About the Survey:

The 2010 Customer and Channel Management (CCM) Survey provides an up-to-date perspective on the practices of top-performing CPG companies across the following dimensions: sales strategy, pricing and trade investment, strategic customer collaboration, and complexity management. This year’s survey was conducted in spring 2010 and is produced in collaboration with the Grocery Manufactur­ers Association (GMA), McKinsey & Company, and The Nielsen Company. Approximately 220 CPG executives from more than 50 compa­nies with close to $160 billion in U.S. manufacturer sales—in the food, beverage, personal care, and home care categories—participated.

Forces are combining to make manufacturers’ product portfolios and value chains more complex. Channels have varying price-point, size, and packaging requirements (for example, discount stores require small packages with lower price points). Individual retailers are seeking competitive advantage through differentiated product offerings and requesting customized SKUs, while also focusing on assortment optimization for their stores (more than 40% of retailers reduced SKUs in 2009). And as 25% of SKUs generate 80% of CPG sales, according to survey responses, manufacturers recognize the value of reducing SKUs and effectively managing complexity.

Our survey revealed that a majority of respondents are using two approaches to address this complexity challenge. Despite broad efforts, only 30% of respondents are able to manage this complexity in an effective manner. Winners are reducing their SKUs below the category average while increasing revenue and achieving category growth by adhering to the following imperatives.

Implement robust SKU optimization. Seventy-eight percent of winners conduct SKU-optimization analyses once a year, while 42% of other players do. In winning companies, marketing and sales lead this analysis; in other organizations, finance and supply more often assume this role. Ideally, SKU optimization should be considered not only from the perspective of the manufacturer but also from that of the retailer and consumer. Winners also take a more strategic approach to this analysis, according greater importance to criteria such as strategic fit, growth potential, and consumer decision trees, as opposed to retailer requests.

Effectively and proactively engage retailers in the SKU-optimization process. Top-performing CPG companies proactively engage retailers in the SKU-optimization process. Survey results show winners are more likely than others to initiate this process with a retailer; others may simply react to a retailer request. Winners are also more likely to apply a targeted approach to SKU optimization, focusing on one category at a time. Finally, winners create a relatively smaller number of customized SKUs for retailers—77% of winning companies tailor less than 10% of their SKUs for individual retailers; 36% of other companies do so.

Take a cross-functional approach to standardization. Our survey reveals that most CPG companies pursue standardization. While standardization initiatives have been implemented in many areas, more than 70% of respondents focus their efforts on supply chain, manufacturing, and marketing and packaging. These players involve a broad range of cross-functional groups in the process of identifying standardization opportunities—including supply, research and development, finance, and marketing. Companies pursuing standardization initiatives usually realize the greatest savings in inventory, raw-material, and packaging costs.

Download a free copy of the full report:  Emerging from the Storm: How Leading Customer Organizations Reignite Growth,  The 2010 Customer and Channel Management Survey

About the Survey:

The 2010 Customer and Channel Management (CCM) Survey provides an up-to-date perspective on the practices of top-performing CPG companies across the following dimensions: sales strategy, pricing and trade investment, strategic customer collaboration, and complexity management. This year’s survey was conducted in spring 2010 and is produced in collaboration with the Grocery Manufactur­ers Association (GMA), McKinsey & Company, and The Nielsen Company. Approximately 220 CPG executives from more than 50 compa­nies with close to $160 billion in U.S. manufacturer sales—in the food, beverage, personal care, and home care categories—participated.

A new, more collaborative way of working is replacing the often adversarial relationship between manufacturers and retailers. A majority of CPG companies report having recently undertaken multiple strategic collaboration efforts with retailers. The survey defined strategic customer collaboration as joint initiatives between manufacturers and retailers that go well beyond the normal course of business. These initiatives are designed to deliver impact in multiple dimensions: sales lift, cost savings, ROI, and the impact captured by the retailer.

While most manufacturers believe that their collaboration efforts are effective, few deliver winning results; 50% have only modest impact, with category performance at participating retailers slightly better than the baseline, and 30% yield no measurable impact. However, a small group of manufacturers—20%—is realizing the full potential from these collaboration initiatives. Our review of these winning companies suggests that the following leading practices increase the return on collaboration.

Select the right retailers. Winning companies cast a wide net, exploring potential collaboration initiatives with more retailers than other companies do: 50% of these companies have approached ten or more retailers as potential collaborators versus 22% of others who have done so. After the net has been cast, winning companies closely evaluate prospective collaborators, choosing to work only with those with the greatest potential to deliver impact based on sales, profitability, and growth outlook.

Define a bold ambition. Eighty-eight percent of winning companies, versus 62% of others, include 90% of total category sales in collaboration efforts. Top performers also have a proactive rationale to develop strategic collaboration efforts. For example, winners view collaboration as an opportunity to increase access and influence on merchandising and marketing initiatives or to build a “preferred” relationship with retailers, as opposed to reacting to performance issues.

Develop a true strategic alliance. Winners align with retailers on common performance goals at the start of a given initiative. These manufacturers ensure that joint efforts with retailers are mutually beneficial and establish at the outset how benefits will be shared. While retailers commonly share information on store sales, loyalty-card data, and shopper research, winners go a step beyond basic data sharing and provide retail collaborators with information on brand performance, competitor performance, and price elasticity.

Set up the joint team for success and focus on execution. To support a given collaboration effort and develop comprehensive solutions, winning manufacturers and their retail collaborators dedicate more resources across a broad range of cross-functional experts (for example, those in brand marketing and category management) to work on the joint team. Furthermore, manufacturers and retailers invest more, going beyond the basics (for instance, consumer and shopper research) to address such areas as IT, supply chain, and new product development.

Furthermore, manufacturers and retailers jointly tracked performance metrics and shared incentives, performance routines, and a focus on the bottom line to enable successful execution, which is critical to collaboration efforts.

Obtain a free copy of the full report:  Emerging from the Storm: How Leading Customer Organizations Reignite Growth,  The 2010 Customer and Channel Management Survey.

About the Survey:

The 2010 Customer and Channel Management (CCM) Survey provides an up-to-date perspective on the practices of top-performing CPG companies across the following dimensions: sales strategy, pricing and trade investment, strategic customer collaboration, and complexity management. This year’s survey was conducted in spring 2010 and is produced in collaboration with the Grocery Manufactur­ers Association (GMA), McKinsey & Company, and The Nielsen Company. Approximately 220 CPG executives from more than 50 compa­nies with close to $160 billion in U.S. manufacturer sales—in the food, beverage, personal care, and home care categories—participated.

From 2008 to 2010, CPG manufacturers faced significant challenges in managing pricing and trade investments. At the start of this period, late 2007 and early 2008, many CPG companies experienced significant increases in commodity input costs, a situation that caused many players to implement price increases that were significantly larger and more frequent than the industry has seen in the past. Then, as the United States economy fell into a deep recession and core commodity prices declined, CPG players encountered considerable downward pressure as volumes declined and consumers, focused on value, began trading down and switching to more value-oriented formats. In order to maintain their competitiveness, retailers responded by pushing for lower prices and greater investments from CPG companies to deliver lower prices and more value to consumers.

However, despite these challenges, the 2010 survey revealed that pricing and trade winners were still able to deliver strong results and outperform their categories. While these winners relied on many traditional industry leading practices, they achieved winning performance in this volatile time period by adapting to the rapidly changing and complex market environment of the past few years more quickly and strategically than their peers.

Pricing. Pricing winners were able to increase prices above those of their categories while increasing category share by developing a deep understanding of the consumer, carefully weighing the effects of market forces, and making  organizational investments to deliver strong results.

Integrate a comprehensive view of market dynamics in pricing strategies. Pricing winners are more likely to focus on external influences when setting prices. For example, they examine shifts in competitor pricing and the ability of retailers to meet their target margins or price points. In addition, recognizing the growth in private labels, winning companies report that private-label prices have become a more important consideration in the development of pricing strategy. Yet, with only 57% of winners and 35% of other CPG companies tracking and managing their price gap relative to private-label products, there is room for improvement in this area for many companies.

Take a broad yet deep view of price elasticity to ensure pricing performance. Winners have a clearer view of overall consumer price sensitivity than do others, and they more often set prices by considering consumer price elasticity at national and regional levels, as well as at the detailed category or brand level. Top-performing CPG players are also more likely to use a “menu” approach to pricing, varying prices depending on the service level requested by a retailer for warehousing, logistics, and back-office services.

Ensure regular and frequent pricing discussions with retailers. Winners continue to engage retailers in pricing discussions at regular intervals (at least once a year), framing these discussions in ways that are relevant to retailers and taking into consideration the market environment and pace of inflation. Winners are also more likely to take a multidimensional approach in pricing discussions, emphasizing retailer profits and product or category investment—not just commodity costs.

Invest in dedicated resources devoted to pricing and integrate pricing and promotion teams. Winning CPG companies invest nearly 50% more, normalized based on sales, in resources devoted to pricing across functions. In addition, winners are two times more likely to have a dedicated revenue-management group to ensure that pricing receives the appropriate level of attention and analytics support.

Winners are also twice as likely to integrate everyday pricing and promotion roles in a team that resides either in an existing centralized function (for example, marketing or finance) or in a revenue-management group at the center. This approach provides multiple benefits to the CPG manufacturer, including alignment of pricing and promotion strategies and the establishment of a single source of accountability for all pricing activities.

Trade investments
In response to the challenges noted above, trade spend as a percentage of adjusted gross sales increased significantly from 2008 to 2009 for all companies. Trade-investment winners, however, were able to differentiate their performance and capture more incremental sales from promotions than others.

The majority of these winners chose to use increases in trade investment to offset price increases and captured more market share and gross-margin gains from these increased investments.

Conduct rigorous and frequent performance reviews of trade investments. Winning companies make it a priority to evaluate the performance of their trade investments at frequent intervals. Approximately two-thirds of winners conduct such promotional performance reviews at least quarterly. Winners use more metrics on average—specifically, volume and trade investment trends, overall account return on investment (ROI) versus plan, as well as account profitability and growth. By contrast, less than 50% of other players assess their trade investments at least quarterly. A third of other CPG manufacturers have no formal post-promotional review process. Because winning organizations consider these assessments a priority, they more often allocate resources within corporate headquarters to complete these post-promotional analytics, instead of assigning this task to a field analyst or account representative.

A majority of all survey respondents use three sources of data to understand trade promotional performance: syndicated scan data, loyalty- or shopper-card data, and retailer POS data. Winners are using the insights from this analysis to improve chain-level performance and to deepen their understanding of consumer and category dynamics. In the future, winning companies are looking to continue improving these analytics in order to better understand issues such as the incremental value of promotions and the promotions that best drive their brands and expand the category.

Differentiate investments based on past and potential future performance. Top-performing CPG players use both activity- and outcome-based criteria to set trade investments across channels and accounts, and they are more likely to consider projected financial outcomes such as ROI and sales growth at a given retailer in their rate-setting exercise. In addition, these players evaluate the type of activity that their investments will fund.

Work effectively with Walmart. While most CPG companies are increasing their trade investments at Walmart, winning companies are allocating more of their trade spend to non-promotional activities requested by Walmart (for example, sustainable packaging) than others. In return for these investments, winners are able to secure greater cooperation from Walmart in the form of increased distribution, more promotional support, additional secondary placement in stores, and better shelf placement.

Obtain a free copy of the full report: Emerging from the Storm: How Leading Customer Organizations Reignite Growth, The 2010 Customer and Channel Management Survey.

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.

Edible essentials, like bread, milk, cheese, and fresh produce, were among the top retail categories for October, according to Nielsen. 

Discretionary items like carbonated beverages, candy, and snacks were also among the top sellers in October — but most of these categories showed year-over-year unit and dollar sales declines.

Top Categories: October 2008 (Dollar Sales: Food/Drug/Mass Merchandiser Sales)

Top Categories: October 2008 (Unit Sales: Food/Drug/Mass Merchandiser Sales)

Products geared toward at-home use — canning supplies, baking ingredients, and wine — were among the fastest growing food, drug, and mass merchandiser retail categories in October, according to Nielsen. 

That trend may signal a shift in consumer behavior, as Americans increasingly opt to save money by staying in and eating at home. 

Fastest Growing Categories: October 2008 (Dollar Sales Growth: Food/Drug/Mass Merchandiser Sales)

Fastest Growing Categories: October 2008 (Unit Sales Growth: Food/Drug/Mass Merchandiser Sales)

Learn more about global consumers’ responses to the current economic crisis on Nielsen Wire.

Nielsen’s holiday retail forecast predicts a 4.7% gain in dollar sales over 2007.  Unit sales, however, are expected to be virtually flat (-0.8%) versus a year ago.

The forecast includes projected sales at food stores, drug stores, mass merchandisers, and convenience stores, across 125 product categories tracked by Nielsen.

With the economy in turmoil, the 2008 holiday season will be closely watched for indications of declining consumer spending.  Declines in consumer spending were last recorded in the fourth quarter of 1991, during the recession of the early 1990s.

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

View in depth data on holiday retail sales projections and consumer spending expectations.

View the full press release.

Read coverage of Nielsen’s findings in Convenience Store News and Adweek.

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.

That trend may now be changing, according to Nielsen, which recently released data showing a slowdown in organic dollar sales and unit sales growth in the four weeks ending Sept. 6.

Dollar sales of organics grew by just 13%, while unit sales grew by 8% in the four weeks between August 9 and Sept. 6, according to Nielsen.  In contrast, dollar sales of organic products grew by 23% and 33% in for the same periods in 2006 and 2005, respectively.

Still, during the 52 weeks ending August 9, organic dollar sales totaled $4.7 billion — a 23% increase in dollar sales and a 20% increase in unit sales over the previous 52-week period.

Read the full report, “Is the Organic Sales Explosion Over?”