Frugal consumers continue to look for deals both in-store and online. At grocery, almost one-third of purchases are bought on deal and online visits to coupon and reward web sites are surging. It’s important to take note of the demographics behind the growing numbers of online deal hunters:  Consumers visiting couponing and rewards sites tend to be women, over the age of 55, residing in smaller households, without children and their household income skews toward the affluent ($100K+).

While beleaguered shoppers will be looking for ways to make the season bright, retailers can do their part by bringing some much needed holiday cheer to the shopping experience:

1. Tempt taste buds with in-store tasting and cooking demos.
2. Savor the smells of the season with aroma therapy.
3. Lighten moods with music from local school bands or choirs.
4. Touch the lives of others by collecting food bank donations.
5. Switch out in-store TV ads with broadcasts of holiday classics.
6. Reward frequent shoppers with holiday prize drawings.
7. Partner with manufacturers on donations to local charities.
8. Enhance the décor with holiday decorations.
9. Serve up a smile and an appreciative attitude.
10. Respect staff workers with reduced holiday hours.

As the Internet and social media continue to play a critical role in how consumer make purchase decisions, tune into the webinar, 2009 Holiday Season: What Consumers Have In Store for Retailers This Season on November 16 to learn more.

As we previously noted, consumers have re-embraced coupons as a way to get more for their money.  In the third quarter, year-to-date coupon redemption was up 26 percent to 2.4 billion redemptions, making it the fourth consecutive quarter of growth, according to new research from Inmar in collaboration with The Nielsen Company.  During 2006-2008, coupon redemption stagnated at 2.6 billion each full year.  Inmar, which provides logistic management solutions to retailers, wholesalers and manufacturers in the consumer goods and healthcare markets, is forecasting that 3.2 billion coupons will be redeemed this year, marking a significant increase over recent years.

But while food coupons have typically driven activity, non-food coupons for general merchandise, household items and personal care drove growth in the third quarter, up 45 percent over the same period last year (food items were up 26 percent over the same period last year).  While supermarkets remain the traditional coupon redemption channel, representing 64 percent of redemptions, the dollar/discount/variety and mass merchandiser channels are up at a faster rate.

“It’s clear that coupons have increasingly become an important way for consumers to save some money when shopping.  Digital coupons are driving a huge increase in redemptions but still represent a small percentage of distributed and redeemed coupons.  Meanwhile, freestanding inserts account for almost 90 percent of distributed coupons, but just over half of redeemed coupons,” said Todd Hale, Senior Vice President, Consumer and Shopping Insights at Nielsen.  “Moreover, coupon enthusiasts buy more products per trip and generally have a higher spend per trip in the grocery and supercenter channels.  The fact is, coupons can yield a significant return on investment, and savvy consumer goods manufacturers should seriously consider how they may be able to play a role in driving sales.”

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.

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“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.

SUMMARY: When the recession ramped up, retailers responded, passing along gasoline and commodity savings to shoppers, cutting prices to sharpen their competitive edge and leveraging EDLP strategies. Consumers also responded by clipping coupons and purchasing store brands to help ease the strain on the family budget. The net result: weak or declining sales on a department, category and same-store basis. Retailers should be highly selective about which categories get earmarked for price reductions in order to realize a sustainable volume competitive advantage.

Pricing these days is a balancing act. Cash-strapped consumers are pinching every penny and comparing prices across formats, forfeiting convenience for savings. Retailers have gamely responded by sharing cost concessions, but when retailers roll back prices en masse, two things happen: 1) no single retailer enjoys a competitive advantage from price cuts, merely maintaining parity with respect to traffic, and 2) category volume increases slightly, but not enough to offset the price decline.

Consumer packaged goods unit prices have nosedived in 2009. For example, as of March 2009, Nielsen research showed prices up 4.1% over the prior year, but dropping precipitously for the next few months as price increases ranged from just 1% to 1.9%. This stands in stark contrast to January results, marked by a 5.5% unit price increase across the store, more consistent with the aggressive 2007 and 2008 pricing patterns.

Handle with care
While food staples like cheese, milk and fresh eggs led the pricing pack in 2008, those price points proved to be highly perishable. Last year’s price leaders, according to Nielsen, became the biggest losers in 2009, with eggs scrambling to maintain profitability after a 23.8% price plunge to $1.63 per unit. A carton of milk sank 19.3% to $2.38 per unit, while cheese prices were shaved by 9.6% to $2.75 per unit.

Other poor performers among the 30 categories with the most dramatic unit price cuts were diet aids (slimmed down by 8.8%), baby needs (wiped out by 7.6%), fresh produce (a limp 6.5% decline in unit price), and shortening and oil prices (slid by 6.0%). Not a single category among those recording the greatest declines managed to eke out dollar sales growth. Conversely, five of the seven categories posting the greatest price increases realized dollar sales growth for the four-week period ending in July 11, 2009

Down, not out
Most economists agree that we can expect further contraction of the economy by approximately 2% for the remainder of 2009 and that waning consumer confidence will translate into less spending at retail and lower demand for manufacturers. The key to selectively—and strategically—lower prices is price elasticity of demand.

Nielsen research on pricing and promotion shows that most categories have a price elasticity much lower than -1.0, with most falling into the -.30 and -.70 range. For a sample category with a price sensitivity of negative .40, a price reduction of 10% converts into a unit sales increase of 4.3%, but a dollar sales decline of 6.1%. The recommendation then, is to be highly selective about which categories get earmarked for price reductions in order to realize a sustainable volume competitive advantage.

Clip it or click it
As retailers and manufacturers look to keep shoppers spending—and conversely, saving—they are leveraging ways to simplify the art of coupon clipping and clicking. Multi-tasking consumers are leveraging every possible vehicle for savings, with coupons enjoying an unprecedented resurgence. One reason is renewed reach and accessibility. Thanks to Internet, mobile phone and in-store kiosk distribution methods, coupon redemptions were up 23% for the first half of 2009, and redemption growth outpaced distribution, up by 20%. Key coupon activity stats from Inmar for the first half of 2009 show 188 billion coupons distributed and 1.6 billion redeemed.

The new generation of coupons reflects the immediacy of the media, with shorter expiration periods, fewer multiples and flat values. Food items represent the most active coupon segment and the 80/20 rule runs true to form: during the first half of the year—81% of units purchased with a manufacturer coupon were from just 19% of households. Both low and heavy coupon users have stepped up clipping activity, although all but the heaviest coupon user groups experienced negative total unit growth.

Winning numbers
Free-standing inserts (FSIs), a mainstay of the grocery channel, accounted for 89% of coupons distributed and 51% of coupons redeemed. The second largest category of redeemed coupons was electronic checkout at 10%, followed by instant redeemables at 9%, instant redeemable cross ruff (a coupon that’s on, or inside the packaging of, one product but good for another) at 6%, shelf pads at 5%, direct mail and handouts at 3%, in-packs and the Internet at 2%, and electronic discounts and in-ads at 1% each.

Internet coupon redemptions grew exponentially with a 308% increase over the prior year. Magazine on-page coupons (157%), instant redeemable cross ruff (177%) and direct mail (168%) enjoyed triple digit growth as well. While redemptions for FSIs were up 31%, only 0.5% of distributed FSIs were redeemed—a much lower redemption rate than what was experienced by all other forms except for magazine on-page coupons.

Well-heeled clippers
Coupon users represent an appetizing demographic comprising younger female heads of household (54 years old and under), larger households, and more affluent families ($70k+ annual income) who reside in areas designated as “comfortable country” or “affluent suburban spreads.”

Typically, coupon enthusiasts are frequent shoppers and bigger trip drivers who patronize most retail channels serving the consumer packaged goods industry. While non- and light-coupon users book bigger shopping trips—stocking up because of the lack of frequency—coupon enthusiasts represent the second biggest per-trip spenders in the grocery channel.

Store brands soar
In every downturn, there’s a beneficiary, and at grocery, it’s private label. For the year ending July 11, 2009, store brands hit an all-time high for dollar (16.9%) and unit shares (21.5%). Even as store brands continued to flex their marketing muscle in edible categories, they also racked up gains in the non-food, health & beauty and general merchandise departments. Lead brands—the number one or two brand when a store brand was the category leader—generally held their own against the onslaught of private label. Private label share gains were primarily at the expense of all other brands.

Store brand sales levels and growth are still skewed to edible categories, but store brand growth (not share) in non-food, health and beauty, and general merchandise departments has been generally stronger than brands. Store brand share development is greatest in commodity categories (e.g., milk and eggs) or those with little differentiation (e.g., first aid and pain remedies). As might be expected given their value positioning, store brand development lagged in categories with high levels of marketing support and those requiring high levels of innovation like beer, candy and health & beauty.

Accelerated development
What’s behind the surge in store brands? Which shoppers are most likely to purchase store brands at an account? Do their brand preferences differ by department or category? Shopper behavior across lead retailers within four different formats was analyzed, drawing on Nielsen consumer panel data.

Topline results reveal that the Kroger demonstrated the greatest—and most consistent—growth in store brand sales from low to very high spenders. Slower store brand growth was detected at Costco and Walmart, with Walgreens ringing up a second place ranking on store brand sales growth. In all four retailers, shoppers (even among very high-spend shoppers) are far more likely to seek branded offerings when shopping competitive retailers. Retailers need to understand if competitive shopping is driven by not having the right branded assortment in their stores or from competitors offering greater branded value or less store brand focus.

Walmart was the only retailer where their shoppers devoted a greater share of their total spend to store brands when shopping in competitive retailers.

While brands drive the majority of category dollar and unit sales, further store brand expansion is likely given the slow rate of economic recovery and the strong retailer focus against store brand label initiatives. Kroger, Walgreens, Walmart, SuperValu and other retailers have expressed the desire to expand store brand presence along with assortment cuts to reduce store clutter and improve store shopping experience. And retailer store brand focus has never been greater as there are better quality offerings, expanded assortment, and increased marketing muscle and support.

Small and mid-tier brands remain at risk from private label poaching as retailers push to shelve house brands. Unless these smaller brands are unique or niche brands, their manufacturers may initiate or expand into private label contracting or pursue direct-to-consumer options. In any case, these brands need to proactively leverage analytic insights to demonstrate why their brands are deserving of shelf space.

Tread carefully
A word of caution to retailers: don’t let price gaps between store brands and brands get so large that they drive declining category sales. While price decreases benefit consumers, both manufacturers and retailers would be rewarded with lower sales. And with more and more consumers turning to coupons in this tough economy, continue to make usage easier with increased distribution and delivery methods. Finally, promote store brands with brands where there is limited shopper overlap to drive category sales and along with non-competitive or complimentary branded offerings to build larger baskets.

SUMMARY: Four mega trends—convenience, Generation Y consumers becoming of age, increased broadband penetration and customization—have come together to fuel growth in the online grocery market. While the online channel is still small for the food and beverage sector, it is poised for growth. What are the key drivers behind the revitalized online grocery movement and how do consumers use the web, social media, and other online tools to plan purchases? Now is the time for retailers and manufacturers to maximize opportunities in this re-emerging market.

Since the early days of the Internet, companies have tried to capitalize on online grocery. Some have failed, some have held their own, but none have revolutionized the way consumers think about shopping for groceries. But now—almost a decade after the dot.com bubble burst—online grocery is beginning to show resurgence, powered not by venture capital dollars but by sustainable growth plans, broadband Internet and increasing consumer interest.

Online grocery shopping is poised for growth, currently at the intersection of four key mega trends:

1. Convenience—the growing need for convenience has already transformed the packaged goods industry
2. Generation Y—Gen Y shoppers are approaching grocery-buying age, and are comfortable doing so online
3. Broadband Internet—Almost two-thirds of Americans have broadband Internet access, making online grocery shopping easier and quicker
4. Customization—Digital platform allows online grocers to personalize the shopping experience

Poised for growth
With approximately $3.75 billion in online sales in 2008, online is a small but expanding channel for the food and beverage industry. Even though the majority of grocery shopping occurs offline—online purchases accounted for less than 1% of all food and beverage sales in 2008—on average, shoppers tend to spend twice as much online as offline when making food and beverage purchases.

Three variables lead to bigger basket sizes:

• Free shipping and minimum order requirements encourage shoppers to spend more
• Online grocery shoppers tend to be upscale shoppers and purchase expensive, niche products
• No heavy lifting—shoppers avoid lugging groceries

Shopper profiles
Two key differences distinguish the current online grocery shopper from their offline counterpart: income and household size. Online grocery shopping skews to upper-income “established” adults ($100K income per household) residing in smaller households (1-2 members) with no children. These consumers are more willing to pay the shipping fees and premium prices typically associated with online grocery shopping in exchange for the convenience and other benefits of online.

Time-starved large households, on the other hand, represent an untapped opportunity. Online grocers need to ensure that the process is easy and convenient enough to address the hectic lifestyles of large families.

Convenience drives satisfaction
While the majority (70%) of online shoppers reported having a positive shopping experience when purchasing groceries online, some attributes weigh more heavily than others as important drivers of satisfaction, as reported in a March 2009 Nielsen survey. The research revealed three key motivating factors that entice consumers to shop for groceries online: convenience, product selection and pricing.

Convenience—consumers like the ease of filling up a grocery cart with a click of a button any time of day, from any location. Online shoppers can stock up on staples without carrying heavy packages. Many online grocers offer automatic replenishment options so the consumer never runs out. Finally, online grocery shoppers avoid commuting, crowds, waiting in line, and inclement weather.

Product selection—virtual shelf space allows grocers to offer a wider product selection and in-depth product information, which is especially helpful for shoppers with dietary restrictions.

Pricing—comparisons are easier to do online, and running shopping-cart tallies help buyers stick to a budget and avoid impulse buys.

Frustrating fees and wait times
While shopping online has clear benefits, there are some barriers that impede acceptance. In the Nielsen survey, 65% of respondents indicated that the cost of shipping was the biggest barrier to purchasing groceries online. Additionally, a lack of control concerns some shoppers. Not only can shoppers not personally choose products, but waiting for the delivery can be perceived as countering the time-savings and flexibility of shopping online. Forty percent of consumers cited waiting for delivery as an obstacle. Other obstacles include issues with security/privacy (35%), not being able to use coupons (30%) and a perception of online as more expensive (30%).

Despite the clear benefits, many still consider online grocery shopping an indulgence—some who enjoy it seem a bit embarrassed, characterizing their decision to shop online as a form of “laziness.” As the market matures however, this perception should fade. And while most people are not accustomed to buying groceries online, this too will erode over time as Generation Y reaches grocery-buying age.

Lessons from abroad
The online grocery shopping market in the United Kingdom is more mature than that in the United States. Almost one-fifth (16%) of all British households have purchased groceries online in 2008—double that of American households. Similar to the U.S., online grocery shoppers in the U.K. tend to be more affluent. However, unlike the U.S., British buyers have larger, younger households.

Over the last three years, apprehension about online grocery shopping in the U.K. has shifted from fear of the unknown to practical matters. In 2006, the biggest barrier for British shoppers was not being able to personally choose products. This fear has decreased dramatically, and by 2009, the percentage dropped 15 points from 29% to 14%, providing a window of hope that U.S. shoppers will follow suit as the market matures. Similar to the U.S, the main concerns of British shoppers today include delivery charges and delivery time.

Successful endeavors
There are a number of initiatives that have worked successfully to boost the online grocery market in the U.K. One of the reasons online grocery shopping is more popular in the U.K. is the strong competitive market and heavy marketing support that is driven by four major national chains. Unlike in the U.S., British grocers use traditional media to promote their online shopping services—even creating ads that focus on a particular aspect of the shopping services, such as flexible delivery times.

Additionally, U.K. grocers are national chains as opposed to the mainly regional chains in the U.S., which facilitates ‘national’ pricing and makes it less confusing and easer to compete. Price wars between Tesco and Asda, for example, have driven price down and interest up. Another method used effectively includes the “switch and save” offer. Consumers are presented with similar product pop-ups offering much cheaper alternatives (usually private label brands), which have been known to achieve 40% click-through rates.

Importantly, distribution networks and availability of products have been greatly improved. British grocers are using online shopping to fill in regions where they have less brick and mortar stores. For example, Asda (owned by Walmart) has fewer stores in the southeast region and uses online shopping to fill the gap. Finally, customer service in the U.K. is strong, offering free delivery, allowing customers to choose delivery time slots, and using fewer bags to be environmentally friendly.

Making connections
The digital platform provides grocers with the unique ability to connect with and engage shoppers—value is not limited to grocers selling products online. From product selection to meal prep, shoppers are using the Internet as both an informational and inspirational tool. Online grocery shoppers are more than twice as likely as the average Internet user to read and post product reviews, download coupons, search for recipes online, and access the Internet through their phone.

Grocers can use their website to support the in-store experience by providing digital coupons, shopping lists, recipe ideas, advanced filtering by dietary needs, automated re-ordering and store availability searches. Mobile presents grocers with an additional touch point to engage shoppers via mobile coupons and grocery lists. Grocers need not be responsible for all content on the Web site; they can enlist manufacturers to maintain branded or sponsored sections of the web site. For example, a health-oriented brand could power a calorie counter on the grocer’s site, or an ingredient manufacturer might sponsor podcasts with celebrity chefs.

The bottom line is that online grocery represents a largely unrealized opportunity, but grocers must work to build awareness and establish the value proposition. The process needs to be easy and convenient, and online grocers must educate shoppers about the benefits in simple terms: buying groceries online saves time and money—two considerations that every shopper is looking for.

Download: Nielsen Online Grocery Report [pdf]

SUMMARY: Retailers in the U.S. are expected to decrease the assortment of items in their stores by 15% on average over the next year. Do store brand items fit in to this new vision of de-cluttering the store? While the development of store branded items in the U.S. has consistently outpaced branded items in growth rate, assortment growth obtained through acquisition of branded item shelf presence in certain categories can lead to an overall decrease in category sales.

In an industry where retailers are dramatically changing their go-to-market strategy by trying to do more with less—simplifying their stores and revamping the center store—are store brands exempt from consideration? According to a recent Wall Street Journal article, the nation’s largest retailers are expected to decrease the assortment of items in their stores by 15% on average over the next year. Even big box stores such as Walmart are putting the pressure on manufacturers to simplify their offerings—in some cases, by as much as 30–40%. A question that manufacturers are afraid to ask is: how do store brand items fit in to this new vision of de-cluttering the store?

Industry experts are finding that using one universal assortment strategy when managing store brands across all categories is not as productive as setting a strategy by category. Within certain categories, the assortment of store brand items could be exempt, expanded, or even contracted in the pursuit to simplify the shelf while simultaneously growing sales.

Room to grow
Historically, store brand items were considered lower quality compared to their brand name counterparts and were sold at a lower price point. However, companies have started to market higher quality store brand products in order to boost in-store presence and consumer awareness. As Paco Underhill notes in his book, Why We Buy: The Science of Shopping, “Today we have the contradiction of generic brand names, store-owned brands that are packaged to look as luxurious as anything else on the shelves.”

In a typical U.S. pantry, there are 20 or more store branded items. Compared to many European countries where store brands make up 20–30% of dollar value share per store, store brands in the U.S. have significant room to grow. The development of store branded items in the U.S. has consistently outpaced branded items in growth rate. In the past year, store brands have grown by approximately 10% in dollar sales, compared to only 2% for branded items, suggesting that consumers are switching over to a store brand alternative.

To expand or not to expand
Traditionally, the three primary drivers of store brand growth have included:

• Increased brand equity and product quality
• Price advantages over national brands
• Expanding selection and offerings in an increasing number of categories

While expanding selection is a valuable growth driver, it is important to note that assortment expansion can have unseen opportunity costs that negatively affect consumers and their desire for selection. In some cases, assortment growth obtained through acquisition of branded item shelf presence can lead to an overall decrease in category sales. Retailers can grow their store brands, but if they push their selection too far, research has shown that consumers will buy less of a category and they will seek their branded equivalents elsewhere. This is especially true when manufacturers have created significant brand equity and product differentiation.

Less is more
While store brand items make up roughly 10% of the assortment on shelf, they achieve over 20% of the dollar sales of the store, on average. They are turning at a rate that is well over two-to-one. Consumers don’t necessarily require a wide selection of store brand items to satisfy their needs. And in some instances, growing store brand items further could actually cannibalize branded items on shelf and hurt sales.

Retailers have historically targeted the medium- to high-marketed categories—such as cookies, cereal, tooth paste, etc.—for expanding their assortment of items. These larger, multi-billion dollar categories typically represent the best opportunity for retailers to capture share and drive the growth of their store. However, a Nielsen assortment benchmark study reveled that consumers desire more choice within national brands than store brands for most categories. While it is true that consumers do want store brands, they just don’t require every flavor or size iteration that exists in the branded equivalence.

Retailers should focus more on ensuring they have the correct out-of-stock requirements for their top items instead of launching many additional store brand SKUs. The key to growing store brand sales is being strategic and hitting the right categories.

Category contenders
A store brand’s strength has been linked to manufacturers’ shortfall of marketing investment. Instead of expanding store brand assortment aggressively across all categories, retailers should increase the selection of store brand items in parts of the store where manufactures have eroded brand equity. Within low-marketed categories like milk, flour, tissue, foil, bottled water and tea, demand for store brand selection has increased. These categories offer retailers the immediate opportunity to capitalize on marketers who haven’t invested in attracting consumer’s attention to their brands.

Achieve more with less
While this may seem counter intuitive, retailers should consider cutting their own selection in favor of national brands in some categories to bring consumers to their stores. Having the appropriate balance of store brand items in each category not only satisfies consumer demand for store brand and branded items, but allows production costs/profits to remain manageable for the retailer.

As a cost-saving measure, consumers will typically trade down to an economy or store brand item. However, when there is a high level of manufacturer marketing support, a wide selection of store brand items are not needed to fill consumer needs—retailers should be aware of this potential trap. When it comes to increasing category conversion and driving consumer traffic, knowing where to offer a limited selection of store branded items is just as important as knowing where to expand store brand offerings.

Future growth drivers
Store brands are going to be hugely important and significant drivers of growth for retailers in the foreseeable future—especially within the low-marketed categories as the chart below indicates. One reason why store brands will have continued success—even as the economy improves—is likely due to Walmart’s renewed focus around their Great Value brand.

Undeniably, there is increased value for a retailer to carry store branded products on their shelf. However, knowing what consumers desire and deciding how to manage assortment and variety of offerings will ultimately determine the success of a “less is more” strategy.

Retailer Do’s/Don’ts

• Do expand the selection of store brand SKUs in categories where manufacturers have eroded brand equity.
• Do select credible suppliers and hold them to a high standard. The growing consumer perception is that some store branded items are as high quality as branded items.
• Don’t expand the selection of store brand products in categories where manufacturers have very strong brand equity.
• Don’t push wide store brand portfolios in categories where many marketers have really differentiated brands.
• Don’t de-list niche national brand items or high-penetration items, driving consumers to another retailer who carries them.
• Don’t let price gaps get so large that category sales decline.

Trade promotions include products featured in ads and in-store circulars, products displayed on end of aisle caps or away from their normal self location and products with temporary price reductions.

“Although we shouldn’t be surprised by an increase in promoted sales during a recession, it’s stunning to see an additional 1.3 billion purchase decisions being influence by in-store promotions,” said Tom Pirovano, Director, Industry Insights at Nielsen.

Other key findings from Nielsen’s study:

• Chicagoans buy the most on promotion, with 55.9 percent of products sold on promotion, followed by Phoenix, Oahu and Indianapolis.
• San Antonio, Oklahoma City/Tulsa and Birmingham have the lowest promotion sales.
• Impulse purchases such as ice cream, crackers and carbonated beverages sell the most on promotion.
• Conversely, magazines, ice and tobacco sell the least on promotion.

In other promotional activity, Nielsen found that coupon activity – -which has seen a strong resurgence among American consumers over the last year – was highest is disposable diapers (21% of which were sold with a coupon), dough products (14%) and sanitary protection (12%).  By measuring the average number of units purchased per trip, Nielsen identified canned cat food, baby food and canned dog food as the best candidate for buy-one-get-one (BOGO) promotions. This same measure found that coffee makers, baking powder and dishwasher rinse aids are the weakest categories for BOGO promotions.

“The key for consumer product manufacturers is to set goals for each trade promotion, and then measure the results to determine which promo events are the most efficient and effective,” said Pirovano.  “Retailers who can drive their feature ads with the right mix of products, price points and display support will have success with both their vendors and shoppers.”

But just one year later, gas prices have fallen considerably.  In June and July of 2009, the average price per gallon for regular gas was between $2.50 to $2.62.  According to the seventh update to Nielsen’s gas price impact survey, lower gas prices have loosened up consumers’ behavior, although not to pre-2008 levels.  For example, 71 percent of respondents said that they were still combining errands and trips in an effort to save gas – down from a year ago, but still above the 68 percent who said the same in 2007.  Another 44 percent said that they were doing more things at home, down from 51 percent in 2008 but still higher than the 39 percent in 2007.  One area that consumers have not yet rushed back to is eating out: 52 percent said that they were eating out less, the same as 2008, and well above the 38 percent who said the same in 2007.  Meanwhile, carpooling has dropped, with just 5 percent of respondents indicating that they were sharing rides, a decline of two points from 2008.

While some behavior seems to be returning to pre-2008 patterns, it’s clear that consumers are still adjusting behavior, due in part to gas prices.  One-quarter of U.S. households are buying gas at locations because of incentives tied to spending levels at a grocery store where they shop.  They continue to buy less expensive grocery brands, and shop at supercenters.  As we highlighted previously, the use of coupons is high, with 38 percent of respondents indicating that they are using more coupons.

“Compared to last year, the price of gas was low this summer, making it one less thing consumers had to worry about as they grappled with issues such as job security, retirement, putting kids through college and making mortgage payments.  That said, with economic recovery beginning to take hold, it will be interesting to see if consumer behavior shifts considerably as they feel more confident about their circumstances,” said Todd Hale, Senior Vice President, Consumer & Shopper Insights at The Nielsen Company.

Nielsen started conducting the Gas Impact Survey in July 2005.  This year’s survey had more than 63,000 respondents.

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.