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FREQUENT SHOPPER & RETAILER ARTICLES

 SUPERMARKET FACTS - INDUSTRY OVERVIEW 2004

  MARKETERS TARGET CONSUMERS THRU RETAILERS' FREQUENT-SHOPPER PROGRAM

DETERMINING HOW TO PROMOTE YOUR BRAND USING LOYALTY PROGRAM DATA

ONLY 15 PERCENT OF CUSTOMERS ARE LOYAL BUT REPRESENT 55 PERCENT OF SALES

SLOTTING ALLOWANCES IN THE SUPERMARKET INDUSTRY

FMI REPORTS ON CONSUMER ATTITUDES AND THE SUPERMARKET

FMI DISCUSSES BUILDING SHOPPER LOYALTY WITH STORE BRANDS

COMPETITION AMONG TRADITIONAL AND NEW CHANNELS IS INCREASING

 PRIVATE LABEL DIFFERENTIATES RETAILERS

CROSS-CHANNEL SHOPPING IS WIDESPREAD IN TODAY’S MARKETPLACE

WAL-MART ALTERS WAY GROCERY BUSINESS IS RUN

FREQUENT SHOPPER DATA IS UNDERUTILIZED ASSET IN THE CPG INDUSTRY 

 LOYALTY CARDS COMBINED WITH CHANNEL AND CONSUMER INSIGHTS BUILD LOYALTY & PROFITABLE GROWTH

SUPERMARKET NEWS TOP 75 US GROCERY STORES (SALES)

SUPERMARKET NEWS GLOBAL TOP 25

SUPERMARKET FACTS - INDUSTRY OVERVIEW 2002

DATA MINING LOYALTY PROGRAMS IS ESSENTIAL FOR ROI

TRADE DIMENSIONS REPORTS 2002 CHANNEL CHANGE STATISTICS

LATEST U.S. CONVENIENCE STORE COUNT AT 132,424 STORES

2001 SUPERMARKET SALES INCREASE 3.5 PERCENT TO $398.2 BILLION

WHOLESALE GROCERY COMPANIES MARKET SHARE

SHELF PRESENCE SHOWS INCREASE IN PRIVATE LABEL

SUPERMARKET INDUSTRY WILL GROW THROUGH ACQUISITION

COUPONS KEEP BRAND LOYAL CUSTOMERS

PRIVATE-LABEL GROWTH EXCEEDS NATIONAL BRANDS

DATA MINING FREQUENT SHOPPER DATA

A.C. NIELSEN RELEASES FOURTH ANNUAL FREQUENT SHOPPER STUDY

EVALUATING TRADE SPENDING AND ITS EFFECT ON BRAND EQUITY USING FREQUENCY CARDS

Source: Food Marketing Institute, Trends in the United States: Consumer Attitudes and the Supermarket, 2005

Grocery Store — Any retail store selling a line of dry grocery, canned goods or nonfood items plus some perishable items.
Supermarket—Any full-line self-service grocery store generating a sales volume of $2 million or more annually
Convenience Store— Any full-line, self-service grocery store offering limited line of high-convenience items. Open long hours and provides easy access. The majority sell gasoline with an annual sales of $2 million or more.
Independent — An operator of fewer than 11 retail stores.
Chain — An operator of 11 or more retail stores.

Conventional Supermarket - The original supermarket format offering a full line of groceries, meat, and produce with at least $2 million in annual sales. Conventional stores will realize 9% of their sales in GM/HBC. These stores typically carry approximately 15,000 items, offer a service deli and frequently a service bakery.
Superstore - A larger version of the conventional supermarket with at least 40,000 square feet in total selling area and 25,000 items. Superstores offer an expanded selection of non-foods (at least 10% GM/HBC).
Food/Drug Combo - A combination of superstore and drug store under a single roof, with common checkouts. GM/HBC represents at least one-third of the selling area and approximately 15% of store sales. These stores also have a pharmacy.
Warehouse Store - A low-margin grocery store offering reduced variety, lower service levels, minimal decor, and a streamlined merchandising presentation, along with aggressive pricing. Generally, warehouse stores don't offer specialty departments, e.g., Xtra.
Super Warehouse - A high-volume, hybrid format of a superstore and a warehouse store. Super warehouse stores typically offer a full range of service departments, quality perishables, and reduced prices, e.g., Cub Foods.
Limited-Assortment Store - A "bare-bones," low-priced grocery store that provides very limited services and carries fewer than 2,000 items with limited-if any-perishables, e.g., Aldi and Sav-A-Lot.
Other - The small corner grocery store that carries a limited selection of staples and other convenience goods. These stores generate approximately $1 million in business annually.
Convenience Store (Traditional) - A small, higher-margin store that offers an edited selection of staple groceries, non-foods, and other convenience food items, i.e., ready-to-heat and ready-to-eat foods. The traditional format includes those stores that started out as strictly convenience stores but might also sell gasoline.
Convenience Store (Petroleum-Based) - The petroleum-based stores are primarily gas stations with a convenience store.

Non-Traditional Grocery

Hypermarket - A very large food and general merchandise store with approximately 180,000 square feet of selling space. While these stores typically devote as much as 75% of the selling area to general merchandise, the food-to-general merchandise sales ratio is typically 60/40, e.g., Bigg's.
Wholesale Club - A membership retail/wholesale hybrid with a varied selection and limited variety of products presented in a warehouse-type environment. These 120,000 square-foot stores have 60% to 70% GM/HBC and a grocery line dedicated to large sizes and bulk sales. Memberships include both business accounts and consumer groups, e.g., Sam's Club, Costco, and BJ's.
Mini-Club - A scaled-down version of the wholesale club. The mini-club is approximately one-fourth the size of a typical wholesale club and carries about 60% of the SKUs, including all of the major food and sundry departments and a limited line of merchandise (soft goods, office supplies, and opportunistic, one-time buys), e.g., Smart & Final. Some of these stores do not have membership fees and often operate as a "cash & carry."
Supercenters - A large food/drug combination store and mass merchandiser under a single roof. The supercenters offer a wide variety of food, as well as non-food merchandise. These stores average more than 170,000 square feet and typically devote as much as 40% of the space to grocery items, e.g., Wal-Mart, Kmart, Super Target, Meijer, and Fred Meyer.
Deep-Discount Drug Store - A low-margin, GM/HBC store with approximately 28,000 square feet of selling space and 25,000 SKUs. These stores typically carry fewer sizes but more GM/HBC brands than a supermarket. Food accounts for 20% of store sales, e.g., Phar-Mor and Drug Emporium.
Internet - An Internet-based grocery distribution operator. Included in this format are all Internet operators who use the Internet as the primary means of accepting grocery orders for home delivery or pickup. Also included are major food retailers that generate a portion of their sales through Internet-based sales. Internet suppliers typically offer 12,000 SKUs or more for home delivery, e.g. Peapod.

        MARKETERS TARGET CONSUMERS THRU RETAILERS' FREQUENT-SHOPPER PROGRAM

Consumer Product Goods marketers are targeting consumer through retailers’ frequent-shopper programs to efficiently reach consumers at account-specific levels that can be effectively calculated.

Grocery chain retailers are under pressure from new formats and alternative retail channels (Wal-Mart) to maintain their market share. Their frequent-shopper programs provide consumer loyalty and valuable targeted marketing data that is their primary weapon against their competitors.

Marketers look for programs and retailers that will allow them to communicate to their target consumers directly rather than using more traditional 'mass' vehicles by providing a targeted offer based on the consumer's purchasing habits. Manufacturers have been proactive in card-based frequent-shopper programs including Coca-Cola, Kraft, Procter & Gamble, Pillsbury and Unilever. Retailers have data about individual consumers that manufacturers cannot gather on their own, including buying patterns, total basket purchases, predisposition to switch brands, and sensitivity to promotions.

Manufacturers typically fund basic co-branded promotions, including coupons, the cost of advertising, and in-store signage and may get involved with designing the program and assisting in the analysis of the data. Retailers are very protective of their customer data and many are very cautious in sharing that information with manufacturers for analysis and third-party analytic firms play an important role for theses trading partners. Retailers do not provide the identities of their consumers and the manufacturers analyze general purchase data, without identifying the individual consumers identity. Retailers and manufacturers should look for common goals and synergies from a customer perspective and focus on improving data analysis to evaluate the effectiveness of their marketing promotions.

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        DETERMINING HOW TO PROMOTE YOUR BRAND USING LOYALTY PROGRAM DATA

That’s important to understand so you can really begin to understand the effect promotion has on consumers and what it has to do with loyalty. As a manufacturer, if you rewarded people who would have bought the product anyway and didn’t bring any new users to your brand, then you’ve really just sacrificed margin. The retailer needs to keep two years of data to really understand the effects of promotions on consumers in the future. You need a pre-period that is detailed enough to understand what consumers were doing before, and you need a post-period of some substance. Unfortunately, many retailers don’t keep data online for that long. So even if they wanted to do this analysis themselves, they do not have enough data online to be able to do it.

A good way to use promotion is to encourage people to come into that category even if the first purchase is on a discount. That’s what you want to do with targeted discounts because you leverage promotions to bring new consumers to your category, however, you want to bring new consumers into your category who will stay with it and also purchase your product at full revenue. Return-On-Investment (ROI) is a lot more than just gross margin. It’s understanding and building a loyal base of consumers who will shop your brand and your category and will shop it when it’s at full revenue as well as when it’s on discount. That’s where "margin blending" comes in because if you margin-blend a category, you look at all the brands and all the packages within the category to try and identify the brands that are not price sensitive, the brands that people will purchase anyway at full price. If they’re going to purchase it anyway, then there’s no point in discounting, because then all you’re doing is reducing profit out of the category.

   ONLY 15 PERCENT OF CUSTOMERS ARE LOYAL BUT REPRESENT 55 PERCENT OF SALES

Retailers use their Frequent-Shopper Loyalty program sales data to tailor their product assortment to their most loyal shoppers.  Only 12 percent to 15 percent of customers are loyal to a single retailer, according to the Center for Retail Management at Northwestern University, but they represent between 55 percent and 70 percent of sales.  Nearly two-thirds of shopper (65 %) believe Frequent-Shopper Pogroms are important. More than 50 percent of retailers now offer Frequent-Shopper Programs and nearly two-thirds of program customers use their loyalty cards at least weekly and 84 percent at least once a month, according to the FMI, Trends in the United States: Consumer Attitudes & the Supermarket 2003.  Supercenters, warehouse-clubs, dollar stores and limited-assortment stores choose to offer everyday low prices.

A Frequent-Shopper or Loyalty-Marketing program is an electronic method of identifying customer purchases and translating that information on their shopping habits and preferences.  They identify the retailers’ most loyal customers, their buying habits and can offer the products and services that their best customers demand.  The retailer can analyze their shopping habits, refine marketing programs and fine-tune the product mix at the chain or individual store level. They can identify the promotions that appeal most to various customer groups and tell you when products were sold and whether they were sold on or off promotion, and the profit margin on each sale. Overall, shopper give food retailers high marks for their frequent-shopper programs as 41 percent rate them excellent and another 45 percent rate them as good.

A study by McKinsey & Company estimated that a Frequent-Shopper program’s first year can cost as much as $30 million, with annual maintenance and marketing costs reaching $5 million to $10 million.  Smaller retailers may be able to purchase of-the-shelf CRM (customer relationship management) software.

Retailers typically analyze data at the aggregate level, i.e. data from groups, not individuals. The key to the success of these programs is to interpret data from your loyalty program more quickly, cheaply and frequently.  Faced with intense price competition from Wal-Mart, food retailers must ensure that their programs offer both value and other customer benefits.

Retail loyalty cards have advanced as an aggressive marketing tool, with 82% of consumers participating in some form of loyalty program, according to a survey conducted by WSL Strategic Retail, New York City.  Supermarkets are the leader by a wide margin with 58% of consumers carrying a supermarket card and 82% trying to use the card every time they shop. About 17% will go out of their way to use the card. 

According to a Card-Based Marketing Report from Retail Systems Consulting and TDLinx, there are 12,849 supermarkets in the U.S. with card-based frequent shopper programs, representing 38% of supermarkets and 42% of the total ACV (estimated all commodity volume). CPG manufacturers are interested in frequent shopper programs due to targeting and measurability. Retailers have the ability to reach specific consumers based on past purchases, where manufacturers are limited mainly to customer self-reporting surveys that are often less than accurate. Retailers can also accurately measure consumer activity after a promotion. Retailers will not provide the names and addresses of their customers to manufacturers. Manufacturers need this information so they can evaluate whether or not they can move brand dollars from traditional vehicles, such as FSIs, into retailer frequent shopper programs.

Coverage is particularly strong in certain regions, for example, New England (48% of store count, 57% of ACV covered), Mid-Atlantic (42% of store count, 60% of ACV), and the Southwest (42% of store count and 48% of ACV). The other regions are Southeast (42% of stores, 38% of ACV), East Central (34% of stores, 38% of ACV), East Central (34% of stores, 43% of ACV), West Central (29% of stores, 39% of ACV), and Pacific (35% of stores, 37% of ACV.)  I estimate that an average of twenty percent of independents have frequent shopper programs.  Clearly the numbers prove 1) FS programs are growing, and 2) they have gained critical mass across the US. 

The growth is significant, especially when viewed over the last eight years.  In 1996 there were just over 4,000 U.S. stores with programs.  By 1999 there were 9,000 stores, or 29.6% of U.S. supermarkets, accounting for approximately 25% of the ACV.  In 2002, 30% of the stores (just over 10,000) had programs, with 44% of ACV covered.  The increase in the last few years came mainly from big chains rolling out their programs to all their stores, including Kroger, Albertson’s, and Winn-Dixie.  There need to be more cooperation between the manufacturers and retailers, and greater internal communication at retailers’ headquarters between marketing and category management. 

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    SLOTTING ALLOWANCES IN THE SUPERMARKET INDUSTRY

1.       What are slotting allowances?

Suppliers pay distributors slotting allowances for product placement on store shelves. Sometimes distributors request them, and sometimes suppliers offer them. Although common, these allowances are neither uniformly requested nor offered.

The most common allowances are for new products or new product introduction allowances. These may also cover premium product placements, such as on eye-level shelves or special displays; the cost to have products remain on shelves or pay-to-stay allowances; or the cost to retailers if a product fails.

2. How much are slotting allowances?

The amount varies depending on numerous factors, such as whether the supplier has a proven track record, whether consumer testing has been performed, whether the product is carried by competitors in the same market, and whether the supplier has a well-conceived advertising program. The amount can be as small as several hundred dollars to have a new product introduced in a single store to many thousands of dollars for a chain-wide promotion. In some instances, manufacturers provide free cases of new products to help retailers gauge consumer demand. Since each new product introduction is unique, these allowances are typically negotiated individually and no industry-wide numbers are available.

3. Why are slotting allowances used?

The principal reason is to cover the considerable costs to introduce a product, to remove the item that previously occupied the shelf space and to recover some of the investment in the likely event that the new product fails. Depending on how a new product is defined, the failure rate ranges up to 80 percent per year.

Each year, food retailers spend an average of $956,800 per store on new products that fail, according to a study of 1995 introductions by the market research firm Linton, Matysiak & Wilkes. The major reason cited for failures is a lack of market research. In many cases, manufacturers are using retailers to test-market new products. Through slotting allowances, manufacturers are, in effect, having the retailer conduct a live market trial instead of paying for test market research.

4. Why are new product introductions so costly?

About 100,000 grocery products are available on the market.  The typical supermarket has space for only 30,000 to 40,000 products, and the failure rate for new products is as high as 80 percent. With so many items competing for so little shelf space, new product introductions have become a high-cost, high-risk proposition. As many as 24 steps are needed to introduce a new item and another 10 to remove the one that occupied the space, according to a Deloitte & Touche study (Managing the Process of Introducing and Deleting Products in the Grocery and Drug Industry, 1990). Based on this study and current retail practices, these steps include:  

5. Are slotting allowances offered for all products?

No. They are not offered for most established products or for new offerings that have a high likelihood of success.

Arguments for Slotting Allowances include:

Argument against Slotting Allowances include:

The true impact may depend on how the practice is applied. The Federal Trade Commission (FTC) takes the view that these issues need to be considered on a case-by-case basis as it reviews complaints.

8. Are slotting allowances legal?

According to Oct. 20, 1999, testimony by Willard K. Tom, deputy director of the FTC’s Bureau of Competition, before the House Judiciary Committee, the legality of slotting practices “can be determined only in light of all the surrounding facts and circumstances.” Even in cases where a small supplier cannot afford a high slotting fee, the practice can be deemed legal, he said, as long as the market remains competitive and consumers “receive the benefits of low prices and wide product selection.”

    FMI REPORTS ON CONSUMER ATTITUDES AND THE SUPERMARKET

A study was presented at the 2003 FMI Conference called “Trends in the United States: Consumer Attitudes & the Supermarket, 2003” which revealed that alternative shopping channels continue to take value-driven consumers away from traditional grocery stores.

Resulting from the increased competition from supercenters and discount stores, only 79 percent of shoppers said a traditional supermarket was the primary grocery store, down from 81 percent in 2002, while 18 percent chose a discount store or a supercenter, up from 15 percent in 2002. There is a growing shopper base for supercenters, dollar stores and warehouse clubs.

Low prices gained in importance as 83 percent saying it was very important compared to 77 percent in 2001.  Shoppers who choose discount stores and supercenters instead of traditional supermarkets as their primary store generally have lower household incomes ($41,800 versus $49,500 for traditional grocery stores), are younger (median age 41.2 versus 44.8) and have larger households (3.3 percent versus 2.8 percent).  Discount and supercenter store shoppers are more price driven (92%) than traditional supermarket shoppers (82%).

Traditional shoppers rate higher than discount stores and 67 percent of primary traditional supermarket shoppers would recommend their stores compared to 60 percent of primary discount shoppers. Consumers believe the economy will not recover soon and were concerned with unemployment, problems with business ethics, terrorism, war with Iraq and rising fuel costs.  This resulted in consumer confidence dropping in February 2003 to the lowest level in more than nine years.  The five most frequently practiced cost-savings measures have remained constant:

·        Look for grocery specials in the newspaper (36%).

·        Participate in frequent-Shopper Programs (30%).

·        Stock up on sale items (27%).

·        Use cents-off coupons (21%).

·        Price comparisons (21%).

While the percentage of shoppers reporting their primary store offers Internet grocery shopping increased from 9 percent in 2000 to 16 percent in 2002, it dropped to 14 percent in 2003 with only 3 percent of the shoppers purchasing groceries online in the last 12 months. Sixty-nine percent said that they have Internet access versus 62 percent in 2000.

In 2003, the average household weekly grocery bill ranges from $52 for one person to $138 for large households of five or more people. On average, grocery shoppers eat their evening meal away from home 1.4 time per week with younger consumers and smaller households eating away from home more frequently than older shoppers and larger households.

Gasoline and self-checkouts have been quickly adopted by shoppers as 60 percent purchase gasoline and 53 percent use self-checkouts where available. Warehouse clubs, supercenters, dollar stores and convenience stores continue to expand in offering gasoline.

The number of consumers interested in purchasing irradiated products has increased from only 38 percent in 2000 to 57 percent in 2003 due primarily to the high level of concern regarding bacteria as a health risk.  Almost all shoppers (92 percent) of shoppers are aware of sell by dates on packaging with 89 percent saying that they frequently look at this information.  Food items most frequently checked are most perishables, uncooked meats and dairy products.

    FMI DISCUSSES BUILDING SHOPPER LOYALTY WITH STORE BRANDS

As competition continues to grow to gain market share for the consumers grocery dollar, from new channel options such as Warehouse Clubs, Supercenters and Dollar Stores, store brands or private label products have become more important as they provide a unique difference from their competitors.  They also have the ability to provide store loyalty, increase profitability and improve customer satisfaction.

An FMI study called “Building Shopper Loyalty with Store Brands” indicated that store brand shoppers are as demanding about high quality products, good selection, convenient location, product availability and customer service and not simply lower prices.  There appears to be a shift in demographics from lower-income households to more affluent households, especially among premium store brands.  Ethnic shoppers (African Americans, Hispanics and Asians) are less inclined to purchase private label products, however this may change with target marketing strategies.

There is a direct correlation between store brand loyalty and store loyalty as shoppers who believe that their stores private label is important are likely to be loyal to that retailer.  Premium private label can attract new users to private label, especially from more affluent shoppers who are less price-sensitive but require high quality and value.

Category management is the key to success as factors that influence product selection varies widely across categories.  When price is not the most important factor, retailers must manage store brand pricing to ensure that the pricing supports the overall categories as well as the store brand strategies.  Marketing and merchandising strategies must be developed to increase market share including improved packaging, in-store sampling and communicating the high quality of the brand.

Store brands represent an estimated 17 percent of the $729 billion dollar grocery industry and the growth of store brands have averaged almost double that of national brands.  Store brand market share can increase as evidenced in England where private label has reached 45 percent at Tesco Plc and 60 percent at J Sainsbury Plc.

With increased competition across several channels for the consumer’s grocery dollar, store brands represent value and approximately 70 percent of shoppers place high importance on store brands when selecting a grocery store. The increased number of channels has eroded market share for several grocery categories in traditional supermarkets, especially with nonfood items. 

Heavy private label shoppers purchase more than 30 percent store brand items when shopping.  They study reported that 36 percent of shoppers buy 10 percent or fewer private label items while 36 percent buy between 11 percent and 30 percent of store brand items and 28 percent buy more than 30 percent store brand items.  Heavy private label users are not as motivated by low prices as the price-oriented shopper, however pricing plays a role in communicating quality driving brand and retail image and enhancing margins.  One-third of heavy private label shoppers trust the store brand to of high quality and as good as national brands.  Price and value drive them while light private label purchasers focus on brand loyalty and family preferences.  Seventy-three percent think that store brands are produced by the same manufacturer as national brands with a different label.

Shoppers that are loyal to a retailer are more likely to purchase store brands and the reverse is true. While private label has traditionally been marketed as a lower-cost alternative to a national brand, retailers are now promoting quality and freshness. Simply carrying more store brands does not guarantee success as the study showed that stores that managed their categories better to maximize store brand performance were more successful.  Store brands play a critical role in driving overall retail and category strategy and should not be based solely on margins.  Price and quality were the leading factors for food items and while packaging was not as important, it reinforces the consumers’ attitudes about quality. Package design must clearly project a brand image and identity, attract attention at the shelf, promote value and quality and reinforce the brand message with the consumer at the point-of-purchase.

Traditionally, heavy private label users in terms of dollars tend to be larger, less affluent families, however premium private label items have attracted higher income professionals with smaller families. Price conscious private label consumers are generally women, age 35 to 54, with larger families and a median household income of $39,200.

Managing the store brands through tiered strategies, especially premium brand development, positively impacts the growth of store brand sales.  Premium private label shoppers have more positive attitudes toward store brand quality and trying new products.  The packaging should signify an upscale, high-quality product. Understanding the consumer is key to developing strategies to increase private label sales.  Brand segmentation and targeted marketing can bring new consumers to purchase private label products.

While ethnic shoppers tend to be more brand loyal, a targeted store brand program can succeed and an opportunity exists to market directly to ethnic groups.  There are opportunities for private label growth with ethnic shoppers as their combined buying power in the U.S. has reached $1trillion.  By 2030, 19 percent of the U.S. population will be Hispanic, 13 percent African American and 7 percent Asian American/Indian.  Language translation, in-store sampling, packaging and in-store marketing should be part of the retailers marketing strategy for ethnic shoppers.

Developing store brands with high quality and unique product attributes can build store loyalty and shopper satisfaction.  Retailers should be clear and consistent with the brand message, product quality and value. Effectively marketing store brands requires a combination of preferential merchandising, displays, advertising and promotions.  It is important for retailers to optimize store brand awareness at the point-of-purchase.  Utilize existing loyalty card data to develop a relationship between the retailers’ customers and store brands and target the customers with a combination of trial-generating promotions and brand messages.

Retail loyalty cards and programs have moved to the forefront as an aggressive marketing tool, with 82% of consumers participating in some form of loyalty program, according to a survey conducted by WSL Strategic Retail, New York City. Supermarkets lead the pack by a wide margin with 58% of consumers carrying a supermarket card and 82% trying to use the card every time they shop. About 17% will go out of their way to use the card.

Customer participation in loyalty reward programs for other market including: Credit cards (29%), drug stores (27%), entertainment stores (24%), travel programs (23%), bookstores (20%), restaurants (19%) and greeting card stores (16%).

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     COMPETITION AMONG TRADITIONAL AND NEW CHANNELS IS INCREASING

Competition among food retailers has never been more dynamic with more than a dozen types of retailers competing for market share. Food retailers today include conventional supermarkets, superstores, supercenters, membership clubs, combination (food and drug) stores, natural and organic outlets, limited assortment stores, convenience stores, dot-coms and gasoline stations. Consumers have never had more choice in variety, value and quality. The competition includes restaurants, especially fast food, which are near the milestone of controlling half the $850 billion market for food sales. Dual-income couples and generations X and the echo boomers are fueling steady sales growth in “food away from home.”

Families still eat most of their main meals at home, but a dramatically increasing number of those meals are fully or partially prepared by outside sources. Driving this trend is the increase individual-income families (and their overworked couples) and young adults who don’t like to cook or don’t know how. As a result, they buy an increasing portion of their food ready-to-eat or -heat. Many food retailers are expanding and upgrading the frozen meal selection. Their bakeries are selling breakfasts. Their delis are selling lunches and side dishes for dinner. Salad, pizza and coffee bars are spreading. For one-stop convenience, shoppers can go to superstores, supercenters, combos and super warehouse outlets. For value, they have limited assortment, warehouse and wholesale club stores.

The industry is consolidating while competition among traditional and new channels is increasing dramatically. The various food retailer formats include: 

Conventional Supermarket — carries about 15,000 items, including a full line of groceries, meat and produce, with at least $2 million in annual sales.

Superstore — larger than a conventional supermarket with at least 25,000 items and more nonfoods, such as general merchandise and health and beauty care (GM/HBC) items.

Combination Store — a superstore and full-line pharmacy with nonfoods accounting for at least 15 percent of sales.

Warehouse Store — a low-margin outlet whose limited variety, service and décor allow it to charge low prices.

Super Warehouse Store — a hybrid warehouse/superstore with 50,000-plus items and the full range of service departments, featuring high-quality perishables and reduced prices.

Limited Assortment Store — a low-price outlet with minimal service and fewer than 2,000 items. It features numerous private label products and is popular among food stamp recipients seeking to stretch their limited dollars.

Convenience Store — traditional outlets offer a small selection of dry groceries, beverages, nonfoods and ready-to-heat and -eat foods. Many are now selling gasoline as well.

Independent Single Unit Stores — these include numerous small, family- owned bodegas and retailers, along with upscale and ethnic stores that serve specific demographic niches.

Hypermarket — a large food and nonfood store with about 180,000 square feet of selling space; the food to nonfood ratio is typically 60/40 percent.

Supercenter — a large food-drug combination store and mass merchandiser. These average more than 170,000 square feet and typically devote up to 40 percent of the store to grocery items, which are often sold at loss-leader prices.

Wholesale Club — a retail/wholesale hybrid that offers consumers and small businesses a limited and economical selection of food and nonfood products. These measure about 120,000 square feet; 60–70 percent of the space is devoted to bulk sizes of both grocery and GM/HBC products.

Drug Deep Discounter — a low-margin GM/HBC store with about 28,000 feet of selling space and 25,000 items. Food accounts for about 20 percent of store sales.

Internet Food Retailer — typically offers 12,000 items for home delivery triggered by online orders. After the failures of dot-com pioneers in the 1990s, online retailers are now joining traditional companies in so-called brick-and-click ventures.

As food-retailing competition intensifies across the nation, private label store brands have become an increasingly important element of differentiation among U.S. food retailers and a key driver in total store sales and shopper store loyalty, according to a new report from the Food Marketing Institute (FMI), Building Shopper Loyalty With Store Brands. With increased competition across many channels for the consumer’s grocery dollar, store brands not only represent value, but they are also products that shoppers cannot obtain elsewhere else. Loyalty to your store brand can foster loyalty to your store. Today’s shoppers have more choices than ever before, and store brands are an increasingly important driver of product variety, selection and retail differentiation.

Private-label products have become premium, high quality items that compete with national brands on image, not just because of lower prices. Consumers perceive them to be good values and encourage loyalty to the store as well as provide a way to differentiate the store from the competition.  The report, Building Shopper Loyalty With Store Brands, indicates private-label products account for 15.1 percent of the retailer’s sales and totals $44.4 billion a year. Private label brands have increased market share in nine of the past 10 years and now represent approximately 17 percent of the $729 billion grocery industry, according to the report. Even though customers do not choose a store based on store brands, The report finds that the availability of private label store brands is extremely important to today’s consumers: nearly 70 percent say they place a high importance on store brands when selecting a primary grocery store. Furthermore, shoppers who are loyal to a store’s private label brand are much more loyal to the store. Eight in 10 of these shoppers visited the store frequently. Store-loyal shoppers are also less likely to buy another store’s own brand. Among shoppers who were more likely to buy another store’s private label, the top reasons include better price, more selection and higher quality.

They are as much or more demanding than other shoppers regarding good selection, high-quality products, convenient location, good customer service and especially the availability of trusted store brands. Traditionally, the heaviest store brand shoppers tend to be from larger and less affluent households. The report finds, however, more affluent shoppers are now purchasing store brands. This is especially noticeable among premium store brand shoppers.

Ethnic shoppers, notably Hispanics, African Americans and Asians, are less likely to purchase private-label products overall, even though they recognize the value of store brands. Although ethnic shoppers may agree with some of the value propositions of store brands, they are generally less inclined to purchase private label products overall and have yet to demonstrate strong store brand loyalty. This could be due to a lack of familiarity with the brands, particularly among recent immigrants. The study finds, however, that retailers can find success with ethnic customers by targeting marketing campaigns to reach them.

A study by Daymon & Associates indicated that heavy private label users are price-oriented, younger shoppers with lower incomes and larger households.  Price and value dictate their shopping behavior, whereas light users focus on brand loyalty and family preference. Even price-conscious shoppers consider quality, family preferences and attractive packaging when making their purchases.  One-third of heavy private-label shoppers trust the store brand to be as good in quality as the national brand and are very loyal to the store. Value-tier shoppers tend to be middle-aged, middle-income women with children (the same shoppers, who go to Supercenters, warehouse clubs and discount stores for low prices).

Private label can continue to grow in the United States as sales average about nine percent higher in Europe.  Store-brand shoppers value good selection, high quality products, convenient location and good customer service and above all, product availability. Store-brands perform differently between food and non-food categories.  Retailers should focus on food categories because non-food items are increasingly purchased at mass merchandisers and club stores.  Retailers should add premium or value tier private label to expand the market shares by reaching their upscale shoppers and increase sampling of store brands.  One way to reach multiple consumers’ needs is to carry a tiered private-label program, but make sure the customer understands your message by communicating not only price but value. Providing product lines with store brand value tiers can be effective in promoting value pricing and minimizing shopper visits to alternative format stores for lower-priced products, according to the report. While value seekers are often price-oriented, they also place a high importance on selection and variety.

Traditional merchandising strategies can be just as effective in promoting store brands as they are with national brands, according to the report. Tactics such as in-store sampling, attractive signage, advertising and direct mail can be used to educate the consumers on the attributes of store brands and to encourage purchases. This is especially true with premium store brand shoppers as over 75 percent of shoppers indicated that they would purchase more store brands if they could try them in the store. Although the report finds that lower prices are major driver of store brand sales, product quality is just as important to consumers. Accordingly, the ways in which store brand products are packaged and marketed can directly affect consumer impressions of the products. Packaging plays a significant role in quality perception. Nearly half (46 percent) of all shoppers think that the packaging of a store brand makes it appear to be of a lesser quality than the national brand.

Retailers should understand that having a great private label and spreading it across several categories would not deliver the optimal results. Carrying more store brands does not guarantee success. They need to look at each category individually and understand what factors drive purchase. Pricing, promotion and selection are important. Private label consumer packaged goods (CPG) sales are growing much faster than branded products, according AC Nielsen’s U.S. Trends in Private Label report. Branded products still represent the majority of all CPG sales, private label products have increased sales growth and are increasing in the number of categories, becoming the share leader in more categories, and gaining an increased presence in more retail channels.

Since 1997, private label products have grown from having a presence in 69 percent of the categories to 75 percent, entering 88 new categories in that time. In 2002, private label had the dollar volume share lead in 25 percent of the categories in which it competed, up from 21 percent in 1997. The vast majority of private label's overall growth is coming from expanded sales in established categories. Private label manufacturers are introducing different package sizes and types, new flavors, and adding new, higher-priced premium private label products. In addition, several retailers are increasing their focus on providing in-store samples of their products and using other promotions to increase sales.

The grocery channel owns the largest share of total private label consumer packaged goods sales. However, its lead is decreasing as other retail channels add private label products to their shelves. The dollar store, warehouse club store and supercenter channels are generating the strongest growth in private label sales, albeit off of sales bases that are still relatively small. Between 1997 and 2002, sales of private label items across all channels grew 38 percent compared to 19 percent for brands.

Cross-Channel shopping is widespread in today’s marketplace. Grocery store lead the way with a penetration rate of 100% followed closely by mass merchandisers at 95% and drug stores at 88%. Discount channels follow at a distant 50% and convenience stores/gas marts have a 44% penetration rate.

Discounters, however, are capturing an increased share of dollar expenditures. Wal-Mart Supercenters enjoyed a 19.3% growth in shopper expenditures with 59% of this growth stems from consumers crossing channels as follows:

Half of Americans have shopped at a Dollar Store in the last year and that is taking profits away from other channels. Seventy-one percent of the heaviest Convenience Stores shoppers also shop at Dollar Stores. One-third of Dollar Store shoppers make 72 percent of the total Dollar Store trips and represent 84 percent of all their sales.  The top 1000 items carried in Dollars by category include household cleaners, candy, trash bags, snack foods, laundry and dish detergent, soap, cookies and pet food products.   

Grocery stores are losing sales to Wal-Mart primarily due to cross over shopping to discounters and their expansion, which included:

185 Supercenters (110 are expansions or relocations, 85 are new locations);
  40 Discount stores (500 food centers in discount stores by 2003);
   25 SAM’S Clubs;
   20 Neighborhood Markets (Testing);
      2 regional merchandise centers, 3 food distribution centers and 2 fresh food distribution centers.

This shift is prevalent among white-collar versus blue-collar workers. Convenience stores and gas marts are becoming food to go experts. Success in product retailing lies in understanding the consumer.

Retailers and Manufacturers need each other as the retailer is merchandising the Manufacturer’s products and the manufacturer is marketing the brand.

Wal-Mart is altering the way the grocery business is run just as it did in discount retailing over the past decade.  Wal-Mart began selling groceries in 1998 and it only took them five years to become the nation’s largest grocer in 2002 with more than $54 billion in grocery sales.  Wal-Mart operates from 1,258 supercenters (180,000 square foot grocery and discount store combination), and 49 small Neighborhood Markets (40,000 square feet), most in the South and Southwest.  In the last ten years, 29 chains have filed for bankruptcy protection of which as many as 25 Wal-Mart was the catalyst.

Grocery consolidations from 1987 to 1997 caused food prices to increase and raising profits.  That allowed Wal-Mart to enter the grocery business and cut prices up to 15 percent while still making a profit. Studies indicate that Wal-Mart charges 8% to 27% less than Kroger, Albertsons or Safeway, the next three largest grocery retailers.  Kroger, Albertsons and Safeway has expanded their private label store brands which provide larger margins and develop loyalty to the retailer as the store brands are unique to that retailer.  Approximately 24 percent of Kroger’s total grocery sales come from its 7,500 store brand products.  All three chains are trying to take advantage of Wal-Marts biggest weaknesses of meat and selection.

Labor costs which total as much as 70 percent of these grocers overhead because they are unionized, where Wal-Mart’s one million employees do not belong to a union, thus reducing their labor costs by about 20 percent.

Supply chain efficiency in the grocery industry has increased significantly in the last five years due primarily to Wal-Mart as they influence the economy in the U.S.  According to McKinsey & Company, a large part of the U.S. productivity growth between 1995 and 1999 can be attributed to Wal-Mart.  The innovations that Wal-Mart has caused their retail competitors to improve their supply chain efficiency or fail.  Wal-Mart has utilized productivity-enhancing technologies and established supply management practices that have reduced their supply chain costs significantly, affecting the entire supply chain industry.

By automating their facilities, retailers have lowered the costs of store-specific distribution. Retailers are reducing costs from the supply chain by focusing on suppliers. Retailers require suppliers to reduce the amount of time and costs to them and levy penalties or chargebacks for errors in distribution.  This has become a standard in the industry and is very expensive, reducing margins for suppliers.  Another common practice is that suppliers distribute goods ready to be displayed on store shelves, reducing labor costs for the retailer such as bar codes, security devices, special packaging and price tags.   

Wal-Mart is the now the largest supermarket operator in the United States according to TD Linx rising from fourth last year due to its expanding supercenter and Neighborhood Market business. Kroger dropped to second with Safeway and Albertsons at third and fourth place, respectively. The top 10 grocers remain the same, although A&P dropped behind Supervalu to 10th place and is less than $100 million in supermarket sales ahead of No. 11 H.E. Butt. Among wholesalers that operate supermarkets, only Supervalu moved up.  Discount store operator Target has increased its grocery business coming in at number 27.

Wal-Mart continues to expand across the United States and has plans to open 200 supercenters, 55 conventional discount stores, 40 to 45 Sam’s Clubs, and up to 25 Neighborhood Markets in 2003. Wal-Mart is now the leading retailer in Canada and Mexico. In addition, it owns Asda, a leading retailer in the United Kingdom, and operates stores in South America, Asia, and Europe.

Kroger held the No. 1 or No. 2 share in 41 of its 48 major markets in 2002, increasing its share in 27 of them—and it accomplished this while competing against a total of 849 supercenters, 603 of them Wal-Mart’s. Safeway operates approximately 1,700 stores, in the U.S. and Canada, and it holds a 49 percent interest in Casa Ley, S.A. de C.V., a food and general merchandise retailer in western Mexico. Ahold, the world’s third-largest supermarket company said it would restate earnings for 2000, 2001, and 2002 because of accounting irregularities related to how U.S. Foodservice used manufacturer promotions and rebates to inflate its profits.

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     FREQUENT SHOPPER DATA IS UNDERUTILIZED ASSET IN THE CPG INDUSTRY

Frequent shopper data is the most underutilized asset in the CPG industry today. The first step is to understand the value and habits of key shopper groups, which must be standardized. You should identify problems and opportunities as early as possible and define a finite set of shopper segments. Frequent Shopper Program data provides powerful insights to drive category tactics Next, evaluate the program effectiveness.

The objectives of an effective frequent shopper program include:

You should utilize the data from your Frequent Shopper Program to answer the following questions:

How retailers and manufacturers are collaborating to build brand equity by developing an effective Frequent Shopper/Loyalty Program.

What questions do retailers have about a Frequent Shopper/Loyalty Program?

What questions do manufacturers have about a Frequent Shopper/Loyalty Program?

The goal of your Frequent Shopper/Loyalty Program

Manufacturer Benefits

Summary

Maximizing use of consumer data is vital for retailers battling supercenters and grappling with the difficult economy. Retailers battling supercenters need to focus on what they do best instead of reacting to competitive prices. You should go into an offensive strategy rather than a defensive one.

    LOYALTY CARDS COMBINED WITH CHANNEL AND CONSUMER INSIGHTS BUILD LOYALTY AND PROFITABLE GROWTH

Loyalty cards have been around since 1988 and supermarket and drugstore chains are starting to collect the massive amount of data on shoppers, from the types of products they buy to when they like to shop. Retailers are starting to track consumer trends and they're changing their merchandise, store layout and advertising accordingly to keep their most loyal customers spending.

Loyalty card programs can measure the impact of ads on top customers and for example identify the 25 items that attract the most loyal shoppers. Loyalty card programs are in over 30% of grocery stores (44% ACV) including two major holdouts Albertson’s and Winn-Dixie. Grocery retailers are still not quite sure how to manage the data. In many cases, the internal loyalty data is skewed because 62% of Loyalty card shoppers have multiple loyalty cards and many retailers offer a GHOST card for non-card holders. In addition, retailer’s best shoppers buy 50% of their groceries in other grocery stores or channels. However, information from Loyalty cards, combined with channel and consumer insights can help retailers market in a manner that builds loyalty and profitable growth.

The supermarket industry benefit the most from loyalty cards because consumers shop there an average of 2.2 times a week. Helping Retailers compete in a changing competitive environment promotes long-term partnership and mutual growth. By swiping these cards at the register, consumers are able to get the weekly discounts advertised on certain products. In many cases, customers can get a card without giving their names or addresses, but they won't be mailed coupons for extra discounts, customized according to their buying habits. For example, shoppers who buy a lot of baby products may get extra discounts on diapers.

Retailers estimate that 20 percent of their shoppers account for 80 percent of store sales, so finding out what their best customers want is essential. By scanning purchases, stores track what's selling, but when that data is tied to loyalty cards, merchants obtain richer information on who is buying what. Services that may seem helpful to consumers could be a way to get them to spend more. The latest N.G.A. survey of 250 independent retailers showed that only 30% said they were engaged in frequent-shopper programs, down about 8% from last years survey.

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Following is a chart of the largest global food retailers. Sales figures are for the latest financial year unless otherwise stated. Companies included on the list must have a significant portion of their sales in food. The foreign currency results were translated into dollars at current exchange rates. The information came from company documents unless otherwise stated.