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- RESEARCH & AWARDS
A new report shows shifting shopping patterns and channel migration.
According to Chicago-based Information Resources Inc's (IRI) "Times & Trends, Channel Migration 2008" report, supercenters were the only store type to achieve sales gains across six key grocery retail departments during the last year, while traditional grocery retailers showed declines in four of six departments.
"We've been tracking supercenter growth for well over 10 years," Sheila McCusker, IRI's editor of "Times & Trends," told eReport editors. "As recently as three years ago, there was tremendous movement toward supercenters, but then over the last three years or so, they all leveled off, and we weren't seeing those big gains we had been seeing in supercenters. In essence, what was occurring was the channel was maturing, and grocers were putting programs in place to gain traction and win some share back from supercenters. However, over this last year that's all changed."
McCusker noted that as the economy gets tougher, consumers are more inclined to shop for value. In the second quarter of 2008, McCusker added, consumers weren't just tightening their belts, but were "putting new notches in their belts."
She noted that "consumers are really making dramatic changes" -- and benefiting from them.
"So it wouldn't surprise me to see an uptick in supercenters' private labels," McCusker said. "[The increased shopping at supercenters] does point to, without question, increased opportunity."
Additionally, supercenters showed gains with all income levels and with three high-potential market segments, including baby boomers, Hispanics and households with kids. Traditional groceries are losing share among lower- and middle- income consumers, McCusker said, although they're increasing share among higher-income consumers, who don't want to spend the money on gas to get to the supercenter. These consumers are frequenting traditional grocery retailers to take advantage of one-stop-shopping.
To gain back some of the supercenter share, McCusker told eReport editors that traditional grocers and smaller retailers need to have a deep understanding of how different consumer segments are shopping in their stores.
"With upper-end consumers, for example, they have an opportunity to grow basket size, because those consumers want to maximize their time in the store," McCusker said. "Also, smaller retailers want to look at stepping up their fill-in shopping. Consumers may be traveling to supercenters for pantry-stocking trips, but in many cases, supercenters may be too far from homes to justify the gas it takes for a fill-in trip. Fill-in trips then are at local stores, and drugstores. And dollar stores, for example, have been doing really well in fill-in trips.
"Retailers really need to have that understanding of what role their store is playing in consumers' lives," McCusker added.
Our Take: Good news for supercenters, but also a fine opportunity for traditional supermarkets and drugstores to augment their private label value lineups with products geared specifically for their shoppers.
One Thing Leads to Another
Value tiers enhance price image, and enhanced price image leads to more intensive shopping of the store.
For many private label products, unit growth is 10 to 15 percentage points ahead of national brands, according to the September issue of Competitive Edge from Barrington, Ill.-based Willard Bishop.
Jim Hertel, managing partner at Willard Bishop and author of the issue, said this growth is in response to economic difficulties causing shoppers to "trade down." Another factor is that food inflation is rising much faster than personal incomes.
Key findings, Hertel said, include the fact that private label products use space very productively, but by-department and by-chain performance varies widely. The data reported in Competitive Edge support the view that private brands have a significant role to play in category profitability, at least in dairy, grocery and frozen departments.
Hertel said strong private brand programs benefit by offering "value tiers," where national brands typically do not participate. This can enhance retailer price image. Enhanced price image leads to more intensive shopping of the store, strengthening aisle penetration. Increasing aisle penetration benefits every center-store category's national brand consumption.
New tactics can help companies get pricing right.
According to the September McKinsey Quarterly from New York-based McKinsey & Co., getting pricing right can be a challenge in an economic downturn. Therefore, companies need to manage the profitability of individual customers and transactions with greater precision, as well as develop richer insights into their customers' changing needs and price sensitivities.
In the McKinsey Quarterly, the authors put together six tactics "aimed at maintaining the best balance possible between sales volume and profit margins in the current challenging environment." The authors tell companies to:
- Watch for sudden shifts in price structure: Companies need to be vigilant in monitoring pricing polices that reduce revenue, as rising costs and declining demand can cause elements to change more dramatically and more quickly than they have in the past.
- Monitor customer-level profitability: Companies should use transaction-level data to measure the profitability of each customer.
- Adjust to changing customer needs: In a downturn economy, successful companies are constantly assessing through market research and direct contact.
- Update price sensitivity research: To get price points right, pricing sensitivity research and market price tests should be run immediately after increases in necessities such as food and fuel to track these changes.
- Monitor your industry's microeconomics: Respond correctly to radical shifts in costs and demands with a keen understanding of the microeconomic forces at play at the industry level.
- Study your suppliers: Companies must re-examine not only their own industries, but also those microeconomics of their suppliers' industries.
Bits and Pieces
Among the most notable retail and private label news:
- Fresh & Easy Neighborhood Market announced plans to introduce more than 200 new own brand products by the end of the year. The El Segundo, Calif.-based company noted that in customer surveys, more than 80 percent of respondents cited Fresh & Easy's own brand products as one of the main reasons they shop at the stores. Some of the items Fresh & Easy will introduce by the end of the year are mushroom stroganoff, broccoli and cheese soup, shrimp Alfredo, organic honey, new coffee and tea flavors, new flavors of kettle and veggie chips, and new juice blends.
- Bruno Supermarkets LLC, Birmingham, Ala., will remodel its stores and add new stores as part of an extensive campaign to refresh its brand, according to the September 10 edition of The Birmingham News. The company plans to remodel three to four stores per year, and will open new locations in major growth markets. Bruno's has 65 stores under its Bruno's, Food World and Food Max banners located throughout Alabama and the Florida panhandle.
- Walker, Mich.-based Meijer Inc. said it is offering customers an alternative to the traditional grocery shopping experience with the creation of an online service that lets customers shop from home. Once consumers make their purchases online, they can then designate a pickup time. The service is currently offered at one Meijer location, but if it is successful could be added to Meijer's 180 other stores throughout the Midwest.