The Changing Faces of America Events... · 2017-05-02 · The Changing Faces of America February...

This document is confidential and is intended solely for

the use and information of the client to whom it is addressed.

The Changing Faces of America

February 2013 Thom Blischok Chief Retail Strategist

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In this “turbulent” economy, shoppers remain wary—what does it take to win in the “new normal”

Key Industry Questions

Has living through the recession changed the consumer mindset? Will change persist?

What is and will be the role of technology, multi-channel retailing, loyalty, and collaboration, in changing the way shoppers shop?

With ever increasing competition, food price inflation, new emerging e-channels, weak product innovation,

conservative consumers, how do retailers and manufacturers grow and food shippers ship?

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Demand now being driven by changing demographic and financial shopper landscape

The new shopper landscape is a “wine decanter” not an “hourglass.”

The new shopper “decision tree” focus is “envisioning” not purchasing/selection” not just deals

Retailers are heavily investing in format, merchandising, and marketing capabilities

CPG manufacturers placing bets/investments in product innovation, channel ,and banner rationalization

Amazon.com is expected to have an impact going forward.

Home Delivery is now a viable purchase channel and will increase significantly

We believe 2013 will present a number of both ongoing and new challenges for the Retailer and CPG Manufacturing Communities

Executive Summary

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1. Changing Shopper Landscape

2. The Bifurcated American Shopper

3. Retailer Competitive Responses

4. CPG Manufacturer Competitive Responses

5. Recommendations for Consideration

Topics for Today’s Discussion

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1. Changing Shopper Landscape

2. The Bifurcated American Shopper

3. Retailer Competitive Responses

4. CPG Manufacturer Competitive Responses

5. Recommendations for Consideration

Topics for Today’s Discussion

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The 2013 market Retail landscape is best characterized by five driving forces

Realities of living with less

“Intensified uncertainty about the future”

Growing shopper bifurcation

“Creeping forward” economic /retailing environment

Technology enhanced path to purchase

Changing Shopper Landscape

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The economy appears to be improving steadily though a substantial proportion of consumers remain unconvinced

March 2012 FMI Survey

N=1401

55

60

65

70

75

80

85

90

95

Q1/12 Q1/11 Q1/10 Q1/09 Q1/08 Q1/07 Q1/06 Q1/05

University of Michigan Index of Consumer Sentiment

(ICS) (1) Gross Domestic Product

$US Trillions, Chained 2005

14

13

12

200

8

201

1

200

6

201

0

200

7

200

9

200

5

Recession 100%

58% Better

42% Worse

Recession

Sources: National Bureau of Economic Research (start and end dates for the recession, December 2007 and June 2009); University of Michigan/Thompson Reuters; Booz & Company Analysis

1) The University of Michigan Thompson Reuters Index of Consumer Sentiment Index is calculated monthly based on at least 500 telephone-survey responses to five questions. Full information is available at http://www.sca.isr.umich.edu/

2) Question: “Do you think the economy is getting better or worse?”

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In 2013, average weekly household spend rose slightly—in real terms—a multi-year downward trend

Weekly Household Grocery Expenses (1)

$US

$93.30 $93.20 $97.80 $98.40 $99.90 $97.30

$104.90

2012

$ 88.06

2011

$ 85.60

2010

$ 88.15

2009

$ 87.27

2008

$ 92.29

2007

$ 91.64

2006

$93.30

Food-inflation adjusted Weekly Spend (2006 Dollars) Nominal Weekly Spend (Dollars)

Note: (1) Survey question, presented in February or March of each year: Approximately how much do you spend each week on groceries for your family?

Changing Shopper Landscape

Source: FMI U.S. Grocery Shopper Trends 2011, 20; USDA Consumer Price Index for Food at Home http://www.ers.usda.gov/Briefing/CPIFoodAndExpenditures/Data/cpiforecasts.htm; Booz & Company Analysis

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“Fresh” is increasingly driving consumer purchase behaviors – the implications of fresh are broad reaching – top 10 categories

Fresh Fruits Fresh Vegetables Milk Chicken Beef

Laundry Products Coffee/Tea Milk Non-Dairy Cheese Paper Products

Changing Shopper Landscape

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Four mega-trends are reshaping the retail industry for the foreseeable future – all impact Shippers future

Continuing Trends

2012 Retail Key Mega-Trends

Format Innovation

Online Encroachment

Value Seeking

Technology- Enhanced Shopping

Emerging digital shopping behaviors which enable ever more consumers to access the best deals available in their local market

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Continued innovation in physical store formats –particularly smaller stores – meeting distinct consumer needs

4

The recession caused a likely permanent

shift towards “value seeking” behaviors

1

Growth in online retailing within

grocery – but driven primarily by “peripheral”

categories not the core

3

Plus 2 key continuing trends: Private brand share is stable

at a new, higher level Ongoing concern for health,

wellness and sustainability

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Changing Shopper Landscape

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Value Seeking translates into a shift towards austerity for millions of households

Sources: Booz & Company Analysis

“15M – 20M more households

are now value seekers”

Changing Shopper Landscape

1

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Private brands are an integral part of the value seeking shopper purchase behaviors

“101M households have

integrated private brands into their

pantries ”

Changing Shopper Landscape

1

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Personal economics are dictating a new “lens of affordability” purchase decision process

“72M households have learned to

live with less and are enjoying it”

Changing Shopper Landscape

1

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Trip Type National Grocery Retailers

Regional Grocery Retailers

Dollar 2 Club 1 Total

Stock Up

Fill In

Quick Trip

Special Occasion

1) Costco/BJ’s/Sam’s

2) Dollar General/Family Dollar

Projected Trip Type Landscape Across Retailer Channels

With this value seeking shopper, traditional weekly stock up trips are transitioning to a more frequent trip “rhythm”

Source: Q7. To what extent do you agree or disagree with each of the following statements about your shopping trips to retailer 1 compared to last year? Grocery Retail Survey, Booz & Company Analysis.

Changing Shopper Landscape

1

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And shoppers clearly articulated their definition of value

“Quality received per

dollar spent”

Value Defined

Changing Shopper Landscape

1

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Technology is interrupting the traditional path to purchase and will continue to do so

“Fifty-two percent of American

households use technology in

traditional grocery

purchasing”

Changing Shopper Landscape

2

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On-line encroachment of traditional grocery categories is today small and expected to grow rapidly

“Fifty-four percent of American

households purchase some grocery

categories online occasionally”

Changing Shopper Landscape

3

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And a new competitor clearly indicates market intention

“Amazon indicates that

65% of America will be serviced with same day delivery by the

end of 2014”

Changing Shopper Landscape

3

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Changing Shopper Landscape

34 Companies offering grocery home delivery

Suburban Organics is now door to door organics

(formerly AULSuperStore)

Source: http://blog.couponsherpa.com/34-companies-offering-grocery-home-delivery/

Service isn't available in all regions of the country, but many companies are rapidly growing into America's "fly-over" regions

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150M sq. ft. of grocery category space built outside of grocery in the past seven years

US Store Count Expansion from 2005-2011

Source: Nielsen US Retail Trends, March 2, 2012; Booz & Company Analysis

38,513

31,590

18,579

4,578 2,462

1,067 1,964

38,526

32,924

22,782

4,334 3,645 1,231

2,410

Hard discount stores Aldi, and Save-A-Lot are growing rapidly

Family Dollar and Dollar General

alone have added over 3,000 stores

since 2005

Supercenters Mass Merch Supermarkets $2MM+

Dollar Stores Drug Convenience Hard Discount

Warehouse Clubs

2005 2011

148,126

140,655

+5%

0%

+4%

+23%

-5% +48%

+15% +23%

Changing Shopper Landscape

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1. Global economic downturn continues for the foreseeable future

2. Shoppers demand a three part “banner promise”

– Simple

– Quality

– Value

3. A heightened awareness of food safety and consumer trust emerges

4. Fresh drives store selection and choice

5. “Seamless” retailing becomes a reality

6. Product sourcing goes global as well as local

What are the strategic implications for shippers

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Topics for Today’s Discussion

1. Changing Shopper Landscape

2. The Bifurcated American Shopper

3. Retailer Competitive Responses

4. CPG Manufacturer Competitive Responses

5. Recommendations for Consideration

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The the consumer landscape has clearly evolved into two highly bifurcated shopper segments – critical transformation

Survivalists

The Bifurcated American Shopper

Middle Class

Selectionists

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“Survivalist” Key Metrics

Segment size

Income Distribution

Brand Dynamics

The “Survivalists” continue to struggle with spend levels and are aggressively searching for ongoing demonstrated price/value

Source: The Dialogic Group LLC – 2011, 2012, 2013, n= 1200

● Brand Transitioning: National Brands to Private Brands – limited loyalty ● Preference Transitioning: Favorite Brands to Value Brands ● Brand Architecture: Core Value to Selective Aspirational ● Elimination: Cutting Categories as a Last Resort

Touching all income levels

Under $50K $50K - $100K Over $100K

2011 – 39% 2013 – 65%

4M more households

The Bifurcated American Shopper

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The “Selectionists” are increasingly using a “lens of value and affordability” to drive their food purchase decisions

“Selectionist” Key Metrics

Segment size

Personal Financials − $50K Plus

Brand Dynamics ● Brand Transitioning: Limited -- Have significantly more loyalty ● Preference Transitioning: Staying with same national and private label brands ● Brand Architecture: Core quality/value with significant choice of unique offerings ● Elimination: Infrequent and driven by innovation

20% Declining 42% Maintaining 38% Better Stability

2011 – 39% 2013 – 34%

4M less households

The Bifurcated American Shopper

Source: The Dialogic Group LLC – 2011, 2012, 2013, n= 1200

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1. America will buy about the same at different stores that meet their needs

2. Deals are in – and shoppers expect them to continue

3. Pantries will both continue to shrink as well as a tendency to “turn the pantry” more often

4. The “fresh mantra” will continue to alter shopping trips

5. Expect “the home delivery” delivery business to explode

What are the strategic implications for shippers

The Bifurcated American Shopper

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Topics for Today’s Discussion

1. Changing Shopper Landscape

2. The Bifurcated American Shopper

3. Retailer Competitive Responses

4. CPG Manufacturer Competitive Responses

5. Recommendations for Consideration

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– Format and Merchandising Innovation

– Loyalty Innovation

– Next generation Coalition Loyalty schemes are upon us

– Seamless retailing across all banner channels

– Mobility – communications, merchandising, offers, and coupons

– Pricing and Promotion Innovation

– “Full carton offers” to compete against Club

– Weekend promotions much like “special sales events”

– Day part promotions

– Multi-manufacturer “ideas /solutions”

Grocery Retailers are implementing aggressive techniques and capabilities to both retain and capture market share

% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

34%

56%

61%

70% Investments are being made in the perimeter departments

Retailers are focused on “local content development”

Retailers are significantly expanding in-store services

Retailers focusing on merchandising “ideas vs. items”

Retailer Competitive Responses

Source: The Dialogic Group LLC – 2011, 2012, 2013, n= 1200

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Experiential retailing is transcending the shopping experience “from items to ideas”

Retailer Competitive Responses

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Fry’s Signature stores have developed a tremendous focus on in-store experiences

Retailer Competitive Responses

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Pro’s Ranch Markets demonstrate a true commitment to the Hispanic Market

Retailer Competitive Responses

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Market L is a clear indication of effectively serving the Asian market

Retailer Competitive Responses

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Regional retailers also are embracing a new level of shopping experience

Retailer Competitive Responses

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In addition, smaller format “fresh focused” stores are beginning to effectively appeal to the fill in/convenience shopping trips

Retailer Competitive Responses

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Retailers are investing in a new generation of loyalty programs designed to capture a greater share of household spend

Redefining Grocery Loyalty

Programs

Retailer Competitive Responses

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1. Changing Shopper Landscape

2. The Bifurcated American Shopper

3. Retailer Competitive Responses

4. CPG Manufacturer Competitive Responses

5. Recommendations for Consideration

Topics for Today’s Discussion

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Rewiring Next Generation Collaboration

Brand Innovation

“Cost to Serve” Investment Models – Channel, Banner Trade-offs

– Growth vs. Maintenance Categories

– Seamless account teams

CPG Manufacturers are developing new/enhanced capabilities to drive sustainable growth

% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

34%

46%

52%

61% Rethinking merchandising focus to ideas/solutions

Accelerating brand positioning marketing efforts including consumer direct

Challenging current product development models

Reconsidering brand architecture changes to accommodate changing shopper bases

% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

36%

47%

56%

78% Redesigning trade and promotional funding

capabilities

Developing new integrated trade/promotional, pricing, and shopper marketing organizations

Reprioritizing trade and promotional spending

Redesigning “retailer account strategic planning” efforts and capabilities

CPG Manufacturer Competitive Responses

Source: The Dialogic Group LLC – 2011, 2012, 2013, n= 1200

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1. Changing Shopper Landscape

2. The Bifurcated American Shopper

3. Retailer Competitive Responses

4. CPG Manufacturer Competitive Responses

5. Recommendations for Consideration

Topics for Today’s Discussion

It is important to jointly, strategically, rethink and align on “where to play” in the future

Envisioning Pre-Planning Purchasing Payment Consumption Overall Experience Social

A Shoppers Perspective on their Changing Decision Process

Today’s Focus Tomorrow’s

focus Tomorrow’s

focus

Recommendations for Consideration

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Retailer

Strategic banner differentiation other than price is a must

Next Generation loyalty systems are in play

– A go forward seamless loyalty strategy

Alignment with the shopper defined “elements of success”

– SIMPLICITY, QUALITY, PRICE/VALUE

CPG Manufacturer

Channel to Banner investment encompassing entire “Costs to Serve” models

Highly integrated strategic account planning process

Accelerate “speed to market” in new product development

Retailer – CPG Manufacturer – Shipper -- Joint – Growth Focus

360º Next Generation Collaboration Capability is a must – a fully integrated end-to-end model is critical

Recommendations for Consideration

Shipper

New capabilities in Fresh, New “Cost to Serve Models”, Home Delivery Integration, The impact of Local Products, Smaller Store Formats -- All driven by changing shopper consumption and retailer landscape patterns

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As a Food Shipper, there are four strategic issues that need strong consideration to plan for growth

“How do I plan for and meet the needs of the emerging retailer competitive landscape?” 1

“How will the growth of home delivery change the focus of my company?” 2

“What capabilities do we need to compete globally, nationally, and locally?” 3

“Recognizing the above three trends, how do we differentiate?” 4

Recommendations for Consideration

This document is confidential and is intended solely for

the use and information of the client to whom it is addressed.

The Changing Faces of America

February 2013 Thom.blischok@booz.com 602-321-9305 (Cell)