Channel Blurring: A Consumer's Perspective

Supermarkets, c-stores and drug stores -- and now even mass merchants -- continue to be upstaged by supercenters, club and dollar stores, according to ACNielsen's 2003 U.S. Channel Blurring study. Key findings from the annual report, culled from the company's Homescan consumer panel data, were shared by Todd Hale, senior VP-consumer insights at New York City-based ACNielsen. Hale presented the study at the FMI Advertising & Marketing Executive Conference in Orlando in April. The days of supermarkets only competing with their peers are over. While the shift to supercenter formats has applied the most pressure, numerous retail channels now sell the staple consumer-packaged goods that were once nearly exclusive to supermarkets. Meanwhile, drugstores emphasize product categories formerly dominated by supermarkets as grocery, mass merch and club chains encroach on their core pharmacy business. Elsewhere, c-stores are looking to reinvent themselves now that big-box retailers offer lower-priced gasoline and tobacco. And the format exhibiting the strongest growth, dollar stores, is penetrating higher-income households and stealing share from everyone. That's not to mention the effect of alternate retail channels such as home improvement and consumer-electronics. The hardware/home-improvement channel was shopped by eight out of 10 U.S. households in 2003. Half of all households shopped electronics chains; 48% did business at office supply stores. Plus, 30% of households shopped book, automotive, pet and toy stores. As a result of this changing marketplace, all retailers must recognize that competition is no longer limited to their specific channel. Competition is coming from more channels than ever before. Retailers must therefore rethink formats and merchandising strategies. CPG manufacturers, in turn, must re-evaluate how they package and ship products to both traditional and emerging accounts. Key FindingsThe future is seemingly bright for dollar stores, supercenters and warehouse clubs. The dollar channel grew by 4,445 stores between 2000 and 2003; the club channel grew by 445 stores. Wal-Mart plans to open 220 to 230 supercenters this year, which could cause the closure of one to two supermarkets in each market it enters, Hale said. Still, all major supermarket and mass-merchant chains aside from Kmart and Ahold saw growth in 2003. Wal-Mart and Target led the way with 116 and 21 new store openings, respectively. Kroger has been the most aggressive supermarket chain at expansion in the past three years, but it was No. 2 chain Albertsons which made the strongest gain recently by acquiring 202 Shaw's stores. Supermarkets can further fight the competition by continually introducing store-within-a-store concepts, such as office supply and toy departments. However, Hale discouraged incorporating dollar-store departments to supermarkets. "Dollar stores are a $16 billion channel, but you don't have to experiment with special sections in stores because it's not the same atmosphere," he said. Periodic dollar promotions are fine, but supermarkets can't offer the convenience and wide selection of low-priced items found in dollar stores and therefore should not waste valuable shelf space trying to, Hale said. Sixty-six percent of households shopped dollar stores in 2003, up from 55% in 2000. Fifty-four percent shopped supercenters, up from 51%. Overall, grocers and mass merchants continued to lose per-household trips to dollar stores and supercenters. Supermarket trips per household dropped six percentage points to 72 in 2003, while mass-merchant trips fell four points to 21. Supercenters, on the other hand, saw an eight-percentage-point jump to 25 trips and dollar stores grew three points to 13 trips per year. The plethora of retail options has brought about "channel grazers" who shop at multiple retail formats. Heavy grazers shop more than 28 retail channels per year and drive 46% of total retail sales. "That's where your money is," Hale said of the group. (Light grazers shop 18 or fewer outlets and drive 22% of sales.) Of heavy grazers, 96% shop drugstores (compared with 20% of light grazers) and 48% shop toy stores (compared with 12% of light grazers). The average heavy-grazer household makes 266 shopping trips per year, compared with 125 trips by light grazers. Among heavy grazer tendencies: They are more responsive to in-store sampling.They are more likely to try new products.They spend a lot more on private label.They are driven by deals to make off-cycle purchases.They are susceptible to food offerings in non-grocery settings. The study also offered suggestions on how each channel can survive the increasingly competitive marketplace: DrugstoresWithin the 55-to-64-year-old age group, 90% shop drugstores, but the channel needs to make a more concerted effort to reach younger consumers. "Reaching [the younger age group] is harder, since they spend a great amount of time online," Hale said. "But Walgreens is doing a good job with more food and beverage offerings, 24-hour service and one-hour photo [service]." The chain's expansion efforts have led to stronger penetration among younger consumers. Thirty-nine percent of women ages 35 to 44 shopped the store in 2003, up from 30% in 2000; 38% of women 35 or younger shopped there, up from 28% in 2000. By 2010, the retailer plans to add another 3,000 stores to its current 4,231. Drugstores also need to hang onto the pharmacy business, Hale said. Not only are supercenters and warehouses incorporating pharmacies in stores, consumers are also turning to mail-order options. Grocery StoresSupermarkets can benefit from offering relevant store-within-a-store services. For example, heavy grazers spend a large amount of money on home electronics products. Office-store supplies are also a safe bet, Hale said. Grocery retailers must remember that their shoppers have a strong desire to finish shopping faster. These customers also don't travel very far to reach their primary store. Of consumers who shop grocery stores, 70% travel fewer than five miles, according to the report. And of those shoppers, 61% use self-checkout. Supermarkets must also emphasize meal solutions by making fresh produce, meat, seafood and baked goods strong destination areas. "Grocery stores have lost sight of this," Hale said. "It's all about the perimeter."Additional tips for grocery stores:Improve the shopping experience with more sampling, retailtainment and employee-to-shopper relationship building. Offer services such as gas, pharmacy, and banking.Tailor offerings to the local area.Wal-MartWal-Mart is continuously reinventing itself. One example is its Kicks coffee shop concept. Wal-Mart and Target are also targeting teens with better fashion offerings. At some point this year, supercenters will outnumber traditional discount stores, Hale said. Wal-Mart's 2004 expansion plans include 220 to 230 supercenters, 50 to 55 new discount centers, 25 to 30 neighborhood markets and 35 to 40 Sam's Club stores.Convenience StoresC-stores had a rough year in 2003. Though the channel added 12,740 stores between 2000 and 2003, nearly 1,800 stores were shuttered in 2003 alone. Growth is expected to be less than 4% through 2006. C-stores need to defend their gasoline business, keep up with tobacco legislation and draw a broader demographic (meaning women). While supermarkets are attempting to figure out how to offer ready-to-eat meals, c-stores are better equipped to do so and should focus on food and add smaller stores that are easier for consumers to get in and out of.

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