8 U.S. Retailing: competition from several channels… Distribution channels for packaged goods products continue to evolve. Mass Merchandisers, Drug retailers, and Convenience/Gas chains are applying more and more competitive pressure on the Grocery channel as they stock “traditional grocery” items. Relatively new channels like Dollar Stores, Warehouse Clubs, Supercenters, and category killers (like Pet Food Super Stores) have caused retailers to re-evaluate store formats and merchandising strategy and manufacturers to re-think how they package and ship products as well as how they deploy sales personnel. Further, bottom-line pressures (and the need for retailers to stock the right mix of products) are creating a real battle for manufacturers to win and maintain shelf space and presence.Progressive retailers no longer think that their competition is limited within their specific channel. Grocery retailers can’t just be concerned with the other Grocery store down the street, but also with the likes of Wal*Mart, Kmart, Drug Emporium, Petsmart and Toys “R” Us. Manufacturers that ignore alternative channels will likely find themselves at a competitive disadvantage.
9 Research DesignDate Source: 61,500 member ACNielsen Homescan Consumer PanelPrimary ChannelsGrocery (excluding Supercenters)Mass Merchandiser (excluding Supercenters)Supercenters*DrugstoresWarehouse ClubsDollar StoresConvenience/GasThe balance of this presentation illustrates the kinds of retail channel information that can be assembled to help retailers and manufacturers develop winning strategies. Much of what you will see can also be applied at the specific retail account-level. Given that our primary client base is packaged goods manufacturers, this analysis is focused on channels that are most important to those sales (i.e., Grocery, Drugstores, Mass Merchandisers, Supercenters, Dollar Stores, Warehouse Clubs, and Convenience/Gas).The Supercenter channel is defined as Wal-Mart SC, Kmart SC, and Target SC. Although other retailers (like Meijer, Fred Meyer, Biggs, etc.) may have some similar store formats, our traditional definition of Supercenters includes only these three retailers who had a discount store heritage.Please note that the ACNielsen Homescan panel captures household-level shopping and purchase behavior. Within the Warehouse Club channel this means that we do not measure purchases by businesses or organizations for their use/consumption or for re-sale. Also, within the Convenience/Gas channel, shopping behavior is understated because of the high level of product purchases for immediate consumption and due to the fact that we do not measure gasoline only purchasing. Nevertheless, the information that is captured provides the best source to compare relative differences in shopping and buying behavior.* Includes Kmart, Target & Wal-Mart Supercenters
10 Warehouse Clubs, Supercenters, Dollar Stores & Convenience/Gas continue expansion Warehouse Clubs, Supercenters, Dollar Stores, and Convenience/Gas offerings continue expansion of store count.The Drug channel has suffered the largest decline in store count as there are 9,800 fewer stores in 2001 than there were in The Mass channel declined by almost 800 stores. Some of this reduction can be attributed to conversions to Wal*Mart or Kmart supercenters, but in the past few years we’ve also seen a few regional Mass Merchandisers (like Bradlees, Hills, Venture and Caldor) either close their doors completely or reduce their overall store count.Family Dollar & Dollar General
12 Petro outlets offset declines in Convenience chains
13 Grocery & Mass losing trips Impacted by pace of life, competition from restaurants, & other retail channels too!* Includes Kmart, Target & Wal-Mart Supercenters
14 Key Industry Trends Channel Grazing Increased competition for Rx sales Gasoline retailingFrequent shopper programDemand for convenienceNiche retailingGiven the competitive nature of the retail industry in the U.S., I want to use the next few minutes to discuss some key industry initiatives that typify how retailers and manufacturers are offering new products & services to capture a greater share of consumer spending. The key trends that we will cover are:Prescription Drug servicesGasoline retailingFrequent shopper programsCompetition for convenienceNiche retailing
15 A new concept: Channel Grazing Clear evidence that consumers take advantage of their channel optionsBut how many retailers or retail channels do consumers include in their shopping mix?Any differences in shopping behavior among light versus heavy grazing households?Does grazing differ by household composition?Consumers take advantage of their channel options.But, how many retailers or retail channels do consumers include in their shopping mix?Any differences in shopping behavior among light versus heavy grazing households?Does grazing differ by household composition?
16 A new concept: Channel Grazing Over 900 national, regional, & local retailers & retail channels monitored via Homescan panelHouseholds who shopped in “1” to “n” retailers were placed into three groups to define:Heavy grazers: shopped in over 28 retailers/retail channel per yearMedium grazers: shopped in retailers/retail channel per yearLight grazers: shopped in 18 or fewer retailers/retail channel per yearWithin the Homescan panel we monitor national, regional, and local market shopping and buying behavior across 906 unique retailers or retail channels. For this analysis we identified the number of households who (annually) shopped in “1” to “n” retailers and put them into three groups to define light, medium and heavy grazer groups. Given that we don’t capture shopping details within all U.S. retails (some condensed into all other classifications), we are understating the extent to which consumers shop in multiple retailers.
17 Channel Grazers drive retail sales The light grazers shopped in 18 or few outlets and accounted for 34% of U.S. households and drove 24% of retail dollar stores. The heaviest grazers shopped in 28 plus channels and drove 43% of retail dollar sales.Total U.S wks ending 12/29/01 – All Outlets
18 Channel “grazing” prevalent in more populated counties More grazers where there is more variety74%Total U.S wks ending 12/29/01 – All Outlets
19 Channel “grazing” prevalent among couples & families w/older children Total U.S wks ending 12/29/01 – All Outlets
20 Except for Convenience/Gas, females dominate channel shopping trips As males age, they handle increased share of tripsExcept for Convenience/Gas (where males are more important in driving shopping trips as females), females dominate the majority of channel shopping trips. Female shopping trips are most important to the Mass and Dollar Store channels, while trips made by males are of greater relative importance within Grocery and Warehouse/Clubs.Other information that we have examined demonstrates that older males do handle a greater share of the households shopping duties.Total U.S wks ending 12/29/01
21 Higher basket values for Female shoppers One of the many areas in which females excel is in their spending habits. They spend more per trip than their male counterparts in all of the channels examined. This is probably an indication that female shoppers are more apt to participate in the large “planned” shopping trips for their households. However, in many channels, the differences between male and female spending isn’t as great as one might suspect.Total U.S wks ending 12/29/01
22 Increased Rx competition – did you know? Rx sales rose 18% to $208 billion in 2001Doubling sales from 5 years agoMass sales grew 23% to $8 billionSupermarket sales grew 16% to $18 billionMail order Rx sales will surpass sales in Independent Drug Stores in 2002U.S. Prescription drug sales rose 18% to $208 billion in Sales have doubled from 5 years ago. At retail:Sales within the Mass channel grew 23% to $8 billionSupermarket sales grew 16% to $18 billionAnd, Mail Order Rx sales are expected to surpass sales in Independent Drug Stores in 2002Source: Drug Store News
23 Gasoline retailing – did you know? Share of gasoline sales from high-volume retailers is expected to grow from 5% to between 15% & 20% within four years“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.”Did you know that gasoline sales (gallon basis) from high volume retailers (i.e., Grocery, Mass and Club) is expected to grow from around 5% today to between 15% & 20% within four years?In a recent public hearing, “Costco testified ….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.”Source: NACS
24 Source: ACNielsen Homescan surveys 78% of U.S. households participate in a Grocery Frequent Shopper Program But, 63% are in multiple programs!For the past six years we’ve fielded an annual survey among Homescan panelists to understand the importance of frequent shopper or loyalty-card programs. As noted here, almost four out of five of U.S. households belong to a frequent shopper program.Source: ACNielsen Homescan surveys
25 Competition for Convenience Dual working households, less time for preparationImproved shelf life, refrigerated,convenient products..Without question, today’s American consumer is moving at a hectic pace. One reason for this is the number of families and single parent households where the female head is working. Of all women with infants, over 60% are in the workforce.“Consumers told us that if it's not easy, it's not eaten.”
26 “Convenience Still Competes” Old Fort Travel Plaza in Ft. Wayne, Indiana added delivery of just about anything (detergent, cigarettes, milk, etc.) along with their normal pizza deliveriesThis was driven by:increased competition from Kroger & Wal-Mart for gasoline sales“You cannot compete with them on price. They can sell gas at 25 cents a gallon and make it up selling lawnmowers.”Store owner expects to add another 25% on top of their normal pizza sales & drive other foodservice salesFrom an article I read in NACS, a Convenience Store owner in Ft. Wayne, IN is leveraging convenience in the form of door-to-door delivery to compete with the likes of Kroger and Wal-Mart – both of which have put a squeeze on this retailer’s gasoline sales. The store is offering delivery of just about anything along with normal pizza deliveries.The owner was quoted as saying: “You cannot compete with them on price. They can sell gas at 25 cents a gallon and make it up selling lawnmowers.” The store owner expects to add 25% on top of normal pizza dollar sales and to drive other foodservice sales.Source: NACS Magazine – March 2002
27 Niche Retailing Wild Oats “is the 2nd largest natural supermarket chain in North America, with more than 100 stores”Whole Foods “is the largest retailer of natural and organic foods, with 128 stores”EatZi is a bakery, a market & a restaurant with catering services for all occasionsA couple of U.S. retailers have done quite well by positioning themselves in the retail space of offering natural and organic foods – and they also offer a wide variety of prepared (or easy-to-prepare) foods. Wild Oats is the 2nd largest natural chain with 100 stores. Whole Foods is the number one U.S. Retailer of natural and organic foods with 128 stores.I’ve been in both stores and can tell you from my own personal experience that these two retailers have a high quality offering that does not fit into the budget of all consumers. But for those consumers looking for fresh, natural, or organic offerings and prepared meals several steps above the standard fare available in most Grocery stores, then these two retailers fill the need. On my first visit to the Wild Oats store in Cincinnati, I approached a store employee and asked him if I could buy the “smell” in the store!
28 Summary Consumers take advantage of channel options Grocery channel shopping frequency continues decline; Mass declining tooDollar Stores & Supercenters posting strong penetration gainsHeavy category buyers purchase in multiple channels; Heavy “grazers” drive retail salesAs we have seen, consumers have a wide array of channel options and they clearly take advantage of their options.The Grocery channel continues to be impacted by declines in shopping frequency and we are seeing traditional Mass Merchandisers suffer frequency declines too.Dollar Stores and Supercenters continue to post strong increases in store counts which is driving an increase in the size of their shopper bases.Also, we’ve seen that heavy category buyers are more likely to purchase in multiple channels. This means that retailers face increased competition from other channels and that manufacturers can only maximize their sales by having distribution in a wide number of channels. Also, we saw that heavy grazers drive retail sales.
29 SummaryThe demographics & shopping behavior of channel shoppers varies by channelSuccessful Retailers will use this knowledge to target growth via advertising, merchandising and promotional activitiesSuccessful Manufacturers will help Retailers and themselves with channel-specific targeting of products and promotionsThe demographics and shopping behavior of channel shoppers vary across channels. Successful retailers will be those who use this information to target growth via advertising, merchandising and promotional activities. Successful manufacturers will be those who help their retailer customers and themselves with channel-specific targeting of products and promotions.
30 SummaryRetailersAlternative channel retailers are coming after your shoppers & their shopping tripsinvest dollars to re-invent yourselves!Focus efforts against core/heavy shoppersexpand products & services to capture greater share of spendingfrequent shopper programs need to be more than just another dealInitiate efforts to increase loyalty among “key” occasional or light shoppersA few closing thoughts on what this information means to retailers.First, recognize that alternative channel retailers (including Internet companies) are coming after your shoppers and their shopping trips. You must invest dollars to re-invent yourselves and give shoppers a reason to come back to you or to attract new shoppers into your stores.Heavy channel shoppers are very important. They account for the lion’s share of retailer dollars and replacing the most loyal customer is not an inexpensive proposition. Focus efforts against core or heavy shoppers by expanding products & services to capture a greater share of their total spending. Don’t treat frequent shopper programs as just another deal - use the information to target shopper segments.At the same time, the long term growth of a retailer’s shopper base is also driven by their ability to capture new shoppers and/or to increase loyalty among occasional or light shoppers. As an example, for the Drug channel, this means that efforts should be focused against younger shoppers.
31 Offerings that progressive retailers are using to re-invent themselves Drive-thru & Drive-upIndoor food courtsOutdoor cafesOn-site gasoline pumpsBook sections w/seatingLeveraging food categories to drive frequency & ringOn-line ordering & home deliverySelf check-out countersIn/Out specialty itemsEnhanced wine sectionsFloral departmentsOn-site banking & other financial servicesHealth Food & Health Care sectionsCooking classes“Department Store” cosmetic countersChild care facilitiesGood tasting & variety of prepared foodsPhoto ProcessingI spend a lot of time on the road or at home keeping up on the latest offerings & services that progressive retailers are using to re-invent themselves and maintain and grow their market share. Over the years we’ve heard a lot about how people hate to make the weekly grocery shopping trip. However, there are numerous examples across the country of how retailers are trying to make shopping a more pleasurable experience. Here are a few ways that retailers are attempting to:- enhance their consumers’ shopping experience- capture a greater share of their shoppers’ total spending- and stay ahead of their competitors
32 Summary Manufacturers Capitalize on the channel shopping diversity of heavy category buyers through expanded distributionif you don’t a competitor will!Expand through tailored product offerings, not through increased distribution of existing offeringsmatch product offerings w/channel demographics and/or channel shopping behaviorWe know that heavy category buyers are more likely to purchase in multiple channels. Manufacturers need to capitalize on the channel shopping diversity of heavy category buyers through expanded distribution. If you don’t, a competitor will!Importantly, channel expansion should be handled through tailored product offerings, not through increased distribution of existing offerings. Match your product offerings to the demographics of channel shoppers or to shopping behaviors within the channel. For example, large pack sizes may not be appropriate for older consumers within the Drug channel, but they may have appeal to families who shop in Grocery, Mass, and Warehouse Clubs. Dollar Stores drive small baskets, leverage your small packages or consider down-sizing via a special package.