About the Survey:

The 2010 Customer and Channel Management (CCM) Survey provides an up-to-date perspective on the practices of top-performing CPG companies across the following dimensions: sales strategy, pricing and trade investment, strategic customer collaboration, and complexity management. This year’s survey was conducted in spring 2010 and is produced in collaboration with the Grocery Manufactur­ers Association (GMA), McKinsey & Company, and The Nielsen Company. Approximately 220 CPG executives from more than 50 compa­nies with close to $160 billion in U.S. manufacturer sales—in the food, beverage, personal care, and home care categories—participated.

Despite the challenging economic environment in 2008 and 2009, winning CPG companies increased sales faster than their category peers while decreasing selling costs. Winners achieved these results by focusing their resources on high-growth channels such as dollar and discount stores as well as Walmart.

These players also strengthened their go-to-market models, developed winning and highly capable sales leadership teams, and tailored their account teams to address the needs of priority retailers. Last, top-performing companies captured efficiencies in warehousing and transportation that lowered their overall selling costs. The companies that won in sales strategy used multiple strategies to achieve these outcomes and to realize this growth.

Make big, forward-looking bets to unlock growth. The survey revealed that winners are seeking to solidify gains made during the crisis and preparing for even stronger performance coming out of this period; 70% of these top performers (versus 17% of others) are reshaping their go-to-market models. Accordingly, in the next 12 to 24 months, more than half of the winners plan to boost their field sales organizations and merchandising resources, and one-third of winning companies also plan to increase their use of brokers and to combine broker and retailer resources to reach more outlets.

To ensure that their bets are aligned with changing high-growth opportunities, winners continually evaluate resource investments by channel and customer. For example, in the past survey, winners invested heavily in a rejuvenated grocery channel. However, our 2010 survey reveals that winners have stopped expanding grocery resources and instead increased resources in the highest-growth channels of discount, club, and Walmart. For example, in dollar and discount stores 63% of current winners increased customer-facing resources in this channel while over half of others in their categories did not. Similarly, 89% of winners increased customer-facing resources at Walmart Stores, versus 64% of others.

Winners also report that they perceive higher-growth retailers such as Dollar General, Costco, and Kroger are more willing to collaborate with them. Moreover, top-performing CPG manufacturers pull multiple levers to build stronger relationships with key retailers. Not only do they make a greater resource investment in priority retailers, they also take a collaborative approach to growing a category or solving business issues, sharing mutually beneficial insights and data with their retail collaborators.

Build a strong sales leadership team, next-generation capabilities, and cross-functional collaboration. Winners ensure that they staff the right sales leadership resources to ensure future growth, emphasizing deep category expertise, customer knowledge, and a strong strategic perspective. Our survey also revealed that winning companies are constantly improving their team’s capabilities by investing in customer profit and loss (P&L) management, pricing analytics, and strategic collaboration. In contrast, their category peers are still working on improving basic capabilities such as financial analysis and marketing knowledge. In addition, winning CPG organizations report a high level of internal collaboration and more effective relationships between sales and other key functions including marketing, finance, and supply chain. In particular, collaboration between sales and marketing appears to be critical to winners.

Create customer-focused account teams as part of a winning sales organization. While all survey respondents deploy sales teams of similar sizes, winners’ teams have a high percentage of customer-aligned functional experts in areas such as pricing, category management, and trade marketing versus their category peers. As we have seen in the past, winners also tailor their customer teams to the unique needs of each priority retailer. In addition, winning CPG organizations report a high level of collaboration and more effective relationships between sales and other key internal functions including marketing, finance, and supply chain. In contrast, in the grocery channel, winners deploy more of these functional experts to support their retailers.

Obtain a free copy of the full report:  Emerging from the Storm: How Leading Customer Organizations Reignite Growth.

Retailers want to cultivate loyal shoppers. At the same time, CPG manufacturers want to make sure their products are available in the retail channels where their consumers shop. Nielsen research shows that those shoppers who use two or more retail channels spend more money – a lot more money. How much more do they spend? What categories benefit most from the expansion of the number of retail channels over the past decade? And how can retailers attract a greater portion of consumers’ shopping dollars?

Life used to be much simpler: the local drug store was the natural destination for cough syrup and cereal and frozen meals were bought at a grocery store.  Today, shoppers can take their pick of the number of locations they can find these or most any items. And while one-stop shopping is certainly a benefit for many consumers, Nielsen’s research shows that across 15 major categories from snacks and carbonated beverages to paper products and pet food, shoppers take advantage of the wide array of choices available to them.

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Multi-channel buying varies by category. Paper products is one of the most fragmented categories of the 15 examined; 83 percent of category buying households shopped two or more channels in 2009 for paper towels, toilet tissue, facial tissue and other paper goods. Conversely, about half of disposable diapers, coffee, vitamins and cough and cold purchases come from shoppers who shop for those categories exclusively in one channel.

On a dollar basis, the importance of dual and multi-channel category buyers is even more pronounced. For example, almost two-thirds (63 percent) of paper products category sales went to households who purchased them in three or more channels. In all categories examined, the majority of category sales come from households who buy in two or more retail channels. And all categories have significant sales from three or more channel buyers.

Big Spenders
Whether consumers opt to shop multiple retail channels for convenience or value reasons, the implication is clear: for retailers, competition comes not just from the rival store on the next corner, but also from the big box store across town or from formats close to where shoppers work or travel. To maximize sales, manufacturers need to make their products available in a wide variety of channels as multiple retail channel buyers are much heavier category buyers.

For the 15 categories examined, buyers who shopped in four or more channels spent from three to five times more than those who patronized just one retail channel.

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Multi-Channel Category Dynamics
A look at two specific categories illustrates the impact multi-channel buyers can have within a category as well as paint a picture of the competitive framework for retailers within a given retail channel. For the year ending September 11, 2010, grocery is the clear choice for most peanut butter buyers as 77 percent of buyers purchase peanut butter either exclusively in grocery (46 percent) or in a combination of grocery and some other retail channel(s) (31 percent). Mass and grocery buyers represent the second largest individual buyer group (16 percent of buyers), followed by mass only (13 percent of buyers). For non-grocers, the clear target is to build peanut butter sales from grocers, but grocers have a number of options to consider actions against other retail formats.

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In contrast, the channel overlap for toilet tissue is extremely fragmented. Mass merchandisers and grocery stores capture the largest portion of buyers, either exclusively or in combinations with other channels. Grocery stores are the exclusive destination for 19 percent of category buyers, followed by a combination of grocery and mass merchandiser buyers (16 percent) and exclusive mass merchandiser buyers (12 percent).

But the more interesting fact is how the club channel has become a significant player in attracting shoppers who exclusively buy their toilet tissue there: 10 percent of consumers only purchase the product at a club store, which means they are willing to pay a relatively larger amount of money to get higher value for a multi-unit club pack.

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The Takeaway
How can retailers maximize the share of their destination categories and build even bigger baskets by capturing trips going to competitive retail formats?

Grocers and drug retailers with loyalty card programs can leverage analytics to evaluate shopping baskets of individual shoppers and identify opportunities to discretely target promotions. Some grocers have linked total store purchasing with savings on gas purchases to create continuity-based approaches to drive shopper spending and loyalty. Warehouse club retailers use similar tactics against their membership file, while dollar stores and mass merchandisers continue to leverage value pricing.

For manufacturers, maintaining broad distribution is vital. For many types of categories, limitation to just one or two channels is a missed selling opportunity – something few can afford in this era of continual and intense competition. In lieu of just selling the same products to all retail partners, some manufacturers are creating unique channel or retailer specific product assortment to create points of differentiation for their retail partners.

Value has become a main focus for Asian shoppers, partly driven by the economic situation and partly as a result of increased retailer activity focused around price and promotions. According to Nielsen’s Asia Pacific Retail and Shopper Trends 2009 Report, more than 70 percent of shoppers claim to have become more price sensitive compared to last year. The effect: shoppers are more inclined to buy only what they need, spending their money on essentials rather than on treats or what they now consider ‘nice-to-haves’. They’re also consciously trying to cut down on the quantity purchased and are actively seeking out products on promotion.

Over the course of 2008 in Asia, grocery markets continued to show volume growth, led by India (+9%), China (+9%) and Vietnam (+18%), with only Taiwan (-7%) experiencing a decline in sales. Value sales increased by double figures in many markets on the back of high inflation for key food categories. But with inflation falling in all markets, we have seen value growth drop sharply in 2009, although overall volume growth in many markets has held up reasonably well with shoppers not cutting back significantly on grocery categories.

Traditional trade continues to lose share

As expected, the traditional counter service trade continued to lose share in Asia, with overall share of trade dropping another percentage point to 47 percent in 2008. At the same time, the absolute number of traditional grocery stores in the region grew by one percent to over 12.3 million stores. In most developed countries, traditional store numbers fell by five percentage points or more. In Korea, where traditional store numbers dropped by nine percentage points, the share of trade decreased from 15.9 to 13.9 percent, while in Taiwan the traditional trade now accounts for just over six percent of sales, having lost 1.5 percent share in the last 12 months.

The retail landscape looks very different in Southeast and South Asia, however, where traditional store numbers actually grew year on year, and even though share of total grocery sales continues to decline slowly, the majority of shoppers in all markets continue to shop at this trade channel. The traditional channel continues to meets shoppers’ needs for everyday convenience, personal service and affordability – being able to buy the smallest sizes and quantities.

Growth of small modern trade outlets

Globally, many large retailers such as Wal-Mart, Tesco and Carrefour have embraced a multi-format strategy that includes the development of smaller neighborhood stores. Similar growth in small modern trade outlets is also being seen across Asia, with mini-markets/small supermarket store numbers increasing by 17 percent in 2008 to over 100,000 stores.

Indonesia has led the way over the last 10 years and in 2008 more than 1,500 new stores opened, taking the total to over 10,500. These stores now account for more than 16 percent of total packaged grocery sales. Shoppers in Indonesia are continuing to embrace the convenient location, relatively good service and acceptably low prices offered at mini-markets.

Retailers in China are also investing in this store format, with store numbers growing by 22 percent in 2008 to more than 70,000 stores, accounting for more than three-quarters of all modern self-service outlets.

In South Korea we are also seeing the leading Hypermarket operators expanding into small supermarket formats, or ‘Super Supermarkets’ as they are known in South Korea. Samsung Tesco is now operating over 150 SSM Homeplus Express stores and E-mart is planning to open 30 or 40 small, 300 square meter E-Mart Everyday stores. The expansion of these large chains into the small store arena has led to concerns regarding competition with small store owners, and the South Korean government is considering introducing a bill to regulate the opening of small supermarkets.

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.

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.

The beginning of the year brought some surprising good news for retailers: retail sales (excluding automotive) rebounded in January and February.  While the figures were not earth-shattering – sales grew 1 percent and January and 0.7 percent in February – they were significant improvements on the last four months of 2008, where declines ranged from 1.2 percent to 3.1 percent.

Using data collected by the Nielsen Homescan Consumer Panel, we saw improved trip performance in the first two months of the year in most channels.  Exceptions were drug stores, which were affected by a weak flu season, department and toy stores.

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While we expect that March will be weak, due primarily to Easter falling later this year, signs seem to be indicating that we may be near a bottom of the economic downturn.  Data from the second quarter will be critical in determining whether renewed growth is on the horizon, or if we are in store for several more months of decline.

On a dollar volume basis, grocery stores continue to capture the highest percentage of consumer dollars, with 33.1 percent.  In Grand Rapids, Michigan, groceries capture almost 50 percent of the consumer spend, while in New Orleans grocery stores account for just over 20 percent.

Dollar Volume By Channel

Warehouse club stores are a major force in Western states, with the greatest percentage of consumer spend in San Francisco and Seattle.  In fact, of the top 10 markets for warehouse club store sales, nine are located in the west.  Meanwhile, warehouse clubs have the lowest percentage of share in Louisville and Columbus.  Across the U.S., drug stores capture about 3.8 percent of consumer spending, but in Cleveland, they make up almost 9 percent, while in Denver, they make up less than 2 percent.

Club stores skew to high-income households, while dollar stores, supercenters and drug stores attract a greater percentage of sales from lower income households.  Household has kids are more likely to spend their money at mass merchandisers, super centers and club stores.

The top three categories skewing to high income households are wine, diet aids and floral/gardening, while large households are buying disposable diapers, baby food and frozen juices and drinks. Seniors skew toward vitamins, medications/remedies and canned fruit, and households with teens skew towards sanitary protection, ethnic health and beauty products and gum.

In the last year, most channel penetration trends remained stable.  Supercenters saw the greatest increase, 2.4 percent on a year-to-year basis, while mass merchandisers saw the greatest decline, with a 2.9 percent loss. More interesting is a look at how channel trends have changed over the last 12 years:

Percent of U.S. Households Shopping: 2008 vs. 1997

“As consumers change their spending habits, both retailers and manufacturers are finding growth and profit opportunities by adapting their merchandising strategies to the changing retail landscape,” said Tom Pirovano, Director, Industry Insights at Nielsen.

Other subjects examined in Nielsen’s report were:

• Other channels (e.g., apparel stores, home improvement, electronics) and their average spend per trip
• Categories with the broadest appeal across demographics
• Categories with the highest buying rates and purchase frequencies
• Categories with the highest percentages sold with manufacturer coupons
• Food and beverage sales outside the traditional grocery channel

“Big Players Think Small in Format Fights,” an article in Consumer Insight by Todd Hale, senior vice president, Consumer & Shopper Insights with Nielsen, outlines how the economy is affecting retail channels and what some retailers are doing to attract new customers. For example, the key grocery chains are launching smaller stores in urban areas with a focus on packaged fresh food offerings. Tesco launched the Fresh & Easy format in 2007, with plans to open 200 stores by the end of 2009, while Walmart is fine tuning its own small scale pilot, with a strong fresh and private label emphasis with their Marketside format. Safeway opened The Market at Vons in Long Beach, while Supervalue opened a prototype called Urban Fresh in the Chicago area. The stores feature upscale inventory in bright, well-organized layouts with sampling stations near fresh sections, a robust private label offering and designed to appeal to both those who like to cook from scratch and those who like prepared foods.

“From alternative formats to alternative merchandising and assortment ideas, 2008 proved that a marketing opportunity lies behind every perceived market downturn. If big stores no longer make economic sense, downsize the footprint. If consumers are cocooning and watching movies at home, bump up your DVD catalog. When competitors co-opt traditional product lines, diversify by adding services that distinguish your format and build loyalty,” said Hale.

To read more about format changes, channel trends,. ad spending and other ways retailers are evolving with the economy, view the full article here

The participants were Todd Hale, Senior Vice President, Consumer & Shopper Insights, Nielsen U.S.; Jonathan Banks, Director, Retail Insights, Nielsen Europe; James Russo, Vice President of Marketing, Nielsen U.S., and; Jean-Jacques Vandenheede, Director, Retail Insights, Nielsen Europe.  Key themes were:

Consumers: It does not matter where consumers live – they share a common goal: to get the most for their money.  They are focused on value and are taking advantage of deals.  And they have re-focused on the essentials: “If you can’t eat it, you don’t need it.”  Higher incomes have not been immune: the shopping and spending habits of all income levels have been affected by the economy.

Retailers: As a result of this changed consumer behavior, food retailers are faring better than most others.  Private labels’ share is growing in many categories and in many countries, and offers an avenue of growth for many retailers.  In the U.S., Kroger has gone head-to-head with Walmart with matching prices on food basics.  Supercenters and dollar stores are also benefiting from the shift in consumer behavior.

Consumer product manufacturers: Brand development and innovation are more important than ever: “History tells us that really great brands have been launched in the middle of recessions where advertising can cost less.”  Manufacturers are struggling with determining the duration of the recession and how to plan for recovery. Opportunities will be found by aligning with evolving consumer behaviors such as fulfilling basic over discretionary needs, trading down and a focus on value.

Looking Ahead: Caution and uncertainty are the operable words.  Now is the time to plan ahead and develop an exit strategy out of a crisis. The biggest opportunities will be found by aligning with the deepening consumer behaviors that have been occurring since the beginning of 2008.  As the economy slows, these behaviors will intensify.

Read the whole discussion in the February issue of Consumer Insights.

• Market Index volume, in terms of unit and country currency change
• Retail channel shifting
• Shopping frequency and spending trends
• Overall consumer confidence

“Nielsen collects and analyzes data on tens of thousands of products around the world. As we were thinking of new ways to leverage this valuable resource, we thought it would be useful to summarize this information and create a monthly snapshot of consumer and retail trends across the globe. We expect that the Nielsen Economic Current will provide our clients and others with another valuable tool for evaluating these trends at both a macro- and microeconomic level,” said Todd Hale, Senior Vice President, Consumer & Shopper Insights at Nielsen.

In addition to global and regional components, the Economic Current will follow trends in eleven countries representing over 70 percent of Global GDP.  Countries were chosen based on their importance to the overall global economy as well as countries where Nielsen captures a broad set of consumer, retail and media content. The countries which the Economic Current will track on an individual basis are:

• United States
• Canada
• France
• Germany
• United Kingdom
• Italy
• Spain
• Brazil
• Russia
• India
• China

Over the course of the next week, Nielsen Wire will feature brief summaries on key sections of the latest edition of the Economic Current. In the months ahead, new editions of the Economic Current will be supplemented with podcasts by senior executives and analysts who will provide further insight on global consumer trends.

For the complete report, click here.