Merchandising Trends Achieving Differentiation with a Shopper-Centric Approach JANUARY 2011 03 Executive Summary 04 Introduction 05 Merchandising Activity 13 Merchandising Effectiveness 15 Merchandising Tactics 17 Trends to Watch 19 Conclusions 21 Resources 1 Merchandising Trends: Achieving Differentiation with a Shopper-Centric Approach Creative Merchandising Critical to CPG and Retail Success in 2011 The new year creates an opportunity to review product and retail strategies with a view toward continuous improvement. Nowhere is this more relevant or important than in merchandising strategies. While experts are still writing their post mortems on the 2010 holiday season, it is clear that consumer spending exhibited a strength not seen since 2006. What remains to be determined, however, is whether the holidays represented a one time splurge from shoppers with “frugal fatigue” or a genuine uptick in attitudes and behaviors that will carry over into the new year. It is also unclear whether gift purchasing activity will translate into increased sales of traditional consumer packaged goods, such as grocery, health or beauty aid items. SymphonyIRI anticipates shoppers will remain conservative in their purchasing habits, but evolve their definition of “value” slowly away from the almost singular focus on price that has shaped behavior for the past three years. The new focus will be one that integrates other factors, such as ingredients to support increased health & wellness, packaging and convenience. The challenges for those leading merchandising efforts are multifold. They must determine which shopper segments are motivated by which types of merchandising activities, typically a combination of price, feature and display activities. Within each segment, they must gauge which products generate the greatest sales volume lift from each type of support. They must evaluate which merchandising strategies achieve the greatest benefit within their category and/or channel. And, they must understand the interplay between merchandising strategies for national brands and private label brands. Critical to the future success of CPG and retail companies alike will be weaning shoppers off price-related merchandising. In 2009, price-only merchandising activity increased across 79 percent of CPG categories, a figure that has moderated to the still-too-high 53 percent in 2010. Going forward, managers must rely on innovative merchandising strategies focused on a mix of feature, display and price to gain the optimum balance between attracting shoppers to the product and earning the margins necessary to sustain and grow the brand. An important component of addressing merchandising, pricing and other CPG and retail challenges will be to attend SymphonyIRI Group’s 2011 Summit Conference, with the theme of “Gaining the Competitive Edge.” Among the keynote speakers in place are Gary Hamel, author of “Leading the Revolution” and “Competing for the Future,” Mark Zandi, chief economist, Moody’s Analytics; and Salman Amin, executive vice president, Global Sales and Marketing, PepsiCo. The conference will take place at the Fontainebleau Miami Beach, March 28-30, 2011. Early bird registration is now available and offers attendees $300 off the regular price, an excellent example of well-crafted merchandising! We look forward to seeing you there! Robert I. Tomei President, Consumer & Shopper Insights © Copyright 2011 SymphonyIRI Group, Inc. All rights reserved. 2 Merchandising Trends: Achieving Differentiation with a Shopper-Centric Approach Executive Summary: Turning Insights Into Action Insight Action After accelerating sharply in 2009, merchandising Consistently balance promotional efforts with activity growth slowed in the past year; still, everyday value-oriented programs that are merchandising support is escalating across a consistently aligned with partner goals/objectives majority of CPG categories and tactics as well as the needs of key target consumers In stark contrast to pre-recession trends, grocers Leverage technological advances that allow for have stepped up display activity during the past micro-level shopper marketing and enable year marketers to reach key consumer segments with a “less is more” approach The ranks of the categories seeing the biggest Carefully evaluate price elasticity of demand jump in merchandising activity are well- across key categories and brands, and leverage represented by products related to home-based this knowledge to create highly targeted eating rituals; price-only actions are becoming everyday and promotional strategies that reflect more prevalent across many of these categories consumers’ evolving definition of value and affordability Volume lift from merchandising support has Maximize impact of merchandising efforts with declined across more than half of CPG categories; strategies tightly targeted against key shopper this decline is fairly consistent across CPG and high-priority segments at the market and channels store level Private label receives lower-than-average Retailers should enhance the relevance and merchandising support across a majority of CPG, positioning of merchandising programs across and support declined across nearly half of private key private label categories and brands with label categories during the past year solutions-based programs and/or co-branded and multi-tier programs targeted against key shopper segments © Copyright 2011 SymphonyIRI Group, Inc. All rights reserved. 3 Merchandising Trends: Achieving Differentiation with a Shopper-Centric Approach Introduction Early in the recession, as CPG prices CPG marketers are playing a very With conservative purchase behaviors escalated and consumers adopted important role in consumers’ lives today. expected to persist and inflation predicted increasingly aggressive strategies for From eating and drinking to health and to escalate in 2011, the time for CPG finding the best value for their CPG dollar, home care, packaged goods products marketers to understand what is driving CPG retailers and manufacturers honed allow consumers to save money and time and inhibiting lift among key consumer and their value image with stepped-up on a wide range of daily essentials. target groups is now. promotional and merchandising activity. Today’s consumers are looking for all of This issue of Times & Trends explores It was a fairly marked shift from previous these things and more. More means current and emerging merchandising years, when clean-floor policies, all part of value. trends that CPG marketers have embraced the quest to create an enhanced shopping during the past few years in an effort to experience for consumers, were To provide value, marketers are relying on satisfy consumers’ rapidly changing eradicating display space and intensifying merchandising. In the past year, definition of value. merchandising competition. merchandising support has increased across a majority of CPG categories, and In the coming years, these strategies must Today, that enhanced shopping experience increases cut across CPG channels. But, become highly segmented tools that are is very much a different phenomenon. average lift achieved from these efforts has measured and monitored from a variety of Providing an enhanced shopping slipped across more than 50% of viewpoints to enable real-time adjustments experience is all about delivering against categories, and overall CPG unit sales that are reflective of the changing needs consumers’ complex and evolving increased less than 1% for the year. and wants of key consumer and target definition of value. As difficult as this task segments. is, achieving this goal translates to substantial growth opportunity for CPG marketers. © Copyright 2011 SymphonyIRI Group, Inc. All rights reserved. 4 Merchandising Trends: Achieving Differentiation with a Shopper-Centric Approach Merchandising Activity: Total CPG 2007 Increasing Declining 2008 50% 54%57% 2009 51% 39% 2010 46% 53% 56% 38% 62% 59% 59% 68% 33% 79% 78% 30% 13% 12% 54% 11%10% 47% 44% 38% 41% 41% 32% 0% 0% 0% 0% 21% 22% 0-29.9% 30-49.9% 50-69.9% 70%+ 2008 2009 2010 2008 2009 2010 2008 2009 2010 % Volume, Any Merchandising FDMx Grocery Drug Source: SymphonyIRI InfoScan Reviews™; 52 weeks ending 10/31/2010 and Source: SymphonyIRI InfoScan Reviews™; 52 weeks ending 10/31/2010 versus same period prior year, and calendar year 2007-2008 same period prior year and calendar year 2008-2009 versus prior year % of CPG Categories % of CPG Categories by Merchandising Activity Level, 2007-2010 with Increasing/Declining Merchandising Activity Across grocery, drug and mass channels accelerated sharply. During this channel. Still, 56% of CPG categories are merchandise channels, about 43% of CPG difficult economic time, nearly 80% of CPG seeing merchandising support climb within volume is sold with merchandising support categories experienced stepped up the grocery channel. (defined as displays, feature ads, feature merchandising support. and display combined and price reduction On average, 70% of CPG categories sell only). Increases were evidenced across CPG more than 30% of their volume with channels, but were particularly strong in merchandising support. This is a sharp In today’s marketplace, which is heavily grocery. At that time, grocers were fighting increase, nearly 10 points, over a four year marked by caution and frugality, it is no to stem multi-year share losses and to time period. The shift serves to surprise that merchandising activity has fortify their image vis-à-vis value