Supermarket and drug store retailers, and the suppliers that support them, are faced with tough choices these days in forging a strategy that will promote growth and prosperity. Merchants today are dealing with a lot more complexity in their markets than has been the case in the past, presenting a challenge in developing go-to-market formats that will work.
For example, while the U.S. household population is growing at about one percent annually, a variety of factors have created an increasingly fragmented and complex consumer experience than ever before, according to a Nielsen presentation at a recent industry conference. Such complicating factors include media influences, product choices, attitudes and preferences, and, in particular, retail choices.
Value and convenience, as has been well-documented, is critically important to many consumers and retailers have responded with a building boom to, in part, address the need.
According to the Nielsen presentation, between 1996 and 2006, the number of convenience stores increased by 33,000 to just over 145,000; dollar stores by 14,000 to over 19,000; and supercenters by over 2,000 to 2,758. Warehouse clubs increased in the ten-year period to 1,119 from 725.
Supermarket store count was essentially stable at about 31,000, as was the number of drug stores, at around 40,000.
Value is indeed important. New store openings benefited dollar stores, for example, by increasing household penetration of this retail class to 65 percent from 59 percent over the five-year period to 2006. Supercenter household penetration moved to 62 percent from 51 percent during the same time frame, while warehouse clubs showed an increase to 52 percent from 50 percent.
In contrast, drug store household penetration receded from 86 percent to 82 percent. Grocery pretty much only held the line, dipping to 99 percent from 100 percent.
But what about shopping patterns?
Convenience is the dominant factor more than ever. The large and extra large trips, the staple of the supermarket, are about 14 percent of shopping trips, according to the Nielsen presentation. But small trips for immediate needs accounted for 68 percent of shopping trips in 2006, while the medium trips for fill-in were 18 percent of the total. Indeed, when Nielsen took a look at multi-channel shopping for several key food and drug categories, consumer choice is obviously for going to many different types of stores. For oral hygiene, for example, the presentation indicated that multi-channel buyers made 12 trips per buying household, compared to about four for single channel buyer trips.
Totaling it all up, drug stores and supermarkets have some work to do in making themselves more appealing to today's fragmented and complex consumer dynamics.
Discussion Questions: What strategies and format changes are open to food and drug retailers to not only swing with marketplace changes but benefit from them? How can they collaborate with suppliers to achieve this?