SUMMARY: What a difference a year makes. Restaurant operators enjoyed a solid 2008, but by mid-year 2009, more than 4,000 had closed and the average guest check plunged more than 8%. Where did all the diners go? Grocery stores, supercenters and club stores—to pick up meat, seafood, produce, deli and bakery goods for a home-shared meal.

There is nothing like staying home for real comfort. – Jane Austen

Home. It’s our refuge when the world gets to be too much. The upside of a recession is that we come together around the kitchen table to share our meal and our day, taking comfort in the safe harbor of home. While that’s bad news for restaurants, from white table cloth to casual dining, it’s good news for retailers.

Through September 2009, Nielsen reported total store sales—which includes the Rx, perishables, center store grocery (UPC food & beverage), health & beauty care, and general merchandise departments—are expanding. The perishable department is growing faster than all retail sectors in the total market.

According to Nielsen, reported household deli spend for year ending September 2009 was $200—a 5% increase from last year. Bakery whipped up average annual household sales of $174 per year with a 3% increase. Fresh meat and seafood cooked up sales of $437 per year for a 4% gain, produce increased 3% based on annual average sales of $279 per household. Perishable departments are becoming one of the most productive departments at retail and channels outside of supermarkets are taking notice.

Recession reaction
What the recession has wrought, among other things, is a transfer of dollars away from dining out toward spending more on prepared meals at retail. A 2009 Nielsen survey finds that 46% of American households say they are eating out less. And the sales data supports that statement as value-priced prepared meals at retail are posting double digit increases in supermarkets, supercenters and club stores. Other recessionary strategies include reducing unnecessary spending (27%), driving less (14%), shopping for bargains (13%), using coupons (12%), combining shopping trips (8%), going out less for entertainment (6%) and purchasing more private label goods (5%).

Meaty matters
Supermarkets hold a dominant share position with perishables in the meat and seafood department with a 70% market share. More importantly, shoppers are spending more with grocers. Key factors fueling supermarket meat and seafood sales include promotions—51% of meat and seafood is purchased on sale—and prominent circular placement noted by 41% of shoppers.

Shoppers are trading down, up and side-ways as less expensive non-red-meat and seafood protein options such as turkey, chicken and pork sourced primarily from beef department sales. This trade down is occurring in both fresh and fully cooked product categories. Retailers should offer shoppers ideas to enhance the dinner menu with add-ons such as marinades, sauces and seasonings, which are posting double digit increases on both a dollar and unit basis.

Alternative channels are also making a strong push for this business. Supercenters have done a super job with new perishable formats, growing both the purchase size (up 2% to $11.80) and frequency of perishable purchases (from 18.4 to 18.7 trips per year). This holds true in particular for the meat and seafood departments, where supercenters snagged a 0.6 share point change.

Produce picks
Supermarkets hold an even stronger share of produce with more than 72% of the business and growing, posting a 0.3 share increase versus year ago. Supercenters are turning the competition green with envy capturing 12% of the market. Club stores are still underdeveloped in produce (7.9% share) versus comparable department share levels.

In the produce aisle, shoppers appear to be sticking with core vegetables as tomatoes, potatoes and corn are among the few leading categories posting dollar and unit growth. The same holds true for fruits—shoppers are less likely to experiment these days as specialty and stone fruits are down in favor of tasty favorites such as berries, cherries, grapes and avocados.

Retailers have a unique opportunity via their produce department to build their health and wellness equity and market position. The Natural Marketing Institute has identified 25% of the population as “Well Being” shoppers that are health and wellness focused, do the best job of eating right and use quality as their purchase barometer, not price or brand image. Indeed, the Nielsen sales data affirms these results as these shoppers buy 25% more produce than any other perishable sector and prefer random weight items at their freshness peak.

Deli delights
In deli, where supermarkets hold 50% of the business, all major departments are posting strong growth. Deli cold cuts and cheese are up 7% and prepared foods are up almost 5% versus year ago. Notably, supermarket dollar share erosion has been more severe than other perimeter sectors in this broad but expanding market. However, smaller formats (convenience stores, delicatessens, etc.) that offer shoppers “in and out” convenience are posing the biggest threat to supermarkets. Some of the hottest selling prepared deli items include turkey entrees, pot pies and chicken salad. At the service counter, shoppers are buying American as pre-sliced cheese is posting double-digit unit and dollar sales increases.

Retailers exploring ways to differentiate their brand should turn to the deli department, where service counts, personality shines and the area is generally underdeveloped as a driver of retail brand equity. Adopting an “alternative to eating out” strategy has paid off big time for retailers like Wegmans, which scored well in a 2009 study as a top choice for prepared meals, as well as for offering a wide range of fruits and vegetables, high-quality fresh food, well presented displays and a broad assortment of fresh meat and seafood.

Bakery boom
Retailers should not forget to finish off their meal planning strategies with dessert options. The bakery department is posting the most significant growth of any perishable sector for grocers. And just as Clemenza famously says in The Godfather; “leave the gun, take the cannoli”, that is exactly what shoppers are doing as cannolis are posting strong growth within the cakes, cookies and specialty desserts department. Supercenters are the primary threat to grocery as they have almost 16% share of this market—more than any other perishable department. Similar to deli, club stores are not a major competitor in the service-driven bakery sector, capturing about 7% of the market.

Meal planning
Everybody cooks, but in today’s world, meal planning is maturing on both web-based resources for recipes and TV chefs for inspiration and technique. Nielsen discovered that more than one million viewers watched the Food Network during prime time in 2009—a 16% increase over full-year 2008. Furthermore, meal planning is one of the largest and fastest growing online activities, with the average browser spending roughly 10 minutes online planning meals. Retailers like Meijer have developed special iPhone applications that let shoppers check specials, locate recipes, consider wine pairings, even search from their smart phones for special needs like fat free, dairy free, gluten free and high fiber.

The lead position
What does it take to succeed with perishables? Retail perishable sales leaders share a set of characteristics including heavy penetration across one or more perimeter sectors. The average department penetration among the Top 25 retailers scored 83% for produce, 80% for bakery, 79% for meat and seafood and 65% for deli. Prepared foods represent an area of under-developed potential because of high-growth rates, strong drivers like working parents on tight schedules, and the fact that fewer than one-third of the Top 25 retailers’ customers currently buy prepared items.

Service remains key to succeeding in areas like deli and bakery, where sales outpace meat, seafood and produce. Across the store, the produce section affords the best climate for delivering health and wellness messaging. Even aside from absolute sales potential, prepared foods are unique in their ability to serve as an avenue for differentiating the retail banner. For a playbook on doing it right, turn to trend-setting retailers that have set both the delivery standard and consumer expectations for high-quality prepared meals and the multi-media formula for promoting them.

Free Webinar: The Consumer Returns to the Home

Register Now

Date: November 19, 2009 – Time: 12 pm EST/11 am CST

Today’s consumer is realizing that the home is their best resource to stretch a dollar in a difficult economy. The “trade down” from casual dining to home meals has created tremendous growth and brand messaging opportunities in perishable departments and specific center store categories for both retailers and manufacturers. In this session, Nielsen will reveal:

• Who are the new and emerging channel competitors and where are the category opportunities in the meat, produce, deli and bakery departments.
• Which center-store categories create more merchandising synergy with the perimeter.
• Why it is critical that brand advertising strategies stretch beyond the store into the emerging food preparation space.

Register Now

The alcoholic beverage category has proven to be resilient, but not recession proof. Sales were up slightly—at 2 percent, for the 52 weeks ended Sept. 5 compared to the year prior. Wine saw the biggest spike at 5.1 percent followed by spirits (2 percent) and beer (0.7 percent).

Not long ago consumers were looking to trade up and experiment with the hippest new product. This is not the trend anymore. Consumers are increasingly shopping based on price which has helped domestic brands since the price gap between imported and homegrown brands is significant. American vodka and gin, on average, is 50 percent less than imports. Domestic beer is 35 percent less and wine is 25 percent cheaper.

As a result, sales of domestic brands have surged. Domestic wine led the way, growing 5 percent for the 26-week period ended Aug. 22. During the same span, domestic vodka grew 8.1 percent. Domestic beer sales grew 3.2 percent for the 24-week period ended Aug. 22.

Overall, pricing has been flat across all of the categories with certain exceptions in beer category (notably among craft brews). This hasn’t stopped consumers from trading down to private label offerings which are a small, compared to consumer packaged goods, but growing segment within the category. Private label wine and spirits sales were up more than 20 percent and nearly 10 percent respectively, for the 52-week period that ended Aug. 22 compared to the year prior.

These changes in consumer preference have created pressure on retailers to optimize their space. Retailers are reducing their assortments of flavored malt beverages, imported wines and cordials. Instead they are giving craft beers, vodka and mid-range wines ($9 to $15) more attention.

Retailers are benefiting from a shift in consumption behaviors—namely more consumers are drinking at home versus at a bar or restaurant. In April, 68 percent of consumers said they were doing less fine dining. Fifty-nine percent also said they were going to bars than less before.

This shift became highly noticeable last year when share of on-premise dollars fell 3.3 percent for wine, 3 percent for spirits and 1.3 percent for beer, according to the Beverage Information Group (2009 Handbook).

This has prompted a significant increase in off-premise channels adding beer, wine or spirits. The total number locations selling alcoholic beverages grew by 2,392 stores in Aug. 2009 compared to the year prior. Drug (684 locations), convenience stores (637) and mass merchandisers (432) led the way.

On the flip side, the number of U.S. on-premise locations offering alcohol has slipped. There were 944 less bars and clubs and 769 less dining choices. Overall, the number of new locations offering alcohol (on- and off-premise) minus the number of closed locations was a 5,445.

“Without a doubt, consumers continue to turn to store brands in a down economy,” said Todd Hale, senior vice president, Consumer & Shopper Insights, The Nielsen Company. “What we see with Halloween candy sales, however, is a sign that consumers may be ‘splurging’ with brand name products for the holiday or simply taking advantage of brand name promotions and price reductions. Candy manufacturers invest a great deal of marketing dollars to build brand equity in candy and private label candy has not been able to overcome that investment and grab significant share.”

Halloween is the biggest season for chocolate candy, with nearly 90 million pounds of chocolate candy sold during Halloween week. By comparison, nearly 65 million pounds of chocolate candy is sold during the week leading up to Easter and only 48 million pounds of chocolate candy is sold during Valentine’s week.

Consumers tend to wait until the last minute to purchase Halloween candy, either procrastinating or hoping for a better deal. The biggest candy buying days of the Halloween season are the Sunday before the holiday and on Halloween day. In total, approximately $1.9 billion (or 598 million pounds) of candy is sold during the Halloween season.

In the U.S., consumers remain skittish.  Shifts to private label brands continued at a strong pace, as they have for the last eight months, while consumers are shopping less frequently and spending less per trip.  Canadians, on the other hand, are spending more per trip, and are taking advantage of retail promotions.  Unlike in the U.S., private label brands are struggling to gain share as national brands step up promotional activity.

In Europe, the French remain relatively unchanged in their shopping.  Value channels continued to see growth and more retailers were selling on promotion, leading to a modest increase in the amount spent per trip.  Germans showed very little change in the number of shopping trips they took, nor did they increase or decrease how much they spent.  Unit sales increased, however.  In the UK, sales volume improved slightly from the previous month, while budget store brands’ growth slowed as consumers began returning to premium brands.  British shoppers were also spending slightly more per trip.  Italians continued to move to store brands and value channels, although they were reducing their shopping frequency.  Spaniards, who have been among the most optimistic, have not seen that reflected in spending.

Brazilians showed an 8 point surge in optimism, and this translated into more frequent shopping trips and higher sales, in both volume and value terms.  Hong Kong and China both showed growth in sales, but Taiwan showed declines, and optimism there was among the lowest in Asia.  Indian consumers’ confidence was high, and volume and value sales both increased by more than 5 percent.

“While things are starting to look up, it’s clear that Americans and Western Europeans aren’t quite convinced that recovery has taken hold and remain cautious when it comes to shopping.  The labor market is clearly affecting this behavior.  It comes as little surprise that Brazil, India and China – countries that have generally been less affected by the global recession – are among the first to see renewed consumer confidence and sales growth,” said James Russo, Vice President, Global Consumer Insights at The Nielsen Company.

The Buzz

While the idea of recovery hasn’t opened up global consumers’ wallets quite yet, it has started to infiltrate their discussions on the Web.  In June, 71 percent of survey respondents thought that their countries were in recession, an improvement from the 77 percent who thought the same in April.  Additionally, 26 percent believed that their country will be out of a recession in the next twelve months, up three points from April.  Global recession buzz has declined 27 percent since March.  In July, however recessionary buzz perked up, primarily in Western Europe.

“We are likely to see an overall downward trend in recession discussions, but it will be choppy until consumers really feel as if they are experiencing the recovery,” said Russo.

Download the latest Nielsen Economic Current.

The “U.S. Store Brand Development” found that both private label dollar and unit sales significantly increased for the 52-week period ending July 11, 2009 versus the prior year.

Dollar sales grew by 7.4 percent to $85.9 billion within food, drug and mass-merchandisers (including Walmart), with shares recorded at 16.9 percent. This reflects an increase of 0.7 points from the previous year. Growth peaked in 2008 but then slowed slightly in 2009 with falling commodity prices and increased retail discounting.

Unit sales similarly experienced high growth during the same period. Sales increased by 5 percent to 39.5 billion units and unit shares rose by 1.3 points (a total of 21.5 percent).

All store brand food and non-food categories experienced better performance versus brands, but edible departments saw the greatest uptick in both dollar and unit sales.

Top dollar growth categories were frozen pizza and snacks (38 percent), flour (36 percent), and dry vegetables and grains (31 percent), and dry grocery and dairy departments accounted for 59 percent of total sales. Baby food (37 percent), candles and incense (23 percent), frozen pizza and snacks (22 percent), cheese (16 percent) and flour (15 percent) topped unit sales.

The importance of food and at-home meals in this down economy has led to strong growth for both branded and private label offerings in some basic food categories such as flour (36 percent store brand growth compared to 17 percent branded), dry vegetables and grains (31 percent to 20 percent), salad dressing and mayo (30 percent and 8 percent), pasta (27 percent to 15 percent) and baking mixes (22 percent and 10 percent).

“When categories are sorted by store brand share, from high to low, some patterns emerge,” said Todd Hale, SVP, Consumer & Shopper Insights at Nielsen. “Store brand performance and share is strongest in commodity categories. Milk, fresh eggs, sugar & substitutes and canned vegetables top the list). Where store brand share is the lowest is among categories where we see strong marketing support for top brands including candy, gum, beer and those where a high-level of innovation occurs like detergents, deodorant, cosmetics.”

So what are the top selling categories in the drug channel? Six of the top eleven categories are outside the health and beauty care category.  Tobacco leads the way with almost $3 billion in sales, an increase of 18 percent from last year.  Cold/allergy remedies, nutritional supplements, headache remedies and chocolate candy round out the top five.   In terms of growth leaders, pet care products posted a 67 percent increase from last year, followed by depilatories and peanut butter.  Of the eleven categories showing the strongest growth, eight are foods.

But the leading chains such as Walgreens, CVS and Rite Aid are stepping up their efforts to innovate and bring more customers through their doors.  As with grocery stores, private label products are increasing their share of sales, with store branded cold/allergy remedies, nutritional supplements and headache remedies leading the way. Meanwhile, private label pet care, laundry detergent and antacids have shown the most growth.  Some of the chains are establishing in-store medical clinics, where customers can receive services such as blood pressure screenings, treatment for common maladies and flu shots.   Others are making the shopping experience more efficient by re-designing stores and reducing SKUs. 

“Drug retailers are feeling the heat from mass merchandisers and other retail channels.  Look for drug stores to innovate and evolve with more in-store clinics, competitive store brands, and expansion beyond traditional health & beauty categories,” said Tom Pirovano, Director of Industry Insights at Nielsen.

Other drug store facts:

• Drug store shoppers spend nearly twice as much on cigarettes than on cold/allergy remedies.
• Drug stores dominate all channels in the sale of contraceptives, generating 64 percent of sales in the category.
• The two highest growth categories in terms of share for the drug channel are tobacco and feminine hygiene.
• The category that has the highest drug channel private label share: canned nuts (64%).
• The Cleveland market has the strongest drug store channel representing 8.6 percent of total sales compared to 3.8 percent for the U.S. as a whole. Miami, Boston, New York and Sacramento round out the top five.
• Denver, Salt Lake City, Portland, OR have lower-than-average sales in the drug store channel
• Drug stores skew to African Americans, households without kids, lower incomes and older households than other channels
• Where one lives plays a huge role in the channels one shops: those living in cosmopolitan centers and struggling urban cores spend more of their money in drug stores than those in suburbia or rural communities.

In a June 2009 survey, 57 percent of consumers said that they had been switching to private label goods over the past year, and more than a third said that they would continue to purchase them even when economic conditions improve.  Younger households were most likely to indicate an affinity for private label products.

“The younger generation would probably not have experienced the old world of private label with questionable quality, limited range and bland packaging. They see private label as a very compelling alternative to proprietary branded goods.  Private label products have yet to realize the gains experienced in Europe and North America, but this generation is likely to drive growth in the sector in the coming decades,” said Kosta Conomos, Executive Director – Retailer Services, Nielsen Pacific.

Read the full press release.

A fellow Nielsen associate recently sent me an article she had received from a client about how private label was receiving high acceptance among even affluent American households.  While I am a huge fan of the attitudinal insights from consumer survey data, I am also a huge fan of the behavioral insights from consumer panel data.  The best of both worlds is when we get to integrate both data types in our analytical work in the consumer packaged goods industry.  But turning back to the issue regarding private label development among more affluent households, if we examine annual private label buying over the four year period from 2004 through 2008 in the U.S., we find the following:

1.      The top two income brackets in our analysis (those with incomes of $70,000 to $99,999 and $100,000 +) demonstrated the biggest increase in private label dollar sales moving from 32.1% in 2004 to 35.0% in 2008.

2.      However, this growth is really a function of population growth, not an increase in demand.  That is, when we divide the percentage of dollar sales from affluent households by the percentage of household population they represent, we get an index of 102 in both 2004 and 2008.  In other words, the growth in dollar sales among these households was commensurate with their overall increase in population importance (growing from 31.5% of households in 2004 to 34.3% in 2008).  A variance of 2% in both years says these consumers buy private label in proportion to their population base and nothing has changed.

3.      Drilling down into more finite income groups, private label development (again, expressed as an index of sales over population importance) is lowest among the lowest and highest income groups and there has been minimal change over the past four years.   Private label sales development indices in 2008 ranged from a low of 88 for households with incomes of $20,000 or less to a high of 107 for households with incomes between $50,000 and $69,999.  With annual private label penetration near 100%, it is not surprising to see little variance across the income groups.  In other words, private label has somewhat universal appeal across all income groups, but households with incomes between $50,000 and $99,999 show the greatest positive variance from expected levels.

In other Nielsen Wire articles posted this year, we discussed how more affluent consumers are taking advantage of value retailers (club stores, supercenters and dollar stores) at a more rapid rate than other consumers and affluent consumer were also seeking out promotions at a greater and faster rate than other groups.  With brands driving most of the in-store promotions and accounting for almost 80% of unit sales in food, drug and mass-merchandisers (including Walmart), affluent consumers are speaking through their buying habits, and brands are still their preferred choice.  However, with the increased importance placed on price, value and promotion support, manufacturers must continue to innovate and drive a point of differentiation versus the increased innovation, focus and marketing support retailers are putting behind their private label initiatives.

For further information or to arrange a comprehensive presentation on consumer shopping patterns, please contact Todd Hale at todd.hale@nielsen.com or 859-905-4615.

A Link Between Buzz And Spending

For the latest Economic Current, Nielsen tracked online discussions about the economy and found that since mid-March 2009, recession buzz has dropped 47 percent in the U.S., UK, Germany, Italy, Spain, Australia and New Zealand.

“Globally, Nielsen is tracking online discussions related to the recession and when the recovery may emerge. While discussions about the recovery are still quite low, we have seen that the public is talking less about the recession — often dramatically less,” said James Russo, Vice President, Global Consumer Insights for The Nielsen Company.

“In the U.S., we found that recession discussions have dropped since hitting a peak in January.  There appears to be a strong correlation between what consumers are saying in discussion groups and their subsequent actual purchase behavior.  From the end of 2008 to March 2009, when recession discussions were highest, we found that sales actually declined by 2.3 percent.  From mid-March to early June, as recession chats dropped, we found that sales actually showed a modest increase,” continued Russo.  “This is an important dynamic as we look to signs of a sustained recovery, and Nielsen will be at the forefront of this research.”

Noteworthy Highlights

• After showing some positive movement in April, U.S. consumers pulled back on shopping and how much they spent per trip. Meanwhile, the shift to value channels such as supercenters, club and dollar stores continued, as did the move to private label store brands.
• Canadians are slightly more optimistic than their southern neighbors. While they aren’t shopping any more frequently than before, they are spending more per trip. But like Americans, Canadians are also turning to private label store brands and value channels.
• Western Europe remained in a neutral position. Some countries’ consumers shifted to value channels and store brands, but they generally reduced the frequency of their shopping trips and spent no more, or in some cases, less than in previous months.
• Brazilians were the most positive of the lot, with consumers shopping more frequently.

Download the latest Nielsen Economic Current.

These were some of the findings from the “Supermarket Pricing Trends” study which looked at pricing of the top-selling items across 45 categories over the course of five years. It concluded by measuring the 12 weeks ending May 16 in total U.S. supermarkets.

Overall, grocery prices continue to inch up 0.44 percent compared to a year ago. The sum of average unit prices across the 45 category-leading items, which included everything from bacon to bleach to buttered crackers and hot dog buns, was $143.65.

Private label items, however, are on the decline. On average, prices for store brands fell 4.7 percent versus last year led by a 23 percent decrease in whole milk and a 27 percent decrease in the cost of a dozen eggs. Some national brands in the dairy aisle are also seeing price declines. Some of these reductions are the result of pricing corrections for items with large price spikes in 2008.

Could this be a sign of more key items with lower prices on the horizon? This hasn’t happened yet, said Tom Pirovano, Director of Industry Insights, The Nielsen Company. “From all of the talk we’re hearing about deflation, it hasn’t happened yet. It’s a little premature because prices for many leading products are continuing to creep up.”

Pirovano notes the average unit price across the 30 category leading branded items grew 3.3 percent to $124.04 compared to the prior year.

One exception has been perishable items like dairy, produce and meats. Eight ounces of national brand cream cheese shrank 10 percent, 64 ounces of a leading orange juice brand can be had for 7 percent cheaper and a national brand of sliced cheese fell 5 percent.

The biggest price decrease was a dozen private label large eggs. Its cost plummeted 27 percent. A gallon of private label whole milk fell 23 percent and private label butter sticks is now 7 percent smaller. These price reductions are likely a result of lower grain prices where it’s less expensive to feed cows and chickens.

The study also highlighted the seasonal nature of pricing. Prices reach their lowest points each year in late spring and early summer. Conversely, prices tend to spike in January.