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.

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

“Mass merchandisers and grocery stores are feeling the impact of the supercenter,” said Todd Hale, senior vice president, Consumer & Shopper Insights for Nielsen.  “While the grocery channel has traditionally been viewed as recession-resistant, it is not recession-proof.”

That said, grocery stores saw some gains, helped by tens of thousands of convenient locations, prescription drug shifting from drug stores and gas promotion tie-ins from convenience and gas retailers.

To read the whole press release about retail channel trends, click here.

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.

Declines were especially steep during the last four weeks of the quarter, which saw the collapse of Lehman Brothers, the near-collapse of Merrill Lynch, and the government bailout of AIG.

Traditional mass retailers (excluding supercenters), department stores, and office supply stores saw the most dramatic declines in the number of shopping trips last quarter vs. a year ago.  Trips to mass retailers dropped by 9.1%, trips to department stores were down by 8.9%, and trips to office supply stores fell by 7.9%, Nielsen reported.

Retail channels offering low prices, strong value, and mostly “need to have” products — versus “nice to have” items — fared the best during Q3 2008.  Trips to online retailers (+7.5%), supercenters (+3.6%), and dollar stores (+3%), for instance, showed the largest increases, compared with Q3 2007.

More affluent consumers looking for bargains drove the growth in trips to value retail channels, while lower-income households adopted more drastic cost-cutting measures, eliminating shopping trips entirely, according to Nielsen.

U.S. consumers surveyed by Nielsen in late September and early October also reported having significantly less discretionary income than their global peers. 

Almost 25% of U.S. consumers reported having no spare cash after covering their essential living expenses.  In comparison, just over 10% of consumers worldwide reported a similar lack of expendable income.

U.S. consumers were also more likely than consumers worldwide to use expendable income to pay off debts, Nielsen found.  More than 35% of U.S. consumers reported using their spare cash for debt payments, while only 30% of consumers worldwide reported the same.

In early October, Nielsen’s holiday retail forecast estimated that 85% of U.S. consumers plan to spend the same or less on holiday shopping, versus 2007.

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

A recent Nielsen survey of 21,000 U.S. households found that 35% plan to spend less this year than they did in 2007.  Just 6% will spend more this year, while 50% say they’ll maintain the same level of spending from 2007.

Lower-income households reported large reductions in their holiday spending — but so did high income households.  In all, 37% of lower-income households are expected to cut back on holiday spending, as will 34% of higher income households.

What’s Hot?

Necessities — rather than novelties and luxuries — are expected to drive holiday sales this year, according to Nielsen’s research.

Toiletries, baby care products, food items, and gift cards for groceries, gasoline, telephone, and car maintenance are expected to see strong sales.

Practical, cold-weather apparel — socks, fleece jackets, and undergarments — and household goods, like cook books, bed/bath linens, and kitchen supplies are also expected to sell well in November and December. 

Among more affluent consumers, fireplace accessories, kitchen ware, family games, and other at-home entertainments will dominate sales. 

As in past years, DVDs, video games, mobile phones, books, and wines and spirits are also expected to generate a fair share of holiday sales. 

Although many consumers are curtailing their spending on out-of-home food, alcohol, and entertainment, sales of movie tickets, which remain an affordable luxury, are expected to stay strong in November and December.

What’s Not?Department stores and retailers of electronics, toys, home improvement supplies, and office supplies are likely to feel the brunt of the economic slowdown as consumers shift their purchases to more value-oriented retailers.   

Where’s the Action?Online retailers, dollar stores, grocery stores, supercenters, mass merchandisers, and club stores are expected to attract the lion’s share of holiday spending, as consumers seek to minimize the number of shopping trips they make — and find good values.

View in depth Nielsen data on consumer holiday spending projections.

Read Nielsen’s holiday sales forecast.

Go behind the numbers: read NielsenWire’s Q&A with James Russo, co-author of Nielsen’s holiday retail forecast.

Read coverage of Nielsen’s findings in Adweek, Media Post, Promo, and the Rocky Mountain News.

Submit questions about the report to Nielsen forecast co-authors, James Russo and Todd Hale, by commenting below.

NielsenWire recently spoke with the co-author of Nielsen’s holiday retail forecast, James Russo, Vice President of Food Sector Marketing, Nielsen.

NielsenWire: What is the forecast for 2008 holiday shopping season*?

James Russo:
All consumer, economic, and trade indications point to a flat-to-declining holiday selling season across the core consumer packaged goods (CPG) categories that Nielsen tracks. While we forecast, in dollar sales, a gain of 4.7% vs. a year ago, we also predict a decline of -0.8% in unit sales. This is directly tied to the current volatile economic environment, during which close to 33% of households across all income levels are projected to spend less this holiday season, according to a Nielsen Consumer Household survey conducted during the third quarter of 2008.  But despite this tough economic climate and slowing sales, there are opportunities for growth. Segmentation of consumers, channels, and categories will be critical to uncovering those opportunities.

NielsenWire: What might take marketers and retailers by surprise this season?

James Russo:
In the past nine months, consumers have found ways to cope with the current economic situation, as indicated by the following trends:

-”Trading Down,” whether from higher-end retailers and brands to value-retailers and brands, or from vacations to “staycations,” is the new norm.

-Consumer decisions are failing into either “necessary” or “discretionary” spending.

-At-home entertainment is resurgent.

-Consumers are seeking and responding to value solutions, as evidenced by the reemergence of coupon activity as an effective promotional tool.

Surprisingly, consumers are continuing to purchase Health and Wellness items, as evidenced by double-digit gains across products with antioxidant, organic, or whole grain claims.  Note, however, that consumers are increasingly purchasing these products from value oriented grocery stores, supercenters, and club stores.

Look also for a strong year from online sites (especially on Cyber Monday), superstores, and club and dollar stores.  Consumers are increasingly shopping at these retailers as they stock up and pursue value.

And although it is shrinking, there is still a consumer market for “affordable luxuries” and premium based consumption.  In this climate, “trading up” behavior will be less extensive, however consumers, especially during the holiday season, may opt to buy nicer bottles of wine, serve premium candy, or even purchase that new mobile phone. The challenge is to understand consumers’ motivations and shopping patterns at an increasingly local level. 

NielsenWire: What trends should consumers be on the look-out for this season?

James Russo:
CPG manufactures and retailers recognize the strategies that resonate with consumers – but, execution will be the challenge. We anticipate heavy promotional activity to drive traffic in a slowing economy, however, look for organizations to also tap into the increasing consumer desire for “at home” experiences.  This, more traditional holiday message will be delivered through advertising and marketing messages where retailers and manufacturers will push their value solution for consumers. It’s an opportunity for manufacturers and retailers to engage with shoppers, communicate their understanding of current financial pressures, and deliver their value propositions — all while securing brand and/or retailer loyalty. With over 2.5 billion customers ready to shop this season, according to Nielsen In-Store, manufacturers and retailers need to prepare for the challenges that accompany increasingly savvy consumers.

NielsenWire: How did you assemble this year’s forecast – what data did you look at and how did you analyze it to arrive at your final conclusions/predictions?

James Russo:
The Nielsen Consumer Industry forecast is different from any other industry forecast, as it is perhaps the most comprehensive. Our Business Consulting Group conducted an extensive analysis of 125 core CPG categories, in order to understand their current and historical trends during previous holiday seasons.  Then, they analyzed existing trends, along with current and expected economic conditions, to arrive at a macro-level result that delivers foresights to support our clients’ holiday and 2009 planning efforts.

NielsenWire: How accurate is this year’s holiday sales forecast?

James Russo:
It’s too early to gauge our forecast, but we are firm in our commitment to the findings and will be delivering mid-holiday period updates of our forecast, as well as insights in what consumers really think about holiday advertising.  Nielsen IAG, which measures consumer engagement with television programs, national commercials, and product placements, will also deliver an exclusive real-time summary of the most effective holiday commercials, with a focus on CPG categories and retailers.  Stay tuned on NielsenWire for these forecast updates.

NielsenWire: Looking beyond the key holiday selling season, what insights can you share that will assist marketers as they plan for 2009?

James Russo:
Millions of consumers are set to enter stores and shop online this season – they do so while grappling with historic levels of household financial pressures. The tactics and strategies CPG companies develop now, to weather the holiday retail season, will not only provide benefits in the short term, but also during the long term, as consumer behavior in the U.S. undergoes fundamental changes. It is our recommendation to utilize the economic slowdown as a time to build competitive advantage and secure your position going forward.  A few key points to keep in mind:

-Value is clearly the main motivator for consumer purchase decisions — whether it’s channel selection, product choice, functionality, or price. 

-Necessary vs. Discretionary spending will drive consumer decision-making.  Food, personal care and household basics – not nice-to-haves – will drive strong sales.

-Expect widespread “Trading Down”: consumers will move from higher-end retailers and brands to value-retailers and brands; from fresh segments to canned & frozen varieties.

-As manufacturers and retailers look to control shipping costs, a local sourcing trend will continue.

-Look for increased levels of at home consumption — whether in food or entertainment.  Products and Services that deliver on this messaging will succeed.

-New Usage patterns are emerging: skipping meals, washing clothes less often, watering down cleaning solutions, skipping medications or taking half doses.

These are unprecedented economic times, with unique challenges and opportunities.  Now, perhaps more than ever, the ability to understand your consumers and specifically what is driving their behavior will ensure success during the coming holiday season and beyond. The steps you take now will not only assure success in the short term but, more importantly, position your organization for long term growth.

Read Nielsen’s holiday retail sales forecast.

*Nielsen’s Holiday Sales Forecast includes sales during the eight weeks in November and December in food stores, drug stores, mass merchandisers, and convenience stores. 

Submit questions about the report to Nielsen forecast co-authors, James Russo and Todd Hale, by commenting below.

Record high fuel prices, soaring commodities costs, and declining consumer confidence have changed the way U.S. consumers shop, according to a recent Nielsen consumer survey.  

Results from the survey indicate that 63% of U.S. consumers have reduced their household spending this year. 

The findings also suggest that consumers will continue to combine shopping trips, eat at home, and seek out at-home entertainment.

Of those surveyed by Nielsen, 78% said they are combining shopping trips and errands — a 10% increase over last year.  Fifty-two percent of respondents reported eating out less — up 14% over last year, while 51% said they are opting to stay home more often — up 12% over last year.

Retailers and manufacturers serving lower income consumers are likely to feel the greatest impact, as these households make more drastic spending reductions. 

In contrast, private label products and low-priced branded products may actually benefit from consumers’ cost-cutting initiatives.  According to Nielsen’s survey, 35% of consumers plan to buy less expensive grocery brands — up 16% over a year ago. 

Online retailers, electronic stores, supercenters, warehouse clubs, dollar stores, and liquor stores all showed an increased number of trips in 2008, as shoppers sought out a mix of value, variety, and convenience.

View complete data from Nielsen’s “Gas Price Impact” survey.

Read more about private label sales in convenience stores.