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RETAILNETGROUP STRATEGY ALERT No. 23 Issue
The (re)Emerging DiscountersFebruary 2009
To read this article in your browser, click here.
Greetings!
A new reality is settling in for retailers all around the world: a tougher economicenvironment is accelerating the growth & absolute number of lower incomeconsumers.
In the US alone, more than 70 million people are stressed for income (retired,unemployed, or underemployed*). In other words, almost 1 out of 4 people isstrapped for cash in the US today.
Retailers operating in segments targeting to lower income consumers will have anopportunity to strengthen their positions during this economic downturn.Conversely, mainstream operators will be faced with new price reference pointsthat will challenge them to look for ways to adapt to changing shopping behaviors& market conditions.
Below are our thoughts on how retailers are approaching this in the marketplace.As always, please reach out with any questions.
Aaron Chio,
Senior Analyst
RetailNetGroup.com
In This IssueAddressable Market
RNG Topic Survey
Discounter-Like Behavior
Commonalities
Retailers Fight BackPhoto Examples
What Next?
Prior Strategy AlertsRetailNet Group has publishedover 20 Strategy Alerts with
the most important themes that
retailers & suppliers should beaware of today to be ready for
the future.
Here is a sample of our latestreports, for a full list, visit
retailnetgroup.com
- Get Real on Pricing
- Perishables Private Label 2009
- Latin America Outlook Pt. 1:
Mexico
- How consumers are managing
through the crisis
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The Addressable Market
This group of cash-strapped and typically lower income shoppers - what we callthe addressable market - totaled 72.5 million in 2008 and could easily grow to77.6 million by 2012E. (Figure 1).
The group is comprised of unemployed, underemployed (i.e., people wanting towork full-time but only working part-time), and retirees (typically people on fixedincome, savings might be devastated, and might be emotionally distressed due to
the latter)
Figu re 1 : Addr essab le Marke t ( c l i ck im ages to en la rge )
Source: BLS, RetailNet Group
This group of consumers naturally grows & shrinks with each economic cycle.However, 2007-2008 marked only the first year of a period typically lasting 3-4years and characterized by rapid growth for this group consumers. Simply put,most forecasts point toward hefty growth for this group of consumers in the US.(Figure 2).
Fi g u r e 2 : Gr o u p i s l ik e l y t o c o n t i n u e t o g r o w i n t h e n e x t 3 - 4 y e a r s
Meet Our Analysts
Dan W. O'Connor is the President
& CEO of the RetailNet Group.
He also is the Founder of
Management Ventures, Inc.
(MVI), a WPP Group company.
Dan is a widely known industry
speaker and thought leader.
Email | LinkedIn
Aaron Chio is a Senior Analyst
leading RNG's development of
new research, insights and
growth strategies in Latin
America.Email | LinkedIn | Twitter
Tim O'Connor is Vice Presidentat RNG, currently responsible for
RNG's Growth Strategies
Curriculum and European market
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Source: BLS, RetailNet Group
RNG Topic Survey
What do you w ant to learn more about in 2009?
Click here for our short survey which will help us deliver the most important and
relevant topics to you.
Discounter-Like Behavior
As a response to the difficult economic times and a growing number of fixed-income consumers, RNG is seeing more and more retailers engaging in behaviorstraditionally associated more with discounters than mainstream operators. Thisis happening not only in markets where discounters are already highly developed(like Europe/UK) but also in the US and to some extent even in Latin America(subscribers see RNG's recent store visit of Bodega Aurrera Express in Mexico,
non subscribers contact us for information on buying this report)
In the US, we have segmented some of these retailers into an 'extreme value'group, which when put together, is expected to grow 2x faster than the US chainretail average for the 2009E-2011E period (Figure 3). Individually their storiesare significantly different, but put together, that are some common traits that areworth exploring.
Figu re 3 : Samp le o f ex t r eme va lue re ta i l e rs (c l i ck to en la rge )
insights.
Email | LinkedIn
Keith Anderson is a Senior
Analyst and responsible for
RNG's North American research
practice and transformational
capabilities
curriculum.
Email | LinkedIn | Twitter |
Windows Live Messenger
Symantha Chow is a Research
Analyst and supports RNG's North
American and Latin American
research, including its database
of chain retailers.
Email | LinkedIn
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Source: RetailNet Group
Extreme Value Retailer Commonalities
These retailers, despite belonging to a wide variety of segments, have severalthings in common. Most of them actually fit somewhere in between a traditionaldiscounter and a mainstream supermarket operator (Figure 4).
Fi g u r e 4 : RNG' s f r a m e w o r k f o r e x t r e m e v a l u e r e t a i l er s
Source: RetailNet Group
Here are some highlights that differentiate these extreme value retailers fromtheir mainstream competition:
● Clear value positioning targeting extremely value-conscious, income-challenged, and/or lower-income consumers.
● Competing directly with OP P (opening price point) food retailers.
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● Fewer assortment trade-offs compared to limited assortment grocers(particularly true for retailers like Winco, Kroger's Food4Less).
● Narrow merchandising ladders in private label but high pricedifferentials on OPP vs. branded, meaning there aren't 3-4 tiers of privatelabel within the same category.
● Focus on convenient shopping. For example good real estate, co-located to retailers that drive a lot of traffic, convenient hours (most
Winco's open 24 hrs).
● Offer a dignified shopping experience: Treasure hunt feel with afocus on food; clean stores with wide aisles, and no frills experience toreflect their pricing image & value proposition.
● Focus on simple affordable food offerings, offering easy-to-makemeals requiring 1 or 2 ingredients with little/no preparation.
● Availability of bulk food & global palette of food offerings.
● Unique labor & economic model, requiring high velocity & low costoperations.
Scroll down to the bottom of this newsletter to see some in-store example photosof how retailers are doing this.
Mainstream Retailers Fight Back
As new reference price points become available in the marketplace driven by a lotof these 'extreme value' retailers, mainstream operators are experimenting withways to fight back and lure consumers back into their stores, including:
● Rapid private label extension with the introduction of new discounterbrands, particularly in the UK, but also in the US with more SKUs showingup at the OPP level.
● Improvements in private label packaging & shelf presentation.Visible in almost every store around the US, retailers are focusing moreon trying to deliver extra benefits at a lower price.
● Big push in perishables private label growth. RNG is seeing theadvent of 4-5 tiers of private label in some categories (such as
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perishables) becoming more and more prominent globally. See this report
we wrote a few weeks ago.
● Increasing in-store value communications. Retailers getting moretactical at the store level around communicating value to consumers. Sothe function here is shifting not only to offering relevant price points butmore importantly making sure the message is heard across the shopperbase.
● Comparable pricing. In line with communicating value to consumers,retailers are becoming more aggressive around highlighting the areaswhere there are price gaps vs. competition. With January 2009 CPIincreasing over December 2008 numbers, demand will pressure pricesdown while inflation might pressure prices up, meaning retailers will haveto be efficient & right on price.
● Price point merchandising (i.e., even dollar price points) We reportedon this a few weeks back (see this short PDF), but we continue to see and
hear retailers focusing more on price point merchandising all over theworld.
● Deflating aspirational goods w henever possible. As consumers shifttheir buying habits from wants to needs, retailers are focusing ondelivering aspirational goods at more accessible price points.
● Re-configured essentials. Retailers pushing for re-configuring theessentials as a way of freeing up discretionary spending and convertingshoppers to higher margin impulse/seasonal/aspirational goods.
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Extreme Value & Mainstream Examples
Retailers hitting hard on opening price points: In the US, shoppers can getbreakfast, lunch, and a small dinner for $1 each at Dollar Tree.
Retailers establishing new price point references. $0.99 cents perishablesat 99 Cents Only; Aldi's Super 6 in the UK; Winco's perishables for under $1
Focus on o ffering affordable essentials. Winco a clear winner on this, Publixtrying hard to communicate this value to shoppers
Winco
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Publix
Price point merchandising. See ASDA (slide 9 in this document) or RNG
subscribers click here to see full store visit.
Source for all photos: RetailNet Group store visits
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Final Thoughts
Retailers that are defending & enhancing their position stand to come out of theeconomic downturn stronger than in the past. Those that are overtly changingstrategies risk their longer-term plans & vision, especially if the stray from theircore business & capabilities, or optimize too aggressively.
At the same time, retailers who are blending value positioning with continuedsensitivity to consumer interest in good taste, global flavors, fresh foods, and
health and wellness lifestyles will retain trips and volume through the recession,and more importantly, be prepared for eventual growth.
Those who compromise long term strategies for price-only differentiation riskbeing at the bottom of consumer interest once income and spending rebound.
* These are not mutually exclusive, but overlap is a relatively small percentage of this total calculation.
RetailNet Group is the leading insight and advisory firm focused on retail
growth strategies and consumer-facing transformational capabilities. We
are deeply experienced retail/consumer analysts and strategists workingexclusively to help brand-led businesses and large-scale retailers grow.
Sincerely,
RetailNet Group
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