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JANUARY 2009

SHOPPER INSIGHTS

S.C. Johnson Promotes 'Reinventing'
Center Store of Supermarkets

Lower Gas Prices Lead to Increased Grocery Spending

P&G Collaborates with Kroger to Focus on Mutual Customers

S. C. Johnson Promotes ‘Reinventing’
Center Store of Supermarkets

By Dale Buss

The center store is struggling. Packaged-goods manufacturers need to help their retailer partners figure out why – and play a central role in the revitalization of the core of the supermarket.

That’s the message David Milka of S.C. Johnson & Co. has been spreading lately at industry conferences and, even more important, within the Racine, Wis.-based CPG giant that manufactures and markets products ranging from Glade air freshener to Raid insecticide, from Windex to Zip-Loc bags. Milka, the company’s consumer-insights manager, is advocating nothing less than a “reinvention” of the center store based on shopper insights.

“We’ve got to make the center store more competitive and more relevant,” Milka says. While that crucial portion of supermarket real estate is “struggling,” he says, center-store woes can’t be attributed to a single cause.

But Milka says one key is to understand the stark contrast between what has been going on at the perimeter of the supermarket with what hasn’t been happening in the center store. Thanks to initiatives such as deli expansion, produce-department enhancement, and the addition of sushi bars, the real estate along the outer rim of supermarkets has been buzzing with improvement and excitement for several years. “Stores perimeters have become warm, inviting, exciting, genuine and diverse,” Milka says.

But the center store, where S.C. Johnson brands reside, has remained “cold, obscure, boring and non-differentiated,” he adds. And it is “really cluttered.”

In addition to retailers’ lack of focus on the center store, he says, there are at least two other reasons it is struggling. For one thing, consumers can buy packaged goods at so many other outlets, ranging from drug stores to dollar stores to mass-merchant discounters. And, says Milka, consumers don’t have time to browse the center store on a brief shopping trip.

What’s needed, he adds, is a good understanding of category management and its evolution, with an eye toward converting consumer and shopper insights into effective “reinvention” of the center store. For S.C. Johnson, the strategy emerging from this better understanding rests on three concepts: relevance, “shoppability” and the total shopping experience.

In terms of relevance, Milka explains, “Knowledge of consumers’ characteristics will be extremely important, so [CPG manufacturers and retailers] need to stay on top of that … It’s the responsibility of both retailers and suppliers to understand the emotional drivers of purchase decisions.”

“Shoppability” deals with “clearly communicating a range of benefits and delivering on specific customer solutions,” Milka says. One such center-store application might be a “party kiosk” that holds and merchandises in one place – even on a seasonal basis – many of the things that a shopper might be seeking to stage a party for a relative or friend. From S.C. Johnson’s product lines, for example a “We Plan, You Party” kiosk could hold its Glade candles, Zip-Loc bags, and Raid insecticides.

“It’s one way to apply the communications factor to draw the consumer in,” Milka points out.

And when it comes to the total shopping experience, he says, “Shoppers are seeking total store solutions.”

One tactic that embraces aspects of all three pieces of a center-store reinvention strategy is a layout that alters the straight aisles of the area in exchange for a sort of zig-zag layout like that found in many boutiques. Products would be merchandised more clearly in highly related categories using pods and interactive kiosks and creating many aisle adjacencies to tangential products and categories.

In general, design principles for a “reinvented” center store should include broadening the shopping experience by challenging norms, by rationalizing SKUs and by establishing solutions-based merchandising, Milka says. He offers an example of effective execution of this kind of design from the perimeter of a store: a display that says, “Warm up” with some French-onion soup. All the ingredients are right there, along with a recipe – making everything easy for the shopper.

Milka says that retailers and suppliers can “improve the shopping experience with visibility, traffic flow and adjacencies.” Visibility concerns “the comprehensive overview” of an area, while better traffic flow can improve shoppers’ ability to shop. “And adjacencies integrate the experience so you have everything in one easy location.” Breaking up the shopping pattern, he says, can stimulate incremental spending.

Some progressive retailers, Milka notes, have been experimenting with such new approaches to the center store, including HEB Plus, which has laid out the center aisles of some of its stores more in the “destination” style of their perimeters.

“Manufacturers need to develop a center-store reinvention strategy,” Milka concludes, and “invest in product and packaging innovations. They need to align with retailers’ center-store strategies. And retailers need to cultivate these strategies after determining and analyzing opportunities and risks. They need to integrate center-store categories. And then monitor their execution.”


Market Watch
Lower Gas Prices Lead to
Increased Grocery Spending

By Lynn Cooke

Groceries are the top item on which U.S. consumers are spending their savings from lower gas prices, ahead of saving money, buying holiday gifts, and paying off credit cards, according to the results of nationwide research by retail analytics firm Precima.

Of those surveyed, nearly half (48%) said they’re spending the extra cash on groceries, followed by saving (42%), buying holiday gifts (37%), paying off credit cards (30%),
entertainment (10%) and other (14%).

Among those survey respondents who said they’ve suffered a direct financial loss during the recession, 55% said they’re spending gas savings on groceries, and for those whose annual income is under $35,000, the number is 59%. About a third of retirees said they’re spending gas savings on groceries. The number fell to 29% for those whose annual income exceeds $100,000.

“With relief at the pump, consumers are returning to some of the aisles they may have foregone in recent months,” said Brian Ross, general manager of Precima. “This significant trend builds on findings we uncovered in earlier research that showed that consumers are now eating more at home.”

In another significant finding from the survey, nearly two-thirds of respondents said the recession is changing the way they plan their grocery trips, particularly in regards to pantry-loading. More than a quarter of consumers (27%) said they can no longer afford to stock up on food and now buy only what they need week to week. Another 35% said they stock up more than they used to, but only when items are on sale. Of the 65% of respondents who said their stocking habits have changed, 5% said they stock up more, 54% said they stock up only when items are on sale, and 41% no longer stock up at all.

“These trends present real opportunities for grocers who target their strategies to meet the needs of cash-strapped consumers,” said Ross. “Given the importance of winning the stock-up trip in key center-store categories, this is a clear call to retailers to look at pricing and promotional strategies for these items.”

Out of Stocks Still Irks Shoppers
Retailers are losing sales of at least one item to as many as 20% of consumers coming into their stores, leading many consumers to quit shopping with the retailer altogether. This is a key finding from a new study from IHL Group, which goes on to state that warehouse clubs lose $1.78 and grocery stores lose $.68 in sales for every customer when consumers cannot buy that product or an adequate substitute.

IHL cites Safeway as having the best in-stock performance among grocers (14.7% of consumers experiencing out-of-stock of at least one item), while the worst performers are Food Lion and A&P (22.8%). Grocery customers leave stores not purchasing at least one item they planned to buy or a substitute product 16.6% of the time. Consumers aged 26-35 years of age experience out-of-stocks 11% more often than other age groups.

Consumer Trust of Private Label Rising
Private label products are currently enjoying a more positive view
from consumers, with nearly three of four (72%) saying they are
good alternatives to name brands, according to  a recent survey
by the Nielsen Company. Approximately 62% of respondents
said that private label brand quality is as good as their name
brand counterparts.

A significant portion of those surveyed have an excellent view of private label: one third consider some store brands to be of higher quality than name brands. As far as negative reactions, 16% believe that private label is not good enough when quality matters, while another 16% reported that store brands have “cheap-looking” packaging.


DECEMBER 2008

P&G Collaborates with Kroger
To Focus on Mutual Customers

By John Karolefski

The Procter & Gamble Company continues to boost its brands by keeping the shopper at the center of its business planning and marketing initiatives.

This focused effort – dubbed “Consumer is Boss” – is enhanced by collaboration with key trading partners such as Kroger. Moreover, shopper insights is the shared platform that fuels such collaboration. It has turned the trading partners away from traditional negotiations that tended to be confrontational.
 
“P&G now puts the shopper at the center. But at the end of the day, if we don’t collaborate better with our retail partners, we’ll never realize our major sales goals,” said Victor Bellino, associate director of customer business development at P&G.

One of those retail partners, Kroger, relies on its own program called “Customer First” that puts the shopper at the center of its thinking and actions.

“If we’re going to grow, we also had to agree to share our data and our insights,” said David Ciancio, vice president of loyalty marketing at Kroger. “I can’t describe the terror and the fear of the paradigm shift that took place when we thought about the implications of sharing what we thought was our most precious asset – the very shopping lives of our customers – with manufacturers and suppliers. But what an interesting place that was.”

At the recent In-Store Expo hosted by the In-Store Marketing Institute in Las Vegas, Bellino and Ciancio spoke together about their fruitful collaboration. During the presentation, a contrived conversation between the two executives gave the audience an entertaining look at the fundamental issues that have confounded trading partners during traditional negotiations. They also outlined several case studies that illustrated the benefits of their work together.   

“It wouldn’t have been that long ago that we might have been accused of only being interested in growing our brands,” said Bellino. “It’s about P&G sales, and it’s about P&G share. The retail stores were seen as simply an opportunity for us to do our business.  Really, it was a real estate deal.”

Ciancio of Kroger said, “Until recently, if I’m engaged in conversations as a retailer with a manufacturer like Procter & Gamble, I’m naturally going to fight with them more and talk more about cutting up pieces of the placement-price-promotion pie than I am going to think about how we can build a bigger pie together. Nowhere in our conversation in the past did we think about shoppers.”

To leverage its data for insights internally, Kroger enlisted the help of dunnhumby, the analytics provider that helped develop the “Consumer First” initiative.   

“It is a language about how shoppers use the stores, what motivates them, what their needs are, and what their behaviors are. We needed to teach this language to our CPG partners like Procter & Gamble,” said Ciancio.

Bellino added that the bottom line is a much more customer-centric focus for both trading partners. “It’s about how we do business together and how we evolve culturally to work together better in
the future.”

The executives engaged in role playing to illustrate what a traditional, confrontational product-centric relationship might have sounded like:

Kroger:  I’m really looking forward to this category review today.  And I know we’ll talk about the ad placement and the 20 thousand bucks to be on the front page, and the end cap stuff. But before we do that, listen. We’ve taken a look at the category and I have a list of items that we need to discontinue in your category.  .

P&G: This is helpful, but there are just a couple of things I’d like to ask you to consider.  I know that distribution is the sole discretion of the retailer, but we’re really kind of deep in that. We’ve looked at a lot of complexity and we’re trying to work on efficient product assortment.  And this does include a fair representation of my items. I’m a little bit concerned about that. 

So I’ve actually done some pre-work for today’s meeting.  I’d like
you to consider another list. It goes a little bit deeper than what
we’re going to work on. Don’t be concerned that there are no actual P&G items on that list because we know that they really do meet shopper needs.

Kroger:  Well, back to my list. I used the best data that I had from category management, and this is driven by margin.  This is what I really need you to collaborate on.

P&G:  Margin is over-rated.  What we really need is market data. The truck is in the back and I’m bringing out the binders. We’ve got all the market data in the world to justify that these are really the right recommendations for you.

‘Happily, that really wasn’t how our [real] conversation about SKU rationalization went,” said Bellino. “We did collaborate and got together on a handful of categories. We looked at a 26-week database, so we really were thorough. We did look at volume and we did look at margin. But we also looked deeper. We looked at the shopper action. We looked at loyalty and penetration and reach. So we looked at the full picture of what was really right for the store”

Added Ciancio: “The significant and transformational action that we took was to put the shopper at the center of our thinking and action.  When we did that together, we found the right items to discontinue. We reduced SKUs by about 10%.”

The executives also explained how they collaborated to increase sales of personal care and health and beauty care product at
Kroger. Most loyal shoppers were not buying these products at the grocery store for various reasons, but they liked the idea of finding and buying them there. For Kroger, this was an opportunity for substantial growth.

“We wanted to co-create and develop a new way of going to market with health and beauty aids for personal needs at Kroger,” said Bellino.” And we wanted to put the shopper at the center. By doing that, we would grow our business, Kroger would grow their business, and the shopper would be delighted.”
 
They first examined the purchase behavior of loyal shoppers who were already buying these personal care products in Kroger. By digging deeper, they were able to understand what was motivating the buyers to buy, and what was preventing the non-buyers from buying. Ultimately, Kroger turned these insights into action by developing a prototype store that appealed to shoppers of these HBC and personal care items.

“If you look at the store that has currently been open for a couple of months,” said Bellino, “I think you’ll agree that ‘This ain’t your grandmother’s Kroger.’ This is a very different shopping experience from the floor to the ceiling literally with lighting and flooring that are very different, and everything in between.

“We put a lot of time into thinking through adjacencies to make them logical and intuitive and to develop sales that were both orchestrated and unorchestrated. Since this is a new market, it’s really too early to tell [results] from a quantitative standpoint.” 

Ciancio said shoppers like how Kroger has reinvented the store. He complimented P&G for being involved at every step from formulating the plan to fixturing the stores.

The executives reported that P&G and Kroger have conducted
2009 joint business planning and are pleased with the direction they are taking.

“Collaboration is great and it really happens on an individual level,” said Bellino. “But if you take it to the highest level, it’s really about joint business planning where companies collaborate. It’s not about P&G winning or about Kroger winning. It’s about us both winning.
And the only way that’s going to happen is to put the shopper at
the center.” 
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