Who your shoppers are, why they visit you and how they behave provide clues as to what your offer should be and how you should be servicing them. However, the way the industry currently looks at itself (how it divides up or segments the convenience channel) doesn’t really look at shopper needs.
Traditional convenience channel segmentations include:
* Tier 1, 2 and 3 based on store footprint and sales
* Fuel vs non fuel vs dual
* Chains vs independents, based on whether you’re owned by a supermarket, or what banner/franchise/buying group you are or aren’t part of.

All of these are numeric, structural or operational. Whilst they provide an overview of the industry, they are not helpful to you in micromarketing an individual stores because they miss the intricacies of looking at where you are located, why shoppers choose you, and who you compete with, among other indicators.

We’ve started to have a think about how this could be approached differently – to provide a shopper overlay to the numeric and structural approaches. Based on a number of shopper related indices and dynamics, we suggest there are at least 5 different channel segments. As a starting point, we’ve called these segments Locals, MiniMarts, Arterial, Transit, and Roadhouse. There may well be some others, but these will do as a start.  The key principle is that your location – where you are -  largely dictates who your shoppers are and why they visit.

At the bottom of this article is an outline of what these segments look like, and some opportunities for each. These are just initial thoughts, we’ll build on it over time. Note that the channel segments outlined here are currently hypothetical, yet to be quantified with research.

What does this mean for opportunities and growth?

Why use the below table or start to think about what your store type is? Understanding who your audience is and why they are there helps identify ways you can grow, and they will differ slightly by segment. Some initial ideas are:

• Local: Community based programs (like IGA does). Expand range of essential items (compete with supermarket for small baskets). Expand services offer – you’re a destination anyway!

• Minimart: Similar opportunities to Local stores – expand range of essential items and services offer where you’re the regular go-to place for local apartment dwellers. Maps, guidebooks and other travellers needs for tourist locations

• Arterial: Daypart marketing – breakfast, afternoon pick-me-up, dinner on the run/dinner essentials, based on whether you’re inbound (breakfast) or outbound (dinner). Improved food range, eg meats and sauces , for ‘dinner tonight’ shops in outbound. Facilitate less queuing (open more registers during peak periods) to drive loyalty through efficiency

• Transit: Cross category bundles – snack, drink; non-spill format beverages; books and CDs, not just magazines. Work/date night essentials – stockings, cough/cold, pain relief, condoms

• Roadhouse: Differentiate from other roadhouses – expanded food offer with a point of difference (not just fried stuff). Kids toys & games suitable for travel (including electronic).

Here’s the reference table of hypothetical channel segments:

Types of Convenience Stores © ShopAbility 2010

Fig 1: Convenience Store hypothetical segmentation. © ShopAbility 2010

So that’s a very general outline on some potential different convenience store types. We welcome your feedback on the types and where your store fits (or doesn’t) as we discuss the opportunities per convenience store type further in later articles.

Until then!

Who do you think you are (what your pharmacy is) vs how your shoppers see it?

Last article we talked a bit about various retail channels and store types, and why they are visited by shoppers. We’re going to break this down into more detail here specific to pharmacy types.

Subsequent articles will deal in more detail, per type of pharmacy, in the opportunities this presents.

Who are you?

Below is a summary table of pharmacy types that we have developed. It might not cover every individual pharmacy out there, but should cover the majority … if you’re a pharmacy that doesn’t fit into the below, let us know. Always happy to look at new channel segments!

The first row (marked with #1) is the most important indicators, then the second row are the next most important and so on.

Fig 1: Pharmacy Channel segments. © ShopAbility 2009

What is evident from the above is that at least who shops in your pharmacies, and how they shop (and thus what you sell) is going to differ depending on the type of pharmacy you are.

If you’re an Inner City pharmacy, for example, you’ll have a lot more corporate types in their 20s, 30s and 40s buying stuff for that night (stockings, condoms, breath freshener etc) in their lunch hour or to/from work. This means you need to staff up at peak transit periods, and range products that apply to their needs (no incontinence pads for this market!) “Service” in these types of pharmacies means ‘get me in and out as fast as possible’. These types of pharmacies are the law of large numbers – you might not see each individual very frequently, but you’ll sure see a lot of different people (traffic).

At the other end of the spectrum, if you’re a Community Pharmacy (generally located on a suburban strip) you’re more likely to have a number of regular older customers, often pensioners, who treat you and your store as a frequent social outing and are more likely to wander in throughout the day, looking for not only the script fill for their chronic ongoing ailments but also (aside from the aforementioned incontinence pads) products associated with aging such as specialist footcare like corns and bunions. “Service” here has to do with the personal nature of the relationship. Customers in these types of pharmacies rely heavily on you for advice.

What does it mean?

We’ve had a go at representing some of the implications of these differences below. We’ll be going into more detail in future articles, but you can use the above and below tables as topline ‘ready reckoners’ of sorts.

You can see that the Range, Service, Value equation we discussed last time is dialed up or down in importance to shoppers depending on the type of pharmacy you are.

Fig 2: Topline Implications of Pharmacy Type. © ShopAbility 2010

So that’s a very general outline on the different pharmacy types. As mentioned, we welcome your feedback on the types and where your pharmacy fits (or doesn’t) as we discuss the opportunities per pharmacy type further in later articles.

Until then!

By ShopAbility for Retail Pharmacy Magazine

In our first article in the Shopper Marketing series we identified the key levers you can pull in store to convert more sales. We outlined the 5 way retail multiple and the key Point Of Purchase  tenets of ‘RSVP3’: Range, Space, Visibility, Promotion, Price and Persuasion (ie staff persuasion).

This issue we’ll focus specifically on Range. How can you use Range as a draw card for shoppers, avoid wasted retail space and differentiate the store offer versus competitors?

In this instance, we’re referring to your front-of-store and OTC products. Range is basically the amount and types of products your store carries.

Ranging needs to be considered at three levels – Store, Category, and Product. This can be represented as follows:

Store Level

What you range says volumes about you

Range is a key traffic driver. What you range – both quality and quantity – says something to shoppers about who you are and why they should shop with you.

Range talks directly to your competitive strategy. Who are you trying to be and what are you trying to do? If you are ranging the same items as competitors, but more are more expensive, then shoppers would need to see a different in store environment and service to make up the difference.

If you’re ranging the same products as competitors but more cheaply then you’re aiming to drive traffic based on price (which doesn’t necessarily lead to profit).

If you are ranging some similar but a number of different categories and products to competitors, then shoppers will come to know that your store has a range of items that other pharmacies don’t, and your pharmacy may become a destination for those items.

What you range vs your competitors also says something about you – how are you different or the same?

Category Roles

Different categories play different roles. Typically, these roles are Destination, Preferred, Seasonal/Occasional, and Convenience. How you activate the other Point Of Purchase drivers (space, display, price, promotion, persuasion) can also have a role in how the categories are viewed by shoppers.

The Pharmacy channel is interesting in that a) pharmacies are health retail generalists, operating across a number of categories and b) several categories are Destination categories based on shopper/patient distress situations, such as Cough/Cold and Analgesics. Or your pharmacy may attract Destination perfume shoppers, for example, because your range of perfume is good and prices are competitive versus department stores.

Categories like Weight Management, Vitamins & Baby might be Preferred categories for pharmacy (over and above mass merchants or grocery) because of the staff knowledge and service element. Categories like Allergy/Hayfever are highly Seasonal. Convenience categories are ‘while I’m here’, impulse type purchases typically with a narrow range, such as confectionery.

An example of category roles and their impact on range and retail measures is provided below. Don’t forget, the Retail Drivers are where the rubber hits the road. As you can see, by understanding your category roles (and the impact of that on your range decisions), you can leverage your retail drivers to increase profit.

So you need to figure out which roles each of your categories play, and what that means for the kind of range in each you should carry.

Category coverage & weighting

To achieve basic level category ‘coverage’, ranging products across the top selling categories is the obvious place to start. Naturally you need basic offers across the top 10 OTC categories (according to Nielsen’s 2009 OTC report): vitamins & supplements; cosmetics; analgesics; cough & cold; skin care; gastro intestinal; allergies; wound care; baby; and weight management.

So the above gets you to a place where you’ve covered the basics and you’re all things to everybody.

From a coverage point of view, if you only range the above Top 10 categories, what is missing? Is there another category that you could range to gain competitive difference? Could you be known as the orthopaedic shoe specialists, for instance?

Weighting is about relative emphasis. If you range more skus and devote more space to a specific category, promote it, and provide staff training in it, you will eventually become known as a specialist in that category. Are there any particular categories in which you would upweight your range, in order to become a ‘specialist’? What could you be ‘famous’ for?

When thinking about this, it is useful to ‘profile’ what kind of shoppers you see most often in your store. How old are they? Male to female split? What are their most common needs? What ELSE is that kind of shopper likely to need that either you or your competitors are not currently providing? Look for gaps and opportunities… how can you increase your usefulness to your primary shopper?

Depth vs Breadth

Depth is having few categories, but lots of skus (stock keeping units = individual products/packs) within the few categories you stock. In bottleshops, an example is Vintage Cellars – lots of depth in wine (and a few boutique beers) but really only the basics for beer, spirits, mixers etc.

Breadth is having many categories but only a few products per category. The soon-to-open Costco warehouse club is an example of this – they carry many more categories than the average supermarket – only 40% of what Costco carries is food, 60% is ‘general merchandise’, including everything from BBQs to plasma TVs to Tiffany jewellery – but in each category they only carry 2 or 3 skus.

You need to decide whether you are going to go for Depth (ie be a specialist in a few things, and just cover the basics with everything else) or Breadth (try to be all things to everybody, in which case you’re competing with the Pricelines and Chemist Warehouses of the world … and you probably won’t be able to match them on price because you won’t have their economies of scale and trading term relationships with suppliers).

Category Level

Categories are broken down into subcategories or ‘segments’.  Depending on your depth/breadth ranging strategy, in theory you need to cover most segments within a category.

For skincare, the segments might look like Face, Hand, Foot, Body and Suncare.  For Vitamins & Supplements it might be vitamin type (Echinacea, Vitamin A, Multivitamins) or condition specific (arthritis, period pain etc).

For each category, you need to a) segment the category/divide it into product groups based on how SHOPPERS look at it, and then b) decide whether you’re going to range products in EVERY segment or just focus on specific segments (ie back to depth vs breadth).

You also need to think about whether there are any ‘unique skus’ that are effectively a one-product segment, servicing a particular market, and how you might treat those in your category segmentation.

Note that as per the Store Level, individual Category Segments may play different roles.  Eg Glucosamine is Destination within Vitamins & Supplements.

The theory of coverage and weighting applies at category and category segment level too -  are there any category segments in which you would upweight or downweight your range?

Product Level

At this level, you’re deciding which brands and individual items (skus) you’re going to carry. Eg for Analgesics Brand X, will you carry tablets, liquid capsules, powder capsules or all three? Will you carry only the all purpose painkiller, or also the period pain and injury specific varieties?

This comes back to your store level strategy (focus/specialty categories vs basic categories, and their roles) and the decisions you made at category level.

What you’re now deciding is how many different products of a specific brand you’re going to carry across segments and across the category.

You also need to decide the mix of branded products vs own-label/private label/generics you’re going to carry.

In order to do this, you need to understand the role of ‘beacon brands’ for a category (eg Nurofen is a Beacon Brand in analgesics), and how substitutable the products are. Beacon brands may or may not be substituted for other products by shoppers. If it is a Destination category (eg Analgesics) and a Beacon Brand (eg Nurofen) a shopper may abandon the purchase if you’re not carrying the beacon brand … or if you don’t have a persuasive argument as to why they should buy an alternative product.

Ways you can determine the core products to range include sales analysis and trends of your own product sales (volume and transactions per line item); space to sales; and hurdle rates (units sold per store per week … otherwise known as velocity); industry intelligence and reports as to what’s selling, and trend monitoring to see what’s new that’s selling that you’re not ranging. Note that seasonal products will have highly variable velocity rates.

At a more advanced level, smart operators also look at the cost of supply per brand and line item, the cost/benefit of a broad vs narrow range within a category, and build in space limitations.

In summary: explore your range of possibilities

With the foregoing in mind, have a think about:
1. Who is your typical shopper? What do they need?
2. What does your ranging point of difference and strategy need to be to appeal to that shopper more versus competitors?
3. What types of category and segment level additions or cutbacks would achieve this?
4. What changes do you need to make to your category mix and segment/product mix within categories?

We’ll be back in the next issue to talk you through how to then come up with the right range for the size of your available retail space … known as ‘efficient assortment’.

In the meantime, we welcome feedback on these articles – what you agree with, what you don’t – and what you’d like to hear about. Email us with feedback on enquiries@sh-opportunity.com.au

Norrelle Goldring from ShopAbility and colleagues discuss how to leverage the in-store environment and influence the shopper where it counts. Norrelle’s comments highlighted on page 4.

Download the article here

Macro consumer & economic trends impacting shopper behaviour and how to leverage them

We are living in interesting times for retail. On the one hand we have a growing pool of high income earners and the ubiquitisation of luxury brands, and on the other a set of economic factors that are beginning to curb retail spend.

In this article we will cover the major consumer and economic trends impacting retail, likely changes in shopper behaviour, and implications for marketers.

The headline trends we will discuss are:

• Changes in household makeup
• Market polarisation and trade up/trade down, growth of the discounters
• Affordable luxury and masstige
• Health, wellbeing and obesity
• Sustainability and organics – the rise of the ethical shopper
• Economic slowdown, rising fuel and food prices.

Trend #1: Changes in household makeup – the role of segmented marketing

The facts:

According to Australia Scan, Roy Morgan and other sources, single person households are now nearly a quarter of Australian households, and 1-2 person households are nearly half of all households. The white picket fence, 2 adults and 2.6 kids (well, 1.8 kid) family still exists, but it represents under half of households, and only in certain geographic areas.

Men are increasingly shopping for themselves, with up to half of all grocery shoppers now male. Whilst the traditional ‘MGB’ (main grocery buyer) might be Mum shopping for the family in the mortgage belt, in inner-city areas shoppers are more likely to be singles of both genders shopping for themselves, or share households shopping together.

Implications for shopping behaviour:

Different household makeups have different product and pack requirements. Bulk packs are bordering on meaningless for DINKs living in small apartments with little cupboard space. Increasing average weight of purchase (AWOP) for small households living in small spaces might look like getting them to buy more units of a small item, rather than uptrade to a larger pack size.  The reverse is true for larger households with kids in the mortgage belt.

What marketers need to think about:

• Consider your portfolio strategy. Do you have brand and product offers catering to all relevant household types? Review your pack strategy and pack sizes by lifestage and household type.
• Explore segmentation with retailers. Understand how your category is segmented by shopper type and what products should be ranged where.

Trend #2: Market Polarisation – Trading up where I care, and down where I don’t

Facts and Behaviours:

Private label is reaching 20% of grocery sales, and Aldi is gaining momentum with approx 5% share of total grocery.

Shoppers are increasingly trading down on products and categories they don’t care about, and trading up in the ones where they do.

Trading up can be seen across a number of categories that are gourmet or involve entertaining, including coffee, cheese, dips, chocolate, pet food, and beer.

Categories with the highest involvement and degree of personal risk are the ones most resistant to private label.  Health and beauty (haircare, skincare etc) and pet food have so far proved reasonably resistant to private label despite the retailers’ best efforts as shoppers ultimately place more importance on the product’s efficacy (is it good quality/effective for my hair, skin, pet …) via strong brand associations, than the price.

Trading down occurs in low involvement, low perceived risk categories where the product is a (potentially invisible) component of a larger whole (think baking ingredients such as flour) or products in the category are perceived to all do roughly the same job. Papers, foils and wraps is such a category.

In addition, shoppers are more likely to trade down when products are for their own usage, and trade up when the product is for use by others, entertaining, gifting or special occasions.  I.e they trade up when image, indulgence, and efficacy are important.

What marketers need to think about:

• Marketers need to understand where on the trade up/trade down scale their products fit, and which types of retail channels they are therefore best suited to.  What kind of category are you in? What channels are your product categories bought in? You don’t have to be everywhere, just in the right places with the right product.
• Understand the usage of your product. Is it primarily for use by self, alone or by and with others? Is it predominantly for everyday occasions or special events and entertaining? What are the implications of this on likely trade up or trade down scenarios?
• Determine your private label participation or defence strategy. Is your category a candidate for private label (if it’s not already present)? Will you provide both branded and private label products? If you stay with branded products only, how will you position yourselves against private label – where do you stand on the ‘good, better, best’ scale?  How will you shore up your positioning with above and below the line communications to ensure shoppers select your brand over private label or other brands?

Trend #3: Affordable luxury and masstige = importance of getting into the consideration set

Facts and Behaviours:

Once-exclusive brands are becoming not only aspirational but affordable due to broadening retail distribution networks, lower prices based on economies of scale, and the advent of shopping tourism.  And it’s compounded by the celebrity culture and endorsements, and the access to ‘sneak peaks’ inside celebrities’ lives.

Once considered bastions of visible achievement reserved for the select few, it’s now not unusual to see 23-year-old team assistants sporting an $800 Louis Vuitton handbag or a $500 pair of Manolos. There is an increasing expectation that luxury brands be available to the mainstream, hastened by the advent of outlet malls and more recently premium outlet malls (such as those in Las Vegas), which sell luxury brands at heavily reduced prices.

This is placing downward price, positioning and profit pressure on other brands in specific categories.

What marketers need to think about:

• Determine the role of your category. Are you in an expressive category, which shoppers and consumers believe says something about them?
• Where do you sit versus other brands in the category? Which are the aspirational brands? How will you reinforce your brand positioning?
• What does this mean for your price positioning? How will you balance the aspirationality of your brand with the expectation that it be available, in at least some channels, at a reduced price? How will you balance price promotions so brand equity is not eroded?

Trend #4: Health, wellbeing and obesity – making it easy to be healthy

Facts and behaviours:

Australia recently overtook the USA for the world’s top spot in the obesity stakes, driven not just by poor diets but also lack of exercise.  School canteens in most states now operate on a traffic light system, ranking food and beverages and limiting their sale according to their likely obesity contribution levels.

Our work hard-play hard culture has created spin off indulgent ‘take time out for me’ behaviours ranging from couch potato-dom to the growth of indulgent products such as imported chocolates to eating on the run.  Consumers are rewarding their hard work with consumable indulgences. L’Oreal’s ‘because I’m worth it’ tagline perfectly captures this mindset.

The counter trend is age denial – ‘looking after me so I look good for longer’. This is evidenced not only in the growth of day spas and massage services, but also the mainstreaming of chemical and cosmetic appearance enhancements via Botox and elective surgery.

The proverbial sweet spot is in products and categories that deliver both indulgence and functional benefit without compromising their proposition (who wants a diet chocolate?!)  Not ‘Product X is now minus the calories’, but rather ‘Product X now has added goodness stuff to make you look/feel younger, your liver perform 10% better’ etc. Functional waters are a good example of this trend. Breads are now being produced with added vitamins and minerals. And functional products command a price premium at the shelf, providing you with a measure of protection against excessive price promotion.

What marketers need to think about:

• ‘Naughty’ categories don’t have to be black-and-white, opt in/opt out propositions. Indulgent products can be made ‘permissible’ with smaller pack sizes and portion control packs, and labelling that clearly indicates their functional and daily intake benefits as well as contribution to intake limits.  Such initiatives should be supported with both instore and above the line communications to create airspace between yours and competitors’ products.
• Consider the positioning of your product and category. Is it an out-and-out indulgence category whose proposition is clear and shouldn’t be sullied, or could it can have ‘functionality’ added to it?

Trend #5: Sustainability and the rise of the ethical shopper

Facts and Behaviours:

According to studies by the Natural Marketing Institute (NMI) in the USA, LOHAS consumers (lifestyles of health and sustainability) now number approximately 30% of all consumers. LOHAS shoppers are those for whom sustainability, environment and ethics are of primary importance when making product and brand selections instore.  There is another substantially sized shopper group for whom sustainability and ethics are of at least secondary importance.  Taken together we have a sizeable portion of the population for whom sustainability is now a major means of instore decision making – ‘ethical shoppers’.

This is playing out in the retail environment in the growth of traditional fruit and vegetable shops, and butchers, at the expense of grocery. The perception is that the produce in non-grocery stores is fresher, less chemically altered, has fewer ‘food miles’ from farm gate to store, and is more likely to be organic.  Further evidence of the growth of perceived ‘fresh’ is in the shift to markets and organic stores such as Macro, Harris Farm, and various farmers’ markets.

Whilst LOHAS consumers have higher disposable incomes, downward economic pressure means that suppliers and retailers won’t be able to charge a price premium for sustainable/organic products for very long – there will soon be a consumer expectation that sustainable and organic products are priced the same as ‘regular’ ones.  Organics are quickly becoming the cost of entry for a sizeable proportion of shoppers.

What marketers need to think about:

• How to make products and packaging sustainable – both environmentally and economically.  Impacts of this and other organisational sustainability initiatives on product labelling.
• Communication of your sustainability propositions at shelf and above the line – and quickly, for first mover advantage.  We anticipate there is only a 6-12 month window where sustainability will be a point of difference, and that from late 2009 it will simply become a way of doing business.
• Over time, ensure labelling, sustainability practice and messaging and organics are communicated across every point of engagement as a lack of sustainability initiatives and messaging will become barrier rather than source of competitive advantage.
• Reconsider channels to market for fresh and food based products. Think about where ethical shoppers are shopping – it’s not just traditional grocery.

And the big one that’s beginning to bite now …

Trend #6: Economic slowdown – making every shopping trip count

The Facts:

Economic events outside the control of the everyday household such as interest rates, the highest inflation levels in 20 years, the housing bubble, rents, personal debt levels, stock market volatility, the cost of energy, petrol and food price climbs of 5% p.a. all combine to mean that shopping behaviours are modifying to meet the new economic climate.

Cost of food is increasing due to drought, climate change and dwindling supply, and it’s not temporary. Some categories, such as rice, have stock limits and allocations.

Recent findings from Nielsen in the US show that:

• More than 50% are eating at home more and eating out less.
• More are entertaining at home
• More are taking lunch with them
• 63% of American consumers are reducing their spending to compensate for rising gas prices
• More than 7 households in 10 (72%) are ready to reduce spending on household necessities if economic conditions worsen
• 78% combine shopping trips and errands
• 39% stay home more.

Changing what they buy:

Shoppers are becoming focused on buying what they have to have, as opposed to buying what they want to have. People won’t stop using toilet paper, but they will stop using other discretionary products and brands.
Responses from a recent Unilever US survey indicated some interesting behaviours and attitudes towards the future purchase patterns in certain categories during economic slowdown.

The top 5 categories shoppers would stop buying were largely discretionary and included air fresheners, cookies, beer and wine, frozen dinners, and soft drinks.

The top dozen categories shoppers would not abandon were those covering food, household cleaning and personal hygiene necessities. These categories included deodorant, batteries, canned veges, fresh meat and seafood, hair care, household cleaners, laundry detergent, margarine, pain relievers/cold medicines, soap and personal washes, pet food, and toilet paper/tissues.

Changing How They Buy:

There are three major consumers trends occurring that vary by income:

1. Those making under $40,000 a year are redefining what goes into their shopping baskets and where they shop. They’re finding ways to stretch the household dollar by going back to just the essentials, effectively trading down to different cuts and different qualities of product. Also promiscuity is growing as they hunting out bargains and low prices to stretch even further.
2. The mid-tier consumer in the $40- $100,000 income range is “selectively deselecting”. They’re choosing to buy cheaper products in low emotion categories but are willing to keep the little indulgences that make life that little bit easier.
3. Those earning $100,000 and above are changing their priorities about which products they buy as well as the brand and unit price. Do I really need to spend $50 on a bottle of wine for dinner or can I get away with a $25 bottle?

Price has become more important to a broader range of shoppers. Being a “smart shopper” is becoming a necessity for more and more American families. So, how are they reacting to this changing environment?
In an economic slowdown there are a number of predicted shopper behaviours:

• Trading down – searching for lower priced sub-brands and house brands to stretch the household budget even further
• Specials – buying products on special, or deferring purchases until the products come on special, cherry picking from catalogues as well as pantry stocking when products are on sale.
• Value mining – hunting around the whole store for other value based options in other categories. Buying pasta instead of rice, beef instead of chicken for example
• Attracted to outlets with a fuel docket offer
• Reduce overall spend on everything, some categories to a great degree others to a small degree
• Fewer small basket quick trips as people conserve fuel. Consolidated shopping trips – swing back to stock up missions to conserve fuel. Quick trips are 70% of all baskets and the fastest growing profile so the effect will be strong
• Move to the internet to make purchases (>$100k p.a. profile) with non-food and general merchandise lines making up most of the basket
• Cherry pick for specials across the retailers
• Pantry fill specials, particularly high SKU value non-food items such as laundry
• Just stop buying that specific brand
• Moving consumption behaviour back to the home, forsaking restaurant and take away meals for meals prepared and eaten at home

Changing Where They Buy:

Shopping trips are less secure in today’s environment. One consumer in four (24%) would shop for groceries in a less expensive store if food prices continue to rise.  Store repertoires are therefore widening, with increasing disloyalty and promiscuity.  If shoppers are increasingly looking for the best deal, how will retailers create store loyalty?

As the economy and retail spending tightens, trading down will also occur at a channel and store level, not just within/across categories or among brands.  Shoppers will shop locally to conserve fuel and ‘food miles’ (this ties back into the sustainability/fresh fruit and veg trend). Aldi will get a huge kick along as will Costco when they open. The dollar discount stores such as Reject, Crazy Clarke’s and Go Lo will do really well. The Victorian based NQR stores will thrive in this trading environment.  Some of the small privately held clearance shops and chains such as Cunninghams are trading very briskly.

The Petroleum & Convenience channel will struggle as the queues get longer and people want to get out of the store that is associated with extra $ spend. Impulse milk, bread and snack sales have already started to slow.

There is a definite trend to eat at home as well, which will assist Woolworths and Coles. The smaller local retailers could possibly get a double benefit, firstly from the eat at home trend but also to local/ short trips to save fuel – and add the healthy aspect of home cooking and they may just be on a winner!

What marketers need to think about:

• Review your channel strategy with regard to holistic vs promiscuous shoppers. The game is not just about grocery in the future. Could some of your products and brands be ranged in discount stores and warehouse clubs? How important is the Petroleum Convenience channel for your products? Which baskets do your eggs need to be in?
• Reconsider your category’s role. Is it a discretionary or necessity category?. If discretionary, how will you maintain relevance? If a necessity category – see the trade up/trade down questions around the role of brand vs private label.
• Consider the role of trade spend, and managing a positive return for the investment without eroding brand equity. If shoppers continue to trade down, two levers may well be applied: 1. Applying the spend across a wider range of products with a smaller price drop – again to leverage shopper in-store perceptions and to maximize the spread of products on special, or 2. Focussing the discount to create stunt price points. This has already been happening for some time, but the temptation to do it may prove irresistible.
• Ensure you have a rock solid new product launch sell story and rationale for retailers. In this environment, the role of Brand development for suppliers becomes crucial as range extensions, or repackaging and new product development will have higher and higher performance criteria to achieve as retailers want more from less. The usual balance will be disrupted possibly permanently as retailers become more critical about the returns they are getting (or not) from untested products.
• Consider how you can assist retailers to help their shoppers stretch their grocery dollars. Examples include Whole “The Real Deal ” catalogues, and a friends and family discount card program for repeat purchases to encourage store loyalty.

The concentrated and restrictive grocery marketing environment in Australia is expected to loosen over the next few years, giving marketers more choices in how they get their brands to market and promote them instore.

Coupled with new best practice thinking and tracking tools around trip management and segmentation, and the growth of shopper insights, we are on the threshold of a new, smarter, but more complex grocery retailing era in Australia. One size will no longer fit all, so it’s not a question of which horse you back, but rather which selection of horses you run on which tracks.  Here are some of the headlines coming out of the USA underscoring this trend.

Economic slowdown and the accelerated decline of the middle market
Upscale vs value retailing, and the polarisation of retail
Grocery retailing in the USA is segmented, with basic and budget grocery retailers such as Smart & Final and Vons at one end, as well as fresh grocery offers within WalMart and Target supercentres, and then upscale grocers and fresh markets such as Whole Foods and Bristol Farms at the other. (See diagram). Differentiated offers along the spectrum are often operated by the same retailer, such as Safeway, who have Pavilions at the upscale end, Ralphs in the middle, and Vons toward the value end.
In Australia, grocery is currently almost exclusively middle market, but there are signs of change. Woolworths is currently trialling a more upscale small footprint grocery store called Thomas Dux, but as yet there are no widely available upscale grocery chains with holistic meal and fresh offers.  However, some top end providores such as Jones the Grocer are increasing their distribution into shopping centres. And Aldi, and the soon-to-arrive Costco, spell the arrival of budget buy-in-bulk grocers and warehouse clubs.

Trade up vs Trade Down
The economic slowdown and rising fuel prices in the USA is resulting in a polarisation of shopper behaviour, which we can expect to see mirrored here over time, albeit not quite as distinctly. Shoppers are consolidating their shopping trips to save on petrol and to get better bang for the buck in the shopping basket. This is resulting in a shift back to stock-up and one stop shopping for the basics, particularly in supercentres, with specialty and upscale retail reserved for ‘destination’ trips.
Shoppers are trading down on products and categories they don’t care about, and trading up in the ones where they do.
Marketers need to understand where on the trade up/trade down scale their products fit, and which types of retail channels they are therefore best suited to.  You don’t have to be everywhere, just in the right places with the right product!

Differentiation, differentiation, differentiation
Different retailers, different strategies
Coles, Woolworths, IGA and Metcash all range a combination of well known brands and private label. Aldi is almost exclusively private label.
Costco is a different model again. A paid membership warehouse club, they only range 4000 skus (compared to an average Coles or Woolworths store with 30,000), 60% of which are general merchandise items (40% is traditional grocery and fresh). Two-thirds of products are job-lots on limited-release sale periods to create a feeling of ‘treasure hunt’ with shoppers … ‘I’d better get it today because it might not be here tomorrow’. Products range from high value items and luxury brands such as Tiffany jewellery and backyard swing sets, through to bulk 30-pack toilet paper.
We anticipate Costco will steal shopper share of wallet not only from the large grocery retailers, but also from department stores and mass merchandisers.
What all this means is that marketers will need different go to market strategies for each individual retail customer. This may mean a private label product for one customer and a branded one for another, or both within one retailer, and probably special packs and products specific to individual retailers.

Different trips, same shopper
It’s all about trip management – optimising the type of mission, or ‘trip’ the shopper is on. In the USA grocery retailers are beginning to execute against specific times of the day, for example with a huge range of ready-to-eat lunchbox style meals, and choose-your-own pick-and-mix salad and hot food bars, for immediate consumption at lunchtime.
Work has also commenced on mapping shopper traffic flows by trip type. These maps are then matched against basket data (analysis of the primary and most valuable items in an individual shopping basket) to create trip ‘clusters’ eg Dairy Demand, Mostly Meat, Constant Cravings, Fresh Fixation.  Retailers are then co-locating products from different categories together according to the trip cluster.

Different shoppers, different store offer – Segmentation
Two major schools of thought are emerging here. The first is that there are overarching shopper archetypes per category. Ie, that each category only has 4 different kinds of shoppers, who might be things like Proactive Planners, Experimenters, Basics Only, or Comfort Seekers.  These would change from category to category. This archetype thinking is similar to the work that Nielsen have been doing around shopper ‘modes’, or ways of thinking and behaving, in specific categories.
The second school of thought, and the slightly more mature one in terms of successful implementation in market (see the success of Food Lion’s segmentation strategy resulting in their Grocery Retailer of the Year award in 2007) is segmentation at a store level, based on who shoppers are and how they behave.

This type of segmentation can be cut in a number of ways, ranging from attitudinal, product affinity, behaviour/lifestyle, and demographic/socio economic, through to spend/value and promotional requirements. Ultimately the kind of segmentation employed should be based on your goal, and turned into meaningful clusters based on the way retailers would actually execute.
The point is that it is done from the market (consumers and shoppers) inward to the store, and THEN matched against store shopper and loyalty data, rather than using store data first and then pointing it outward and hoping it fits the shoppers.
Segmentation is a fast-evolving area of thought. The main message is that one size does not fit all, and that product ranging and go to market strategies including space, promotion, pricing and instore media, will change from store to store.

So the takeouts for marketers in this changing marketplace are that they need to review the retail channels they are in, what products they are there with, and how their go to market strategies should differ at a trip, shopper, store and retail customer level.

How many horses do you need, what should the jockeys’ colours be, and where will they all run?

The release of the latest Mosaic study, with its 11 macro consumer segments and 47 consumer ‘types’, highlights the increasingly fragmented nature of the consumer and shopper base in Australia and reinforces the need for targeted marketing and sales strategies.

The growing focus on segmentation is driving the shift from mass to targeted media, and is beginning to signal a retail shift away from one-size-fits-all product ranging to ‘relevance ranging’ – the right products in the right places in front of the right shoppers.

Below is a brief roundup of what types of segmentation are being used in the Australian marketplace, how they are being applied, and how smart marketers can link their segmentation work to the sales and store environment to optimise product sales.

Download the full article here using-segmentation-to-sell-more

While there is, no doubt, a variety of personal circumstances and reasons why a SPUD is a SPUD, one thing is for sure – it’s increasingly about freedom and choice. Don’t fence me in has become metaphorical and physical.

According to geo-demographic survey Mosaic 2008, 51.4% of Australian women are now choosing a singles lifestyle, and up to a quarter will never have children. Meanwhile more and more men are living alone and taking care of themselves – in fact a 2007 study from the US had 71% of men doing their own grocery shopping.

The whole picture really brings into question the traditional view of the ‘generic shopper’ as female, Mum, and buying for family as well as self. The reality is somewhere at the other end of the spectrum for a good proportion of the Australian population.

So, has your company considered how profitable SPUDs could be for them?

Some pointers to optimize your SPUD sales:

THE TARDIS PRINCIPLE
If you never watched Doctor Who (shame on you!), the Tardis is a space craft that is much bigger on the inside than on the outside – a veritable mansion contained in the size of a telephone box. What’s the point? Single Person Urban Dwellings are generally smaller than family homes, and SPUDs need things that maximize the internal space they do have.

Implication – smaller packs, smaller shopping trips

• SPUDs need day to day food and household items like everyone else (except for the nappies and baby food, that is). But is your product SPUD friendly? You won’t find them buying 12 packs of loo paper – no space! You will find them buying smaller pack formats, and items that neatly stack together on smaller-height cupboard shelves or in odd-shaped spaces.
• This begs the question, is your packaging shape the most efficient use of space? Can you make it shorter instead of taller? Does it easily stack in small stacks with other products? There is nothing more annoying to somebody with limited cupboard storage than a product that takes up too much space on the shelf because of some brand agency’s flash of brilliance that said the bottle should be shaped like a cow.
• How else can you cater to space-poor SPUDs? Can you include a branded storage solution gift with purchase that enables it to be hung, or stuck on the back of a door, or a space-saving dispenser, that also serves as advertising / reminder for at home usage? In some categories, if you help them to store it more effectively and visibly, they might use more of it, increasing your frequency. Cleaning and laundry products are ripe for this kind of innovation. Many ‘laundries’ are now part of a bathroom, or behind a kitchen cupboard. Where to put the washing powder when there is only one small cupboard in the bathroom that’s already full of toiletries?
• What about in store? SPUDs are far less likely to be doing big stock-up shops in supermarkets. Smaller top up shops, more often. Because this type of shopping mission is oriented around the perimeter of the supermarket (milk, bread and fresh food runs to the fridges), this is where you are most likely to catch your SPUDs for off-location displays, merchandising and in store media. If you’re a specialist retailer, have you thought about your offer for SPUDs? Obvious problem-solvers like Howard’s Storage World aside, there is surely room for some innovative thinking about how to do more with less space.
• Already, smart suppliers and retailers have recognized the role of the ‘outdoor room’ for SPUDs (and others too!): balcony/deck/patio/courtyard entertaining etc. It’s about extending space outside the 4 walls, and the retail and product opportunities arising from this. Such as décor e.g. shutters through BBQs, BBQ cleaning products, lighting and candles, and bug zappers/pest control such as Mortein and Aeroguard. How can you help your SPUDs with their ‘outdoor room’ or balcony?

THE NEED FOR SPEED PRINCIPLE
Many SPUDs are busy people. Working long hours, trying to fit in eating, exercise, out-of-work interests and social life. There’s a lot to pack in to a 24-hour period. How can you help?

Implication: dinner in five minutes, the rise of outsourcing

• The growth of ready-to-eat meal solutions is indicative of the rise of the SPUD (pardon the pun). Cooking complex meals for one is not a motivating idea when you don’t arrive home until close to 7pm as it is. Given that this segment of the population is expected to soar even further over the next 30 years, the demand for quality, healthy, fast meal solutions will continue to grow exponentially. Yet, the choices are still pretty limited. Soups, pasta sauces, dips or frozen. Time for Australia to take a leaf out of the UK’s book and offer a greater variety of quick, yummy, healthy meal solutions!
• What about cleaning? Speed and convenience rules. Services such as dry cleaning, car washing and domestic home cleaning are growing exponentially. Are these channels you could be distributing in (e.g. bulk cleaning products for service providers)? Or can you provide a better, faster DIY cleaning option for the SPUDs themselves, especially for those that feel ‘unjustified’ having a house cleaner for a small space?

THE OUTTA HERE PRINCIPLE
It goes without saying that many SPUDs spend a lot of time away from home. Working, eating out / drinking with friends, exercising… the list goes on. But are you reaching them outside the grocery channel, where they probably spend the least time?

Implication: away from home channels increasingly important

• Channels such as Foodservice, Entertainment & Leisure and Petroleum & Convenience are growing in importance and patronage. Do you have a clear picture of what the opportunities might be? Assessing new channels involves mapping categories to shopping occasions to shopper types (such as the geo-demo profile of SPUD) to channel types. Then sizing the selected channels for number of outlets and potential value, and comparing the size of the prize to the ease of execution (route to market dynamics) and brand fit. Sometimes there can be BIG wins in looking at channels in different ways based on occasion. Just look at CDs in Starbucks!
• One thing to remember with SPUDs is that while there is a need for speed on the home front, there is also room to help these people slow down and relax. The wine category comes to mind here – or any category / product that enables a little time out and quality R&R.

THE ASPIRATION PRINCIPLE
For many SPUDs, their lifestyle choice is a conscious one, and it’s about freedom, perceived quality of lifestyle, and choices. This can translate into an emotional connection to brands that represent certain choices and freedoms. Can you connect with the key emotional drivers of SPUDs in more meaningful ways to increase your sales?

Implication: SPUD-driven messaging for relevant products and retail offers

• The growth of Howard’s Storage World has been driven by SPUDs for purely pragmatic reasons – SPUDs live in smaller spaces. But what about destination stores and products that are more emotionally driven? Beauty, health and personal grooming products and services, fashion, fragrance, cars, personal technology (mobile phones, iPods, GPS etc.) – all of these can and already do play on messages of aspiration and personal branding. SPUDs are the more likely population group to be actively dating, and they may subconsciously associate your product or service with increasing the perceived value of their ‘personal brand’. If you’re dressed and groomed well, smell good and show the necessary signs of personal affluence and ‘up-to-the-minute-ness’, your marketability goes up, right? The strong category growth of male grooming products in recent years is testimony to this fact. Spending time on the emotional messaging behind your communication, with your target SPUDs in mind, will pay dividends.
• Part of an aspirational lifestyle choice is Rest & Relaxation for SPUDs. In fact, SPUDs are endeavouring to bring this into their daily lives rather than just on special occasions. So, there is a role for day spa products that can be found in pharmacies, supermarkets, and specialty stores. Disposable incomes plus dating = more money to spend on appearance and ‘I deserve this’ (L’Oreal) type pampering products. SPUDS are also gifting these products to other singles (particularly women).

One final consideration here is how you can leverage your in store communication to this group by focusing on the geographical areas where they can be found – and ramping up your occasion-based in-store messaging. Example high SPUD areas: Sydney – Balmain, Pyrmont, Bondi; Melbourne – Sth Yarra, Prahran, Richmond; Brisbane – New Farm, Fortitude Valley; Perth – Subiaco, Northbridge, and so forth.

So, don’t fence yourself in, either – have you considered whether this fast-growing segment of the population can help drive your future sales? If your offer represents more space, more time, more freedom or more quality or life you may have just hit the bulls eye.

Don’t overlook your SPUDs, they could be good for you!

What are your hot picks and new year’s resolutions? Where is the industry going? Directors of ShopAbility, Peter Huskins and Norrelle Goldring, share their nominations for the top five FMCG trends of 2008 – what the best suppliers and retailers are doing, and why.

Nomination: Best Overall Direction
‘Where my bread is buttered best: increased focus on shopper marketing’
In 2007, we started to see the the ‘oops, we forgot about the shopper’ revelation. Companies have been worried almost exclusively about consumers for the past 15 years, at the expense of the shopper. In 2008, the focus is squarely back on the shopper: the person who actually makes the decision and parts with the money!

What we will see more of in 2008:

• For suppliers: the growth of in-house shopper insights people and departments, as companies increasingly come to the realisation that their marketing departments are catering to consumers and their sales departments are catering to retailers, but nobody is catering to the shopper. Ultimately, beyond 2008, shopper will become its own department rather than reporting into either marketing or sales. Some of the leading edge companies are already implementing new business structures to allow ‘shopper’ as a direct CEO report the same as marketing and sales.
• For suppliers and retailers: Increased spend on in store marketing. The priority of the mix is starting to change and lean towards in store as the primary driver of sales, supported by before store communication, rather than the other way around. Point of Sale and In Store promotions will continue to be growth areas, and more category-leading companies will explore and invest in theatre and experiential marketing for their products.
• For suppliers and retailers: OBPPC: Occasion, Brand, Pack, Price, Channel – it all starts from the shopper occasion upward, rather than the shopper occasion being tacked on the end. We will start to see more of occasion-based messaging and occasion-based pictures of success and priority points of engagement within store. We will see shopper-anchored pricing and promotional programs

2008 resolution:
Where do you sit in relation to the shopper? What is the focus of your marketing spend, and is it actually reaching shoppers? Do you know the shopper occasions for your retail store or product? How much do you know about your shoppers? 2008 is the year to get it sorted.

Nomination: Best Foreign Trend
‘Let’s stick together: the growth of segmentation & clustering’
In 2008, we will be seeing more suppliers and retailers looking to optimise sales through segmented execution.

A major trend in the US, segmentation and clustering in Australia is about three years behind. We are just starting to see the emergence of this trend with the Woolworths rollout of their ‘store-led ranging strategy’ – a clustering approach based on the geodemographics of specific store clusters.

In the US, both retailers and suppliers are using a more sophisticated segmentations of shoppers, channels, categories and entire retail offer based on shopper sales drivers and behaviour.

Why are the market leaders doing this?
Because the market, particularly in the US, is now so fragmented. There are so many choices – of communication channel (120 television stations!), store, product, brand and value proposition that the only way companies can drive growth is to increase relevance.
What is relevant is different for various groups of people, so the ‘new black’ is tailoring your offer to specific segments of shoppers – the ones that are the most important to your bottom line. For example, companies such as Wal-Mart are classifying their retail into types based on a combination of factors including product range, dominant purpose, location, shopper type, footprint, and shopping trip / occasion type. Then comes the business of what the tailored offer is – from store layout, to product range, merchandising and display, ambience and theatre right through to the choice of specifically matched store staff.

2008 resolution:
Understand segmentation and whether / how it is applicable to you. For suppliers, increasingly retailers will be looking to category leaders to drive segmented execution, so it’s a case of lead or be led (or de-ranged in certain store clusters).

Nomination: Best FMCG Feature
‘What lies yonder: assessing the channel mix’
In 2008 we will see more retailers and suppliers looking closely at their channel / retail offer mix in reponse to the growing trend away from cookie cutter retail offers and into specialty, niche, convenient and small-store formats.

• For suppliers suffering the continued squeeze in grocery / private label – more will look to drive profits back up by extending distribution into non-grocery channels, including specialty and niche. Already, Petroleum & Convenience is on the hit list of many major suppliers as a potential source of growth. We will also see suppliers looking carefully at the opportunities presented by Away from Home channels, as smaller household types redefine where people are spending their time and money.
• More retailers will look to how they can emulate the destination-specific stores that are working (like Harris Farm). Others will take the multi-format response demonstrated by Woolworths and Coles (now in P&C, and inner city small stores) based on the success of Tesco US Fast and Fresh offer. SPAR, Foodworks and Metcash have all signalled further investment in this area, one they traditionally have dominated.

2008 resolution:
Look yonder! Where else could you be? What would that be worth to you, and what would be the cost of playing there? Time to take stock.

Nomination: Best Supporting Role
‘A vision of love: the new category’
In 2008, ‘Category Management’ will become passé. Leading companies will be focusing on category development – where the category is going in the future rather than tweaking yesterday for a slightly better tomorrow.

What we will see more of:

• Occasionality mapping: linking the shopper occasion to the category to the channel. More and more companies overseas are heading in this direction, and the big players here in Australia are starting to do it. Back to nomination 1 – the increased focus on shopper marketing – it all starts with the shopper occasion.
• Category definitions and segmentations based on shopper behaviour – back to nomination 2 – the growth of segmentation and clustering. This approach will now become the benchmark for how categories are viewed and executed. The future is all about differentiated execution.
• ‘Gap’ assessments: increasingly companies will ‘deep dive’ into their categories to take a look at where the possibilities and opportunities might be. In an increasingly competitive environment, some of the biggest sales growth jags have occurred as a result of good new product development that has been innovated directly out of gap assessments. Selley’s barbecue wipes, for example. A best-selling product that created a category that did not previously exist: outdoor cleaners.
• Category driver development: having strategies, plans and rationale for each category driver.

Ultimately, all of the above leads to a category ‘vision’ rather than a traditional category plan. It is more future-focused, and less about yesterday.

2008 resolution:
Back to the future! Time to look at where the category could be.

Nomination: Best Picture
‘Differentiate or Die’
This is our No # 1 trend for 2008 and is ultimately a culmination of all of the others. In a cluttered, competitive environment with a plethora of ‘me too’ offers (both retail and product), the companies that will survive and prosper are those that differentiate.
Differentiation is about having a set of activities that, when combined together, are very hard to emulate. Innovation in product alone is not enough – it can be copied.

How are you innovating in your process? Your supply chain? Your relationships? Your total value proposition?

What unique capabilities are within the company that can be exploited?

2008 marks the death of ‘me too’. It’s no longer enough – there are too many ‘me toos’!

Differentiation across every aspect of your value chain; your value to shoppers, to retailers, to your own suppliers or buyers, to consumers and to the community at large, will define the companies that bring home the gold at the end of 2008.

Download the published Retail World version here:

The FMCG Oscars: nominations for the top trends of 2008

If geo-demo profiling is the only yardstick, how do we explain the success of Aldi in affluent suburbs? Or high sales of luxury products in non-affluent areas?

Price consciousness is not just a function of how much we earn and where we live. It is also partially about personality and values.

Personality governs to what extent various factors are important to an individual shopper. For some shoppers, functionality and value is key – they want the thing to do the job and why buy a Rolls Royce when a Toyota Corolla will do.  For other shoppers, emotional connection with a brand and sensory experience are far more important.  Others just want the quickest, easiest way to tick the to-do item off their list, while some want information about ingredients, footprint and ethics.

Most categories and channel segments will have one or two ‘default’ shopper personality profiles to whom they skew.

In addition, shoppers themselves can move within a certain range among the personality profiles according to which categories they are shopping for.

Enter Nielsen’s ‘shopper modality’ – demonstrating that shoppers have four main modes of shopping that change according to the category:  Auto Pilot (grab & go), Buzz-activated (open to buzz and engaging advertising), Variety-activated (seeking new tastes and formats) and Price-activated.

So, what is the point here?

That simple geo-demo shopper profiling of shoppers and the resulting segmentation and clustering by retail stores barely scratches the surface, and is inadequate when looking at real sales drivers.

But it all seems too complex and too hard!?

It needn’t be.  It’s a case of determining:

1. To which key shopper profiles is my category (for suppliers) or channel segment (for retailers) most likely to appeal?
2. Among my shoppers, in what mode are they likely to be shopping?

Then, what does that mean for how we execute our offer – the increased or decreased importance of various factors in store:

• Sensory, experiential, theatre
• Product and ethics information
• Price and price promotion
• Ease of navigation and proximity to front of store
• NPD and new pack formats
• Buzz-based advertising
• Simple POP and pack communication with a focus on functionality and quality

Why do this?

Well, if you’re using price promotion for a grooming product that is likely to attract experientially-driven shopper types shopping in buzz-activated mode, you’re potentially shaving not just legs – you’re shaving off profits!

Default shopper profile > shopper category modality > tailored in store execution = profit!

Shopper Behaviour in the Convenience Channel [Download PowerPoint presentation]

Manufacturers and suppliers need to proactively lead the process in their categories, or risk losing space and share, according to Norrelle Goldring, Principle of ShopAbility, who has worked with major FMCGs including Coke and Nestle for the past 10 years.

Why clustering?

Norrelle says Woolworths is following the lead of international giants such as Tesco and Safeway who pioneered the practice in grocery, responding to how diverse the grocery shopper has now become,

‘In mature markets such as America, the UK and Australia, there is no longer a homogenous mass of grocery shoppers with similar needs like there was 20 years ago.

‘In fact there is no longer an “average Australian”, as borne out by the 2006 Census. There is an enormous diversity of incomes, attitudes, family and household types, religious beliefs and day to day habits,’ Norrelle says.

‘What that means for retailers is that the one size fits all approach no longer works, and the key to driving sales and profits in the future is to understand your local shopper.’

How does it work and what does it look like?

Norrelle says the strategy involves looking at shopper data and profiles to determine how your shopper base is segmented. Then clustering store types to cater to their dominant shopper, with importance placed on one or more elements such as geo-demographics, ethnicity, price orientation, values, behaviours and other factors.

‘For example, Tesco has mastered this in the UK. If you visit a Tesco in the inner city, it’s a smallish store, somewhat like a convenience store here, and the offer is all about grab and go ready to eat meal solutions for shoppers on the run who want to eat healthy meals at home but have no time.

‘Then, once you get out in to the suburbs the Tesco looks more like a supermarket would here. Then you’ve got the regional centres that are more like a mass store.

‘That’s one example where the entire store offer changes quite dramatically. Another is the retailers who are starting to focus mainly on range clustering. That’s what Woolworths is doing, based on knowing who their local shopper is, what their category preferences are, and within each category where they sit on the premium to value scale.

What do suppliers need to do about it?

According to Norrelle, suppliers need to act now. ‘Woolworths is rolling out in January, so suppliers need to have a segmented ranging and in store execution strategy bedded down within the next three months. But the hurry doesn’t mean you can’t be strategic about it and follow a logical segmentation process.’

This process is outlined below as a guideline for suppliers.

There are four major steps to take:

1. Map the shoppers for your categories
2. Develop a segmentation for each of your major categories
3. Apply the insights: what needs to be done differently?
4. Marry your segmented strategy with the retailer store clusters(ideally this last point would be done in partnership with the retailer from the outset, but this will be dependent on where they are up to – you may need to lead).

Each step in more detail:

Map the shoppers for your categories

• Who shops, when, where, how and most importantly, WHY? What is the shopper mission or occasion, and the key sales drivers?

Develop a segmentation for each of your major categories

• Category segmentation is often based around the function the category performs for the consumer – e.g. if you are in health, does it make you feel healthier or look healthier? Is it applied in the body or on the body?
• Link your segmentation to your shopper profiles from point 1 (and remember that consumer and shopper are not always the same thing)

Apply the insights: what needs to be done differently?

The major areas that are impacted on by a retailer segmentation are:

1. Range and Space within your category. Upweights and downweights, packs and formats – where and why?
2. Visibility and Merchandising – how does this need to change to be more relevant to your identified shopper types within the category?
3. Pricing – while you may not be able to influence retailer pricing, it is helpful to be clear on where are you on the premium to value scale versus competitors. If you are at the extreme of either end, there may be opportunities for you to upweight your range, space and promotional opportunities in certain store clusters.
4. Ambience, Theatre, Destination – how emotionally involved is your category? If you are in high emotional involvement categories like health, beauty, pet etc, again there may be opportunities to lead the creation of ‘destination’ areas in particular store clusters that are more exciting for the shopper.
5. Marketing and Promotion – What’s in the catalogue? Why? Should there be different catalogues with different offers for the different clusters? Which products should be on price promotion and which should not? What other in store promotions (such as sampling and in store media) should be used based on shopper behaviour?
6. Format, Size, Layout – are you a category brand leader? If so, it’s you the retailer will be looking to for change leadership – trials of new category layouts – now is your opportunity!
7. Staffing and Service – this one may not be applicable in grocery, but it’s one to remember when segmenting for other channels such as pharmacy or specialty retailers. Who should the staff be? What degree of personalization? In Europe, Loreal is providing health and beauty advisers in certain store clusters to help drive sales. In the US, staffing is changed according to ethnicity, age and lifestage.

Norrelle says there is an opportunity for suppliers to partner with Woolworths for the benefit of both parties.

‘This is an enormous thing Woolworths is undertaking. You can imagine – some stores with 30-40,000 skus – that is a lot for them to consider and if suppliers can be proactive about the process it will actually help them.’

‘They may not yet have arrived at what clustering means for your category and brands, in fact they probably haven’t.

‘You don’t need them to tell you every detail of their clustering strategy, they’re still working it out. So you can be proactive and determine your own segmentation and clustering strategy, and work with them in the longer term to marry the two together.

‘It’s fantastic to see this happening in Australia, and there will be big opportunities for both suppliers and Woolworths to drive sales and profits, and increase their shopper satisfaction at the same time.’

Download the full Retail World article published October 2007,  here:

Woolworths set to roll out store clustering: what it means for suppliers

ShopAbility attended the largest Consumer Packaged Goods conference in the Western World – ‘Consumer 360’ in Florida during May. The US is faced with the same trends:

• There is no longer a mass of homogenous shoppers with the same needs
• No more average family unit – the ‘middle’ has dropped out of the market
• Vast differences in ethnicity, religious belief, age, income amongst groups and areas
• Polarisation – the rich continue to get richer, the poor poorer – and products are polarizing too (growth of super premium products right alongside the burgeoning of private label at the value end)
• Mature market where consumers and shoppers are weary of marketing messages and are spoilt for choice
• In the USA media fragmentation is even more pronounced than in Australia – the average household has 90 television channels, for instance (there are 600 television stations in the US). This means the importance of instore marketing is increasing.

Retailers and suppliers alike are starting to recognize that the way forward is through ‘segmentation’ and ‘clustering’ . Essentially, it’s about understanding your local shoppers and their needs, and changing your execution accordingly. One size no longer fits most.

The trend is just beginning to become mainstream in the US, with major retail chains such as Safeway, Wal-Mart and Tesco leading the way with custom offers. On the supplier side in the US, Kimberly-Clark, Coca Cola and P&G are all implementing tailored shopper marketing strategies.

At ShopAblity, this is one of our core service areas and we believe the way of the future in Australian retail – we’re at the beginning of a bell curve where segmentation or ‘clustering’ will be used as a key driver to generate sales uplifts and create savings (through minimizing wastage) in a market where most other traditional levers have already been pulled.

So how does segmentation work? The first step is to look at localised shopper insights: who they are, how they shop, when, where and why (key drivers/ needs).

• From this information, the next step is to divide the market into segments. This can be done by store type (retailer segmentation) to find store segments (and later, ‘clusters’) and/or by category.
• On the retailer side, a ‘cluster’ is a group of stores, consumer types, or segments with similar aspects. For example, a retailer may cluster stores in to different price zones based on the demographics of the shoppers in their area: price zone A at the premium end, through to price zone C at the value end, and change the offer accordingly (we are not ‘there yet’ in Australia yet with this).

Once the market has been segmented, this follows on to the implications for:

• occasion
• brand
• pack
• price
• range
• space and layout
• visibility and merchandising
• promotion
• persuasion and service

So does it really work? Well, one of our clients saved more than $3million through customizing their point of sale material in the foodservice channel. Another new pack initiative based on liquor channel segmentation resulted in a $9million addition to a supplier’s bottom line in the first year of implementation.

In a market where there is no longer a Mr & Mrs Average, it pays – literally – to understand difference.

More than anything, an understanding of horses for courses, so to speak. With more than 4000 outlets in the total petroleum and convenience channel, it looks like one big, shiny, golden egg. But it’s important to understand that the convenience channel has segments, and different shoppers shop the different types of stores – differently.

Anyone who has read the 2007 Australasian Association of Convenience Stores report would note that there is now a shift in how the industry is talking about itself. Once upon a time, stores were split into ‘Tier 1, 2 or 3’ based on footprint and other factors. Now the industry is categorizing its stores more in terms of their function: Dual (petrol station plus large mini-mart), Petrol only (petrol station with small shop attached, stocking only the basics) and Convenience only (no petrol).

How each type is shopped varies. In general, observations from the school of the bleeding obvious apply: shoppers in Dual format may be there for auto or for non-auto reasons, petrol only shoppers are there for petrol (duh) and convenience store shoppers are there for quick-fix food, beverage and emergency household items. Not rocket science – but what it does mean is that often your category will not be appropriate for the whole P&C channel, it may only be appropriate for one segment. So 4000 stores may turn into 1400, for example, for your particular window of opportunity.

We have also found that there are variations in the age and gender of shoppers in each of the segments, along with variations in how shoppers move around each kind of store. For example, if your product is in the fridge in a petrol only store, you will have to work pretty hard to get people out of the petrol queue to even shop that part of the store. And doing that needs to be your POP focus, because the vast majority of shoppers there won’t even make it past the first four feet of the store. Understanding channel segment dynamics affect every decision you make about how to execute in store.

Often suppliers don’t necessarily make the adjustments that are required to enter the channel successfully, and try to repeat what they have done in grocery. This can have a disappointing outcome – the goose fails to lay the golden egg.

So what does it take to capitalize on the growth of the convenience channel?

Here is a checklist of thought-starters:

• Are your competitors there? If so, what with, and how are they executing?
• What are the shopper occasions for your category or product?
• Can they be found in the convenience channel?
• If so, do those occasions apply to the whole channel or to specific segments?
• How many stores / $ in the relevant segments, and what percentage penetration do you think you can realistically get – what is the size of the prize?
• Who is shopping the segments, and how (what are their key drivers and behaviour)? How can you appeal to this?
• What kind of category are you? Could you be an impulse purchase (like CDs and DVDs in petrol stations are)?
• What does your brand, pack, format look like? Is it appropriate for the channel, knowing that the majority of convenience shoppers are male and buying single serve formats?
• What would be the most effective Route to Market strategy? Sometimes suppliers rely wholly on distributors without having a strategy for key account management – chains like 7ELEVEN make their decisions at head office.

These are starter questions – there are many more that need to be answered in developing an effective entry strategy for the P&C channel.

It definitely IS possible to get on that white horse if your strategy is well informed and thought out – otherwise it’s more likely to be ‘the horse you rode in on’.

‘It’s just not a one size fits all. Would you execute your brand the same way in a supermarket as you would in a pharmacy despite the fact that people are shopping them very differently? Smart companies are tailoring according to shopper behaviour.

‘Look around you; you’ll start to see coffee and cold beverage companies are offering cafes and bistros more subtle in-store branding than what is in supermarkets or convenience stores – to fit in with the ambience of their venue and the fact that their patrons don’t want to be beaten over the head with a brand while they are dining.

‘It’s about putting yourself in the shoes of your shoppers, and also your trading partners or retailers, and really thinking about how to be most relevant to their needs.’

According to Norrelle, some of the factors for consideration include:

• Consumers versus shoppers (not necessarily the same) – who is interacting with your brand in which channel? How are they interacting with your brand?
• How are the channels you are in segmented? Channels have segments, and often different target markets shop them differently. Brand execution needs to be tailored accordingly to stay relevant.
• How the consumer purchase drivers differ by channel (how shoppers shop cafes is vastly different from how they shop department stores, for instance)
• The role of marketing versus sales people in the channel debate, and the need to work collaboratively to ensure that ‘on brand’ execution is meaningful and effective at every consumer touchpoint.
• The case for ‘channel brand identity’ where appropriate to increase relevance to shoppers in specific channels.

‘Ultimately, channel branding strategy will play an increasing role in marketing in the future, as marketers take a more proactive approach to how their brand is perceived (or not) at the coalface, where the shopper is.’

Marketers losing brand control – Media Release [Download PDF]