CLOSING THE GAPS 2004-11-01 (1)

CHRISTINA VEIDERS

While traditional grocery retailing is a mature industry and has been undercut by alternative formats, a new consumer survey conducted exclusively for SN suggested opportunity gaps may still exist that could help supermarkets gain leverage against their competition.

Some of those opportunities may be found by not only looking at shoppers' future purchase intentions, but how future purchases may skew across gender, age and income levels.

Retail consultants said the survey pointed to opportunities for food retailers. However, cashing in on those opportunities is much easier said than done for supermarkets positioned to appeal to all consumers.

The study, "The NPD Group - Fairchild Consumer Spending Outlook Survey," was commissioned by Fairchild Publications here, SN's parent company, and conducted by the NPD Group, Port Washington, N.Y.

The survey indicated grocery/drug stores are no longer the primary domain for women shoppers, since it found as many men as women shop grocery/drug stores, 91% vs. 92%. Most grocery shoppers are women, and they still account for the majority of spending at supermarkets. Food Marketing Institute's "Trends in the United States, 2004" showed 71% of men said they spent the most money at traditional supermarkets vs. 63% of women.

The NPD-Fairchild study noted that if more men, who appear to be more prone to spending, are now shopping for food at supermarkets, then this could be an opportunity for future sales. Yet it noted that spending among both men and women will be the same as last year, with about 76.5% saying they expect their spending to remain unchanged.

Harry Balzer, vice president of the NPD Group's food consulting services, said just as many men as women go into supermarkets over the course of a year. However, he observed that when it comes to frequency of grocery shopping, it is still a female-dominated activity.

In 1996, 21% of men said they did the shopping for last night's dinner. This year, the percentage remained the same. Twenty-one percent of men said they did the shopping for last night's dinner, according to an annual NPD study.

Balzer said there is an opportunity for supermarkets to market to men if food retailers can figure out how to lure them in and appeal to their male sensibilities. This is difficult because it requires a change in their behavior, Balzer said.

One way this could be accomplished, suggested Neil Stern, senior partner for Chicago-based McMillan Doolittle, is to examine mens' shopping baskets through loyalty card data, and look at how they differ from core grocery shoppers' carts. Stern asked: Are the right products being merchandised? Do men want the shopping experience to be different in layout, signs and promotion?

Targeting to a younger shopper (18- to-34-year-olds) also may allow supermarkets to pick up extra share points because younger consumers tend to shop alternative formats, the study indicated. It found that grocery/drug shoppers skewed slightly older (ages 35 to 55, and older). That coincides with FMI's demographic profile of supermarket shoppers that showed 72% are between the ages of 25 and 64; only 9% are between the ages of 15 and 24.

Balzer said the landscape for food shoppers has changed for younger shoppers from when their parents first shopped for food. Younger shoppers are now in the critical "adoption phase," where they are just beginning to make their decisions and their behavior hasn't become set in stone.

To attract younger shoppers -- and, for that matter, any shoppers -- Balzer said supermarkets have to offer one or more of the following: time-saving convenience, something new, and cheaper prices. All trends are driven by these three things, he said, and those retailers that can deliver on them will win shoppers.

"Supermarkets can win on their ability to provide new, exciting things just because of the number of products they sell," Balzer added.

Bill Bishop, president, Willard Bishop Consulting, Barrington, Ill., said he believes supermarkets have an opportunity to attract more men and young shoppers.

"The answer is to win more frequent trips from both of these demographic groups. This involves engineering more value into short trips, such as ones that satisfy specific needs relative to fill-in, immediate consumption and specific item need," he said.

Suggestions Bishop offered include positioning and promoting the store as a place that specializes in short trips; and moving products most frequently purchased on short trips to one area, ideally close to the front of the store like Shoppers Warehouse in the Baltimore-Washington area is doing with beverages, milk and bread. Another suggestion is speeding the checkout process through self-checkout as Jewel and Stop & Shop supermarkets have done.

By better merchandising product categories that attract a younger consumer, such as personal care, toys, DVDs, music CDs and even healthier foods and takeout foods, grocery/drug stores may be able to draw younger shoppers.

Stern said Wal-Mart Stores, Bentonville, Ark., has done a better job than supermarkets in attracting younger shoppers and larger family households with low prices, a more complete store offering, and a broader selection of general merchandise.

He noted that H.E. Butt Grocery in San Antonio, has taken a first step in this direction with its H-E-B Plus format that devotes about 30,000 square feet of its total 109,000 square feet to nonfood categories. H-E-B Plus contains expanded baby care and entertainment with music and DVDs, thus appealing to young shoppers and those starting families.

Stern said Toronto-based Loblaws also is pursuing a model with expanded nonfood to draw young shoppers.

Overall Spending Outlook

It appears consumers will keep an eye on their spending in the coming months. A majority of shoppers (79%) said they planned to spend less (34%) or the same (45%). Only 18% of consumers said they would spend more in the next 12 months. The economy, job security, gas prices and uncertainty over the election may all be causes.

"You will always find people planning to cut back," said Balzer. "But what consumers say they are going to do and what they do are two different things."

While consumers generally say they are cutting back, men and younger shoppers can offer grocery/drug stores extra discretionary spending. More men (21%) said they planned to spend more than women (15%). Conversely, more women (36%) said they planned to cut back than men (31%).

"Male shoppers are blindly non-price competitive," said Stern. Retailers can make more money by selling to men because it is more profitable, he added.

While income was not much of a demographic factor impacting overall spending, some differences appeared with age. Younger consumers, ages 18 to 34 years, were more confident when it came to future spending. They said they would spend more (26%) or the same (36%). Only 14% of those 55 and older said they planned to spend more, and 46% said they planned to spend the same.

In polling consumers on where they shop for food and other categories, there are some demographic variances that may be important to food retailers.

Supercenters, mass merchandisers, dollar stores and convenience stores are drawing younger shoppers (ages 18 to 44). Income levels of consumers shopping those channels skewed from a low of less than $25,000 for those shopping dollar stores to mostly mid-to-higher incomes for consumers shopping other alternative retailers. Warehouse clubs drew older shoppers (age 55-plus) whose income ranged from $45,000 to $75,000 and above.

The study also indicated the following about consumers who shop alternative channels: Consumers 18 to 34-years-old are most likely to spend more at supercenters.

Shoppers with upper incomes of $75,000-plus are only 3% more likely to cut back on spending at mass merchandisers than those with incomes less than $20,000 (23% vs. 20%).

Those consumers 18 to 34-years-old are 2-to-1 more likely to shop dollar stores. Lower-income consumers are 2.5-to-1 more likely to shop dollar stores.

Three out of four consumers plan to shop convenience stores, an increase from three out of five. Thirty-one percent of women said they don't shop convenience stores.

Warehouse clubs continue to appeal to wealthier customers -- and to younger shoppers as well. While natural food and health stores appear to be attracting more shoppers (34%), a jump of 14 points over the previous year, more younger consumers, 18 to 34-years-old, said they planned to spend more than older adults at these stores.

"Every supermarket is expanding their assortments in organics and natural foods," said Stern, who added that most supermarkets do a reasonable job in carrying the right assortments. However, he added that retailers also need to ask if the experience is right for their various shopper groups and what are they looking for. "That is more problematic," said Stern.

"Within the market, the only thing that has truly succeeded are those who can deal on price. That has been the major force. When all else is lost what it comes down to is money. But in my mind, what the country wants is ease [of shopping]," said Balzer.

Food Expenses

The survey looked at consumers' future plans for spending on food and food services: takeout at grocery, fast-food and full-service restaurants.

Over three-quarters of consumers (78%) said they intend to spend the same on food/groceries as in the past; 12% said they would spend more, which was the highest percentage among categories that included takeout from grocery, household supplies/cleaners, personal care, fast-food and full-service restaurants.

Meanwhile, a high percentage of consumers said they would spend less at fast-food (48%) and full-service restaurants (31%). This may offer supermarkets an opportunity to increase their takeout sales and enhance their convenience image.

"Takeout appeals to everyone," said Balzer. "Mom will allow dad to do the cooking, as well as the shopping."

According to Balzer, the No. 1 appliance in America today is the power window, or drive-thru. "One out of every five males orders a meal at a restaurant and never gets out of the car. Are supermarkets considering this convenience?" he asked. Balzer noted that takeout at restaurants is lagging in demand, but takeout at the drive-thru window continues to grow.

When it came to where consumers will purchase food/groceries, food/drug stores were the No. 1 choice for nearly three-quarters of consumers (74.3%). Supercenters and warehouse clubs followed, with 39% and 28% of consumers shopping these formats for food, respectively.

"The grocery store is an important part of our lives no matter who you are," said Balzer. "Every [other] retailer sees that, including those that don't sell food." Thus, food retailing has become a market share battle in which everyone else wants a piece of a trillion-dollar industry, said Balzer.

Future Purchases

As to consumers' planned purchases at those channels that sell food, retail channels that picked up the most potential growth were warehouse clubs and convenience stores. Both warehouse clubs and convenience stores gained 17 points, and dollar stores and natural food/health stores both picked up 14 points over the previous year. Supercenters advanced by 10 points.

While supermarkets lead all channels in the highest percentage of consumers intending to make purchases there (97%), the channel picked up just five points over the previous year. While 80% of consumers said they planned to shop at mass merchandisers in the coming month, mass discounters picked up just three points over purchases made the prior year.

Intentions to spend more, less or the same varied across the seven channels that sell food. When it came to spending the same, grocery scored the highest, with 76.5% of consumers, followed by mass merchandisers and supercenters, with 53.3% planning to spend the same. Convenience stores and mass merchandisers received the highest percentages when it came to consumers' intentions to spend less, 24.1% and 21%, respectively.

Consumer spending at these various channels was conservative, with no more than 8% of consumers saying they planned to spend more.

Balzer said supermarkets are weakest on convenience in capturing future consumer spending. "Watch how people eat. They want to do it spending less time buying, preparing and cleaning up. Are supermarkets easy? No. It requires me to make a stop to buy, store, prepare and generally clean up. The takeout meal is convenient."

Product Spending

While food/grocery obviously gets a big share of the consumer's wallet since everyone has to eat, takeout at grocery stores is becoming an important item for 69% of shoppers, the survey found. However, a third of consumers surveyed said they don't use takeout services at grocery stores.

Said Bishop, "We're surprised that as many as 69% plan to purchase carryout from the supermarket. That's a high degree of participation."

He said sandwich programs like the ones Dorothy Lane Market, Dayton, Ohio, and Publix Super Markets, Lakeland, Fla., offer are good examples of what can be achieved in takeout. "With key exceptions, supermarkets do very little marketing their sandwich programs," Bishop added.

When asked where they buy takeout, nearly a quarter (21.4%) said grocery/drug, 10.5% said convenience, and 8.6% said supercenters. However, a large percent (37.3%) marked other stores, indicating an opportunity for supermarkets to better market and promote their takeout food service.

After making a big push in takeout service, Stern said some supermarkets have backed off or given up -- even though demand exists. "The foodservice business is very different than the supermarket business," he said. "You're into manufacturing and a new realm. A lot of supermarkets aren't comfortable, and they don't have the skill or management sets or the physical configuration."

Besides food and takeout, grocery/drug stores also have a slight edge as the place consumers go to buy household cleaners and supplies and personal care items. However, supercenters have quickly cut into supermarkets' market share on those items, as well as food.

Over the years, supermarkets have invested in nonfood categories like toys, small electronics/appliances, music CDs and DVDs/videos in an effort to boost sales of higher-margin categories. However, the survey found supercenters to be the leading outlet for these categories, except for music CDs, where the Internet is the prime sales channel, the survey said.

Demographic Spending Differences

A larger percentage of women (10.5%) as opposed to men (7.5%) said they planned to spend less on food and groceries. A higher percentage of younger consumers ages 18 to 44 (35.4%) said they planned to spend more at grocery stores, vs. just 18.6% of those consumers ages 45 and older, who said they would spend more.

It's no surprise that more people shop grocery stores (97%) over the other 14 retail channels last year. Mass merchants received the second-highest shopper patronage with 77% of consumers, followed by supercenters (68%), department stores (60%), convenience stores (58%), warehouse clubs (50%), and the Internet (50%). Those channels that drew less than 50% of the respondents were independent retailers (47%), electronic superstores (44%), dollar stores (38%), discount specialty (38%), specialty (29%), catalogs (23%), and natural food/health stores (18%).

When asked about consumers' intentions to make future purchases at these channels of trade, supermarkets again led the way, with 97% respondents intending to shop at supermarkets in the upcoming months. Alternative channels selling food also received a high percentage of consumers intending to make purchases: mass merchants (80%); supercenter (78%); convenience (75%); warehouse club (62%); dollar store (52%); and natural food/health store (32%).

In commenting on the direction supermarkets need to take to grow their business, Stern said, "When you are such a big industry and you are so dominant, that leaves you most vulnerable. A lot of retailers will try to find a way to attack you and take your business." Stern pointed to the success of Whole Foods as a specialty retailer. It will be difficult for mainstream retailers to follow a Whole Foods model "because when you are very large, you can't afford to be that specific." However, progressive retailers like H-E-B and Kroger have started to do format segmentation to draw in specific shopper groups. "The notion that one size fits all just doesn't work anymore," said Stern.

Two opportunities Bishop said exists across a range of shopping occasions are to "strengthen the price image on everyday prices and make the shopping experience more interesting or rewarding.

"These are not that easy, but it will certainly help to make the store more attractive to shoppers and increase sales," Bishop said.

Methodology

The NPD Group -- Fairchild Consumer Spending Outlook Survey was conducted in August 2004 by The NPD Group, Port Washington, N.Y. The survey was conducted from a representative sample of 2,500 men and women who are members of the NPD consumer panel. It polled adults 18 and over on their past and future discretionary spending.

The online survey asked consumers where they shop and plan to shop, and what they spent and plan to spend at various channels of trade and on specific products, services and entertainment events. The survey examined purchase intent at 14 retail channels, ranging from grocery to the Internet and catalogs, and 15 categories, ranging from food/grocery to electronics and entertainment.

For more about NPD, go to www.npd.com.

Hey Big Spenders

Men in general have the tendency to spend more than women.

How will you manage your spending in the next 12 months?

Men

Spend More: 21%

Spend Less: 31%

Women

Spend More: 15%

Spend Less: 36%

Source: The NPD Group --- Fairchild Consumer Spending Outlook Survey

No Gender Gap Here

An equal percentage of men and women said they shopped supermarkets over the last year.

Made Purchases in Last 12 Months

Men: 91%

Women: 92%

Source: The NPD Group --- Fairchild Consumer Spending Outlook Survey

Youthful Spending

Not that money is no object to young shoppers, but their intentions are "spend more," especially in comparison to older shoppers.

Do you intend to spend more or less in the next 12 months?

18-34

Spend More: 25%

Spend Less: 34%

Spend Same: 36%

35-54

Spend More: 18%

Spend Less: 34%

Spend Same: 44%

55-plus

Spend More: 14%

Spend Less: 32%

Spend Same: 51%

Source: The NPD Group -- Fairchild Consumer Spending Outlook Survey

Future Spending

Overall, consumers are conservative about their future spending. The economy, job security, gas prices, and uncertainty of the presidential election may be causes.

How will you manage your spending in the next 12 months?

Not Sure: 3%

Spend More: 18%

Spend Less: 34%

Spend Same: 45%

Source: The NPD Group -- Fairchild Consumer Spending Outlook Survey

Delivering the Goods Cheaper

It appears to be shaping up as another year of market share battles for consumers' discretionary dollars, according to the findings of a consumer survey by The NPD Group and Fairchild Publications.

"When all else fails and you cannot make it easier and you cannot bring any more new into the marketplace, then it comes down to money. The driving force in the supermarket business over the last 20 years has been money. Who can make it cheaper!" said Harry Balzer, vice president of The NPD Group's food consulting services.

Among the survey's conclusions:

Consumers expect to spend more at grocery stores, as well as supercenters and club stores.

Consumers plan to cut back at convenience stores.

Upper-income shoppers ($75,000-plus) are focused on shopping at club stores.

Discounters appear to be the store of choice for consumers along with specialty stores. Here, service and savings are all part of the value equation.

Lower-income shoppers will focus on dollar stores.

Just under a third of women (31%) will not shop at convenience stores.

No. 1 Retail Channel

Grocery/drug stores capture nearly 100% of shoppers. While all venues increased, the largest increases seem to be for dollar stores, discount specialty, independent retailers, catalogs and the Internet. This may reflect a desire to save money and stay home more. If this is true, then supermarkets could benefit from this desire.

Past and Future Shopping by Store Type

Retailer: Past 12 Months; Next 12 Months; Spend More; Spend Less

Grocery/drug: 92%; 97%; 8%; 13%

Mass: 77%; 80%; 6%; 21%

Supercenters: 68%; 78%; 8%; 17%

Department stores: 60%; 72%; 5%; 29%

Convenience: 58%; 75%; 2%; 24%

Warehouse: 50%; 62%; 8%; 13%

Internet: 50%; 67%; 8%; 22%

Independent: 47%; 73%; 3%; 22%

Electronic superstores: 44%; 64%; 6%; 30%

Dollar stores: 38%; 52%; 6%; 11%

Discount specialty: 38%; 70%; 5%; 19%

Specialty: 29%; 60%; 3%; 24%

Catalogs: 23%; 49%; 3%; 21%

Natural/health food: 18%; 32%; 3%; 8%

Source: The NPD Group -- Fairchild Consumer Spending Outlook Survey

Eating at Home

Consumers plan to cut back on their restaurant and fast-food spending, while supermarkets have an opportunity to boost their takeout foods. Thirty-one percent of consumers said they don't use supermarkets' takeout service.

What Is Your Outlook for Spending in Food Categories?

Same; Less; More

Food/grocery: 78%; 9%; 12%

Takeout from grocery: 44%; 22%; 3%

Fast food: 48%; 40%; 2%

Full service: 56%; 40%; 6%

Source: The NPD Group -- Fairchild Consumer Spending Outlook Survey