Value / Variety / Convenience – Which is Winning?:

Posted: Desember 4, 2007 in ritel

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This information is forwarded to Nielsen KAM BASE Member and collected from any publications sources, such as : newspapers, magazines, internet, and tabloids to support retail industry.Value / Variety / Convenience – Which is Winning?:Bringing Clarity to Channel Choice  By: Todd Hale, SVP, Consumer & Shopper Insights, Nielsen Consumer Panel Services  Like petulant children who want what they want when they want it, consumers realize that they hold the power. With abundant choices available, they can – and they will – shop where they want, when they want and how they want. While it is near impossible to be all things to all consumers, a keen understanding of your most important customers can deliver the insight needed to keep them happy and spending – in your stores or for your brands.  The hourglass economy

Today, grocery represents just one-third of all purchases. The complexity of channel choice and the emergence of “premium” retail channels (such as upscale grocers and natural stores), “value” channels (such as warehouse club, dollar, and limited assortment chains), and “convenient” channels (such as drug and convenience/gas outlets) have funneled sales away from traditional grocery stores, forming a virtual hourglass that has created lucrative opportunities for alternative channels and a plethora of choices for the consumer.

As consumer’s demand for choice continues to accelerate, finding opportunities for growth will come – as always – from innovation and the ability for retailers and manufacturers to adapt to an environment that is in constant flux. Consumer behavior is the driving force behind all this change and the ability to understand how much of that behavior is driven by their demand for value as they seek the best prices, or variety as they look for the best assortment options, or convenience as they search for quick solutions, will shed new light on how shoppers buy categories and brands.  Format frenzy Today, non-grocery retailers are leveraging the power of food and beverage categories to drive store traffic, build larger baskets and drive shopper loyalty. Grocery retailers have been looking to new store formats, on-site gas pumps, Rx departments, and increased assortment and merchandising support from health & beauty and non-food categories in a similar manner. Opportunities abound, but knowing what strategies to deploy is a matter of how well you understand consumer shopping preferences and how adept you are at appealing to them. Store expansion has come from outside traditional food, drug and mass merchandise channels. Over the past 10 years, store expansion has come from outside traditional food, drug and mass merchandise channels. Looking at U.S. store counts since 1996, warehouse clubs have increased their presence by 394 stores, supercenters upped their store tally by 2,000, dollar stores have risen by 13,900 and convenience stores have increased dramatically by more than a quarter – growing store count by a whopping 32,209 stores. While store count in grocery, mass and drug channels have grown moderately or declined, there are retailers within each that have expanded store count (such as Target, Walgreens, CVS, Publix, etc.) and others who have invested dollars to make existing stores work better (such as, Kroger, Safeway, Delhaize, etc.).  In addition, alternative retail channels such as hardware/home improvement, electronics, office supply, book, pet, auto and liquor stores are enjoying healthy penetration levels. As these channels increase their offerings of food, beverage, health & beauty aids, non-food and general merchandise, they are adding to the competitive set of traditional retailers. At the same time, this is offering wider distribution opportunities for consumer packaged goods manufacturers and more variety for consumers who have changed the way they shop.  For the vast majority of shopping trips, consumers just don’t spend much time shopping.

How consumers shop Time strapped, on-the-go and frazzled can sum up the sentiment of today’s busy consumers – and is evidenced by the way in which they shop. For the vast majority of shopping trips, consumers just don’t spend much time shopping, as almost 70% of all-outlet shopping trips are small or considered “immediate need” trips. These low-value trips average a basket ring of just $17.  Slightly less than one-fifth or 18% of all shopping trips are considered “fill-in”, bringing in slightly higher-value baskets that average $64 per trip. Accounting for 10% of all shopping activity, high-value “routine” weekly shopping trips average $106 and extra large, “stock-up” trips comprise 4% of all trips and total an average of $256 per spend. Even though consumers are pressed for time, it is interesting to note that the heavy buyers of categories opt to purchase in multiple retail channels. Value, variety and Convenience – so which is winning? With so much choice available to meet the demands of the busy consumer, the question begs – how important are value, variety and convenience in the business model for both retailers and manufacturers? While it is clear that all three are essential to the marketing mix, understanding how retailers should compete when new formats move into trading areas or how manufacturers can provide solutions to help retailer partners grow through brands is critical. A detailed look at consumer behavior has the best potential of unlocking the secrets of success.  Looking at the behavior of the average shopper with basic buying metrics is just not good enough anymore.

Slicing the pie All consumers are not alike. Looking at the behavior of the average shopper with basic buying metrics is just not good enough anymore. In order to properly understand how consumers cluster in terms of shopping habits, segmentations schemes are necessary to help understand what types of consumers drive sales or where opportunities to improve marketplace position are missed.  While manufacturers have been using category-based segmentation schemes to understand the attitudinal and behavioral drivers of buying and consumption for many years, this wealth of experience needs to be shared with retail partners in order to build collaborative efforts that ultimately drive manufacturer and retailer sales success. A clear understanding of shopper and consumer behavior and how they are influenced by attitudinal drivers, media messaging, pricing and promotion is the foundation for building and maintaining marketplace success at the store level.  Piecing the parts A multi-channel shopper segmentation scheme illustrates how different sets of consumers look at value, variety and convenience in establishing shopping patterns. Consumers were classified into ten unique shopper segments that looked at where they shop, how they shop, what they look for in a store, who they are and where they can be reached. For this model, all retail formats were reviewed, including department-level buying, all-category deal versus non-deal buying and all-category branded versus private label buying.  Deal and variety drivers Five of the ten segments are Mainstream Grocery shoppers who place varying emphasis on the importance of variety and value – however, it is interesting to note that Mainstream Non-Deal shoppers – the largest segment overall, accounting for about 21% of U.S. households and 22% of all-outlet shopping dollars – is not deal prone, making them a highly lucrative segment to target.  The Mainstream Heavy Deal and Mainstream Extreme Deal shopper segments – the ones receiving the greatest promotion support – exhibited low relative loyalty within mainstream grocers. These consumers hop across retailers in search of the best value and as a result, are very frequent shoppers, but are low per-trip spenders. Mainstream Variety Seekers spread their all-outlet dollars over a wide range of retail channels including mass merchandisers, supercenters, limited assortment grocers, dollar stores and convenience/gas outlets. Value driversFour of the five remaining segments are defined along the lines of retail channel formats, but value comes into play given the pricing strategy for retailers within some of the formats. The second largest shopper segment of this group, Supercenter Savvy Shoppers, devoted a whopping 49% of their total all-outlet spending within this format. Taking advantage of the “all-in-one” appeal, these shoppers make fewer overall trips, but spend high on a per-trip basis.  The other shopper segments include Warehouse Club-Centric, Limited Assortment Grocery and Small Format shoppers – each exhibiting differences in either where they shopped or in their behavior. For example, while Limited Assortment Grocery shoppers overspend on private label and frequent other value-oriented formats like supercenters and dollar stores, they also over-spend in upscale grocers and drug stores.  Frequency and format drive basket ring differential. Sharing the wealth Frequency and format drive basket ring differential, and those shopper segments that make fewer trips generally spend more per trip. While the Mainstream Grocer Non-Deal shopper makes 142 trips per year spending $50 per trip, the Small Format shopper spends an average of $28 per trip, but makes 218 trips per year.  It is important to note that mainstream grocers play a much smaller role among other format shoppers. For example, the Supercenter Savvy shoppers only make 30 annual trips to a mainstream grocer – less than half the trips made by the five Mainstream Grocer shopper segments that average about 70 trips each per year. Similarly, Warehouse-Centric and Limited Assortment shoppers make just 37 and 38 trips to mainstream grocers, respectively. As these formats get closer in proximity to mainstream grocers, mainstream grocers will see increased competition and a negative impact on their shopping frequency.  Sourcing the volumeCompetition is fierce, with each format vying for a larger share of the market. Account-level sourcing creates a road map of where the opportunities – and weaknesses are evident. A side-by-side view of Wal-Mart Supercenter and Kroger Corporation illustrate how market position can lead to advantage. Wal-Mart sources about 63% of sales from Supercenter Savvy shoppers, while Kroger sources 77% of their sales from Mainstream Grocery shoppers. Who is more vulnerable to competitive pressures or other factors like fluctuations in gas prices? While Wal-Mart has so much investment coming from a single source, Kroger’s shopper portfolio is more diverse.  Factors collide The beauty of consumer behavior is that just when you think you’ve nailed it, you realize that you have simply scratched the surface. The more you reveal, the more there is to uncover. A thorough and in-depth review will expose shopping differences at the department and category level; it will determine how store proximity factors into how far from home consumers will travel, and it will reveal how important consumer’s attitudes are when it comes to their overall shopping experience.  Retailers in a position to win will:  stay on top of key consumer trends; segment shoppers to uncover opportunities in and outside their store; expand products and services to capture a greater share of spending; understand what products and services can differentiate. Manufacturers in a position to win will:  align category segmentation schemes with the most important retail customers; capitalize on channel shopping diversity of top-spend category buyers through expanded distribution; expand through tailored product offerings that match with channel demographics – not through increased distribution of existing offerings. Success will come to retailers who define themselves by who they sell to and how they sell to them, rather than by what they sell. Likewise, for manufacturers who define themselves by who they sell to and the solutions they solve for their consumers and retail partners – not by what they sell.    

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