The way consumers shop for everyday products continues its transformation towards the Web. In 2008, online retail accounted for approximately 7% of total retail sales in the U.S, with 1.5% of consumer packaged goods (CPG) spending done on the Web.

In the future, your children will likely conduct the majority of their shopping online. While online shopping accounts for a modest percentage of today’s sales, it is growing rapidly – Nielsen estimates that online CPG sales alone increased 25-30% between 2004 and 2008. And there are compelling reasons to believe that growth will continue, as overall online sales are projected to increase almost 200 percent between 2008 and 2012.

Shopping Evolution Centers on Convenience, Choice and Value

Shopping has evolved along three dimensions, with each new phase increasing consumer convenience, choice and value – the three main reasons consumers shop online today. Online shopping redefines convenience and choice and equips consumers with unprecedented way to seek value.

Convenience – online is a simpler, faster, more hassle-free way to shop for frequently purchased products.

Choice – online offers more variety, which services like Peapod’s “endless aisles” clearly demonstrates.

Value – while value isn’t the primary reason most consumers shop for “everyday” products online today, it will become increasingly important as e-commerce becomes more mainstream. Tools to rapidly compare product prices already exist and online coupon sites have become the rage in the down economy.

Smaller, Niche Retailers Can Reap the Benefits of an Online Presence

Whether searching for solutions to a specific need, directly accessing retailer Web sites or deciding to click on an advertisement or link, consumers have far more control over what they are or are not exposed to online than offline. This offers smaller brands the opportunity to generate an online presence that is effectively larger than their big brand counterparts are, while serving up compelling messages and undercutting leading brand prices – all at the point of purchase.

Take the beauty care category as an example. Boutique retailers with fewer stores and lighter foot traffic than the large offline chains are as readily accessible on the Web as a Walmart or Target, which sometimes do not carry the leading offline beauty care brands on their Web sites.

What is interesting to note though, is that the online commercial challenge for leading consumer brands has less to do with the “long tail” than with the collapse of physical structures that literally help distance leading brands from smaller brands offline. It is not the number of brands available online that matters, but that there is less separation between them, which levels the playing fields, creating a flatter, broader marketplace for everyday brands.

To learn more about digital opportunities for leading brands, download Building Great Brands in the Digital Age: Guidelines for Developing winning Strategies.

I recently shared some thoughts on how CPG manufacturers can protect their brands from private label expansion. Of course, it didn’t take long to hear back from retailers asking for tips on growing their own brands so here are a few private label ideas for our retailer friends.

1. Study the category consumer before going upscale. Consumer understanding is the common thread among top-selling brands. It’s not enough for a retailer to roll out a quality product in premium packaging.
2. Disguise your premium store brands. Many consumers still associate private label with cheap knockoffs. There – I said it. But what if they don’t know it’s a store brand? Look to position premium store brands as exclusive products like Choxie at Target and Canopy at Walmart.
3. Get your pricing right. The price gap between store brands and national brands varies significantly across categories. The same shopper who chooses private label bottled water for a 3% discount may require at least 20% savings for private label barbecue sauce.
4. Offer multiple brands in multiple tiers. Although Costco may be the exception, most retailers are finding growth with multiple store brands. No one brand can stand for value and gourmet and healthy eating.
5. Eliminate weak links. One bad product experience can hurt the entire store brand, not to mention the retail banner itself. Product quality needs to be consistent across each store brand. Your brand’s perceived quality is only as good as its weakest SKU.
6. Drive trial. If your store brand is really as good as the national brand (or better), let your shoppers try it. Offer a free package with a $50 purchase. Consider a trial size or in-store product demos.
7. Promote your store brands. There’s a wide range of feature ad support for private label. Using ECRM’s Marketgate data, we found that private label’s percent of feature ads ranged from 45% at Wegmans to 25% at HEB to only 10% of ads at Publix.
8. Don’t be too quick to drive out value brands. Some value brands can drive lower price and higher margins than retailers can achieve through private label. The shampoo category is an excellent example with some well-known brands at very low prices.
9. Embrace a cause. Use package labeling to show how your store brand supports local suppliers, promotes health & wellness, saves the environment, or funds local charities. You’ll find that many of these causes attract similar consumers. Regardless of sales performance, taking the high road can help to build a retailer’s image.
10. Understand the difference between strong sales vs. strong brand equity. Walmart’s Great Value brand claims to be the #1 food brand across categories, but would shoppers ever choose Great Value over a national brand at the same price point?

Bonus: (It’s one better than a top 10 list) Sell your store brand in someone else’s stores. Safeway is taking the lead by selling its “Eating Right” and “O” brand at other retailers in non-competing markets. Opportunities exist for retailers to sell their store brands not just in new markets, but in new channels (convenience, hardware, toy stores) in their own. Share your tips, stories, feedback in the comments below.

Our consumer packaged goods (CPG) world is one where technology is rapidly evolving and transforming how consumers receive, seek and use information to impact buying and shopping decisions. This makes our jobs exciting and challenging at the same time as it is harder than ever to manage the ever-changing technology landscape and almost impossible to control.

Consumers are time-starved and diverse. Case in point: The number of TV channels in the U.S. has more than tripled since 1990, giving consumers a wide variety of channel choices. The majority of all ages and income groups are connected to the Internet. Retailers have relied on newspapers – a medium declining in its present form — to deliver a major portion of their advertising. These are just some of the examples in our world today that make it harder for advertisers to reach target consumers or push us to look for alternative forms of communication vehicles.

Your future success as a retailer or manufacturer requires new approaches. With rapid adoption of new technology (iPhone anyone?) consumers have clearly demonstrated a great willingness to engage in multiple media vehicles. Your survival may require sweeping changes in how and what you communicate to your brand buyers and retail shoppers.

I hope you can join me in this morning’s General Session at Consumer 360 as we explore this brave new world . . .one in which technology is making it easier for consumers to talk to retailers and manufacturers. . . any time and in real time. We’ll explore what manufacturers and retailers like Kroger, BJ’s, Safeway, Food Lion, Stop & Shop, Walgreens and Ukrop’s are doing now with new communication approaches and technology to engage their customers. I’ll also share my predictions on how CPG media and communications will change.

If you aren’t able to join us in Orlando today, please visit Consumer 360 again on Friday to view the on-demand session video.

Al McClain, CEO & Founder, Retail Wire

With the economy effecting consumers, retailers, and marketers alike, this week’s Nielsen’s Consumer360 Conference presents an opportunity to think about new ways of addressing this marketing challenge.

On Tuesday, a session called “Data Mining the Recession”, presented by Nielsen’s Mark Laceky and Mitch Kriss identified three main ways shoppers are trying to save money:

* Defer purchases/reduce consumption

* Find items at lower priced outlets

* Buy less expensive versions of products

According to Nielsen attitudinal research, the number one strategy for saving money on groceries is to choose less expensive items, mentioned by 46% of respondents, vs. 23% who mentioned switching to private label.

Winning categories and products tend to be meal ingredients, as consumers cook more at home, and comfort/snack food.  Categories such as macaroni, sliced lunch meat, and mayonnaise are going well, while bottled water, frozen dinners, and magazines are doing poorly.  Winning category attributes include ‘canned’, ‘comfort’, ‘preparation’, ‘ingredient’, and ‘kids’.  Losing attributes include ‘beverages’, ‘healthy’, ‘utility’, ‘frozen’, and ‘discretionary.’

By overlaying Homescan data with zip code unemployment data, manufacturers and retailers can get a good idea as to the effect of the local unemployment rate on brand, category, and even item sales.  As consumers presumably eat out less and cook more, supercenters are gaining more trips than grocers but main meal item growth is strong on grocery trips.  Premium items are down, as are super premium, although not to the same extent, while value items are up.

Meanwhile, in a presentation on dollar stores by Nielsen’s Jeff Gregori, we learned that high income shoppers are frequenting dollar stores, although the low income group still accounts for 45% of the dollar store channel’s sales.

Dollar stores have become an intriguing channel for CPG companies because they are increasing sales and are brand-friendly.  Shoppers are switching to the channel from every other channel, except for ‘value grocery’, which includes banners like Save-A-Lot and Aldi.

With top categories such as paper, candy, pet food, snacks, detergents, carbonated beverages, household cleaners, cookies, and laundry detergents having low collar store conversion rates, there is plenty of upside potential for brands willing to work with dollar stores.  Food and beverages seem to have a particularly strong opportunity in this channel, as food has grown to represent 31% of this channel’s sales, and Dollar General has upped their food and beverage share to 34%.  Meanwhile, only 23% of the channel’s dollar sales are with items that sell for under a dollar, so shoppers aren’t literally looking for rock-bottom prices on everything.

When the economy is buzzing, most companies can afford to overlook inefficiencies or take a broader view of what their customers want.  But when times are tough, as they are now, companies have little choice but to re-evaluate how they do business if they hope to continue to grow and prosper.  Managers are faced with essentially two choices: cut costs or understand precisely where the most profitable market demand is and align more effectively with it.  Both options are difficult, but only one can achieve both short- and long-term objectives.

Throughout the recession, we have been inundated on an almost daily basis of news of companies closing plants, laying off employees and reducing product offerings.  It is the rare business that has not taken action to reduce costs in some form.  However, the supply-focused cost cutting approach can have several significant limitations, including:

• It is unlikely to be rewarded – Wall Street consistently rewards demonstrated profitable growth much more than it does cost cutting.
• It may not be realistic – Most businesses have aggressively attacked costs in recent years, so very few significant cost-saving opportunities remain.
• It’s not sustainable – You can only reduce costs so much without affecting a business’ core operations.

Companies that develop new insights into demand can drive dramatic improvements in a company’s cost and revenue positions:

• Reduce production costs – Lacking insights into demand can cause businesses to develop offers that under-deliver on the key benefits that profitable customers value most, while adding costly bells and whistles that don’t add value.
• Improve sales and marketing ROI – Without a precise understanding of demand, businesses tend to chase any and all customers with communications and marketing strategies that rarely hit the mark.
• Volume expansion – An improved understanding of demand brings new customers to the brand while simultaneously cementing relationships with existing customers
• Increased pricing power – New insights ensure development of products which deliver against the key needs of target consumers and for which they are willing to pay a premium.

Our work with a major food manufacturer can better illustrate how a precise understanding of profitable demand yields tangible results.  This company was experiencing flat to negative growth on a historically key strategic brand, and was communicating in-market in a reactive way.  Management had come to the conclusion that this core business had exhausted opportunities for growth and was seeking to expand the brand into new adjacencies.  Using our hallmark demand strategy approach, The Cambridge Group undertook the following steps:

• Identified the most profitable consumer segments and need states, and determined what was most compelling to them
• Developed brand positioning and overall brand strategy. Which were specifically designed to motivate the most valuable consumer segments and need states
• Executed Customer Demand Analysis^TM to identify tangible product features which are both most valuable to target consumers and most profitable for the brand to offer
• Optimized brand portfolio strategy to maximize profitable growth while minimizing required capital investment

One year after completing the strategy, the results were clear: brand sales went from -1% to +15% and returned the brand to profitable growth – the only one at the manufacturer to simultaneously grow share, sales and margin that year.  Furthermore, brand costs were reduced by eliminating packaging, supply chain and formulation components not motivating to target consumers.  Trade spend was rebalanced to the most profitable, more premium SKUs.  The target consumer and need state was redefined from single males to households with teens and from BBQ to after-school/afternoon snack, respectively.  Even now, when most brands are experiencing pressures, this brand continues to enjoy unprecedented volume, revenue and profit growth and has surpassed profit targets by nearly 30% this year while achieving the #1 share position in its category.

The precision of demand analysis can be the solution to turning around brands that have seemingly plateaued.  And the application of this analysis goes beyond consumer packaged goods – it has been successfully implemented at credit card companies, insurance companies, retailers and a range of others.   In these difficult and uncertain economic times, understanding precise target segments, need states and brand strategy are critical tools to driving growth and profitability.

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Gloria Cox will be presenting May 13 at Nielsen’s Consumer 360 conference.

Gloria Cox is the Managing Director with The Cambridge Group. She specializes in consumer products and services clients, working with them to develop market-driven growth strategies through consumer targeting, brand strategy and positioning, and new product development.

Prior to joining The Cambridge Group, Gloria was an Engagement Manager and core member of the Consumer Goods Practice at McKinsey & Company where she addressed strategic and organizational challenges for a number of consumer goods and services clients. Gloria also worked in market research in the Paper Division of Procter & Gamble, where she was responsible for designing, executing, and analyzing custom market research for several key Procter & Gamble brands including Pampers, Luvs, Charmin, Bounty and Puffs.

Gloria graduated Phi Beta Kappa from Indiana University with a dual degree in telecommunications and business. She received her Masters of Management from the J.L. Kellogg School of Management at Northwestern University.

Even though some analysts predict that the U.S. economy may have hit bottom and are cautiously optimistic, the changes we have seen in consumer behavior are likely to persist for the foreseeable future.  Here are some ways grocery retailers and CPG manufacturers can leverage these trends:

• Stay in the game: Evaluate new formats and locations and focus on innovation and differentiation. Maintain marketing and ad spending: history has shown us that companies that continue marketing in downturns generally perform better when conditions improve.

• Communicate: Listen and talk to your consumers. Engage them – they want to be heard and looking for help.

• Articulate your value: Understand your value proposition and articulate that in ways that are meaningful to consumers.  Create value and deliver on an aspiration.

• Reach consumers where they live: The renewed trend of “nesting” creates opportunities to market and position products that can comfort, enliven and enhance the home entertainment and dining experience.

• Expand store brands: Consumers have shown an increasing willingness to embrace private label products, and now is the time to explore ways to enhance PL offerings to build brand loyalty.

“Today, perhaps more than ever before, retailers and CPG companies that understand consumers, product categories and channel activity at an increasingly granular level will be in a better position to deliver new solutions and drive success,” said Todd Hale, Senior Vice President, Consumer & Shopper Insights at Nielsen.

Read the full article about insights and opportunities to grocers and CPG companies in Progressive Grocer.

With roughly one-third of the total U.S. population and at least three-quarters of the country’s land area, rural America is a diverse and important marketplace for marketers of consumer products, Doug Anderson, EVP, Research & Development, Nielsen, argues in the January issue of Nielsen’s “Consumer Insight” online newsletter.

Marketers intent on reaching rural Americans should pay attention to marked differences in media usage and consumer preferences that distinguish rural and metro America, Anderson advises.

“As rural America continues to transform and diversify, makers and sellers of consumer products need to adapt their strategies in concordance,” Anderson writes.  “Ethnic diversity, together with ongoing economic instability and technology-driven developments, will continue.  Understanding how these changes impact rural life allows marketers to stay ahead of the curve.”

Read the full article.

View the latest issue of “Consumer Insight.”

Nielsen has issued a year-end look at the most popular trends among Americans during 2008, covering everything from the top TV programs to the most popular consumer packaged goods.

William P. Young’s ”The Shack” was the top-selling fiction book through November 30.

Among non-fiction books, “A New Earth,” by Eckhart Tolle was the top-seller.

The audio version of Tolle’s “A New Earth” was the top-selling audio book of the year.

Top 10 Book Sales: Adult Fiction

Top 10 Book Sales: Adult Non-Fiction

Top 10 Audio Book Sales: Adult and Juvenile

View the press release.

Relive the greatest hits of 2008 — stay tuned on Nielsen Wire for more Tops In 2008 coverage.

Look ahead to the new year with Nielsen Wire’s 2009 Industry Outlook series.

It’s official: Americans love their carbs.  The Bread and Baked Goods category ranked number one for 2008 — both in terms of consumer purchases and retail sales.  According to Nielsen, 99% of U.S. homes purchased bread/baked goods at least once during the 52 weeks ending June 28, 2008.  The Bread/Baked Goods category raked in $18.3 billion in sales through November 1.  Other popular CPG categories include paper products, snacks, and carbonated beverages.

Scarborough Research, a joint partnership with Nielsen and Arbitron, also reported on the top U.S.  markets for online shopping.  Washington, D.C. and San Francisco ranked first and second, respectively, with 39% and 35% of adults spending $500 or more online in the past year.  Nationwide, 25% of adults reported spending $500 or more online in the past year.

Top 10 Consumer Packaged Goods Purchased by U.S. Homes

Top 10 Consumer Packaged Goods Sold in U.S. Retail Stores

Top U.S. Markets For Adults Who Spent More Than $500+ Online Last Year

View the press release.

Relive the greatest hits of 2008 — stay tuned on Nielsen Wire for more Tops In 2008 coverage.

Look ahead to the new year with Nielsen Wire’s 2009 Industry Outlook series.

Sony’s Playstation 2 was the top game console of 2008, claiming 31.7% of all measured console minutes, according to Nielsen.  The Xbox 360 and Wii ranked second and third, respectively, with 17.2% and 13.4% of all usage minutes between January and October of this year.

Blizzard Entertainment’s “World of Warcraft” was the most popular PC game title of the year, drawing an average of 0.723% of all PC gamers per minute between January and October 2008.

Among mobile gamers, “Tetris” was the top game for Q3 2008, in terms of share of revenue. 

Top 10 PC Game Titles: U.S.

Top 10 Mobile Games By Revenue Share: U.S. – Q3 2008

Top Video Game Consoles By Usage

View the press release.

Read coverage of Nielsen’s findings in Forbes.

Relive the greatest hits of 2008 — stay tuned on Nielsen Wire for more Tops In 2008 coverage.

Look ahead to the new year with Nielsen Wire’s 2009 Industry Outlook series.