The way consumers shop for everyday products continues its transformation towards the Web. In 2008, online retail accounted for approximately 7% of total retail sales in the U.S, with 1.5% of consumer packaged goods (CPG) spending done on the Web.

In the future, your children will likely conduct the majority of their shopping online. While online shopping accounts for a modest percentage of today’s sales, it is growing rapidly – Nielsen estimates that online CPG sales alone increased 25-30% between 2004 and 2008. And there are compelling reasons to believe that growth will continue, as overall online sales are projected to increase almost 200 percent between 2008 and 2012.

Shopping Evolution Centers on Convenience, Choice and Value

Shopping has evolved along three dimensions, with each new phase increasing consumer convenience, choice and value – the three main reasons consumers shop online today. Online shopping redefines convenience and choice and equips consumers with unprecedented way to seek value.

Convenience – online is a simpler, faster, more hassle-free way to shop for frequently purchased products.

Choice – online offers more variety, which services like Peapod’s “endless aisles” clearly demonstrates.

Value – while value isn’t the primary reason most consumers shop for “everyday” products online today, it will become increasingly important as e-commerce becomes more mainstream. Tools to rapidly compare product prices already exist and online coupon sites have become the rage in the down economy.

Smaller, Niche Retailers Can Reap the Benefits of an Online Presence

Whether searching for solutions to a specific need, directly accessing retailer Web sites or deciding to click on an advertisement or link, consumers have far more control over what they are or are not exposed to online than offline. This offers smaller brands the opportunity to generate an online presence that is effectively larger than their big brand counterparts are, while serving up compelling messages and undercutting leading brand prices – all at the point of purchase.

Take the beauty care category as an example. Boutique retailers with fewer stores and lighter foot traffic than the large offline chains are as readily accessible on the Web as a Walmart or Target, which sometimes do not carry the leading offline beauty care brands on their Web sites.

What is interesting to note though, is that the online commercial challenge for leading consumer brands has less to do with the “long tail” than with the collapse of physical structures that literally help distance leading brands from smaller brands offline. It is not the number of brands available online that matters, but that there is less separation between them, which levels the playing fields, creating a flatter, broader marketplace for everyday brands.

To learn more about digital opportunities for leading brands, download Building Great Brands in the Digital Age: Guidelines for Developing winning Strategies.

Restraint will be the new mantra among consumers, according to the Nielsen Global Consumer Confidence Survey. But, that doesn’t mean they won’t start spending again in the near future.

Respondents to the poll conducted in April, across 50 countries making up 86 percent of the GDP, said they would continue to focus on fiscal responsibility. Yet, “they will allow themselves some of those little indulgences,” said James Russo, vice president, Global Consumer Insights. “Perhaps pent up demand will play itself out and they’ll take that vacation they put off, go back to casual dining and increase out of home entertainment activities such as movie going.”

In April, 56 percent of consumers said they were spending less on new clothes. However, only 22 percent said they would continue to do so with an economic recovery predicted by year’s end.

More than half (53 percent) also cut down on out-of-home entertainment, still only 20 percent said they planned to maintain this behavior. And, while 45 percent of respondents shied away from take away meals, only 24 percent plan on avoiding these more expensive meals moving forward.

Still, consumers clearly indicated that they would remain focused on savings past the recovery. “A whole new value system has emerged,” said Russo. “One of casual restraint. There is a focus on fiscal responsibility and budgeting, but that doesn’t mean there isn’t a market for indulgences. I don’t mean diamond jewelry, but moderation will be key and you may see consumers begin to trade up and move back to mainstream retailers.”

One behavior that will not change as drastically is trying to save on gas and electricity. Slightly more than half of respondents (51 percent) said they did so in April. Forty percent of consumers said they would continue to keep an eye on such services. The same holds true with the telephone company with 34 percent currently acting with restraint and 21 percent looking to do so moving forward.

Nielsen conducted a similar study in October and it proved telling. From Oct. 2008 to April 2009, consumers across 15 behavioral segments followed through on their plans to cut back on discretionary purchases while increasing levels of savings. For example, in April, most of the 40 percent of consumers who said they would delay upgrading technology followed through with their promise. More than a third (34 percent) said they’d use their car less-29 percent ended up doing so. And 33 percent said they’d cut down on vacations and delay replacement of major household items. In both instances, 34 percent of consumers actually did.

Nielsen’s Jeff Gregori Discusses the Impact of Dollar Stores in the Uncertain Economy

Dollar stores are small to mid-size stores that sell an assortment of CPG products, ranging from household cleaning products to food, usually at low prices. Originally taking their name from the fact that most products were priced at or below one dollar, today’s dollar stores offer products at a variety of price ranges, with an average of only 23 percent of products at or below the one dollar price point. Even so, the continued focus on comparatively low prices and value is drawing shoppers from all income levels. According to Nielsen, an estimated 65 million U.S. consumers shopped at dollar stores in 2008.
“The troubled economy and rising costs in healthcare, education, and food have caused everyone — even those with high incomes — to rethink where they purchase basic household goods,” said Jeff Gregori, vice president, Retail Services, The Nielsen Company. “Five years ago, shoppers weren’t sure what they would find in a dollar store. Today, dollar stores are delivering more consistent selection and value, and consumers are shopping dollar stores more regularly to fulfill their basic CPG needs.”

The Typical Dollar Store Customer
Despite the increase in spending among high and middle income shoppers, low income shoppers are still the primary dollar store customer. According to Nielsen’s research, 45 percent of dollar store sales are from low annual household incomes (below $30K), 47 percent from middle incomes (between $30K and $99.9K), and only eight percent from high incomes (greater than $100K).
The most loyal dollar store customers tend to have low incomes and live in small towns and rural areas or in urban centers. Senior couples, senior singles (particularly widows) and younger families with children are more likely to shop in dollar stores only occasionally, relying on other retail channels to meet the rest of their household needs.

A Destination for Everyday Goods
In terms of products, dollar stores have become a regular shopping destination for everyday household staples. Among those who regularly shop at dollar stores, the most commonly purchased household items include paper goods, such as napkins and paper towels, detergent, trash bags, and cleaning and laundry supplies. The most common edible items are candy, snacks and cookies.

“With more shoppers having positive experiences at dollar stores, there is a significant opportunity for dollar stores and CPG manufacturers to build loyalty and expand into new product categories, such as food and beverages and select health and beauty care,” said Gregori. “There is also a potential growth opportunity in exploring dollar store private label offerings in both edible and non-edible products.  The challenge for dollar stores and CPG manufacturers is to get the product mix right to meet the needs of their traditional customers as well as new customers with higher incomes.”

Travel And Spend

Nielsen Homescan panelists who favored Obama, tended to make more frequent trips across all outlets combined and in traditional retail channels, outmatched only by McCain voters when it came to trips to Walmart. While McCain voters may have made fewer trips, they typically outspend their Democratic rivals in terms of per-trip dollars.

Holiday Retail Outlook

While “hope” was a big theme of the Obama campaign, the results show that McCain voters are slightly more optimistic about holiday spending. Sixty-three pecent of McCain voters plan to spend same or more for the 2008 season, while 38% of Obama voters indicated that they would spend less. McCain voters also expressed more optimism about spending on entertainment inside and outside the home.

View sample data from Buying & Shopping Preferences For 2008 Voters.

“While private label products continue to follow the success of consumer packaged goods (CPG) manufacturers’ name brand introductions, more CPG retailers are making private label a priority with messages on quality as strong as messages on value,” said Todd Hale, senior vice president, Consumer & Shopper Insights, The Nielsen Company.

Price and Value Matter

According to Nielsen’s survey, price and value are paramount. Seventy-four percent of consumers believe it is important to get the best price on a product. Two-thirds (67%) of consumers agree that store brands usually provide “extremely good value” for the money while 35 percent of consumers are willing to pay the same or more for store brands if they like it. Just under a quarter (24%) of consumers believe that name brand products are worth the extra price.

“In today’s economy, consumers are looking for ways to save money and for many of them, that means taking a new look at private label products,” said Hale. “With more retailers offering satisfaction guarantees on private label purchases and even serving up blind taste testing and trial programs, consumers’ exposure to private label products has never been greater,” said Hale.

Rising Commodity Prices Continue to Drive Private Label Sales

Earlier analysis by Nielsen shows that an increase in private label dollar sales is driven primarily by rising commodity and food prices, particularly in staple categories that are dominated by private label brands and not in unit sales. However, a recent uptick in private label unit sales suggests that budget-conscious consumers may be starting to shift away from some established brands in search of better deals. Private label represents 16% of dollar sales and 21%of unit sales, indicating that branded products still capture the lion’s share of product category sales.

“Private label development varies greatly by department and we see strongest growth in products where private label has historically been strong,” said Hale. “Translating private label growth outside of commodity categories requires innovation — an area where CPG manufacturers, rather than retailers, traditionally excel.”

Private label products account for more than $81 billion in the U.S, up 10.2 percent over the past year.

Read the complete press release.