Superstores to Grow, Retail Shelf Choices to Shrink: Nielsen

Consumer packaged goods (CPG) marketers should get ready for the acceleration of two major trends, according to two separate studies by The Nielsen Co.: the growth in share of sales by the shopping club, big-box supercenters and e-commerce; and a continuing trend by retailers to cut back on the assortment of brands they offer—to the disappointment of consumers.

Both studies were presented independently at Nielsen’s Consumer 360 Conference in Las Vegas this week.

The first, Nielsen’s Retail 2015 Forecast, foresees big expansion over the next 10 years in the share of U.S. shopper dollars spent at mass supercenters and in e-commerce. Together with shopping clubs, those categories are expected to increase their share of spending from 23% points in 2009 to 29% in 2015.

By contrast, supermarkets and mass merchandisers will see their share of consumer spending decline over the coming five years, as will convenience/ gas stores, home improvement outlets and drugstores. Spending for those categories is expected to decline 6 share points, going from 67% in 2009 to 61% in 2015.

“While e-commerce sales felt the recessionary pain in 2008 and 2009, Q4 2009 sales were solid and interest from both CPG manufacturers and retailers to provide online buying options has never been stronger,” Nielsen Company senior vice president of consumer and shopper insights Todd Hale said in a release.

The remaining retail channels tracked in Nielsen’s research, constituting 10% of total retail spending, will turn in mixed performances. Pet stores, dollar stores and those selling consumer electronics will see slight growth in their share of wallet over the next five years. But that will be offset by declines in retailers specializing in toys, books and liquor.

Hale predicted continued consolidation in the retail channels open to CPG manufacturers and pointed particularly to an active competition for scale in the supermarket and convenience store segments. “Today’s big players will only get bigger,” he said.

The Retail 2015 Forecast recommends that CPG marketers buy know-how in online, digital and social marketing, or grow it in-house, in the expectation of diminishing returns from traditional media such as newspaper ads and FSI couponing.

In separate research unveiled at the same conference, Nielsen found that nearly half of U.S. retailers says they will continue a recent trend and cut back on the assortment of brands they offer—even though half of consumers told Nielsen they will take their business elsewhere if they notice reductions in product selection at the stores they patronize.

While 42% of retailers said they cut back on the number of SKUs they offered in 2009, the total reduction in assortments amounted only to a shrinkage of 1%, Nielsen found—too small to attract consumer notice.

But the Nielsen Assortment Survey found that 40% of CPG retailers plan to continue downsizing their selection in 2010 and to maintain that reduced assortment in 2011, cutting up to 10% of the SKUs currently on their shelves. According to the survey, 75% of retailers will downsize to open up new merchandising opportunities, and 71% will do so to gain control of inventory.

Sixty percent say they want to allay shopper confusion; 52% will cut back on selection to cut costs and improve margins. And 48% will thin their assortment to make room for store brands.
That could disrupt consumer shopping behaviors, since half or more of consumers polled in several categories—grocery, shopping club, drug and mass merchandise—said they would be less likely to shop in a store if they noticed a thinner product selection than they were used to. Taken by product category, 7.2% of personal care shoppers said that if they couldn’t find the product or brand they wanted on a shelf, they would leave the store without buying a second choice. About 5.7% said the same about household and paper goods and dry goods, and about 4% would leave empty-handed if they couldn’t find the frozen food, beverage or dairy products they wanted.

“Reduced assortments are definitely here to stay, and the message to retailers is to choose carefully,” Nielsen company vice president of custom analytics Stuart Taylor said of the research findings. “In many cases, strategically reducing assortment can result in an improved customer experience and greater profitability. Cut the wrong product, however, and the potential customer backlash could be costly.”

Success in retailing today depends on having not the largest product selection but the most appropriate product mix for one’s best customers, Taylor said.