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.”

So what are the top selling categories in the drug channel? Six of the top eleven categories are outside the health and beauty care category.  Tobacco leads the way with almost $3 billion in sales, an increase of 18 percent from last year.  Cold/allergy remedies, nutritional supplements, headache remedies and chocolate candy round out the top five.   In terms of growth leaders, pet care products posted a 67 percent increase from last year, followed by depilatories and peanut butter.  Of the eleven categories showing the strongest growth, eight are foods.

But the leading chains such as Walgreens, CVS and Rite Aid are stepping up their efforts to innovate and bring more customers through their doors.  As with grocery stores, private label products are increasing their share of sales, with store branded cold/allergy remedies, nutritional supplements and headache remedies leading the way. Meanwhile, private label pet care, laundry detergent and antacids have shown the most growth.  Some of the chains are establishing in-store medical clinics, where customers can receive services such as blood pressure screenings, treatment for common maladies and flu shots.   Others are making the shopping experience more efficient by re-designing stores and reducing SKUs. 

“Drug retailers are feeling the heat from mass merchandisers and other retail channels.  Look for drug stores to innovate and evolve with more in-store clinics, competitive store brands, and expansion beyond traditional health & beauty categories,” said Tom Pirovano, Director of Industry Insights at Nielsen.

Other drug store facts:

• Drug store shoppers spend nearly twice as much on cigarettes than on cold/allergy remedies.
• Drug stores dominate all channels in the sale of contraceptives, generating 64 percent of sales in the category.
• The two highest growth categories in terms of share for the drug channel are tobacco and feminine hygiene.
• The category that has the highest drug channel private label share: canned nuts (64%).
• The Cleveland market has the strongest drug store channel representing 8.6 percent of total sales compared to 3.8 percent for the U.S. as a whole. Miami, Boston, New York and Sacramento round out the top five.
• Denver, Salt Lake City, Portland, OR have lower-than-average sales in the drug store channel
• Drug stores skew to African Americans, households without kids, lower incomes and older households than other channels
• Where one lives plays a huge role in the channels one shops: those living in cosmopolitan centers and struggling urban cores spend more of their money in drug stores than those in suburbia or rural communities.

Chain stores, such as 7-Eleven and BP, account for more than 52 percent of C-Stores, while independently owned stores make up the balance.  That said, only 14 percent of C-Stores are from chains with more than 500 stores; the rest of the chain stores are part of local or regional companies such as WaWa, Get Go and Nice N Easy.

So what makes one store more successful than another? Execution.  “According to Nielsen research, consumers want convenience, obviously, but they also want a clean, organized store and the ability to check-out quickly,” said Tom Pirovano, Director of Industry Insights at Nielsen.

C-Stores dominate a number of high-volume categories such as tobacco (85% share of all channels), ice (57%) and beer (56%) and they outsell food, drug and mass merchandisers (including Walmart) combined in these categories.  C-Store sales of tobacco and beverages generate more than $90 billion annually.

A Convenience Store News Nielsen survey found that customers want their stores to offer gas, snacks and prepared food, a category that has shown growth as the quality of those food service items has improved.  Doughnuts and muffins are the top prepared food category, followed by sandwiches and hot dogs.

“Stores that offer prepared food that looks fresh and smells good and cross merchandise those with other items are likely to hit a homerun,” continued Pirovano.

Despite their seeming ubiquity, the challenges facing the C-Store channel are numerous: rising credit card fees, competition from small format groceries, a desire for healthier foods and competition from club and mass retailers selling gas are just a few of the issues C-Store owners face.

“The key to success is innovation.  C-Store retailers need to constantly fine-tune their offerings in the face of increased competition from other channels while never taking their eyes off the basics of cleanliness and efficiency,” said Pirovano.

Other C-Store Facts:

• Texas leads the nation with more than 14,000 stores, followed by California and Florida
• Nevada showed the most growth in the last year, with 31 new stores coming online
• C-Stores skew to African Americans, smaller households without kids, lower-income households and single males.
• Seattle, Dallas/Ft. Worth and San Francisco lead metro areas with the most C-Store growth, while Miami, Houston and Tampa showed the steepest declines.

These were some of the findings from the “Supermarket Pricing Trends” study which looked at pricing of the top-selling items across 45 categories over the course of five years. It concluded by measuring the 12 weeks ending May 16 in total U.S. supermarkets.

Overall, grocery prices continue to inch up 0.44 percent compared to a year ago. The sum of average unit prices across the 45 category-leading items, which included everything from bacon to bleach to buttered crackers and hot dog buns, was $143.65.

Private label items, however, are on the decline. On average, prices for store brands fell 4.7 percent versus last year led by a 23 percent decrease in whole milk and a 27 percent decrease in the cost of a dozen eggs. Some national brands in the dairy aisle are also seeing price declines. Some of these reductions are the result of pricing corrections for items with large price spikes in 2008.

Could this be a sign of more key items with lower prices on the horizon? This hasn’t happened yet, said Tom Pirovano, Director of Industry Insights, The Nielsen Company. “From all of the talk we’re hearing about deflation, it hasn’t happened yet. It’s a little premature because prices for many leading products are continuing to creep up.”

Pirovano notes the average unit price across the 30 category leading branded items grew 3.3 percent to $124.04 compared to the prior year.

One exception has been perishable items like dairy, produce and meats. Eight ounces of national brand cream cheese shrank 10 percent, 64 ounces of a leading orange juice brand can be had for 7 percent cheaper and a national brand of sliced cheese fell 5 percent.

The biggest price decrease was a dozen private label large eggs. Its cost plummeted 27 percent. A gallon of private label whole milk fell 23 percent and private label butter sticks is now 7 percent smaller. These price reductions are likely a result of lower grain prices where it’s less expensive to feed cows and chickens.

The study also highlighted the seasonal nature of pricing. Prices reach their lowest points each year in late spring and early summer. Conversely, prices tend to spike in January.

For the past several months, we’ve seen sales for U.S. store brands grow at unprecedented rates with annual sales of $85.5 billion, up by $13.6 billion (+19%) vs. just two years ago. (Nielsen Grocery/Drug/Mass including Walmart). At first, this growth was driven by higher prices for milk and other commodities. Then the economy got even worse, and many just assumed that shoppers were switching from national brands to store brands to save money.

But what about the other factor we sometimes forget to mention? Could it be that retailers are making significant improvements in the quality of their own store brands? Is it possible that some National Brand Equivalents (NBEs) have really become every bit as good as the national brands? Note: Several years ago, I coined the acronym, “AAGATNB” (Almost As Good As the National Brand), but it never really caught on the way I hoped.

I recently had the opportunity to visit the East View Innovation Center in Eden Prairie, Minnesota, where the folks at SUPERVALU develop brands like Culinary Circle and Wild Harvest. I had been hearing a lot about this state-of-the-art facility with its sensory labs, test kitchens, mock-up store, and army of Daymon associates fully integrated into the organization. Needless to say, I jumped at the opportunity to check it out for myself.

It was clear from the start that the facility itself is just part of the story. SUPERVALU has assembled a dream team of experienced product development specialists from across the industry. Many of the top managers moved to Minnesota from out of state, betting their careers on the success of the “Our Own Brands” program. Every person I talked to that day seemed convinced that they were working on something special. One even commented, “I didn’t come here for the weather.”

The Our Own Brands program at SUPERVALU is an unmistakable source of pride for those working in the East View Innovation Center. When I began discussing recent trends in private label, I was politely corrected by Group VP, Mike Witynski: “This isn’t about labels. We’re building brands here.” He was right. Nowhere did I get the sense that this was simply about making cheap substitutes for national brands. A sense of pride seemed to permeate the building. While touring one of the test kitchens, one associate described a recent blind comparison with a popular national brand: “They’d kill to have our taste test scores!”

I was also impressed by how they view their competition. Many store brands target CPG category leaders. SUPERVALU, however, has broadened its competition to restaurants with several premium “restaurant-quality” products. I was lucky enough to sample some Culinary Circle frozen desserts that could rival the best ice cream parlors. The trick will be getting shoppers to try these products. Although higher price points may present sales challenges, the quality and exclusivity of brands like Culinary Circle have the potential of becoming destination products for consumers who can appreciate the difference.

National brands need to be on their toes. There are no clear signs that shoppers will turn away from store brands as the economy improves. Retailers like SUPERVALU and others are poised to succeed with their own premium brands as consumers continue to adjust their mix of needs between quality, value and convenience. SUPERVALU has set aggressive growth targets for its Own Brands program with an unblinking eye on the consumer. This consumer focus is something new for most store brands. Understanding the shopping experience from a consumer perspective isn’t just for CPG manufacturers anymore.

• First, change the focus from toys (their products) to families with young kids (their customers). I’ve often said that the best retailers define themselves not by the products they sell, but by the shoppers they sell to.
• Create a section reserved for birthday parties (who doesn’t enjoy a pit of colored balls?). We spend a fortune on these types of parties for our kids.
• Hire more moms willing to work from 9:30 am to 2:30 pm. Thousands of well-educated moms would sacrifice big salaries to work around their kids’ school schedules.
• Connect with Hispanic families. Nielsen’s Homescan panel consistently shows how Hispanic Americans index highest with baby-oriented products like baby food and diapers.
• Continue to expand food sections with private label supplied by supermarkets. Supermarkets bend over backward to attract young families. Why not introduce a grocer’s brand to shoppers in a completely separate retail channel?
• Offer in-store focus groups for marketers trying to reach kids and moms. Each store has the potential to become a laboratory for understanding how kids and their parents shop, play, and interact with products.
• Conduct midnight release events for DVDs, video games, books, (and new toys?) Toys “R” Us is a player in each of these categories. Book stores and electronics stores do a great job of creating excitement around midnight releases. This could also be a way to attract a new shopper demographic.
• How about… Movie Night at Toys “R” Us?
• Whole Foods has done a great job of developing their brand around healthy living. By co-branding with Toys “R” Us, they have the opportunity to reach new shoppers while Toys “R” Us can benefit from products (not just food) focused on healthy eating, exercise, and environmental sustainability.
• Get vendors to sponsor video game tournaments with gift cards as prizes for winners.
• Offer In-Store pediatrician clinics. Alright, this may be a stretch, but if Walgreens can be successful with their Take Care clinics, why not Toys “R” Us with a specialist focused on kids?
• Offer In-Store Seminar Events for parents on college savings, healthy babies, child-proofing, and have local supermarkets sponsor healthy eating demonstrations.
• Book Signings from children’s book authors.

Feedback? tom.pirovano@nielsen.com

I recently shared some thoughts on how CPG manufacturers can protect their brands from private label expansion. Of course, it didn’t take long to hear back from retailers asking for tips on growing their own brands so here are a few private label ideas for our retailer friends.

1. Study the category consumer before going upscale. Consumer understanding is the common thread among top-selling brands. It’s not enough for a retailer to roll out a quality product in premium packaging.
2. Disguise your premium store brands. Many consumers still associate private label with cheap knockoffs. There – I said it. But what if they don’t know it’s a store brand? Look to position premium store brands as exclusive products like Choxie at Target and Canopy at Walmart.
3. Get your pricing right. The price gap between store brands and national brands varies significantly across categories. The same shopper who chooses private label bottled water for a 3% discount may require at least 20% savings for private label barbecue sauce.
4. Offer multiple brands in multiple tiers. Although Costco may be the exception, most retailers are finding growth with multiple store brands. No one brand can stand for value and gourmet and healthy eating.
5. Eliminate weak links. One bad product experience can hurt the entire store brand, not to mention the retail banner itself. Product quality needs to be consistent across each store brand. Your brand’s perceived quality is only as good as its weakest SKU.
6. Drive trial. If your store brand is really as good as the national brand (or better), let your shoppers try it. Offer a free package with a $50 purchase. Consider a trial size or in-store product demos.
7. Promote your store brands. There’s a wide range of feature ad support for private label. Using ECRM’s Marketgate data, we found that private label’s percent of feature ads ranged from 45% at Wegmans to 25% at HEB to only 10% of ads at Publix.
8. Don’t be too quick to drive out value brands. Some value brands can drive lower price and higher margins than retailers can achieve through private label. The shampoo category is an excellent example with some well-known brands at very low prices.
9. Embrace a cause. Use package labeling to show how your store brand supports local suppliers, promotes health & wellness, saves the environment, or funds local charities. You’ll find that many of these causes attract similar consumers. Regardless of sales performance, taking the high road can help to build a retailer’s image.
10. Understand the difference between strong sales vs. strong brand equity. Walmart’s Great Value brand claims to be the #1 food brand across categories, but would shoppers ever choose Great Value over a national brand at the same price point?

Bonus: (It’s one better than a top 10 list) Sell your store brand in someone else’s stores. Safeway is taking the lead by selling its “Eating Right” and “O” brand at other retailers in non-competing markets. Opportunities exist for retailers to sell their store brands not just in new markets, but in new channels (convenience, hardware, toy stores) in their own. Share your tips, stories, feedback in the comments below.

[click to enlarge graph]

“The recession and the resulting uncertainty it has created among Americans has prompted most consumers to look at every dollar they spend,” said Pirovano. “At this point, it appears that cost beats the potential benefits of organic products when shoppers head to the grocery store.  It will be interesting to watch if sales of organic products rebound along with the economy, or whether that trend will be a victim of the vast changes affecting consumer behavior.”

Sales of store brands, or private label products, began to spike in 2007 just as we were seeing the first signs of an economic downturn. At first, these private label sales were driven by higher commodity prices, but volume growth began to catch up with dollar growth in mid-2008. As the economy continues to struggle, more and more consumers are replacing their branded products with private label equivalents. Store brands are up 10% to $84.4 billion in annual sales across categories reported by The Nielsen Company. Talking to Consumer Packaged Goods marketing professionals across the country, there is a consensus that these private label switchers won’t be coming back when the economy improves – at least not without some incentive.

Winning back these shoppers will not be easy for branded manufacturers.  Although many will be tempted to cut back on new product development, now is the time to innovate.

What To Expect From Name Brands

• More products with new health and wellness claims like “now with more calcium,” or “no trans fats.”
• New package designs with claims like “re-sealable” or “renewable.”
• New package sizes and shapes that will make it more difficult for store brands to copy.
• Innovative new flavor profiles with more line extensions.
• New advertising in new places to get the message across to consumers.

Retailers aren’t just sitting back waiting for new brands to copy; over the past several years, we’ve seen store brands evolve from inexpensive national brand alternatives to exclusive destinations that allow retailers to differentiate themselves. Many store brands achieve premium pricing while strengthening retail banner equity with more upscale offerings. Retailers are investing in their own brands more than ever as their efforts are paying off. The battle between national brands and store brands is about to get interesting.

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