despite very similar annual spends, the decomposition of those cash
outlays is very different indeed. British shoppers have much bigger
baskets [$24.07 vs. $15.04] on the whole while German buyers market
almost twice as often [every 2.8 versus 1.6 days] and wind up
spending 9.4 percent more.
Drawing on insights developed using ACNielsen Homescan Global
Consumer Panel data, a few facts of life for retailers become clear.
More frequent shoppers often develop into more promotion-aware
shoppers, highly sensitive to temporary price reductions [TPRs].
Continuous exposure to products and price points enables them to make
more informed buying decisions and to recognize deals and promotions.
However, shopping more frequently often corresponds with less
organized shopping practices such as making lists for shoppers; and
for stores it means more impulse buys and forces retailers to work
harder for their money.
For more information and to order your copy of the
2003 ACNielsen Consumer and Market Trends Report
click here.
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Uncorking the Higher-Income Household Market
How do you define an "upscale" supermarket? We all know it has
something to do with the surrounding neighborhood, the level of
service, and maybe a nice deli or bakery. But many retailers with an
upscale clientele do not focus enough attention on upscale
categories. Using ACNielsen Homescan consumer panel data, we can
identify categories that index highest among households with an
annual income of $70,000 or more. As the graphic below shows, higher
income households spend more on categories like bottled water,
yogurt, family planning, and the number one upscale category, wine.
Click on thumbnail to enlarge, or click here.
22.7 percent of U.S. households have an annual income of
$70,000+. They account for a whopping 45 percent of dollar sales in
the wine category. Their dollar volume index (% dollars divided by %
households) of 198 is higher than that of any other category by a
wide margin. Developing the wine category is an excellent strategy
for attracting higher income consumers.
Growth in the wine category is being driven by the imported table
wine segment - up 15 percent vs. year ago. Australian wine is up
over 55 percent in grocery stores and is now the number one imported
wine, outselling Italian.
How did "Freedom Fries" and the anti-French sentiment surrounding
the Iraqi conflict impact sales of French wines? Sales of French
wines are down in supermarkets, although France is still hanging on
to the number three country of origin after Australia and Italy.
Click on thumbnail to enlarge, or click here.
Charles Shaw, the famed $2 wine sold exclusively at Trader Joe's
that most people know as "Two-Buck Chuck," continues to enjoy strong
sales. However, its price is $1.99 only in California. Current
prices range from $2.99 to $3.39 outside Trader Joe's home state.
Pricing for 750 ml domestic tables wines has declined as Charles Shaw
copycats selling below $4.00 are emerging.
How can they make money on this low-price brand? With Two-Buck
Chuck, Trader Joe's has made wine a destination category. 11.2
percent of all shopping trips to Trader Joe's include a wine purchase
compared with only 1.9 percent of all supermarket trips.
On the other end of the spectrum, there are of course bottles of
wine and champagne priced over $100. Do they have a place in a
grocery store? Even if they may be slow sellers, stocking an
expensive brand may enhance a supermarket's image with many shoppers.
Supermarkets can't sell brands like Mercedes or Steinway, but they
can sell Dom Perignon.
For more information about ACNielsen's LiquorTrack service,
retailers should contact Tom Pirovano at
tom.pirovano@acnielsen.com
and manufacturers should contact Danny Brager at
danny.brager@acnielsen.com.
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Soy Foods
The many health benefits of soy foods have been highly publicized in
the last few years, and as a result soy sales are growing at the rate
of over 15 percent over the last 12 months, as reported at the 2003
Soy Symposium. In a SupermarketGuru.com quick poll on soy (conducted
in May 2003), 68 percent of respondents said that soy was a regular
part of their diet. In September of 2003, SupermarketGuru.com
conducted another follow-up soy poll and found that 79 percent of
respondents said they consumed soy foods at least once a week with
the number one reason reported by three-quarters of the group being
that they "heard that soy foods boost general health and well-being."
It's important to note that the SG.com panelists are food-involved
and typically ahead of general population food trends.
The Soy Foods Quick Poll conducted in September focused on the
details of soy consumption and asked about the obstacles for
consuming soy foods. The number one obstacle was taste followed by
price. Over the past couple of years, soy food companies have changed
their formulas and developed much-improved products. The fact that
many shoppers are unaware of this change underscores the importance
of consumer trial through in-store sampling in order to change the
preconceived notion of what soy does or does not taste like. Many
"would be" soy consumers may still believe that soymilk is gray and
watery and have not tried the improved textures and better tasting
products.
Click on thumbnail to enlarge, or click here.
Participants were also asked where they eat soy foods, and "at
home" was where the majority of consumers said they eat soy products
(94%) with restaurants coming in a far second (29%) highlighting the
opportunity for mainstream restaurants to expand their soy offerings.
The most popular soy product offerings reported by the panel were:
soymilk (now available at Starbucks nationwide), soy burgers, tofu
entrees and soy snacks all of which can easily be added to existing
restaurant menus. Healthy eating is transcending both generations and
type of cuisine.
Click on thumbnail to enlarge, or click here.
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ECONOMIC SNAPSHOT: Quality of Recovery Emerges in October
As we begin the 4th quarter and speed closer to the all important
holiday selling season, our focus turns to an assessment of economic
conditions, and correspondingly, the consumer's expected levels of
spending. With U.S consumer spending accounting for
15% of the World's GDP it is easy to see why any factor
impacting consumer spending garners so much global attention. Clearly
at this stage for consumers, it is about jobs and confidence in their
ability to find or retain an existing position.
Refinancing and housing, while still at record levels may have
peaked in July and the child tax credits checks have filtered through
the economy. A quick review of the recent leading economic
indicators, as well as expectations for 3rd qtr earnings provides the
backdrop for our analysis.
As evidenced by the attached update of leading indicators we see
an overall strengthening of economic conditions but also a
reemergence of consumer concerns related to employment and those that
hinder short term hiring, namely productivity gains. While we have
shown in the past that what consumers say in measures of sentiment
versus what they do are often two very different actions, it does
raise a concern for spending going forward. A bright spot was the
September payrolls report, which surprisingly added 57,000 jobs along
with a 5th consecutive rise in temporary workers, which is a leading
indicator of hiring. Although we would be the first to mention this
does not constitute a trend, it may be the beginnings of the expected
pick up in hiring.
Click on thumbnail to enlarge, or click here.
On 3rd quarter earnings lofty expectations are in place, which
for the S&P 500 are close to 16% gains on strong revenue growth. Why
are earnings important to jobs? If corporations achieve strong
earnings on topline revenue growth versus bottom line cost cutting,
hiring soon follows to meet increasing demand.
As has historically been the case, October will once again
represent the critical month for this economic recovery. While the
datapoints are not yet in, what is happening right now in the economy
and being finalized within the financial statements of corporate
America will dictate where this recovery heads and where consumer
spending will emerge over the holiday selling season.
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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What will be the HOT Food Choices in 2004?
It's the question that every retailer and brand manager wants to have
the answer for - because if they don't... failure will be a lot
closer than opening a store across the street from a Wal-Mart
Supercenter. 2003 has brought the largest increase of new product
introductions in years as well as proving that shoppers are willing
to buy their foods outside of the traditional channels. In August of
2003, we conducted a survey on SupermarketGuru.com to explore what
changes people will be making in their eating habits.
Respondents were asked to think about the foods they are
currently eating and tell us what they would like to change about
their eating habits in 2004. The number one "2004 food change" was
to eat more low fat foods (53%). In a close second was cooking more
meals from scratch at home (51%) - perhaps an indicator that
consumers relate eating at home to healthier eating. The next three
answers in order of rank reinforce the trend of healthy eating at
home as opposed to restaurants: Eat more freshly prepared foods that
just need to be heated (29%), Cook more meals at home using prepared
ingredients (27%), and Eat more organic foods (27%).
Click on thumbnail to enlarge, or click here.
In a follow up question, survey participants were then asked
"what types of cuisines they intend to eat more of in 2004." Once
again, the answers indicate that consumers are seeking healthier
options. The number one answer was Low Fat (49%) followed by Lo Carb
(41%) and Fat Free (26%).
Click on thumbnail to enlarge, or click here.
With the increased media and political attention on obesity and
healthcare, there is little doubt that today's shoppers are reading
more labels, are more aware of food & health news and will continue
to buy healthier offerings at the checkout.
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Understanding the Value of Pharmacy Customers
With the 3 billion prescriptions dispersed annually and growing at a
rate of 4 percent over the past year, pharmacy is becoming one of the
most important offerings of a retail store. Mail order Rx and
pharmacies in supercenters are increasing in popularity. But for now,
the traditional drug and grocery channels are still the largest
dispensers of prescriptions and OTC products.
Overall, 61 percent of the population suffers at least 1 of 14
chronic ailments, and 68 percent of those medicate with
prescriptions. The importance of these customers is that these are
automatic repeat customers.
Click on thumbnail to enlarge, or click here.
This chart looks at 7 of these sufferer groups. The key point of
this exhibit is that the use of Rx medication varies greatly by
ailment. For example, diabetics and blood pressure patients don't
really have a choice in whether or not they'll fill prescriptions.
Secure their prescription, and you will historically have them as
customers for life. The opportunity is that the pharmacy becomes a
potential "retail sales engine" for the retailer.
Take a specific look at the opportunities that are presented by
customers who have high cholesterol.
The large percentages associated with these chronic sufferers are
driven by a number of variables such as longer life spans. These are
clearly motivated customers. They need continuous access to a
reliable pharmacy. Many of these chronic ailments are long term and
even lifetime disease states. Many of these chronic ailments also
dictate their OTC and general household purchasing behavior. And many
of these customers are seeking those foods that have low or no
cholesterol. Building a quality relationship with these customers
through an on-site registered dietician, "low cholesterol" store
tours, and cooking classes will have a dramatic effect on the bottom
line and customer retention.
Click on thumbnail to enlarge, or click here.
The supermarket retailers that step up to the plate to target
these potentially "captive" consumers have a greater chance at
gaining highly loyal customers for both the Rx counter as well as the
other products of all types that are available, which could ward off
potential threats from other retail channels.
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Private Label: Differences by Departments
It's logical to understand why most Private Label sales come from the
Food and Beverage departments; those are the departments with the
most sales. Private Label milk, eggs, and bread, already well
developed, today comprises 25 percent of the store brand sales in
Food & Beverage.
Click on thumbnail to enlarge, or click here.
But that may well shift. The increases being seen for Private
Label are not necessarily concentrated in the Food and Beverage
departments. The largest Private Label growth is in the General
Merchandise department where the store brand currently holds the
smallest share. There are huge potential profits for retailers and
huge potential losses for brands.
What categories are leading this trend? ACNielsen Scantrack
reports significant sales growth for Private Label candles, kitchen
gadgets, and office & school supplies -- driving the total General
Merchandise store brand into double-digit gains. Only 64 percent of
General Merchandise categories have a Private Label presence (as
compared to 80% in Food & Beverage) further underscoring the
potential threat.
Click on thumbnail to enlarge, or click here.
As previously seen, many of the larger and well developed Private
Label businesses are in the Food and Beverage department. This table
confirms that in close to one-fourth of all Food and Beverage product
groups, Private Label holds a 31+ percent share position. Such
Private Label strength is seen in far fewer non-Food and Beverage
categories. Looking at the General Merchandise department we see
that 8 out of every 10 Private Label entries currently have a 10
percent or less share of the category.
As retailers struggle to keep their relationship with their
shoppers, we can expect to see further emphasis on Private Label
(both in breadth and depth of offerings) and the continued effort to
expand into more upscale categories.
Niche retailers, such as Trader Joe's, continue to use their own
brand to attract (or should we say lure) consumers from traditional
grocery stores, proving the importance and power of Private Label.
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COUNTRY-TO-COUNTRY: A Look at the Fastest Growing Products in the Irish Grocery Channel
In this month's Country to Country we take a look at the Fastest
Growing Products in Grocery in Ireland vs. the U.S. marketplace.
American shoppers seem to be filling their carts faster with
personal hygiene, convenience foods, and diet chocolates. It's
important to note that the largest of the fastest growing categories
is refrigerated yogurt beverages which typically have been
reformulated to improve mouth feel and taste. Yogurt remains as one
of the food categories where its health benefits (perhaps perceived
as well as real) continues to fuel effective line extensions.
Coincidentally in Ireland, their largest volume category in the
top 10 Fastest Growing is also Yogurt - in their case Yogurt & Yogurt
Drinks are combined -- the growth emphasizing the global impact; and
continued opportunity for this product category. We also see the
influx of more convenience oriented foods with the growth of ready to
eat desserts, cooking sauces, gravy mixes and prepackaged sliced
meats.
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How Can I Make My Line Extensions More Incremental?
Manufacturers commonly look to new product line extensions as a way
to grow the business. They are an even more important part of the
portfolio today as companies focus on fewer main brands. However,
the only way a line extension will drive growth is if it brings
incremental sales into the franchise. So how good are line extensions
at driving incremental volume?
A few years ago, BASES addressed this question by evaluating the
performance of 80 line extension launches. One of the most
surprising findings was that nearly 25 percent of these line
extensions failed to grow the total franchise! By contrasting the
line extensions that grew the franchise versus those that provided no
growth, BASES has discovered four main factors that prevent line
extensions from being incremental.
The first factor is consumer perceptions of substitutability.
Not surprisingly, the least incremental line extensions are products
that consumers believe are highly substitutable for the parent brand.
The more differentiated the line extension is from the other
products in the brand franchise, the better opportunity for overall
franchise growth.
The second factor is the transaction size of the line extension.
Line extensions that shrink the franchise are often sold in smaller
sizes or generate fewer units purchased on each occasion than the
parent brand.
The amount of marketing support that is "borrowed" from the
parent brand is the third factor impacting line extension
incrementality. Often the dollars that are used to support the line
extension come at the expense of parent brand support. The more
marketing support borrowed from the parent brand, the less likely the
line extension is to grow the franchise.
Click on thumbnail to enlarge, or click here.
Finally, the fourth factor deals with the amount of distribution
that is stolen from the parent brand. Line extensions that grow the
franchise are able to gain incremental distribution in market whereas
those that shrink the franchise are less likely to find new space on
the store shelf.
Based on these learnings, BASES developed Franchise Growth
Analysis, a modeling tool used to estimate the incrementality of a
line extension before launch. Franchise Growth Analysis accounts for
these four key factors of incrementality to provide a total analysis
of growth potential. The resulting model is strongly predictive and
shows no systematic bias.
Click on thumbnail to enlarge, or click here.
For more information about how ACNielsen BASES can help measure
incrementality or for information about ACNielsen BASES in general,
please contact Joe Sebranek at
joseph.sebranek@BASES.com
or 312.583.5506.
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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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