Todd Hale, Senior Vice President, Consumer & Shopper Insights

In 2007 and for much of 2008, rising gasoline and commodity prices led to a wave of price increases in the consumer-packed goods industry. For some categories, it was not uncommon to have two to three price increases as ingredient, packaging, energy and transportation prices jumped sharply. During that time, many retailers—particularly those selling food and beverages—experienced a lift in sales and profits. As recessionary pressures intensified at the end of 2008, gasoline and commodity prices started to drop and many retailers began passing on the savings to their shoppers and cutting prices broadly to be more competitive with value retailers.

Lower prices on groceries, gas and other household items have offered some degree of relief to stretched American consumers. With uncertainty about the economy persisting, shoppers continue to watch their money and seek out value. But to retailers, lower prices present challenges: how to grow market share without taking a hit on the bottom line; and, after being very vocal about the savings they are providing their shoppers, how do retailers elevate prices without disenfranchising shoppers?

Nielsen’s recent review of retail prices found that over the 4-week period ending June 12, 2010, prices were off or flat versus year ago providing exceptional value to consumers, but weakening trends for retailers. Unit prices have been dropping sharply since March 2009, and the number of items on promotion—in the form of feature ads or displays—has gone up. When one store slashes prices to gain competitive advantage, others follow suit. Meanwhile, brands have resorted to more promotions to stimulate sales and stem the growth of private labels.

Unfortunately for retailers, these price cuts and heightened promotions have not achieved the desired effects as both dollar and unit sales are off in each of the last three (four-week) periods. But the big unanswered question is: would the situation be worse without these value efforts?

Which Departments Are Faring the Best?
For consumers, the good news is that prices across all departments are better now than what was experienced for much of 2008 and into early 2009. Some departments showed price increases in recent quarters, such as dairy, fresh meat and fresh produce, but prices are still very attractive for consumers seeking savings. Within dairy and fresh produce, it is interesting to note that increased prices are yielding stronger retail sales trends.

The deli department has held up quite well, while alcoholic beverages is the shining star of departments, posting sales increases in both dollar and unit terms.

The departments with the most negative sales trends were fresh meat, non-food, and general merchandise, with dollar and unit losses the greatest among the non-food and general merchandise departments. Dry grocery department sales trends were similar to the total store trend. The frozen department was on a stronger sales trend, but unit and dollar sales have fallen in recent periods.

In a further sign that price cuts were not having a positive impact, only one of the top 16 categories with the largest price cuts actually saw dollar sales rise. So drastic price cuts don’t appear to provide incentives to alter the frequency of consumption!

Unemployment Continues to Stall Recovery
Perhaps the biggest factor preventing retailers and CPG companies from raising prices is the state of the U.S. economy. While the Great Recession may be officially over, the recovery has really only started in earnest—and in unique ways, namely, without the growth of jobs. After four straight months of job creation, the momentum was stopped dead with a surprise June announcement that the economy had once again shed jobs—this time 125,000. The unemployment rate dropped to 9.5%, but including people who are not working full-time but would like to be, that number goes up to 16.5%. Moreover, almost half (46%) of unemployed individuals have been without a job for more than 27 weeks. And, unemployment is particularly high among ethnic, younger, less educated and male populations.

These statistics are obviously sobering, and they limit the ability of CPG manufacturers and retailers to raise prices without losing customers to value brands and channels.

What’s the Answer?
As prices have fallen, so have same-store sales trends for retailers, particularly those focused on grocery. Retail price wars are having a negative impact.

So how do retailers get through this period? In the short-term, look for opportunities to raise prices on selected items when justified; merchandise assortment that you have a competitive advantage; look for opportunities to up sell shoppers to build baskets; offer your biggest spenders the special kind of attention they deserve.

Until consumers feel more confident about the state of the economy, their personal finances and job prospects, they are going to seek bargains and keep their spending in check. While there have been some signs of optimism, it seems as if something arises that cancels out any progress made. One thing is for certain, however: until there’s a period of consistently positive economic news in the U.S., consumers will be skittish, and retailers and CPG manufacturers need to be prepared to continue weathering the storm and finding innovative ways to grow share without sacrificing dollars.

Part 2 of 5 on Healthy Eating Trends and Myths

Tom Pirovano, Director of Industry Insights, The Nielsen Company

It’s the economy! Organics enjoyed stratospheric growth in four of the last five years, but the economic crunch took a bite out of that trajectory in 2009. U.S. dollar sales surged 132% between 2004-2008, building the organics category to more than $4.0 billion in food/drug/mass merchandise retailers, according to Nielsen. In 2008, organic dollar sales decelerated to 16% annual growth, expanding to $4.6 billion. That rate fell to the single digits in 2009, with organics sprouting a modest 2.1% gain for total sales of $4.7 billion in the food/drug/mass merchandiser channels.

The 2009 U.S. organic market size expands by an additional $1.5 billion when natural channel sales captured by SPINS are added to the equation, bringing the all-channel total to $6.2 billion. Mirroring the mainstream channel slowdown, organic sales lost pace in the natural channel as well, albeit to a lesser degree at 4.3%. This is thanks in large part to core loyalists who represent 20% of organic consumers and 80% of organic UPC-coded dollar volume in the natural channel.

Dedicated organic buyers will cross channel shop and purchase private label organics to sustain their lifestyle commitment. In another nod to the economy, organics fared better as house brands such as the Topco Full Circle and Safeway O Organics lines than branded offerings at higher price points. Increased availability and consumer acceptance of private label has expanded its share of organic sales to 24%.

In a survey by The Packer, a produce industry publication, almost 50% of consumers said they would buy organic fruits and vegetables if price was not an issue. The global nature of the economic crisis was underscored in a Nielsen study from Great Britain, where the percent of people who felt “it was worth paying extra for organic food” plunged from 27% to 18% between 2006 and 2009.

Healthy Eating Trends

• Part 1: Commitment Trumps the Economic Pinch
• Part 2: Organic Enthusiasts Remain Loyal
• Part 3: Eating Healthy Doesn’t Have To Cost More
• Part 4: Store Brands Expand Healthy Offerings
• Part 5: Healthy Eating Index Debuts

Almost three-quarters (73%) of those surveyed said they are no longer in recession.  More than half (56%) described their job prospects as “good” or “excellent,” with 60 percent describing the outlook for their personal finances the same way.  Both of these scores represent double-digit increases since the June 2009 survey.

“This significant rebound in job confidence corresponds with the territory’s unemployment rate falling below five percent for the first time since January 2009,” said Oliver Rust, Managing Director, Hong Kong, The Nielsen Company.

After covering essential costs, Hong Kong residents still prefer to put their cash in savings and invest in the stock market. They also have increased their spending on out-of-home entertainment, new clothes and holidays.  Only spending on new technology products declined during the quarter.

Read the press release with complete findings.

Five percent of survey respondents felt that their job prospects over the next twelve months as would be “excellent” with the same number saying the same about the state of their personal finances.  That said, half of those surveyed believed that Britain will still be in recession by the end of 2010 and 70 percent said that they are adjusting their spending to save money.

Personal debt is the single biggest concern amongst Britons, with 14 percent identifying that issue, with another 12 percent identifying increasing utility bills and the overall state of the economy.  More than two-thirds of those surveyed said that they would put spare cash into improving finances by increasing savings (40%) or paying off debt (29%).  Among the areas facing spending cutbacks: home improvement, new clothing, new technology and out of home entertainment.

“We are in the foothills of what will be a slow climb out of recession.  While people are feeling ever so slightly better about job prospects and finances, an air of caution prevails.  The number of people saying they are saving is at the highest the consumer confidence survey has ever recorded, and people remain very concerned about the amount of debt they are shouldering,” said Justin Sargent, Managing Director, Nielsen Consumer UK. 

“We’re heading in the right direction.  It’s encouraging to see consumer confidence improve steadily since the survey’s low last April.  But we’ve still got a long way to go before confidence levels hit their pre-recession highs,” said Stephen Robertson, Director General, British Retail Consortium.

With an index score of 98, Canada beats the global average by 11 points and bests its southern neighbor by 16 points.  In fact, Canada is one of only two countries in the top ten outside of Asia (the other being Brazil).

“Over the past six months, Canadian consumers have stopped talking about recession and changed the conversation to recovery,” said Carman Allison, Marketing and Communications Director, Nielsen Canada.  “We’re more optimistic about our job prospects and personal finances, and are ready to open our wallets and put the recession behind us.”

So how has this renewed confidence manifest itself?  Canadians are more likely to pay off debt (39% vs. 31% globally) and much less likely to save or invest in the markets (27% vs. 49% globally).  Interestingly, the high level of confidence contrasts with the fact that 70 percent of Canadians still believe that their economy was in recession, despite the fact that the Bank of Canada declared it technically over last summer.  But 40 percent believe that Canada will be out of recession in 2010.

Concerns remain.  The top three issues were increasing utility bills, personal debt and the economy.  Canadians – and Americans – are much more worried about debt than the rest of the world (13% compared to just 7% globally).

“Even while showing faith that we are in recovery mode, Canadians are planning to retain some frugal habits. Economists expect this to be a slow recovery, so consumers will continue to seek value and look for ways to stretch their shopping dollars in the near term and perhaps even longer into the future,” concluded Allison.

Download the report on Canadian Consumer Confidence.

“The Nielsen survey shows that in the past six months, consumers have become more optimistic about their countries emerging from recession with better job prospects and personal finances. This is another sign that global recovery is heading in the right direction,” said James Russo, Vice President, Global Consumer Insights, The Nielsen Company. “However, while purse strings may be loosening in some markets, there is clearly a big difference in the pace of expected recovery between the emerging and developed markets, and consumers’ increased confidence is not yet translating into a widespread readiness to start spending.”

While eight of the top 10 most confident markets in the fourth quarter of 2009 came from Asia Pacific, including emerging markets Indonesia (ranked 1st) and India (ranked 2nd), consumers in two of Asia’s most developed markets, South Korea and Japan, were the least confident. Brazil (ranked 3rd) and Canada (ranked 10th) were the only countries outside of Asia to make the top 10. Hong Kong recorded the highest consumer confidence increase for the second consecutive quarter in Q4 – up seven index points from 93 in Q3 2009 to 100 (on a scale of 0 to 200 Index points) in Q4. Confidence in Hong Kong rose a total of 21 points since June 2009.

Globally, between June and December last year, the Nielsen Global Consumer Confidence Index rose five points from 82 to 87.

For more data and commentary, download the complete Nielsen Consumer Confidence Index press release.

About the Nielsen Global Consumer Confidence Survey
The Nielsen Global Consumer Confidence Survey was conducted between December 4 -18, 2009 and polled over 17,500 consumers in Asia Pacific, Europe, Latin America, the Middle East and North America about their confidence levels and economic outlook. The Nielsen Consumer Confidence Index is developed based on consumers’ confidence in the job market, status of their personal finances and readiness to spend. The sample has quotas based on age and sex for each country based on their Internet users, and is weighted to be representative of Internet consumers and has a maximum margin of error of ±0.6%.

Norwegians posted the highest levels of confidence on the continent.  Almost two-thirds (64%) said that they thought their country was not in a recession, compared to 85 percent of European who thought their country was in recession (globally, the average was 64% thinking they were in recession).  The same percentage of Norwegians also believed that their job prospects were “good” or “excellent” in the coming year, compared to just 30 percent saying the same in April 2009.

More than half (51%) of Nordic consumers said that it is a “good” or “excellent” time to buy the things they want and need, compared to just 31 percent of Europeans and 37 percent globally.  Swedes and Danes have a fairly poor outlook on job prospects, while Finns are quite negative: 83 percent believe prospects for the next 12 months were “not so good” or “bad.”

As for consumers’ biggest concerns, children’s education and welfare was the key concern for Danes, while Finns and Swedes were most worried about the economy.  Perhaps a sign of the optimism found there, Norwegians said their health was their biggest concern over the next six months. Despite that optimism, almost half (47%) of Norwegians and Swedes said that they would put their spare Kroner into savings, while 41 percent of Danes would do the same.  Finns, on the other hand, said they would spend their spare Euros on holidays.

Read the full report.

Some key findings include:

Advertising: Some advertisers actually increased their ad spending during the first twelve months of the UK recession (July 2008 to June 2009).  Grocer ASDA increased its spending 40 percent during this period, while the government’s Central Office of Information boosted spending by 33 percent to back campaigns about the dangers of smoking and drinking, the HPV vaccine and swine flu.  Meanwhile, a number of big brands cut their ad budgets significantly: P&G was down 15 percent, Toyota off 57 percent and Tiscali, an internet service, down 92 percent.  With the exceptions of Audi and Seat, auto manufacturers all cut spending, from Hyundai (-6%) to Lexus (-66%).

Jobs: Total job vacancies – both online and in print – dropped from about one million in January 2007 to approximately 500,000 in September 2009.  The number of jobs in IT, secretarial, construction and sales has each fallen by more than 50 percent between July 2008 and June 2009.  Positions within education, social services and hospitals/medial have been the least affected, with the latter actually showing a year-on-year growth of around two percent.

Consumers: British consumers continue to be frugal when it comes to shopping. Two-thirds said that they planned to spend less on clothes, while 59 percent said that they are looking to save on gas and electric bills.  Both of those figures are a slight improvement from surveys conducted earlier this year.

“Despite some confidence returning, a legacy of the recession will be the desire amongst consumers to continue to spend less on both grocery brands and financial service products.  Many leading brands have adapted well to this change in consumer behavior to date, but the real test will be how they cope with this intent long term,” said Nikki Williams, UK Managing Director at Nielsen’s Media division.

Read the full press release.

With the nation seemingly emerging from recession, American consumers remain skittish about spending their money during this upcoming holiday season according to new research from The Nielsen Company.  Households continue to focus on “essential gift giving” such as staple consumables, candy, beverage/alcohol and entertaining at home, and 86 percent said that they expect to spend the same or less this year than last — with a 7 percent increase in those indicating they would spend less.  Overall, Nielsen is projecting that holiday sales will rise 0.03 percent this year, accounting for $90 billion in dollar sales.

“Given everything the consumer has absorbed over the past 12 to 18 months, the fact that we expect this coming holiday season to be flat in dollars can be viewed as a modest positive,” said James Russo, Vice President, Global Consumer Insights at The Nielsen Company. “Americans have undergone a fundamental change in how they spend their money, and the days of stretching finances to make purchases not deemed as necessary are over, at least for the time being.  That said, our research has shown that consumers are looking forward to loosening their purse strings a bit, but only once they feel more confident about the state of the economy and their personal financial situation.”

Update: James Russo Discusses Holiday Spending on CNBC

Other key findings from the research include:

• Traditional items such as apparel, toys and technology will be most popular categories, albeit at restrained levels and primarily sold in “value” channels.
• Products aligned with at-home entertainment such as cookware, kitchen items, bed and bath accessories and alcoholic beverages will do well.
• Gift cards are one category where consumers plan to spend more this holiday season, followed by toys and apparel.
• Value retailers such as dollar stores, online, discounters and club stores will attract the lion’s share of holiday spending as consumers minimize trips and search for the best values, while office supply, pet stores, home improvement and drug retailers are likely to feel the brunt of the economic slowdown.
• Some 20 percent of households said that they had no plans whatsoever to entertain at home or away from home during the holidays.
• Spending cut-backs are being driven by all income groups.

So how can retailers make the most of this season? They need to recognize that U.S. consumers are, first and foremost, seeking value and will start their holiday shopping well before Thanksgiving.  They should also reach out to their best customers and make them feel special and give them a reason to shop at their outlet during the season and into 2010.   Successful retailing has always been about delivering the right product at the right price and in the right place.  The difference now is effectively mining and communicating to the right consumer as an active participant in driving growth.

As a whole, Canadians are more likely to wait out minor illnesses and conditions before doing anything about them.  Almost two-thirds said that they wait to see if a problem gets better before taking OTC medications.  Ten percent of those surveyed said they never take non-prescription medications for minor ailments, preferring to tough things out, and some indicating that they believed that using these products could be harmful to their health. 

When illness does strike, 17 percent of Canadians take advantage of their medical coverage and visit their doctor for advice (compared with just 9 percent for Americans).  They also put a lot of stock in their pharmacist: 40 percent said that the advice from pharmacists was important to them when choosing an OTC medication, compared to just 13 percent in the U.S.

“Canadians can be classified as minimalists when it comes to self-medication, especially in tough economic times.  When we do reach for an OTC treatment, we normally rely on the advice of a pharmacist to find a medication that is effective, fast, safe and offers value for money,” said Carman Allison, Director, Marketing Communications at Nielsen Canada.

Read the full report.