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Australian Grocers Adapt to New Challenges as Confidence Lags
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Australian Grocers Adapt to New Challenges as Confidence Lags

Kosta Conomos, Executive Director, Retailer Services, Nielsen Pacific

It is undoubtedly a challenging time for Australia’s grocers. Consumer confidence is down due largely to concerns about the economy and rising food prices and utility bills. As a result, shoppers are tightening their belts and looking for ways to make their dollars go further.

To reach consumers, major retailers are aggressively promoting “value” to drive foot traffic and achieve higher basket values and embarking on a two-tier pricing strategy which combines Everyday Low Price (EDLP) on household essentials, together with Hi-Lo promotional activity. Both actions have challenged the grocery industry’s established equilibrium, and as a result of deflation driven by the aggressive pricing campaigns of the major retailers, the average spend on packaged groceries (excluding fresh produce) has declined versus a year ago. Coupled with an increase in above-the-line ad spending by major retailers, the grocery channel is undergoing significant shifts, with declines in the contribution of independent retailer and non-supermarkets being the most evident.

Consumers Shop Around – Loyalty Suffers

As the retail landscape continues to evolve, shoppers’ behaviors are changing with it. Allocation of household spending between competing stores and brands is also evolving. The average number of visits to a specific store is down, with one exception: online. Meanwhile, shoppers’ loyalty to a particular store or brand is largely flat or declining, with one in five shoppers now visiting four or more outlets in a four week period to fulfill their household requirements (up from 13% in 2009), as variety, convenience and “shopping around for the best deal” becomes more apparent.

Adding to this new landscape is the emergence and growth of new retail players such as a major club store that plans to triple its presence in Australia by the end of July (two new stores, one Sydney and one in Canberra, will add to one current store in Melbourne). This provides yet another alternative store format for shoppers to patronize.

Expanding Online Presence – the Sleeping Giant

Not only are shoppers presented with new formats, they are also presented with multiple avenues to purchase from these stores, such as online and car park collection. Further, we are seeing growth in parallel imports marketed via new online channels such as offyourtrolley.com.au and groupon.com.au. Each of these new channels is contributing to the changes we are witnessing across the grocery landscape, forcing long-established retailers to rethink their overall offer to shoppers.

Then, of course, there is online grocery retailing, which could be described as something of a sleeping giant in the Australian market. Online grocery shopping in the UK and U.S. is now a fast growing and important sales channel. In 2010, U.S. online FMCG sales reached $12 billion, representing close to 2% of all FMCG sales; by 2014, that figure is expected to double to $25 billion.

In Australia, online shopping for FMCG products has been slow to take off, but there are signs of growth: 8.2 percent of Australians (aged 14+) claim to have purchased food or groceries online in the past 12 months to April 2011, up from 7.1 percent a year ago. This suggests that significant opportunities exist for those retailers who know how to effectively use the Internet to reach shoppers.

Strategies for Growth – Mix it Up

How can retailers and suppliers in the Australian grocery sector spur growth? The key is to identify new shopper touch points. Advertising budgets – which have seen large swings over the past two years – are now stabilizing. My colleague Peter Cornelius, Managing Director of Nielsen’s Media business in Australia, recently noted in an interview that while advertisers had invested little in 2009, 2010 saw strong growth, but off a very modest level, and we are now seeing the market return to an acceptable level. TV continues to be the primary medium for grocery advertising, accounting for two-thirds of spending, followed by magazines. The real opportunities to engage with consumers exist as a result of continued media fragmentation, whether through social media, interactive targeted marketing, or even awakening the online shopping giant.

The rate of change in the grocery sector is accelerating, but so are the openings for creative marketers who understand shoppers’ needs and demands, and can maximize opportunities within the landscape.

Australia Biggest Spending Categories
Est. main media spend $M % change vs YA
Confectionary 24.7 1.2
Dairy Products & Substitutes 24.7 33.5
Breakfast Food 20.7 -14.8
Ice Cream/Frozen Confectionary 10.6 -7
Sauces/Gravies 9.1 11
Biscuits 7.7 18.5
Snackfood 6.8 -34.6
Meals 6.3 -26.7
Seafood 4.4 -10.2
Meat 3.8 -9.5
Source: The Nielsen Company – 2/01/2011 to 4/06/2011

Australia’s Top Spending Grocery Sectors
Est. main media spend $M % change vs YA
Food 155.3 -7.2
Retailers 72.8 3.7
Beverages – Non Alc 55.5 -12.5
Household Products & Cleaners 42.6 4.2
Source: The Nielsen Company – 2/01/2011 to 4/06/2011