Frugal consumers continue to look for deals both in-store and online. At grocery, almost one-third of purchases are bought on deal and online visits to coupon and reward web sites are surging. It’s important to take note of the demographics behind the growing numbers of online deal hunters:  Consumers visiting couponing and rewards sites tend to be women, over the age of 55, residing in smaller households, without children and their household income skews toward the affluent ($100K+).

While beleaguered shoppers will be looking for ways to make the season bright, retailers can do their part by bringing some much needed holiday cheer to the shopping experience:

1. Tempt taste buds with in-store tasting and cooking demos.
2. Savor the smells of the season with aroma therapy.
3. Lighten moods with music from local school bands or choirs.
4. Touch the lives of others by collecting food bank donations.
5. Switch out in-store TV ads with broadcasts of holiday classics.
6. Reward frequent shoppers with holiday prize drawings.
7. Partner with manufacturers on donations to local charities.
8. Enhance the décor with holiday decorations.
9. Serve up a smile and an appreciative attitude.
10. Respect staff workers with reduced holiday hours.

As the Internet and social media continue to play a critical role in how consumer make purchase decisions, tune into the webinar, 2009 Holiday Season: What Consumers Have In Store for Retailers This Season on November 16 to learn more.

Chain stores, such as 7-Eleven and BP, account for more than 52 percent of C-Stores, while independently owned stores make up the balance.  That said, only 14 percent of C-Stores are from chains with more than 500 stores; the rest of the chain stores are part of local or regional companies such as WaWa, Get Go and Nice N Easy.

So what makes one store more successful than another? Execution.  “According to Nielsen research, consumers want convenience, obviously, but they also want a clean, organized store and the ability to check-out quickly,” said Tom Pirovano, Director of Industry Insights at Nielsen.

C-Stores dominate a number of high-volume categories such as tobacco (85% share of all channels), ice (57%) and beer (56%) and they outsell food, drug and mass merchandisers (including Walmart) combined in these categories.  C-Store sales of tobacco and beverages generate more than $90 billion annually.

A Convenience Store News Nielsen survey found that customers want their stores to offer gas, snacks and prepared food, a category that has shown growth as the quality of those food service items has improved.  Doughnuts and muffins are the top prepared food category, followed by sandwiches and hot dogs.

“Stores that offer prepared food that looks fresh and smells good and cross merchandise those with other items are likely to hit a homerun,” continued Pirovano.

Despite their seeming ubiquity, the challenges facing the C-Store channel are numerous: rising credit card fees, competition from small format groceries, a desire for healthier foods and competition from club and mass retailers selling gas are just a few of the issues C-Store owners face.

“The key to success is innovation.  C-Store retailers need to constantly fine-tune their offerings in the face of increased competition from other channels while never taking their eyes off the basics of cleanliness and efficiency,” said Pirovano.

Other C-Store Facts:

• Texas leads the nation with more than 14,000 stores, followed by California and Florida
• Nevada showed the most growth in the last year, with 31 new stores coming online
• C-Stores skew to African Americans, smaller households without kids, lower-income households and single males.
• Seattle, Dallas/Ft. Worth and San Francisco lead metro areas with the most C-Store growth, while Miami, Houston and Tampa showed the steepest declines.

For those of you who attended our 2009 Consumer 360 client conference, you heard the opening remarks from John Lewis, President & CEO, Nielsen Consumer North America, on the impact of the economy on our industry.  His message was about how our company is “investing considerable resources in the area of thought leadership to mine Nielsen content to understand what will happen tomorrow; where (our economy) will settle; and what will the new paradigm look like?”

When John looks at the economy he sees “consumers under profound pressure in every way and there are so many changes going on” and asked the audience “what is changing versus what isn’t changing so we don’t overlook or miss some obvious opportunities”?

I wanted to share some of John’s messaging and embellish it with some of my own observations.  As John mentioned, Nielsen research shows that only 5% of U.S. households are in “panic mode” and doing just about everything they can to modify where they shop, what they buy, and how they consume products to make it through these tough times.  The remaining 95% of consumers have modified some of their behaviors too, but these folks have been “very much in the game” for marketers to pursue.

In terms of what isn’t changing, John called out three areas:

• Health & Wellness: U.S. consumers are still looking to lead healthier lives, but economic pressures have led some consumers to alter their prior habits and practices. So sales of many “better-for-you” foods are soft or down and sales of prescription drugs took a hit this past year, but opportunities for growth still exist today and in the future. However, it will take new learning and a lot more marketing muscle than required before this recession, to win or compete in this space. John stated how “it may be less about premium price and more about big innovation, not incremental plays, that puts you into a health & wellness category.” John cited how drug retailers have brought health care solutions to their stores as “big and bold” examples of innovation. Check out Walgreens’ web site and see how their communications on the topic of health and wellness reach well beyond traditional health messaging used in years past.
• Convenience: convenient and easily accessible store locations; convenient and easy-to-find in-store or on-shelf product location; food and non-food solutions that save time from our busy lives “aren’t going to get less important”. John discussed the example of retailers in the Dollar channel who have been expanding their stores in localized areas to bring their value proposition to more consumers. Convenient heat-and-eat food products are more prevalent that ever in our stores and have you seen the 3-in-1 laundry detergent, fabric softener and anti-static sheets recently launched by Purex?
• Demographic Trends: aging population and multi-cultural consumers were target consumer groups for many retailers and manufacturers prior to this recession. With declining population growth in the U.S., future growth will be harder to achieve than in years past. Are you investing more resources and focus against these consumer segments? Shifts in the spending power or wealth in our population has and will likely continue to create a large group of consumers whose ability to spend freely will be challenged for many years to come. This group of consumers will also provide opportunities for those companies who understand them best and respond accordingly.

In terms of what did change, John discussed the near-term trades-offs which have been numerous and different over the past year or more in the areas of:

• Reordering shopping lists or actually going back to using shopping lists and a huge shift back to basics – food and value really matters
• Changes in where and how consumers shop with trip growth in value retail channels and coupon redemptions seeing a renaissance as consumers seek more deals and take advantage of the explosion of online coupon offers
• Consumers opting out of certain categories entirely
• Redefining of discretionary versus essential spending
• Trading across categories
• Trading down on brands

John concluded this discussion with the need to understand the “micro versus the macro-changes” occurring in our industry.  He described a “micro-war versus a macro-war” and the need to understand and respond to both.  The micro-war is what John referred to as “the typical or traditional competitive set” as defined by a retailer trading area or category where a manufacturer or retailer competes.  Today’s successful manufacturers and retailers leverage pricing, assortment, promotion, advertising and analytic insights to collaborate and drive marketplace success.  But John talked about how companies can “win the micro-war, but lose the battle” because of the larger macro-wars that transcend category or retailer choices or decisions made by consumers.  Examples of these huge macro-trend busters include:

• Away-from-home consumption took a big hit in this recession breaking a 25-year trend where in-home consumption was on the decline. Consumers are now seeing the home as a safe nesting place where success will come to those who understand this shift and seize the opportunity.
• Pampering shift from spas and beauty salons to at-home solutions – most consumers want to look and feel good, but they are looking for better value.
• Savings rates go to black – will this be a short-term or long-term shift and how will this impact your business?
• Store brands are now a viable choice for more consumers as retailers have shifted greater focus and offer brand-quality assortment at a better price or even at a premium price.

John challenged the audience to think about what they are doing to build a sustainable business model by going on the offensive or defensive “to exploit what has changed or what hasn’t changed”.  I found John’s presentation to be very insightful and he served up numerous examples of how our clients can win the micro and macro wars and come out of this recession in a strong position – I trust that you did or will too!

Watch presentations from Consumer 360 here and for more information on consumer shopping patterns, contact me: todd.hale@nielsen.com

“While many retailers will likely scale back expansion plans in 2009 and 2010, aggressive and forward-looking retailers will use this time to test new formats and look for opportunities to expand in existing and new markets as weaker retailers close their doors or put themselves up for sale.  Americans will continue to look to stretch their dollars further given the current economic uncertainty, creating larger markets for discount retailers and grocers alike.  At the same time, we expect to see continued contraction among electronics, toy retailers and other discretionary retailers,” said Todd Hale, Senior Vice President of Consumer & Shopper Insights at Nielsen.

Since 2001, value and convenience stores increased store count by the largest percentages.  But that trend is not likely to continue.  Since the end of 2007, the number of convenience stores declined by more than 1,400.  Additionally, the number of toy stores has declined by 60% over the eight year period (from 2,458 to 999).  Electronics stores dropped by 5%, and with the recent announcement from Circuit City that it will liquidate all of their 567 stores, that retail format will likely continue to decline.

On a more positive note, several retail channels showed solid growth:

• Warehouse Clubs
• Supercenters
• Dollar stores

Additionally, pet stores, book stores, office supply, hardware/home improvement and liquor stores all posted growth as well.

Walmart and Target led expansion over grocers, which expanded more slowly and in different ways, such as opening new, smaller formats.

The niche grocery segment has shown tremendous growth, with expansion from high-end (Whole Foods and Trader Joe’s) and low-end (Aldi and Save-A-Lot).  Aldi, the deep-discount German grocery chain is looking to add 75 stores in the US in 2009, and its sales grew 21% to $7 billion in 2008.  Aldi and Save-A-Lot, which has also expanded during the eight-year period in question, offer budget-conscious consumers extreme value across a reduced assortment set with strong emphasis on store brands.

In the drug store segment, Nielsen finds rapid new store openings as well as acquisitions from three big chains.  Walgreens opened or acquired 2,952 stores between 2001 and 2008, while CVS expanded by 2,158 stores and Rite Aid expanded by an additional 1,316 locations.  CVS will get another boost in store count when they close the deal to acquire Longs Drugstores.  Warehouse stores also continued to be popular, with BJ’s, Costco and Sam’s all showing significant growth.

Perhaps the most interesting finding of Nielsen’s research is the tremendous growth within the Dollar channel.  While Walmart corporate opened up 1,025 stores between 2001 and 2008, the five leading dollar store chains opened 8,291 locations during the same period.  Companies like Dollar General, Family Dollar and Dollar Tree opened thousands of stores each.  And in the process, some of the companies, notably Dollar General and Family Dollar, have evolved to offering more mainline brands than in the past to position themselves as a destination trip among their core shoppers.

Year-over-year growth at hypermarkets reached 6% during the period, while the smallest convenience outlets declined by almost 2% during the 12-week period.

In comparison, year-over-year growth in the British grocery sector stood at 3.2% during the 12 weeks ending 29 November, according to Nielsen.  Grocery multiples showed stronger growth (+5.6%) during the period.

“In order to save money shoppers are making less visits to grocery stores,” Mike Watkins, senior manager retailer services, Nielsen, noted.  “Nielsen has identified that virtually every major food retailer saw the number of visits per shopper fall in November versus a year ago and the big casualties are those retailers that people visit to do top up, small basket, and indulgence shops.”

According to Nielsen, there are exceptions to this trend.  Retailers like Morrisons and Asda, and value retailers like Iceland drew plenty of shoppers — and even showed accelerating sales in the most recent 12-week period. 

View the press release.

Nielsen’s holiday retail forecast predicts a 4.7% gain in dollar sales over 2007.  Unit sales, however, are expected to be virtually flat (-0.8%) versus a year ago.

The forecast includes projected sales at food stores, drug stores, mass merchandisers, and convenience stores, across 125 product categories tracked by Nielsen.

With the economy in turmoil, the 2008 holiday season will be closely watched for indications of declining consumer spending.  Declines in consumer spending were last recorded in the fourth quarter of 1991, during the recession of the early 1990s.

Go behind the numbers: read NielsenWire’s Q&A with James Russo, co-author of Nielsen’s holiday retail forecast.

View in depth data on holiday retail sales projections and consumer spending expectations.

View the full press release.

Read coverage of Nielsen’s findings in Convenience Store News and Adweek.

Submit questions about the report to Nielsen forecast co-authors, James Russo and Todd Hale, by commenting below.