Supermarkets are still losing shoppers to supercenters, clubs and dollar stores, partly because consumers are shopping as entertainment.
ACNielsen U.S.’s Channel Blurring study found that more shoppers from more households went to supercenters and dollar stores more often last year than in 2001. Credit “channel grazing” as new stores open: About 31% of households shop 29 or more retail channels a year, says ACNielsen Senior VP-Consumer Insights Todd Hale. They’re looking for deals, but also for novelty, shopping to see what’s new and to entertain themselves.
Retail expansion has prompted some of that. There were 286,117 stores in the U.S. at the end of 2002, up nearly 1% from 1993, according to Schaumburg, IL-based ACNielsen and Trade Dimensions’ TDLinx, Wilton, CT. Supermarkets accounted for only 49.5% of stores last year, down from 51% in 1993, per ACNielsen. (That includes food, drug, mass-merchandise, gas/convenience, warehouse, supercenter and dollar-store formats.)
“Anytime a new channel moves in, grocery gets dinged,” Hale says.
Some of the grazing is, as always, motivated by bargain hunting. ACNielsen’s heavy grazers are more likely to scout the food aisles in mass merch and supercenters for deals and to use coupons. Heavy grazers also tend to spend more than other shoppers, Hale says. They’re more urban — because cities have a wider variety of stores — and include a surprising number of middle-aged folks without kids. “We expected heavy grazers to be families with teens, since they have more individuals in the household to shop,” Hale says. “We found those, but households without children, too.”
Much of the traffic is shifting to dollar stores and supercenters, with household penetration steadily rising to 62% and 63%, respectively (see sidebar). Mass merchandisers continue to lose traffic, while c-stores have won over more shoppers but fewer trips, and drugstores held steady (see chart). ACNielsen plotted the shifts by analyzing purchase data from its 61,500-household Homescan consumer panel, tracking where each item was purchased and how many trips each shopper made to each channel.
Dollar stores are seeing double-digit growth because they appeal to an under-served demographic: low-income and urban families. The small-box format is suitable for urban neighborhoods and caters to walk-in customers, while grocers focus on a suburban mall format, says John Rand, senior analyst with Management Ventures, Inc., Cambridge, MA.
Supermarkets’ main advantage is 100% household penetration, even though shoppers averaged 10 fewer trips last year than they did in 1999. But full penetration is a curse, too: “They have to be all things to all people and carry items that other retailers don’t,” Hale says. “Wal-Mart taught the industry that you can do well with a somewhat limited assortment.”
Grocers are caught between Wal-Mart and dollar stores, Rand says. “Grocers have gone upscale because they can’t compete on price with Wal-Mart. But that puts them out of reach for the dollar-store demographic. In fact, Wal-Mart is probably more worried about dollar stores than grocers are because it’s the same demographic.”
Grocers should defend the perimeter, capitalizing on fresh-food leadership in meats, produce and deli. “Let’s face it, today you can get pain relievers at office supply stores and snacks at video rental stores, but not everyone can do a great job with fresh produce,” says Hale, who praises Kroger Co., Giant/Eagle and HEB’s Central Market for emphasizing perishables.
Grocers are adding coffee cafes, gas pumps, banking and other services “so shoppers won’t go anywhere else,” he adds.
Still, clubs stores like Costco are leveraging perishables too, with elaborate sampling of fresh-cooked goodies.
And perishables carry high overhead, since they spoil quickly. That limits the assortment grocers can afford to carry — even as shoppers hungry for entertainment seek more variety.
Dollars & Sense
DOLLAR STORES, especially, are gaining favor. Fully 75% of U.S. consumers shop in dollar stores, and some of the fastest-growing product categories are traditional supermarket mainstays, including household products and personal care. In fact, 53% of shoppers bought more household products and 38% bought more personal-care items in early 2003 than they did three months earlier, per WSL Strategic Retail. The New York City-based consultancy surveyed 748 consumers by phone in February and found that shoppers are shifting purchases to dollar stores in at least 15 product categories, including stationery (32% of shoppers bought more in dollar stores), greeting cards (up 30%), packaged food (up 17%), over the counter medication (up 15%), and cosmetics (up 12%).
Dollar stores are becoming the home of the everyday lowest price, concludes WSL. That draws all demographics: Shoppers 35-54 and 55-plus have shifted household-product purchases 55% and 51%, respectively; those with household incomes under $35,000 shifted 63% of those purchases to dollar stores, per WSL.
It’s a tougher shift for packaged goods companies. Dollar stores have demanding package requirements that make CPGs uncomfortable, says John Rand, senior analyst with Management Ventures, Inc., Cambridge, MA. Marketers worried that cutting prices on small-size SKUs for dollar stores will cannibalize sales in other channels. And dollar stores “tend to be item merchants, not category merchants,” so CPGs can’t drive a whole brand franchise with limited SKUs on dollar-store shelves. And Dollar stores, like club stores, don’t foster in-store promotion, so marketers’ only vehicle is the package.
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