COUPONS FLOOD THE MARKET; WAL-MART REDEMPTION SOARS

David Merrefield

Wal-Mart Stores has had quite a romp through the food-retailing business in recent years, taking the top place by just about every metric imaginable, with this exception: coupons.

As measured by volume of coupon redemption, Kroger Co. has long been the top-ranked retailer. That's about to change, though. Later this month, NCH Marketing Services, Deerfield, Ill., is to issue a report showing Wal-Mart at the top of the redemption heap, with Kroger dropping to second place. SN's Carol Angrisani obtained an advance copy of the report. See Page 42.

The emergence of Wal-Mart as top-ranked in redemption can't be viewed as much of a surprise, of course. Since Wal-Mart sells more grocery and related product than any other retailer in the nation, why not? Indeed, the fact that Wal-Mart went so long before capturing the highest redemption ranking is what's instructive.

Let's pursue further detail. Kroger had been the top coupon redeemer in the nation for a decade. During the past three years, though, Kroger's redemption volume declined 10% while Wal-Mart's grew 20%. This occurred in the context of declining coupon-redemption rates industrywide. The study shows that manufacturers issued a startling 275 billion coupons in 2004, representing a 6.6% increase against 2003. Just a small and declining percentage of all coupons are redeemed, however. In 2004, 3.3 billion were redeemed; 3.6 billion in 2003, and 4.5 billion in 2000.

There are some systemic reasons behind declining redemption rates. One is that most coupons now carry expiration dates, narrowing the time window for consumer redemption. Time dropped to less than three months last year. Moreover, more than a quarter of coupons issued require the purchase of more than one product to win the discount.

Beyond those factors, though, is the matter of economics. It seems to be the case that when the economy is in decline, redemption rates increase and the reverse happens when the economy is robust. Some studies also show that as the number of families finished with raising children increases, redemption rates decline too. This is another facet of the economic explanation.

In some ways, then, Wal-Mart is the retailer best positioned to win the coupon-redemption game, assuming it's a game a retailer really would want to win. Wal-Mart's shopper demographic skews toward those earning lesser sums, the very demographic that should be quick to embrace coupons. The fact that this finally has happened demonstrates that not only are coupons flooding the market, but that they are being distributed with increasing efficiency across shopper demographics.

Let's take a look now at a related issue, that of out-of-stocks. After all, if product isn't in stores, it won't be purchased, with or without a coupon. A large OOS study, detailed in a news article on Page 46, shows that OOS rates are probably far higher than they should be. The 2002 average OOS rate is nearly 8%, although the most efficient retailers achieve OOS rates of 3% or less. The needle on these rates hasn't moved much since the time of the well-known Coca-Cola OOS study of 1996. As you'll see in the article, those numbers will be updated at the conclusion of a 12-week study to be started later this month.