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.”

“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.

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.

Eighty-one percent of the units purchased using manufacturer coupons came from just 19 percent of U.S. households during the twenty-six week period ended June 27, 2009.

The most avid users, called “coupon enthusiasts,” are households that purchased 104 or more items using manufacturers’ coupons. The 10 percent of shoppers that fall into this category accounted for 62 percent of manufacturers’ coupon units. They also accounted for 16 percent of total unit sales making them a very attractive and important consumer target.

Still, the recession is driving heavier coupon usage among all types of consumers as many lighter users have become heavier users. After three quarters of declines in 2008, coupon redemptions spiked 10 percent in Q4 2008, per Inmar. This was followed by a 17 percent increase in Q1 2009 and a 33 percent surge in Q2. This tally includes FSI’s, on-pack offers and Internet coupons but excludes retailer coupons.

Inmar also reported that more and more consumers are using coupons for both food and non-food items. In Q4 2008 non-food redemptions were -3 percent. However, in the second quarter of this year redemptions for non-food items were up 46 percent. Food coupon redemptions were +21 percent in Q4 2008 and increased 27 percent in the second quarter of 2009.

“Without question, coupon usage is undergoing a renaissance,” said  Todd Hale, Senior Vice President, Consumer and Shopping Insights for Nielsen. “More consumers are looking for value and lower prices as retailers and manufacturers are distributing more coupons and making it easier for consumers to leverage technology to access coupons they want with less effort.” Overall, 1.6 billion coupons were redeemed in the first half of 2009.

“These findings from Nielsen suggest that the increased coupon usage we’ve seen this year not only helped consumers stretch their budgets but also provided meaningful sales impact to manufacturers and retailers,” said Inmar’s Matthew Tilley, Director of Marketing. “Coupons have always been an effective way to encourage trial and repeat purchase and are proving to be a bright spot in an otherwise dreary economic environment.”

Todd Hale, Senior Vice President, Consumer and Shopper Insights, The Nielsen Company

SUMMARY: Healthier lives and healthier budget practices may be two positive outcomes from these tough economic times, but budgets are winning over healthier fare. U.S. shoppers have re-examined their buying habits, trimmed down shopping lists, downloaded coupons, opted out of pricey goods and downshifted to less expensive product and channel alternatives to stretch their dollars. Convenience remains a top priority, but store and shelf locations—while still vital—is slipping as value continues to gain shopper focus. Retailers and manufacturers responsive to demographic changes like the growing elderly and Hispanic population segments will be well positioned for future growth.

The homefront has become the battlefront in the consumer’s war against shrinking incomes and budgets. Home-cooked meals have replaced restaurant dining. At-home beauty treatments have displaced salon and spa visits. Pantry shelves feature a raft of store brands vs. national brands and savings passbooks are making a rapid comeback. Black—as in black ink in the checkbook—is the new fashion accessory.

While much has changed this year—near-term trade-offs are numerous and varied—some prevailing trends still hold true. On the health and wellness front, U.S. consumers are still looking to lead healthier lives, but economic pressures have led to a decline in “better-for-you” foods and sales of prescription drugs have taken a hit. It will take new learning and more marketing muscle to win and compete in this space. Convenience is still important and will continue to dominate purchasing decisions—from easily accessible store locations to handy heat-and-eat food products—consumers are looking for solutions that save time and money.

Demographically, an aging population and a growing ethnic influence will change the face of the U.S. market and new resources will need to be directed against these consumer groups. Additionally, shifts in spending power or wealth will likely continue to create a large group of consumers whose ability to spend freely will be challenged for many years to come.

Valuing value
A quick look at store counts says it all—consumers are placing a new emphasis on value and patronizing channels that deliver. As a result, Nielsen Trade Dimensions and TDLinx saw store counts soar for supercenters (+107%), dollar stores (+54%) and warehouse clubs (+31%). Dollar stores alone added 7,102 stores between 2001 and mid-2009. Although convenience store numbers for the period were up by 19,556 outlets, over 2,200 convenience stores have closed since the end of 2007, reflecting less traffic and profit from higher gas prices and the impact of big box retailers like Walmart, Costco and Kroger installing on-site pumps.

In the mass merchandise channel, Target continues to lag behind Walmart’s conversion of regular locations to supercenters, but Target has been aggressively expanding their food sections to offset losses from declining discretionary purchases. The death knell rang for small, independent drug stores in the wake of aggressive acquisition and store expansion campaigns by Walgreens and CVS.

While the grocery store count rose 5%, this tepid growth rate paled in comparison with value channels. Trip count decreased as well, further compounding profitability issues for some, but not all grocers. Growth in niche grocery formats from Aldi, Save-A-Lot and Trader Joe’s has been on a tear as combined store count has grown from 956 stores to 2,771 stores by mid-2009.

Economic pressures resulted in declining store count in the drug, grocery and mass merchandiser channels from the end of 2008 to mid-2009. And many major retailers have laid out less aggressive store expansion plans in the next couple of years.

Variety wins, but…
Consumers continue to vote for variety by pursuing their channel options to category killers like pet stores, bookstores, office supply outlets, hardware and home improvement retailers and liquor stores, but store counts are down from the end of 2008 for all channels but pet. Toy stores continued a rapid decline in store count with the closing of 460 KB Toy Stores and electronics shops lost ground as Circuit City closed all 567 stores, countering the growth trend with store closings.

Food fight
Interestingly, the dominant force in toy retailing—Toys R Us—chose to broaden its merchandising footprint by expanding the consumables section in 260 of 600 stores. Grocery competition is dictated in large part by the actions of the central player, Walmart, whose sales of $146.3 billion in like grocery items almost equal the combined sales of the next four largest chains—Kroger, Safeway, Supervalu and Ahold at $152.8 billion.

A number of convenience store operators are seizing the moment to grab declining restaurant sales by expanding their food offerings to include fresh produce, prepared salads, and ready-to-eat and heat-and-eat assortment. If you haven’t made a trip to a convenience store lately, check out what is being served up at 7-11, Sheetz, WaWa, BP and other operators.

Right sizing
Tesco issued a challenge to U.S. retailers when it introduced the Fresh & Easy format in the southern California, Phoenix and Las Vegas markets in 2007. This forerunner of a downsized format encourages walk-up traffic, serves up lots of fresh options—including flowers produce, meat, poultry and seafood—tickles the taste buds with a tasting station in the rear of the store, features an appealing store brand line and dishes out a wide array of prepared meals for busy people.

Walmart took note and apparently is poised to launch a counteroffensive with its own slimmer format—the 15,000 square foot Marketside banner—roughly half the size of the smallest Walmart store. A four-store pilot debuted in the Phoenix area last year, and although the economy has stalled expansion plans, the company intends to leverage the Marketside name in a line of store brand goods.

Other grocery retailers like Giant-Eagle, Safeway, and Supervalu are experimenting with their own version of small grocery formats, but it will be interesting to see how the battle between small, large and supersized grocery formats continues.

Coupon action
Coupon clippers unite! Once a staple of any prudent shopper’s routine, coupons fell out of favor, dropping from a 1999 high of 4.6 billion redemptions to a low of 2.6 billion by 2006 and holding steady at that rate through the end of 2008. As wallets lighten, consumers have decided to re-think their position on coupon clipping, or in a Web-enabled world, downloading the offers. Beginning in the fourth quarter of 2008, coupons have registered big gains, starting with a 10% upswing in Q4, followed by a 17% uptick in Q1 of 2009 and a 33% jump in Q2.

Increased coupon activity can be traced to the combined effect of increased redemption rates and increased distribution for both food and non-food items. While freestanding inserts account for just under 90% of distributed coupons, online represents the fastest growing method for redemption. Most retailers now allow shoppers to print coupons from their websites. Kroger and Safeway both use Cellfire, a company specializing in mobile coupon distribution, to enable shoppers to download coupons to their frequent shopper cards via a computer or cell phone eliminating the need to bring coupons to the store.

Dining in
Dining out is on the outs. In 2007, a study of 32 national restaurant operators found that 20 reported same-store gains averaging more than1% for the year. Fast forward to 2008, and the reverse holds true. Fully 30 of 32 operators reported same-store losses averaging -8.2%. Nielsen tested the waters in April 2009 and found that the more affluent segment of adult consumers earning $70+K per year were eating out less often than the national average, opening up opportunities for grocers to deploy assortment, pricing and promotional programs targeting this wealthy segment.

When it comes to retail trip activity across the board, Nielsen shows online shopping is demonstrating real staying power. The retail formats taking the biggest hit as a result of belt-tightening are those which rely on discretionary trips, like toy, electronics and department stores.

Eat it or beat it
If consumers can’t eat it, they’re deciding they don’t need it. A quick glance at edible department sales versus non-edible categories says it all. While meat (what’s a meal without meat) led the pack with a 9.7% dollar sales increase for fresh offerings and 6% gain for packaged items, general merchandise lost ground with a -5% dollar sales decline and health and beauty aids barely moving the needle with a 0.1% dollar sales increase.

Softness in the most recent measured quarter was driven by price cuts as retailers passed on savings from falling commodity prices (in categories like milk and eggs) and dropped other prices to be more competitive with value retailers. A “watch-out” for 2009 is how these price cuts will impact retailer same-store sales trends. Dollar sales declined overall, but quarterly unit sales showed improvement versus the most recent year in every category except alcoholic beverages, packaged meat and general merchandise.

Killer categories
Back to basics was the rallying cry of shoppers, one supported by unit sales growth patterns. Canning and freezing supplies jumped 18% for the year ending in July 11, 2009. Also posting impressive growth rates were seasonal general merchandise at 8.3%, fresh meat at 6.2%, wine at 5.6%, dry mix prepared foods at 5.2%, pasta at 4.2%, baking mixes at 3.8% and vitamins at 3.7% (nothing like a little self medicating in a down economy).

The brand wagon
National brands still account for the majority of dollar sales, but as in past recessions, store brands are growing at a rapid pace. Retailers have jumped on the house brand wagon, looking to capture a larger share of profits. Nielsen data for the most recent six (4-week) periods ending July 11, 2009 show store brand sales increasing by an average of 5.8%; at the same time, national brands lost 2.2% of sales. Brands sales are showing some resilience in the last four periods as many manufacturers have stepped up their promotional support to negate any further losses.

Store brand development varies by department, and is particularly strong in the dairy, deli and frozen arenas where the store brand action began. Buyers can anticipate more and broader store brand entries.

Target has reaffirmed its store brand commitment with a huge investment in a refreshed product line renamed “Up & Up”. Both A&P and Kroger have expanded their store brand offerings to target children, infants and toddlers. With Walmart announcing expansion of their Great Value brand, it will be interesting to see if retailers will be able to turn the tide following this recession by showing continued store brand growth. Since a return to consumer normalcy is not likely to come soon, consumers will have lots of opportunities to add more store brand offerings to their regular portfolio of branded goods.

Recession fundamentals
Back-to-basics is the byword for cautious consumers re-focused on value and values. Savvy retailers are revamping the concept of meal solutions, organizing shopping lists, developing recipes, and creating house brands that respect the value of a dollar while promoting the value of home-cooked, family meals. Premium and discretionary brands will need to meet the challenge of an increasingly demanding shopper base, and give consumers a reason to buy. Collaborative efforts between retailers and manufacturers on store brand and branded assortment, promotions and pricing will be the new norm.

Increases in wine and alcoholic beverages indicate that consumers are opting to consume their favorite beverage at home too. At the same time they are continuing to avoid discretionary items, according to the latest monthly update of U.S. Retailing & Consumer Trends from The Nielsen Company.

The non-edible departments were the greatest contributors to an overall 1.2 percent unit sales decline at food, drug and mass-merchandisers, during the 52-week period ending July 11. General merchandise categories suffered most with a decline of 7.9 percent. Non-foods dropped by 3.8 percent and health and beauty aides by 3.5 percent.

Canning and freezing supplies saw the greatest unit sales increases at 18.1 percent followed by seasonal merchandise (8.3 percent), fresh meat (6.2 percent), wine (5.6 percent) and dry mix prepared foods (5.2 percent).

There was also a 3.7 percent unit sales increase in vitamins, a category that typically does well during times of recession as consumers focus on maintaining their own health.

“By and large the categories that are growing the fastest are those related primarily to meal consumption-a notion of back-to-basics,” says Todd Hale, SVP, Consumer and Shopper Insights at Nielsen. “It’s also interesting that the No. 1 item on the list is canning supplies. There’s been resurgence in consumers growing their own fruit and vegetables and canning them.”

Across all departments, dollar sales over the latest 52-weeks experienced a 2.7 percent increase, which was mainly seen in edible department. Fresh meat had the largest increase at 9.7 percent followed by packaged meat (6 percent), dry grocery (5 percent) and alcoholic beverages (4.6 percent). Discretionary departments and the dairy department, which has experienced significant price reductions as a result of falling commodity prices, ranked in at the bottom of the dollar growth scale. Non-foods (3.1 percent) and health and beauty aides (0.1 percent) showed little growth. Dairy (-1 percent) and general merchandise (-5.0) were the only departments reflecting loss.

“As prices for many commodities have dropped this year, retailers are slashing prices broadly to lure shoppers who are very focused on value and low prices,” said Hale. “As their competitors follow suit with price cuts, we are already seeing a number of retailers struggle to maintain positive same-store-sales growth.”

While food staples were also prevalent in the top-15 dollar growth categories, seasonal merchandise and canning and freezing supplies saw the largest increases with 34 percent and 27 percent growth respectively. Dry vegetables and grains, flour, and pasta, all with gains of 18 percent or more, rounded out the top five.

Moving forward, “we’re going to continue to see consumer restraint in terms of where they shop and how they buy,” said Hale. “Food and beverage categories will continue to do reasonably well. Those manufacturers selling discretionary categories are going to have to work very hard to give consumers a reason as to why they should be buying now.”

The “U.S. Store Brand Development” found that both private label dollar and unit sales significantly increased for the 52-week period ending July 11, 2009 versus the prior year.

Dollar sales grew by 7.4 percent to $85.9 billion within food, drug and mass-merchandisers (including Walmart), with shares recorded at 16.9 percent. This reflects an increase of 0.7 points from the previous year. Growth peaked in 2008 but then slowed slightly in 2009 with falling commodity prices and increased retail discounting.

Unit sales similarly experienced high growth during the same period. Sales increased by 5 percent to 39.5 billion units and unit shares rose by 1.3 points (a total of 21.5 percent).

All store brand food and non-food categories experienced better performance versus brands, but edible departments saw the greatest uptick in both dollar and unit sales.

Top dollar growth categories were frozen pizza and snacks (38 percent), flour (36 percent), and dry vegetables and grains (31 percent), and dry grocery and dairy departments accounted for 59 percent of total sales. Baby food (37 percent), candles and incense (23 percent), frozen pizza and snacks (22 percent), cheese (16 percent) and flour (15 percent) topped unit sales.

The importance of food and at-home meals in this down economy has led to strong growth for both branded and private label offerings in some basic food categories such as flour (36 percent store brand growth compared to 17 percent branded), dry vegetables and grains (31 percent to 20 percent), salad dressing and mayo (30 percent and 8 percent), pasta (27 percent to 15 percent) and baking mixes (22 percent and 10 percent).

“When categories are sorted by store brand share, from high to low, some patterns emerge,” said Todd Hale, SVP, Consumer & Shopper Insights at Nielsen. “Store brand performance and share is strongest in commodity categories. Milk, fresh eggs, sugar & substitutes and canned vegetables top the list). Where store brand share is the lowest is among categories where we see strong marketing support for top brands including candy, gum, beer and those where a high-level of innovation occurs like detergents, deodorant, cosmetics.”

A fellow Nielsen associate recently sent me an article she had received from a client about how private label was receiving high acceptance among even affluent American households.  While I am a huge fan of the attitudinal insights from consumer survey data, I am also a huge fan of the behavioral insights from consumer panel data.  The best of both worlds is when we get to integrate both data types in our analytical work in the consumer packaged goods industry.  But turning back to the issue regarding private label development among more affluent households, if we examine annual private label buying over the four year period from 2004 through 2008 in the U.S., we find the following:

1.      The top two income brackets in our analysis (those with incomes of $70,000 to $99,999 and $100,000 +) demonstrated the biggest increase in private label dollar sales moving from 32.1% in 2004 to 35.0% in 2008.

2.      However, this growth is really a function of population growth, not an increase in demand.  That is, when we divide the percentage of dollar sales from affluent households by the percentage of household population they represent, we get an index of 102 in both 2004 and 2008.  In other words, the growth in dollar sales among these households was commensurate with their overall increase in population importance (growing from 31.5% of households in 2004 to 34.3% in 2008).  A variance of 2% in both years says these consumers buy private label in proportion to their population base and nothing has changed.

3.      Drilling down into more finite income groups, private label development (again, expressed as an index of sales over population importance) is lowest among the lowest and highest income groups and there has been minimal change over the past four years.   Private label sales development indices in 2008 ranged from a low of 88 for households with incomes of $20,000 or less to a high of 107 for households with incomes between $50,000 and $69,999.  With annual private label penetration near 100%, it is not surprising to see little variance across the income groups.  In other words, private label has somewhat universal appeal across all income groups, but households with incomes between $50,000 and $99,999 show the greatest positive variance from expected levels.

In other Nielsen Wire articles posted this year, we discussed how more affluent consumers are taking advantage of value retailers (club stores, supercenters and dollar stores) at a more rapid rate than other consumers and affluent consumer were also seeking out promotions at a greater and faster rate than other groups.  With brands driving most of the in-store promotions and accounting for almost 80% of unit sales in food, drug and mass-merchandisers (including Walmart), affluent consumers are speaking through their buying habits, and brands are still their preferred choice.  However, with the increased importance placed on price, value and promotion support, manufacturers must continue to innovate and drive a point of differentiation versus the increased innovation, focus and marketing support retailers are putting behind their private label initiatives.

For further information or to arrange a comprehensive presentation on consumer shopping patterns, please contact Todd Hale at todd.hale@nielsen.com or 859-905-4615.