When Speedway’s Glenn Plumby presented this year’s industry numbers, he joked that the channel had clearly entered “The Twilight Zone.” According to Todd Hale, senior vice president of consumer and shopper insights for The Nielsen Co., Schaumburg, Ill., we are not alone.
“You guys aren’t the only industry in ‘The Twilight Zone’ right now,” Hale said as he began his “Understanding the Convenience Shopper ‘Superconsumer’ ” general session. “Retailing in general is having some tough times.”
Sci-fi spookiness aside, it’s been a tough road for retailers of consumer packaged goods (CPG). While the unemployment rate is improving and the housing and automobile markets seem to have rebounded, robust growth continues to elude the c-store channel and also competitors in the grocery, drug and value channels.
“Growth is tough today,” said Hale. “We’ve seen some great examples of innovation in your industry and other retail industries that for whatever reason is not leading to the kind of growth we’d expect.”
Nielsen’s 2009-2013 data on the convenience, grocery, drug, club stores and dollar/value channels paints a confusing picture. Dollar sales grew slightly, with 4% growth in 2011 and 3% growth in 2012 as the standouts—though Hale said that was largely due to inflationary pressure. Unit sales, however, have essentially stayed flat.
“It’s not a simple story,” said Hale of the lack of CPG growth. “There’s a lot of positive and negative stuff going on that’s impacting the ability of consumers to spend these days.”
Some positives for consumers’ wallets included increases to the minimum wage and Social Security benefits (though last year’s 1.5% increase probably won’t lead to much growth). On the negative side, Hale expressed concerns over a shrinking population and wages that continue to drop.
“We had the slowest population growth last year since 1937,” he said. “Is it any wonder that our total stores are only growing by 1%? I don’t think so.”
Nielsen’s data did have some positive numbers in certain categories: fresh meat and fresh produce, thanks in part to a consumer demand for perceived healthier or fresh products. Alcohol beverages are also doing well, with Hale describing the United States as “drinking like there’s no tomorrow.” However, these upswings were few and far between, with the positive figures unable to offset the negatives.
“If you look at unit volume, where there’s growth, there’s less growth,” said Hale. “Where there’s declines, there’s bigger declines. Clearly, consumers are having to make decisions as they don’t keep pace with inflation and as their wages aren’t growing over time. They’re making decisions to either shift spending to some other channel or cutting out spending altogether.”
Unfortunately, these are issues are not going away. Hale predicted that, as 2013 was, 2014 will be a tough year: “The financial headwinds we face are no different. Stagnant and slowing population are going to continue to limit spending power this year and probably many more to come.”
Winning the Consumer
That means the competition between channels is likely to increase. But Hale warned retailers against focusing too much on their competition: In this economic “Twilight Zone,” the focus needs to be on the consumer—the right consumer.
“You’ll notice the dollar store, convenience store and the automotive channels are the three channels where we see a stronger skew towards low-income shoppers,” said Hale. “I would argue that part of the issues you’re having in your industry is you have shoppers who can’t afford to spend these days. Their spending power is at risk.”
It’s no news that c-stores also tend to skew heavily toward male shoppers. But Hale sees this as an opportunity.
“We need new shoppers to drive growth in this industry,” he said. “The reality is, women still control the spending and trips in every channel but yours. Think about how to connect more with female shoppers.”
And though many c-store retailers have been successful in rebranding themselves to be more appealing to both women and younger shoppers, Hale warned against putting too much stock in the oft-talked-about millennial demographic.
“I’ve got two millennial kids,” said Hale. “They’ve left the nest—not to be confused with leaving the wallet. Young people don’t have a lot of money.”
To win over the right consumer, Hale suggested that retailers:
▶ Win the Trip: “Either because of a superior connection with their consumers, innovation and/or operational excellence,” he said. “Aldi does well because they connect with shoppers who need to save but also provide quality, innovative offerings to that consumer.”
▶ Retail to the Extreme: “This is going to drive innovation in terms of store expansions, as well as new product introductions,” said Hale, citing examples of HyVee stores that had built sports bars in their grocery locations to attract new consumers with longer engagements in the store.
▶ Capitalize on Market Trends: “C-stores have been doing this with their foodservice offerings,” Hale said. “But you need to tweak it and continue to innovate around the latest trends such as ‘meal blur ring’ and perceived fresh/healthy options.”
▶ Own At-Home: “Because we’re pressed for money, there’s going to be more at-home time,” he said. “Are there opportunities to get more engaged in nonedible categories that appeal to this down time?
“Ronald Lunge says, ‘Chase the customer, not the competition,’ ” Hale continued. “Now more than ever, it’s not just about chasing customers, but chasing the right customer who really drives sales at your stores.”
Finding the ‘Superconsumer’
Chasing that sales-driving consumer—or “superconsumer”—was exactly what Eddie Yoon, a principal with The Cambridge Group, Chicago, had in mind as he took the stage from Hale for his “Introducing the Superconsumer” part of the session.
“This idea of superconsumers is really a concept we’ve been talking about ... that is born out of a solution,” he said. “Not just an idea, an opportunity or a threat, but looking at how you grow your business in a simple and speedy way.” The answer: attract the right consumer who is passionate about the channel and will thus spend a lot.
“It’s a combination of passion and profits,” Yoon said. “A superconsumer not only spends heavily but is heavily engaged in the process. A deep understanding of why people spend a lot of money and care about spending that money is the key to superconsumer success.”
It may seem silly to focus so much attention on a small sliver of the consumer base; Cambridge and Nielsen estimate just 10% of c-store shoppers could be considered superconsumers. But this small percentage packs a big punch. Yoon estimated that c-store superconsumers drive 40% of all food and beverage sales, make twice as many food and beverage shopping trips a month and spend four times as much on these trips than the average consumer.
“It’s a pretty significant index for how economically valuable they are for some of your higher-margined products,” he said. “They come in more frequently throughout the day, and they come in more frequently throughout the week.”
Because c-store superconsumers tend to also be superconsumers of other similar small-format locations, understanding and attracting this base could help operators get a leg up on the competition.
“It becomes an extraordinary differential factor in how well you grow and how fast you grow,” Yoon said.
Superconsumer success is also an indicator of how a retailer is performing overall.
“It’s a very small share of consumers who drive the lion’s share of the growth, and because of the emotional resonance that they have with the experience, will probably continue to drive growth in the future,” he said. “How you do with this one-tenth of your shoppers is highly predictive of how you’ll do in the marketplace at large. So the ability to home in on these people becomes a pretty critical business process.”
These superconsumers also tend to be passionate about more than one category—though it’s not always the categories you’d expect. Yoon recently looked at milk superconsumers, expecting dairy enthusiasts would be superconsumers of other health-conscious products. Instead, data showed that milk superconsumers tended to be passionate about indulgent products such as doughnuts, cookies, cereal and candy.
This information could be a gold mine of cross-merchandising opportunities for retailers and suppliers alike. Yoon believes it can be done in a relatively simple and inexpensive way. “The goal should be to take data you already have to learn what makes these consumers tick,” he said. “Ask your suppliers for help; they have lots of information they’d like to share with you.”
Yoon also suggested retailers rank their stores by category sales to identify which category superconsumers are frequenting their different locations.
“Once you’ve identified suppliers to work with and the right locations for those super consumers, work together to build joint growth plans,” Yoon said. “Everyone here is a superconsumer of something, every category has a superconsumer and every store has a super consumer. Use them as inspiration to drive your growth strategy.”
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