THE COUPON ISSUE

WILLIAM SMYTH / Additional reporting: RICHARD TURCSIK

While freestanding inserts are still a consumer's major source of grocery coupons, new trends in discounting include Internet delivery as well as coupon marketing to ethnic groups.

The popular freestanding insert once again dominated the coupon mix in 1998, accounting for 93% of manufacturer coupons distributed. According to CMS, Winston-Salem, N.C., a retail coupon clearinghouse, coupon distribution was on the upswing last year, increasing 1% to 278 billion. That figure generated redemption of 4.7 billion coupons.

Al Schultz, president and chief executive officer of the Livonia, Mich.-based Valassis Communications, said he believes that 1999 will be a strong year for inserts. FSIs were up more than 5% for the first quarter of 1999, compared with the same period in the previous year, Schultz said. For the third and fourth quarter of 1998, FSIs were up 8.6% and 3.6%, respectively.

Although distribution was up 1% for 1998, redeemed coupons were down. Charlie Brown, director of the Association of Coupon Professionals, Chicago, said redemption declined only 4% to 6%.

"That is the smallest decline we have seen in five years and it means some 4.6 billion to 4.7 billion coupons were redeemed in 1998," Brown said. "After five years of decline in the coupon industry we are beginning to see something to smile at again."

Retailers polled by SN are using coupons to boost sales in the grocery aisle. Some retailers are targeting specific categories, while others use couponing throughout Center Store.

Murry's Family of Fine Foods in Upper Marlboro, Md., provides coupons for its frozen private-label products -- which are also sold to major East Coast chains like Food Lion, Pathmark Stores, Waldbaum's and Winn-Dixie Stores.

According to Steward Mendelson, senior vice president of sales, the supplier also provides paperless coupons by tagging items in the frozens aisle. Mendelson said that Murry's has been doing heavy couponing and, as a result, has seen the redemption rate increase slightly -- one-half of 1% from the previous year.

Murry's advertises in The New York Times and Washington Post. Mendelson also pointed out that of all the frozen items the vendor supplies to major chains, frozen French toast sticks are the most couponed item.

Some supermarkets have a lower percentage of coupon redemption from FSIs than the national average. For example, Mike Tetmeyer, vice president of marketing at Hy-Vee, West Des Moines, Iowa, said that FSIs make up 50% of coupons redeemed. The rest come from other couponing methods.

Like a lot of supermarket chains, Hy-Vee has coupon dispensers provided by national magazines set up in the grocery aisles. In addition, some manufacturers have teamed with Hy-Vee to do run-on-press programs through which additional grocery coupons are distributed at store level. "We also have direct-mail coupons from different agencies," Tetmeyer said. Hy-Vee cereal and soft drinks are the top-selling items couponed.

Although more coupons have been issued than ever before at Hy-Vee, Tetmeyer reported that the coupon-redemption rate was down in 1998 from the previous year.

At Bashas' Markets, Chandler, Ariz., cereal is also the most couponed item, because most customers think it is too expensive at the regular price. "The most popular items to coupon are those that customers feel are priced beyond what they are willing to pay," said Becca Anderson, director of public relations at Bashas.' "In our case, that seems to be cereal items."

Couponing within the grocery aisles is a key promotional strategy for Bashas'. According to Anderson, the retailer not only does double-couponing; it sometimes does triple-couponing to compete. "Bashas' will frequently use triple coupons in selected areas or at particular stores to combat competitive openings or increased activity from a direct competitor," Anderson said.

Bashas' redemption rate is up from the previous year. Anderson attributed the increase to the fact that coupons are reaching customers through more channels than ever before, including the Internet. Bashas' makes coupons available through a link to the Internet's ValuPage site, where customers can download electronic coupons for discounts. "While stand-alone inserts are still the most prevalent method of coupon distribution, the electronic methods are probably showing greater redemption and will impact the entire coupon industry in the future," Anderson speculated.

Some companies are targeting ethnic audiences that may not understand the use of coupons or may have negative ideas about them. Micromarkets West is a Rowland Heights, Calif.-based coupon company whose goal is to let the Hispanic community know about the advantages of couponing.

"We have one bilingual translator in every store and they will hand out a coupon booklet that is in Spanish and English," said Mike Popovec, owner of MicroMarkets West. "They will also explain how you can save money today." Some of the retailers that the company works with are Winn-Dixie, Publix Super Markets and Safeway. Micro West also works predominantly in the states of Texas, Florida, California and Arizona -- areas with a high Hispanic population.

The demonstrator will sit close to the front of the store and will usually sample two or three grocery products. "Hispanics are very polite by nature. By sampling, we get a little bit of time to explain couponing," said Popovec.