Todd Hale, Senior Vice President, Consumer & Shopper Insights, and Dan Brady, Director, Insights Consulting, The Nielsen Company
Retailers want to cultivate loyal shoppers. At the same time, CPG manufacturers want to make sure their products are available in the retail channels where their consumers shop. Nielsen research shows that those shoppers who use two or more retail channels spend more money – a lot more money. How much more do they spend? What categories benefit most from the expansion of the number of retail channels over the past decade? And how can retailers attract a greater portion of consumers’ shopping dollars?
Life used to be much simpler: the local drug store was the natural destination for cough syrup and cereal and frozen meals were bought at a grocery store. Today, shoppers can take their pick of the number of locations they can find these or most any items. And while one-stop shopping is certainly a benefit for many consumers, Nielsen’s research shows that across 15 major categories from snacks and carbonated beverages to paper products and pet food, shoppers take advantage of the wide array of choices available to them.
Multi-channel buying varies by category. Paper products is one of the most fragmented categories of the 15 examined; 83 percent of category buying households shopped two or more channels in 2009 for paper towels, toilet tissue, facial tissue and other paper goods. Conversely, about half of disposable diapers, coffee, vitamins and cough and cold purchases come from shoppers who shop for those categories exclusively in one channel.
On a dollar basis, the importance of dual and multi-channel category buyers is even more pronounced. For example, almost two-thirds (63 percent) of paper products category sales went to households who purchased them in three or more channels. In all categories examined, the majority of category sales come from households who buy in two or more retail channels. And all categories have significant sales from three or more channel buyers.
Whether consumers opt to shop multiple retail channels for convenience or value reasons, the implication is clear: for retailers, competition comes not just from the rival store on the next corner, but also from the big box store across town or from formats close to where shoppers work or travel. To maximize sales, manufacturers need to make their products available in a wide variety of channels as multiple retail channel buyers are much heavier category buyers.
For the 15 categories examined, buyers who shopped in four or more channels spent from three to five times more than those who patronized just one retail channel.
Multi-Channel Category Dynamics
A look at two specific categories illustrates the impact multi-channel buyers can have within a category as well as paint a picture of the competitive framework for retailers within a given retail channel. For the year ending September 11, 2010, grocery is the clear choice for most peanut butter buyers as 77 percent of buyers purchase peanut butter either exclusively in grocery (46 percent) or in a combination of grocery and some other retail channel(s) (31 percent). Mass and grocery buyers represent the second largest individual buyer group (16 percent of buyers), followed by mass only (13 percent of buyers). For non-grocers, the clear target is to build peanut butter sales from grocers, but grocers have a number of options to consider actions against other retail formats.
In contrast, the channel overlap for toilet tissue is extremely fragmented. Mass merchandisers and grocery stores capture the largest portion of buyers, either exclusively or in combinations with other channels. Grocery stores are the exclusive destination for 19 percent of category buyers, followed by a combination of grocery and mass merchandiser buyers (16 percent) and exclusive mass merchandiser buyers (12 percent).
But the more interesting fact is how the club channel has become a significant player in attracting shoppers who exclusively buy their toilet tissue there: 10 percent of consumers only purchase the product at a club store, which means they are willing to pay a relatively larger amount of money to get higher value for a multi-unit club pack.
How can retailers maximize the share of their destination categories and build even bigger baskets by capturing trips going to competitive retail formats?
Grocers and drug retailers with loyalty card programs can leverage analytics to evaluate shopping baskets of individual shoppers and identify opportunities to discretely target promotions. Some grocers have linked total store purchasing with savings on gas purchases to create continuity-based approaches to drive shopper spending and loyalty. Warehouse club retailers use similar tactics against their membership file, while dollar stores and mass merchandisers continue to leverage value pricing.
For manufacturers, maintaining broad distribution is vital. For many types of categories, limitation to just one or two channels is a missed selling opportunity – something few can afford in this era of continual and intense competition. In lieu of just selling the same products to all retail partners, some manufacturers are creating unique channel or retailer specific product assortment to create points of differentiation for their retail partners.