Supermarket product sales reflect adaptations to changes in consumer shopping habits
Despite some faint glimpses of economic recovery, shoppers overall remain frugal, and their attitudes are reflected in the extensive product-sales data from Chicago-based SymphonyIRI Group presented on the following pages.
In nonfood, for example, shoppers seemed to shun many discretionary purchases at supermarkets and may have shopped alternative formats to restock items like cleaning supplies and batteries.
Some health-related categories, however, such as vitamins, continued to see increased sales — perhaps a reflection of the aging Baby Boomer population.
The trend toward health and wellness also manifested itself in the perishables aisles, where yogurt sales jumped 5.7% amid the incorporation of new health benefits.
In addition, prepared perishables categories like refrigerated pizza and refrigerated side dishes, which contribute to quicker meal preparation, also continued to show gains, the data show. While other perishables categories were a mixed bag, the trends overall were positive as consumers continued to cut back on restaurant spending.
Similarly, Center Store product data also reflect the new consumer frugality, as supermarket shoppers bought products on promotion, bought in bulk and looked for items that assisted in meal preparation, such as frozen vegetables.
Overall, the data show that supermarkets and product suppliers have been able to provide effective solutions for consumers feeling the economic pinch, while at the same time meeting increased demand for lifestyle products that impact health and wellness.
In a recent Times & Trends report, SymphonyIRI Group noted that some shopper behaviors picked up during the recession are lingering, such as creating a shopping list ahead of time and sticking to it.
“Though the economy is showing signs of brightening, ongoing consumer research indicates that ‘pre-planned shopping’ will remain firmly entrenched throughout 2010, and beyond,” IRI said in the report.
The report cited data from Food Marketing Institute, Arlington, Va., which showed that 73% of shoppers make a list before going to the store, and 63% look at circulars before they go to the store or while they are there.
In addition, 55% said they chose a particular store because it offered low prices on needed items, and 53% stocked up on items that were on sale.
The report also included a SymphonyIRI Group analysis of the types of trips shoppers are making. It found that 55% of consumers are shopping in 10 or more retail channels.
“Consumers are entrenched in conservative shopping patterns,” the report stated. “But, these patterns are complex. Shoppers today seek personalized affordability. They are on a mission to find what is best for their families, but they are determined to find those solutions at the best available price.”
Supermarkets captured about 62.7% of “pantry stock-up” trips in the 52-week period that ended in March, according to the study, down from 65.9% in 2007. At the same time, mass and supercenter channels increased their share of pantry stock-up trips by 2.4 share points.
“Simply stated, consumers shop differently today,” the report said.
Many retailers have reacted to these changed shopper dynamics with an increasing emphasis on value, both in the form of expanded private-label assortment and promotion or a stronger EDLP focus.
Pleasanton, Calif.-based Safeway, for example, has been aggressively seeking to improve its price image in the market relative to its peers, and began a sweeping price-reduction program in the third quarter of last year, mostly on everyday items.
The move has led to a reduction in retail shelf prices of 2.4% in the second quarter of this year, the company said in a recent conference call with analysts. Although actual unit volume was about flat with year-ago levels, it represented a gain over the fourth-quarter volume level of a year ago.
“We think that volume improvement is really driven in large part by the price reductions that we made last year [beginning in the third quarter],” said Steve Burd, chairman, president and chief executive officer.
Burd said he expected unit volumes to continue to improve in 2010 as more customers become aware of price reductions.
Cincinnati-based Kroger Co., meanwhile, had launched aggressive price reductions earlier and has been able to gain an increased share of traffic during the downturn.
In the first fiscal quarter, the company saw same-store sales (excluding fuel) rise about 2.4%, driven largely by customer count, but also by a slight increase in basket size, the company said.
Inflation was about 0.9% overall in the quarter, compared with a year ago, and the company projected that previous deflationary trends would give way to inflation in 2010, which is expected to boost dollar volumes for supermarket operators.
Kroger also detailed some signals that consumers are beginning to spend a bit more on discretionary items.
“Several signs indicate that customers are feeling more optimistic,” said David Dillon, chairman and CEO, in the first-quarter conference call. “They're spending more money inside our stores on certain discretionary categories, such as organic foods, specialty deli meats and higher-end wines. Many nonfood categories also show improvement. At the same time, customers who are more price sensitive remain cautious about discretionary spending.
“Furthermore, the continued high use of food stamps and other government programs is still causing volatility in our weekly sales trends.”
Following is a more detailed analysis of supermarket product volume trends in nonfoods, perishables and Center Store.
Sales Volatile in NONFOODS
It used to be that nonfoods went a long way in positioning supermarkets as the convenient one-stop shop for a slew of categories, especially in general merchandise, that ran the gamut from party goods to auto supplies. But the concept of the traditional grocery chain as a place where food shoppers go for an array of discretionary items no longer carries the weight it once did.
A number of factors have cut into convenience as a platform for supermarkets, including the proliferation of various retail formats, shoppers' desire for getting the most out of their discretionary dollars, and pressure on retailers to justify the allocation of space and the number of SKUs they offer.
In examining 15 high-volume nonfood categories as tracked by SymphonyIRI Group, Chicago, for the 52 weeks that ended June 13, 2010, convenience played less of a role in driving nonfood sales at supermarkets than price and value.
“People are in so many different types of outlets, with so many different types of products sold, that the whole concept of convenience is not needed any more,” said Jim Wisner, president of Wisner Marketing Group, Libertyville, Ill., in explaining sales movement occurring in some nonfood categories.
Old-line convenience categories like kitchen storage, tools, gadgets and foil baking items are not so much convenient as they are a destination or a routine offering that shoppers expect at supermarkets, he added.
During a year in which retailers like Wal-Mart and others pursued with various degrees of success SKU rationalization, discretionary nonfoods categories were most vulnerable to cutbacks or elimination, said Wisner. But he cautioned that organizational discipline is needed in SKU rationalization and competitive pricing. And, retailers like Kroger and Costco have been better at it than others.
Eliminating the weakest-selling items on the shelf may risk losing some shoppers, Wisner explained. Even if the 10th size of Crest toothpaste sells better than a Tom's of Maine, for example, the Tom's of Maine may actually be what creates a unique shopping experience for customers who will change stores to buy that product, he said. In such a case, it might be better to keep the Tom's of Maine to protect shopper loyalty.
When there is softness in the economy, general merchandise is subject to more volatility, said Wisner.
This may be one reason batteries took a hit this year, with sales down 6% across food, drug and mass merchandiser channels, not including Wal-Mart Stores. Demand for batteries was also down, with units falling 7% across all channels. Sales of other general merchandise categories like kitchen storage, cleaning tools and charcoal remained flat to down at supermarkets.
As for personal care, sales at supermarkets fell one to two points for deodorant — considered a mature category — sanitary napkins, skin care and razor blades, which often carried premium price points.
In health care categories, sales performance brightened at supermarkets. Vitamins, cough/cold, weight-control nutritional liquids and powders, and gastrointestinal all picked up sales.
Vitamins posted the highest increase, 10%, of the 15 categories analyzed, hitting the billion-dollar mark at supermarkets. Wisner points to an aging population for driving robust sales increases at food as well as drug stores. Across all three channels, vitamins were up 10.2% and units rose 7%.
Research shows that vitamin usage increases with age — of those 20-39 years old, 43% take supplements, and of those 60 years and older, 63% take supplements.
In addition, the category is advanced through a more informed consumer on the role vitamins play in preventing age-related diseases such a macular degeneration.
One health category — internal analgesics — suffered because of product safety concerns as a result of a series of recalls due to tainted ingredients in a number of Johnson & Johnson products, including Tylenol, Benadryl and Motrin. This resulted in a federal investigation, shortages on retailers' shelves and a loss in category sales. Retailers grabbed the opportunity to redirect shoppers to their store-brand equivalents of over-the-counter medications as safe and effective.
“This will have a substantial impact on the future role of store brands in OTC categories. … We are finally getting OTC products and drug formularies and seeing a switch to where some of these formularies are now specifying getting store-brand products,” said Wisner.
Performance of nonfood categories during the past year benefited from supply replenishment. This comes after a recession in which consumers let nonfood household supplies run down. When it came to replace them this year, consumers shopped for the best deal. The best deal may not have been the most convenient or at a supermarket.
— Christina Veiders
Positive Trends in FRESH MARKET
During the past year, the effects of the recession have lingered on, and penny-pinching habits have become more entrenched for many U.S. consumers.
That's not exactly bad news for fresh food departments. Data and surveys from several market research companies indicate that consumers are still dining out less and eating at home more often, which means more traffic in meat, seafood and produce departments.
Restaurant analysts at Technomic and the National Restaurant Association have predicted that outlets such as retail prepared-food departments will have a better year than the foodservice industry as a whole. And, while many shoppers may be clipping coupons and buying more items on special, volume sales have held steady in most major fresh food categories. Some have even posted growth.
Take yogurt, for example. Dollar sales were up 5.7% in the supermarket channel this year. For a $3.9 billion category, that's quite a jump. It goes to show that innovations in flavor and functionality — in this case, new strains of probiotics that improve digestive function or help boost the immune system — still have the power to build loyalty and attract new fans to a category during tough economic times.
By contrast, sales have been unusually flat for the $3.3 billion lunch meat category, which seems counterintuitive during a recession in which so many consumers claim they are packing more lunches to save money.
“Basically, our sales have come back a little bit, but after a loss of 5% [over the previous two years], we've got a ways to go,” Tanney Staffenson, advisor, Lamb's Thriftway, Portland, Ore., said of the category during a recent interview. He and other retailers said that shoppers are responding to promotional discounts, but that the category's sales have been tepid otherwise.
And, results were mixed for categories like natural cheese. There, dollar sales fell 5.6%, but the slump was due to a collapse in farm-gate dairy prices during the past year, rather than a decline in consumption. Unit sales in the $7.2 billion category were actually up more than 4%, and while cheese may have put fewer dollars through the till during the latest 52 weeks, margins have undoubtedly improved. Severe price spikes in the commodity markets during 2007 and 2008, and the return of the futures markets to historical norms in 2009 have continued to skew the numbers for several fresh food categories — in this report, dairy products and eggs bear the brunt.
SymphonyIRI Group does not track random weight seafood, meat, poultry or fresh produce, so those categories are not covered in SN's annual SymphonyIRI report. Instead, SN's Fresh Market section takes this opportunity to look at how other major fresh food categories trended during the past year, and how several smaller categories are demonstrating promise.
Of those categories showing promise, several have become fixtures on this annual list, by virtue of consistent sales gains despite the economy. The refrigerated side dishes category, for example, has grown by $170 million since 2007. The $224 million refrigerated-pizza category posted double-digit growth during back-to-back years in 2008 and 2009. Premium refrigerated salad dressings have continued to defy recessionary trends, posting a 10.6% increase in volume during calendar 2009. And, sales of hummus, part of the refrigerated spreads category, grew almost 20% during the latest 52-week period ending June 13.
Although most of these smaller categories lack the heft to propel supermarket sales out of these recessionary doldrums, when viewed together, they offer a positive story for retailers. Whether they're looking for convenient ideas for a family meal, or looking for healthy products to entertain guests at home, shoppers are still looking to their local supermarket.
— Matthew Enis
Promotion-Driven Shoppers Hit CENTER STORE
What goes up, must come down. And so it was with prices in the highest-volume grocery categories during the 52 weeks ending June 13, 2010.
While dollar sales in the first half of 2009 were largely driven by price inflation, during the third and fourth quarters and through the first half of 2010 prices descended along with dollar sales compared with the previous year. But it wasn't for lack of demand.
In several categories, like fresh bread and rolls, lower prices drove unit sales (up 2% vs. the previous year), but not enough to surpass dollar revenues posted the previous year (down 0.7%).
“It looks like dollar sales are really dropping, but they're just sort of balancing off the huge jump,” observed Susan Viamari, editor of SymphonyIRI Group's Times & Trends report.
In some cases, prices weren't lowered indefinitely, but for a fixed period as part of a temporary promotion.
Nearly nine in 10 categories (88%) in the food channel saw increased merchandising activity in the form of a feature, display, price cut or a combination of tactics, noted Viamari. The strategy remains popular today.
“Promotional activity and temporary price cuts are still very much in the picture,” she said.
Nonessential food and beverages like carbonated soft drinks, salty snacks, ice cream/sherbet, bottled water, crackers and chocolate candy are among the top 10 categories getting promotional play — perhaps since the majority of shoppers (65%) cut back spending in segments deemed discretionary, according to Viamari. Helping to twist their arms were snacks and treats that could be obtained at a reduced price.
“You can justify the splurge more readily when it's on sale,” Viamari said.
Drug stores also got more promotional, with 57% of categories seeing increased merchandising activity. In some cases the strategy was effective at winning back share lost to other channels when gas prices moderated and shoppers became more willing to make shopping excursions all over town. Drug chains also endeavored to improve their position in the space with expanded grocery offerings and more private labels.
“The food prices tend to be a little higher in this channel, but they're trying to boost their value image,” Viamari said.
Shoppers approached deals as an opportunity to extend savings, with 53% stocking up on sale items. Particularly popular were bulk items that could be frozen, with nearly three in 10 (27%) consumers divvying out individual portions that could be thawed before use, according to SymphonyIRI.
Also popular were quick and easy meals and sides that had little chance of spoiling. Frozen pizza unit sales jumped 5.6% while frozen prepared vegetables, ready to heat with flavorful sauces, were up 10.8%. Shoppers also continued to entertain at home and sales of wine — up 3.3% in unit sales — benefited.
Other categories got attention, but not for positive reasons. As part an effort to curb smoking and raise funds to support health care programs, higher taxes were levied on cigarettes. In the food channel, dollar sales were up 3.8% while unit sales fell 5.4%. Some states also began taxing sugary treats like soda and candy to limit overindulgence and earn revenue for state programs.
— Julie Gallagher