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Total-Store-Connectivity-Revealing-New The content of this research report is a result of a study commissioned by IDDBA in partnership with Nielsen Perishables Group. 1 Some may have heard or seen last year’s connectivity research on specialty cheese or the content presented earlier this year by Sarah Schmansky on entertaining connectivity. For others, connectivity may be a new concept. We’ll spend some time today discussing what exactly connectivity means, why it’s so important and how to act on it. But before we get to that, and before the emails start piling up and the distractions start rolling in, some people may be wondering why bakery breads was selected as a category to focus on. And there were many reasons, including insights from separate Nielsen research which highlights the important role that bread plays in bakery success. And yet over the past five years, national sales of bread volume has been flat to declining every single year. It’s time to find new pathways to success, and my goal today is to help you uncover some. 2 And besides, if Oprah is talking about how much she loves bread, shouldn’t we? 3 Total Store Connectivity provides the first comprehensive and integrated store connectivity solution. It utilizes individual store/week sales and consumer data inputs across 200+ categories, through which value is redefined, new partnerships realized, and a new competitive advantage can be built. What’s really special about this study and some of the others we’ve conducted with IDDBA, is our utilization of Nielsen’s brand-new total view of the store with integrated UPC and random weight sales which means this study provides the most holistic view of the entire store as a consumer views it. Why is connectivity an important research method? Because it takes the store and re- frames the way we think about our products so we’re evaluating them as the consumer does; an ecosystem of products across the entire store that solve a purpose or fulfill a need. In fact, nearly two-thirds of all shopping trips include items from both the perimeter and center aisles. This means how we define our competition, and our opportunities, needs to radically shift. We’ll evaluate in more detail some of those partnerships and opportunities listed on the right hand side in more detail in coming slides. 4 But what else does connectivity tell us? It tells us that when a consumer walks into a grocery store, there are literally trillions of combinations of purchases that her or she could make. Now I don’t want you to get hung up on the data points on this slide. It’s in here to show that A LOT of math, calculations and science far outside my personal comfort zone went into this study. But from the TRILLIONS of data points this type of analysis yields, we’ve boiled this study down to only the most relevant and pertinent information for you. This study was connected at the national level and includes sales from grocery, mass/supercenters and club stores. There is likelihood that we would see some variances at a regional or retail level, but by-in-large we expect the connectivity to carry through. 5 • The study has two main parts – sales data and consumer data. The sales data looks at the correlation between sales of 200+ categories across the store at the store/week level. • Sales correlation shows the relationship between two categories. For this project, we used Pearson correlation methodology at the store/week level to produce correlation coefficients between -1 and 1 that explain the relationship between categories. In our study, over 0.5 is considered to be a statistically significant strong positive correlation, while less than -0.5 is considered a statistically significant strong negative correlation. With a correlation of positive 1, we see hypothetical results such as when bananas grow in sales, apples grow the same amount in sales at the same times. A correlation of -1 would be the opposite such as when bananas grow in sales, apples decrease in sales the same amount at the same times. • We overlay consumer information, specifically buyer overlap (% of buyers that are shared between the two categories) and trip overlap (% of trips that contain the two items) to understand whether this correlation is driven by buyers, trips or both. 6 Before we get into the connectivity research, first a little background on performance and the timeliness of this research 7 A lot of folks joining this morning have likely seen this slide from Nielsen before or heard our message. But we feel it’s worth repeating. Fresh is IMPORTANT! More than that, it’s a growth driver. In separate research from Nielsen Perishables Group called the Fresh Guiding Principles, we tested just how important fresh is and we found that retailers who focus on fresh and make it a point of differentiation have the success transfer to the rest of the store as well. From 2013 to 2015, the share of store sales shifted in favor of perishable items which include fresh meat, seafood, deli, produce and bakery. Looking at this slide, 1.3 percentage points may not sound like a whole lot, but that translates to billions of dollars. And the success of perishable sales is evident across all departments – both in terms of dollars and volume. This is extremely important during a time when many center store food departments have been flat to declining over the past 5 years, and still within the latest 52 weeks. This means that fresh is, and should be, in the driver’s seat. More than ever, retailers and CPG manufacturers have a watchful eye on fresh trends. Hopefully some have embraced this as a chance to form new partnerships to drive mutual growth. Focusing specifically on in-store bakery (which in world EXCLUDES all commercial breads, cookies etc) but does INCLUDE both random-weight and UPC items in the fresh bakery department, sales growth in 2015 were a healthy 4% in volume and 5% in dollars. 9 Taking it one level lower, performance varied across different products. Pies, for example, have had tremendous growth the past several years with a continued focus and introduction of smaller, mini pies aimed at smaller households and more general dessert occasions versus holidays. Breads, the focus of this study, meanwhile increased dollars at a modest 2% while volume increased 5%; but if we expand that view to the past 5 years, volume growth has been flat while dollars have increased just slightly as prices increase. But as fresh breads accounts for 15% of all ISB sales, it also takes a lot more success to move the needle of the second largest category than it does some of the smaller categories. Yes, even more than Oprah’s proclamation that she loves bread! 10 Crusty/traditional hearth breads account for the largest share of bread dollars at 40% and also had the strongest growth. Following that are artisan and sandwich breads. If you recall I mentioned another piece of research we’ve completed called the Fresh Guiding Principles. When evaluating what successful fresh retailers do differently from less successful fresh retailers, we analyzed differences by departments and breads was a critical piece of the success and therefore deserves the attention. 11 The variety in size and price points allows fresh breads to reach a broad audience. 70% of households purchased a fresh bread item at least once over the course of the year, and on average those households purchased about 6 times per year. Of the 70% of households that purchased bread from the in-store bakery last year, 91% purchased fresh bread at least 2x, but some households contribute far more to sales than others. Household penetration = households that purchased the focus product at least once in the last year. 12 When we look at who over and under-spends on fresh breads, it’s very clear the polarization of the category – very similar to other bakery categories. Larger, affluent and older households over spend on fresh bread. On the other end of the spectrum, smaller, less affluent and younger households really underspend on fresh breads. This is not to say that only this group buys breads or the folks on the right hand side do not buy at all. It’s representative of each demographic’s share of sales of all store sales and how that compares to their share of bread sales. The low price point of crusty breads makes them an attractive option for this under-indexing group, but many other opportunities also exist to reach new consumers. 13 One of the biggest barriers breads have faced over the past 5-10 years have been the focus on carbs and a consumer desire to cut carbs out of the diet. This will continue to be a challenge for the category to overcome and cannot be ignored. However, the definition of health and wellness has changed. The points of emphasis that consumers seek out and notice now include more emphasis on fresh, natural ingredients and cleaner labels with simple ingredients. 14 Of course the importance of different health claims differs by age and income level. But what we notice here is that the more recent popular wellness claims really resonate with bakery’s core, affluent shopper base. 15 Across the store, traditional claims still account for a significant amount of sales. But the growing is coming from new claims like organic and gluten free which both continue to grow at double-digit rates every year. 16 Yet the bakery department has failed to capitalize.
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