In item posted here in March, I made the following statement:

U.S. consumers would certainly benefit from lower prices.  But retailers should be careful with how far they push their manufacturer partners to lower prices. If they simply push for lower prices without planning for the right lower prices, they may find it extremely difficult to grow same-store sales this year.

That article reviewed category retail unit price trends for the 4-week period ending 1/24/2009, which were up 5.5 percent across the store, but we were starting to see some sizeable price reductions in a number of commodity-price-driven categories.  Of the 123 studied categories, we found 11 with price declines of up to 12.4 percent versus the prior year.

But what a difference six months makes.  Since the end of January, unit prices have fallen rapidly.  For the 4-week period ending 7/11/2009, unit prices were up just 1 percent and the number of categories with price declines almost tripled to 30 categories.  Categories with the largest price compression include fresh eggs (- 24%), milk (- 19%), cheese (- 10%), diet aids (- 9%), baby needs (- 8%), fresh produce (- 7%) and shortening & oil (-6%).  None of these seven categories posted dollar sales growth and four of the seven saw dollar sales fall between 16 and 20 percent.

Consumer Packaged Goods Prices Have Dropped Sharply

July 2009 Unit Prices Up Just 1.0% Across the Store

Five of Seven Categories with the Greatest Price Increase Posted Dollar Sales Growth

My colleague Mark Laceky, Vice President of our Price & Promotion Practice, cautions retailers on price rollbacks, stating that price rollbacks reduce category sales as categories have far less price sensitivities than brands.  As price rollbacks are market-wide, there is no competitive advantage for individual retailers, so no inherent traffic gains are made.

These price cuts are providing consumers with exceptional value, but they are showing up in the form of weakening or declining department, category and same-store store sales trends for many U.S. retailers.  Just check out the latest monthly or quarterly same-store-sales trends for the leading food, drug, mass-merchandiser and warehouse/club retailers.  Retailer announced price reductions have been very common as of late, so don’t expect for the situation to improve in the near term.

“The fact is that the contamination was limited to one supplier, and none of the big name brands were affected.  Consumers seem to have gotten the message and resumed their usual buying habits,” said Todd Hale, Senior Vice President, Consumer and Shopper Insights at Nielsen.

62 percent of Taiwan’s grocery shoppers claim to have become more price-sensitive, while among females over 35 and low income households, that number rises to 75 percent.  One store, Post Exchange, has capitalized on this trend with its low price strategy. As a result, 17 percent of all Taiwanese shoppers spend the majority of their grocery dollars at the chain.

Brand loyalty for some categories has suffered: more than 60 percent of consumers would buy an alternative brand of biscuit, snacks, shampoos and laundry detergents if their usual brands were out of stock.  That said, vitamins and face care products seem to engender the highest levels of brand loyalty, with high levels of consumers saying that they would wait until their brand was available or locate it at another retailer.

Read the full press release about Taiwanese consumer trends here.

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

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

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

• Warehouse Clubs
• Supercenters
• Dollar stores

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

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

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

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

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

Growth (by value) of British food sales for the four-week period ending December 27 was up by 2.6% year-over-year overall and by 4.5% year-over-year for grocery multiples.

“The consumer was much more cautious this year, and it was a back to basics Christmas,” Mike Watkins, senior manager, retailer services, Nielsen, noted.  “Sales of packaged grocery (+11%), frozen (+10%), and confectionery (+8%) were buoyant, while sales of liquor (+4%), heath and beauty (+1%), and deli counter (+1%) were more muted.”

Overall, “Out of Town” super stores (25,000 square feet+) were the star holiday performers, with sales up by 8% in the two weeks ending December 27, according to Nielsen.  The data suggests that shoppers held back on Christmas shopping, waiting until last minute and then maximizing their spending at larger stores.

Among “Out of Town” retailers, Asda had particularly strong sales growth (+6.7%).  The chain increased its market share from 15.7% during December 2007 to 16.1% this December, according to Nielsen.

Morrisons also showed impressive growth (+9.1%) during the 12 weeks ending December 27.  The retailer increasing its market share from 10.1% during Q4 2007 to 10.6% for the fourth quarter of 2008.

“Retailers with keen pricing and a value for money offering have really performed well over Christmas,” Watkins noted.  “It is evident that consumers really did cut back on the luxuries and make do this year.”

View the full press release.

1. Take higher margins in less price-sensitive categories
Ranking categories based on purchase frequency is a fast and inexpensive way of identifying categories that are least sensitive to higher pricing.  Shoppers are less likely to remember pricing on products purchased only once or twice per year. For higher-priced products, however, shoppers are more likely to shop around for the best deal.

2. Lower the thermostat in stores this winter
Your customers will be wearing coats anyway.  This will save on heating costs while promoting a “green” image.  Retailers can post a sign on the front door, letting shoppers know how lowering the heat helps the environment.  Also consider turning down the air conditioning in the summertime.

3. Publish your own $100/week family menu
Supermarkets can create a weekly meal plan for a family of four to eat nutritious meals from easy recipes tied to key items. Look to your vendors for meal ideas or consider ways to promote your own store brands. Consider showing price comparisons to fast food restaurants.

4. Tie discounts to large or frequent trips
Why offer red-hot door-buster deals that do nothing to generate additional purchases?  Instead, consider offering hot prices for shoppers with a $100 purchase.  Supermarkets may consider a special deal for shoppers with $500 in receipts over the course of a month.

5. Expand beyond your channel’s traditional product mix
What’s stopping grocers from selling video games or electronics stores from selling snacks?  Convenience and liquor stores also have a huge opportunity to sell products appealing to men, like tools, gadgets, and video games. What’s more, grocers can take higher margins on “non-grocery” items, since shoppers buying electronics or clothes in supermarkets are looking for convenience and fewer trips — not always the lowest price.

6. Maintain competitive pricing in most frequently-shopped categories
Shoppers can recognize a high price on the products they buy weekly, whether it’s milk, bread, soda, or diapers.  To give the appearance of low prices, retailers need to keep these items priced competitively, even if those low prices are subsidized by less price-sensitive items.

7. Disguise store brands
Consumers can usually spot store brands positioned as a low-cost alternative to a national brand.  But in the past few years, savvy retailers are developing premium, multi-tiered store brands. Some retailers, like Walmart, downplay their store brands with different brand names for each department or category.

8. Support organic, natural and green products regardless of sales
The growth of organic products may slow during this economic downturn, but featuring healthy and environmentally sustainable products will help to boost a retailer’s banner equity.  Organic, natural, and green products project a positive image for retailers — and when the economy recovers, retailers will want to be known for more than just low prices.

9. Get shoppers to try premium private label products
No one will know if your private label salad dressing is as good as the national brands if they don’t try it.  Shoppers are creatures of habit, and changing habits takes some effort.  Offer trial sizes, $1-sizes, or 100-calorie packs.  Or, consider featuring one private label product each week with a free unit to shoppers spending $100.  Shopper taste comparison demonstrations in the store may also help to boost private label products.

10. Make a good impression on new shoppers
The struggling U.S. economy is significantly affecting how and where people shop, with consumers switching between both brands and retailers.  Now is not the time to cut corners on factors that will negatively impact shoppers’ experience.  Don’t let the checkout lines get too long, remove the used tissues and flyers from the bottoms of carts, keep the conveyor belt clean, and treat every shopper like it’s their first visit to your store.

Read more about how to cope during difficult economic times in “Consumer Insight.”

View the January 2009 issue of “Consumer Insight.”

Is the outlook any brighter for the new year?  Food marketing expert Phil Lempert, of SupermarketGuru.com, offers his take on what consumers and retailers can expect in 2009.

Nielsen Wire: How did consumer habits change in 2008 — and how should retailers adjust?

Phil Lempert:
In 2008 shoppers used more coupons, bought more store brands, and started using shopping lists again. I have little doubt that these “learnings” will stay with many of these shoppers through their lifetimes — the same way our grandparents who lived through the depression held on to many of the values learned through that experience. At the same time, shoppers have become smarter – they are reading more labels and asking more questions. They are also demanding better service and the chance to be heard, which is a new challenge for retailers who are trying to hold down payroll costs.

In a recent consumer survey we conducted for Readers Digest Entertaining Group, 72% of shoppers said that they will continue to use the shopping strategies they’ve discovered over the past six months even when the economy recovers. The rules have changed, and more than ever the consumer is the commander of the shopping experience.

My recommendation to retailers and manufacturers is to strengthen your relationship with your current customers and to reach out to new ones. People are nervous and looking for stability and accountability — those who offer both will win.

Nielsen Wire: How else are retail grocery stores adjusting to the struggling economy?

Phil Lempert:
With higher costs and lower available capital, many retailers will be struggling to keep their operations at an acceptable level (acceptable to both their shoppers and themselves). At the same time, many stores are in need of new technology at the front end in order to comply with the new extended bar code, as well as preparing for RFID compatibility.

The move to build smaller stores (10,000 – 15,000 square feet) – led by Walmart and Tesco – may be one solution. Significantly reduced overhead and employee costs allow this format to be profitable with much smaller volume (and may well prove to be exactly the format aging baby boomers, in particular, are looking for). The concept of having one superstore in a community, with dozens of satellite stores dotting neighborhoods will be tested over the next year, and I suspect it will be the winning formula in many locales.

Nielsen Wire: Other than prices, what factors will affect consumer choices in grocery aisles in 2009?

Phil Lempert:
In the same Reader’s Digest survey I mentioned earlier, 76% of people said they were bored with the foods they were eating and wanted more new products and recipes. Look for the winners in all categories to be those national brands that innovate (think Healthy Choice’s steamer line of frozen foods) or bring in new flavors (Budweiser Chelada) to satisfy convenience and flavor, while staying within the constraints of our new value equation.

Clearly, there has been a shift towards “local.” People want to know where their products come from — especially imports. Now, consumers expect packaged goods to identify their source, much as bottled water has done for decades. Hunt’s canned tomatoes, which are grown and packed in California, and ice creams that contain blueberries from Maine are just two examples of the transparency that will become increasingly common in grocery stores. Marketing the source, quality, and taste of ingredients will become the advertising sweet spot in 2009.

Nielsen Wire: How have advertising and marketing strategies changed for grocers in this economy?

Phil Lempert:
The old ad model does not deliver the sales or influence that it once did, which is why brands and retailers have moved on to new media that are less costly, faster, more targeted to produce, and instantly measurable. The medium is certainly the message these days, and the old mode ad vehicle simply doesn’t appeal to future consumers. Advertisers must think more holistically about their advertising — and forget the idea that buying time on the Super Bowl and producing a lavish commercial that is designed to appeal to all is little more than fodder for an episode of Mad Men.

I just had the opportunity to be a judge in the National Grocers Association Creative Choice Awards, and while I can’t reveal any of the winners until they are announced at their awards ceremony in February, I can tell you that independent grocers, with limited budgets in most cases, are doing some of the most creative and effective advertising during this economic downturn.

Nielsen Wire: But can’t chain stores just point to their prices, which are often better than smaller independent stores?

Phil Lempert:
Ads that only promote price may give a short term bump in sales, but the truth is that advertising that builds a relationship based on what a product or brand stands for and the benefits it offers the customer is more effective in building life-long value. 

My recommendation to chain retailers, in particular, is to examine what smaller grocers are doing with their ad budgets and websites. They may be shocked to find that these less glitzy and more personal ads are stealing their shoppers.

About Phil Lempert
Known as “The Supermarket Guru,” Phil Lempert is one of America’s leading consumer trend-watchers and analysts.  Lempert is the food trends editor and correspondent for NBC News’ Today show, where he reports on consumer trends, food safety, and money-saving tips. He is also a monthly columnist for Progressive Grocer magazine and Gourmet Retailer magazine, and is the host of the weekly new products webcast “5 New Food Products in 5 Minutes: The Hits & Misses.”

Overall in November, trips to retailers declined by 2.9% from the previous year.

Retail Channel Trends
Toy stores, electronics stores, and department stores saw the most dramatic declines in the number of shopping trips last month vs. a year ago.  Trips to toy stores dropped by 23%, trips to electronics stores were down by 21%, and trips to department stores fell by 17%, Nielsen reported.

Retail channels offering low prices and strong value fared the best during November.  Trips to dollar stores (+6%), online retailers (+4%), supercenters (+2%), and club stores (+1%) showed the only year-over-year increases in trip growth rates.

Private Label Trends
In October, value-minded consumers increasingly shifted their purchases to private label products, as the U.S. economy weakened.  Unit sales of private label brands grew by 5% in October — up from 2% growth throughout the past year.

Meanwhile, unit sales of branded products showed a mirror opposite trend, with growth declining by 4% in October after showing an overall 2% decline during the 52-week period ending November 1.  As the U.S. economy slipped further in the third quarter and continued to slide in the fourth quarter, unit sales of branded products worsened in every grocery department — except frozen foods.

In terms of dollar sales, private label products maintained steady 10% growth in October – a trend that has remained constant throughout the past year.  Private label alcoholic beverages, fresh and packaged meats, fresh produce, frozen foods, and dry grocery products saw the fastest dollar sales growth in October.

In contrast, overall sales growth for branded products slipped to 2% — down from 3% during the 52-week period ending November 1.  Although still growing, sales of branded dairy, deli, and fresh produce experienced the greatest declines in dollar sales growth.  Sales of general merchandise products dropped markedly in October and during the 13-week period ending November 1.

Given the continued weakening of economic conditions, Nielsen expects this behavior to intensify in December and into 2009.

Nielsen’s Tips For Manufacturers, Marketers, and Retailers
-Exploit new growth areas: consumer appetite for at-home products, basic necessities, and good values will only intensify.

-Don’t assume consumers are not willing to pay a premium: price is important, but delivering a clear value proposition is more critical.

-Protect your turf: manufacturers should work proactively with their retail partners on branded vs. private label shelf-set rationalization.

-Companies that maintain sales and marketing efforts during recessions typically enjoy better post-recession growth: now is the time to utilize advertising to build customer loyalty and differentiate your brand.

Stay tuned on Nielsen Wire for regular updates on U.S. retail trends and other key economic indicators.

Visitors to Apple’s site logged the longest average stay-times.

According to Nielsen, U.S. sales growth for whiskey and brown spirits is outperforming the growth rate of the overall spirits category in 2008.

Whiskey growth rates have been rising steadily this year, with whiskey dollar sales increasing nearly $85 million or 4.4% in 2008 — up from 2.3% a year ago.  At the same time, whiskey volume, while declining a year ago, is now showing growth.

In comparison, dollar sales growth for all spirits has largely remained unchanged. 

The brown resurgence is being led by Bourbons, which doubled their dollar growth rate from a year ago.  Gains from the Canadian Whiskey, Blended Whiskey, and Irish Whiskey segments have also boosted sales of brown spirits.

Despite the struggling economy, ultra-premium products, with an average price of approximately $45 per bottle, continue to record the strongest growth rates among brown spirits.

Outside the U.S., whiskey sales are also trending upward, with 12 other countries, including Venezuela, Russia, Netherlands, Poland, Mexico, Turkey, and Bulgaria, recording double digit growth.

Brown spirits include all whiskeys: Bourbon/Straight, Blends, Canadian, Scotch, Irish, etc., as well as Cognac/Brandy.  White spirits include Vodka, Gin, Tequila and Rum, even if such categories might include aged — and hence brown — variants.

View the media alert.