Optimizing Checkstand Merchandising Maximizing Shopper Interaction in a New Era of Technology 1 Research Methods – 2014 FEF Relies on Several Methods Individual Pages Contain Detailed Research/Data/Methodology Footnotes 1. In Store Video Observation (conducted by Video Mining) • • • • • Primary Metrics: Conversion Rates, Consumption & Shopping Behavior In-store video (including facial recognition) captures consumer behavior T-log data matched with video to understand purchase behavior N = Front End trips - 1,643,899 National Sample of Grocery Retailers 2. Mobile Eyetracking (in collaboration with Indiana University) • • • • Mobile Eye Tracking Device (eye glass mounted) used to capture visual attention Exit interviews: Shopability & Attitudes/Shopping Questions N = 316 National Sample of Grocery Retailers & Lab Research 3. C/O Category Performance Data for C/O Consumption (provided by IRI) • National data for Grocery COT • In-Store Audits performed by IRI to determine C/O vs. Gondola Items 4. Total Grocery COT Department Data for C/O Categories = C/O + Gondola (provided by Nielsen) 5. C/O Space Allocation Audits (conducted by TWR) – Detailed Category Measurements • National Sample of Grocery Retailers 2 Seven Key Insights for Checkout Optimization 1 The power categories of Beverages, Magazines & Confectionery generate over 90% of front-end checkout sales 2 Improving C/O Shopper Conversion by 1% nationwide could add over $560M in Revenue Annually ($15,350 per store) 3 Merchandising the Power Categories on every lane is critical 4 Shoppers spend more time looking at the Customer Left Arm & ROS top tiers when approaching checkout. Power Categories must be available in these areas 5 Secondary displays detract significantly from primary end-cap displays 6 Most C/O categories are not growing in step with historical growth rates; ensure that quality and space of space is allocated for those categories/items with the highest sales potential 7 Focus should also be provided on those categories that get a higher percentage of their total store sales from the front-end checkouts. Those categories are primarily Magazines & Gum. 3 Front-End Checkout Is a Critical Location in the Store A location most every shopper passes Represents a significant source of impulse sales Major location for immediate consumption items Consumables Time Sensitive Products 4 Retailers Are Facing a Changing Landscape Increased Retailer Focus Retail Design & Style Front-End Changes Basket size Checkout trips Overall sales decline Desire for promotion space Average program life = 4.5 years Continued space allocation adjustment Streamlined look Lower profile fixtures Reduce design & style complexity Design flexibility for ability to react to market changes Emerging Categories New item speed to market Additional & larger beverage coolers Category segmentation Reduced number of lanes Some experimenting with queuing lines Self-checkout growing in some, declining in others 5 Front-End Checkout Shopping Behavior Front-End Power Categories Are Defined By Key Metrics High performing retailers consider 4 essential shopper demand criteria when allocating space 1 Household Penetration 4 $ Share of Front-End Sales Front-End Power Categories 2 Frequency of Purchase 3 Impulsiveness of Purchase Source: Front-End Focus, DHC Analysis 7 Items Consumer Purchased Most Were Gum/Mints (74%), Followed By Candy (53%) & Magazines (48%) Did you purchase an item at the checkout today? Checkout Purchases – % of Respondents 32% Candy Candy 18% Yes 82% No 53% 46% Gum/ Mints Gum / Mints Magazines Magazines Carbonated Soft Drinks 74% 11% 48% 11% 41% 35% Non-Carbonated Drinks 45% 24% 28% Salty Snacks About 20% of shoppers purchase a checkout item on any given day Batteries Phone/Gift Card Cigarettes/ Tobacco 0% 30% 3% 24% 8% 9% Purchased Today Purchased Ever Source: TWR In-Store Survey, March, 2013 8 Confectionery & Beverages Are Purchased Frequently How frequently do you buy these products? (% Respondents purchasing once/month or more) Candy 62% Gum/ Mints 73% Magazines 38% Carbonated Soft Drinks Almost 40% of shoppers purchase Magazines at least once a month 52% Non-Carbonated Drinks 63% Salty Snacks 63% Batteries Phone/Gift Card 22% 18% Source: TWR In-Store Survey, March, 2013 9 Candy, Magazines, Books & CD/DVDs Were Items Most Purchased on Impulse • Candy, Magazines and Beverages Lead are at the top of the impulse spectrum • While Books & CDs/DVDs were impulsive purchases, only 10% of consumers purchased those categories at the front-end checkstands Recommendation Do you plan to buy the item you actually purchased before coming into the store? (% Respondents purchasing category on impulse) Candy Candy 90% Gum/ Mints 67% Magazines Magazines 90% Carbonated Soft Drinks 56% Non-Carbonated Drinks 60% Salty Snacks 50% Batteries Front-end focus should be on Categories that: • Are impulse-driven • Many people buy • People buy often 36% Phone/Gift Card Cigarettes/ Tobacco 19% 10% Books Books Audio/Video/ Audio / Video / CD CD/DVD 92% 85% Source: TWR In-Store Survey, March, 2013 10 Importance of Front-End Sales to Total Store Sales Varies Greatly by Category SALES % CHANGE % of Total Store Sales Generated By Front-End Checkstands#* Carbonated Beverages 0.6% Candy 1.6% Front-End# -1.4% 70.0% Magazines 70.1% 0.6% Salty Snacks 0.1% Batteries Razors/Blades 3.4% -6.4% 2.7% -10.4% -8.5% 2.4% 9.4% Bottled Water -2.6% 1.0% Gum Non-Carbonated Bev. Total Store* 0.3% -12.9% 4.4% 32.8% 11.1% 25.0% 28.0% Source: *Nielsen All Grocery Store Sales, 52 weeks ending June 22, 2013 #IRI Front-End Sales, 52 weeks ending June 30, 2013 3.4% -5.8% 2.3% -3.9% • Focus attention on front-end checkstands on Magazines & Gum since most of the total store sales come from the front-end checkstands. The information contained herein is based in part on data reported by IRI through its Market Advantage service as interpreted solely by Time Warner Sales & Marketing and/or Dechert-Hampe & Co. (Copyright© 2013), Information Resources, Inc.). The information is believed to be reliable at the time supplied by IRI but is neither all-inclusive nor guaranteed by IRI. 11 Beverage, Confectionery, & Magazines Drive Front-End Sales Dollar Shares of Front-End Checkstand Sales Beverages Carbonated Energy Drinks Non-Carbonated Drinks Bottled Water Confectionery Candy Gum Mints 43.0% 16.0% 11.7% 9.8% 5.5% 32.2% 18.1% 10.8% 3.3% Magazines Salty Snacks Batteries Snack/Granola Bars Razors/Blades Nuts 16.5% 3.0% 1.6% 1.4% 1.3% 1.0% Source: IRI 52 weeks ending 6/30/2013; DHC Analysis The information contained herein is based in part on data reported by IRI through its Market Advantage service as interpreted solely by Time Warner Sales & Marketing and/or Dechert-Hampe & Co. (Copyright© 2013), Information Resources, Inc.). The information is believed to be reliable at the time supplied by IRI but is neither all-inclusive nor guaranteed by IRI. 12 Best Practice: Manage The Front-End Based on Consumer Buying Behavior Low Scores Mixed Scores Health Items Razors/Blades Baked Goods Lip Care Oral Care Household Products Audio/Video/DVD Other Snacks Beauty Care Grocery Products Film/Camera Supplies Children’s Items Nutrition/Energy Bars Books Maps/Horoscopes/Puzzles Recommendation Salty Snacks Batteries/Flashlights Cookies/Crackers Nuts/Seeds Meat Snacks Gift/Phone Cards Tobacco Accessories High Scores Confectionery Beverages Magazines Focus on key categories that Have high Household Penetration Have high Purchase Frequency Provide Higher Impulse Sales Generate higher Front- End Sales Source: Front-End Focus 13 Dollar Sales Importance Does Not Match The Amount of Linear Space That Front-End Categories Receive $ Shares of Front-End Checkstand Sales* Beverages 43.0% Candy 29.8% 14.1% Magazines 21.8% 16.5% 3.0% Space to Sales Index 9.7% 18.1% Gum/Mints Salty Snacks Share of Front-End Linear Space (All Lines)# 18.4% 4.5% Over/ Underspaced 23 Under 165 Over 155 Over 112 Correct 150 Over 82 Under Batteries 1.6% Snack/Energy Bars 1.4% 0.1% 8 Under Razors/Blades 1.3% 0.1% 8 Under Best Practice 1.3% It would seem that Beverages are underspaced while Confectionery is overspaced. Source: *IRI 52 weeks ending 6/30/2013, DHC Analysis #TWR Audits, October/November 2013 The information contained herein is based in part on data reported by IRI through its Market Advantage service as interpreted solely by Time Warner Sales & Marketing and/or Dechert-Hampe & Co. (Copyright© 2013), Information Resources, Inc.). The information is believed to be reliable at the time supplied by IRI but is neither all-inclusive nor guaranteed by IRI. Without limiting the generality of the foregoing, specific data points may vary considerably from other information sources. Any opinions expressed herein reflect the judgment of Time Warner Sales & Marketing and/or Dechert-Hampe & Co. and are subject to change. IRI disclaims liability of any kind arising from the use of this information. 14 Shoppers Rated Gum/Mints & Magazines as the Most Important Products at Checkout Counters % Shoppers Rating Category as Somewhat, Very or Extremely Important to Carry on the Front-End Checkstand GumGum/Mints & Mints 93% Magazines Magazines 93% Lip Care 87% Phone/Gift Cards 87% Non-Carbonated Drinks 84% Batteries 81% Candy 69% Nutrition Bars 61% Carbonated Soft Drinks Salty Snacks 59% 52% Source: Eye Tracking Research, 2013 15 Retailers Need to Make Wise Front-End Checkout Space Decisions Based on Consumers’ Shopping Habits % Respondents Looking at products at the checkout counter gives you something to do while waiting in line 84% bide their time waiting to check out The checkout counter contains a lot of products that you don’t need 66% You like to read magazines while waiting in line at the checkout 65% 66% of shoppers believe items at checkout counters are unnecessary for them 65% of shoppers enjoy reading magazines while waiting in line at checkout You often buy products on impulse when you see them at the checkout counter 44% You sometimes select an item from one checkout counter & then go to another lane to check out Sometimes you have to look at all of the checkout counters in the store just to find an item you want Consumers use in-line distractions to 27% 16% Consumers do not generally pick a lane for You often select a certain checkout lane because of the items displayed there 14% You sometimes get frustrated trying to find a particular item you want at the checkout counter 3% the items displayed there Note: results denote a response of “Agree Somewhat” (4) or “Agree Completely” (5) Source: TWR In-Store Survey, March 2013 16 Eye Tracking Can Help Identify Visual Hotspots In Checkout Lines Source: Eye Tracking Research, 2013 18 Shoppers Spend Time Looking at All Areas of an Endcap Generally the top 3 or 4 tiers of the end cap get the most viewing time Left Customer End Cap* 1.73 sec 95 % 3.01 sec 97 % 3.02 sec 97 % 2.45 sec 98 % 1.39 sec 63 % Best Practice Right Customer End Cap* 1.94 sec 87 % 3.89 sec 95 % 1.75 sec 92 % 2.02 sec 84 % 0.95 sec 45 % Make sure that the top tiers are carrying top selling magazines Source: Eye Tracking Research, 2013 * % of shoppers viewing tier & amount of time spent viewing same 19 Most Viewing Time is Spent Viewing Items Before the Belt Upon Entering the Lane Customer Left* 2.27 sec 84 % 2.45 sec 82 % 4.19 sec 81 % Best Practice Make sure top selling items are merchandised in these hot spots Source: Eye Tracking Research, 2013 * % of shoppers viewing tier & amount of time spent viewing same 20 Many Retailers Block Highly Productive End Caps With Secondary Display Merchandising Source: Eye Tracking Research, 2013 21 Secondary Displays Significantly Reduce Time Spent Viewing the Primary Display No Blockage* 4.69 sec 98 % Blockage: 5-Hour Energy* 4.99 sec 99 % 3.88 sec 100 % 1.04 sec 87 % 2.89 sec 96 % 6.12 sec 100 % 4.16 sec 97 % Blockage: Kind Bar* 6.73 sec 100 % 0.7 sec 27 % 0.9 sec 1% 9.63 sec 100 % 0.6 sec 28 % 0.84 sec 7% 1.81 sec 67 % Total Primary Display Viewing: 21.94 sec₮ Total Primary Display Viewing: 13.2 sec ₮ Total Primary Display Viewing: 10.6 sec₮ Consider Are secondary displays important enough to distract from primary displays? Source: Eye Tracking Research, 2013 * % of shoppers viewing tier & amount of time spent viewing same; ₮ Includes Visual Attention allocated to the endcap and arm rack segments on Customer Right 22 Total Checkout Sales Were Impacted By Secondary Displays Secondary displays can & DO have a negative effect on total checkout sales Total Checkout Unit Sales % Change Secondary Display: 5-Hour Energy Secondary Display: Kind Bar -19% -41% Source: Eyetracking Research 2013, DHC Analysis 23 Summary 1 When a secondary display is present, it attracts almost 40% of shoppers’ visual attention away from the primary display 2 The negative impact is greatest for the blocked tiers, but there is also an effect on the unblocked tiers 3 The secondary display is often the first area shoppers examine as they approach the checkout & may be the only thing they see when they don’t have to wait in line 24 94% of Active Front-End Shoppers Become Buyers Converting more of the front-end traffic into shoppers can drive greater incremental sales Overall Front-End Path to Purchase** Front-End Traffic Glance Shoppers Active Shoppers Buyers 18,266 7,538 41% 1,763 23% 1,665 94% 10% of consumers become Active Shoppers *$ sales assuming each buyer purchased 1 item at Front End. Traffic – Store visitors who passed by category; Shoppers – Traffic that stops to interact with category; Buyers – Shoppers who make a purchase from category *Source: Videomining Research, 2013 **Data represented per store per week 25 Leverage High Shopper Conversion At Front-End By Engaging More Traffic Improving Traffic to Shopper Conversion by 1% nationwide could add over $560M in Revenue Front-End Growth Opportunity: What If Analysis Shopper Metrics/Week/Store Current Scenario Traffic to Shopper Conversion Increased by 1% Net Change Front-End Traffic to Shopper Conversion 10% 11% 1% Shopper Conversion 94% 94% –– Shoppers 1,763 1,946 183 Buyers 1,665 1,837 172 $2,849.39 $3,144.55 $295.16 $148,168.28 $163,516.39 $15,348.11 $15,348.11 Weekly Sales Annual Front-End Sales Shopper Conversion - % of shoppers who made a purchase *Approximately 36,500 Grocery stores. http://www.fmi.org/research-resources/supermarket-facts *Source: Videomining Research, 2013 Nationwide Annual Category Sales Increase: $560.21M 26 While 75% of consumers Shopped Multiple Categories, Most Everyone Bought Only 1 Item from the Checkstands There is an opportunity to build baskets & drive front-end sales by enticing shopper to purchase more than one item Front-End Shopping & Purchasing Incidence Distribution 99% 43% 24% 20% 1 1% 0% 2 13% 3 0% 4 0% 0% 5+ # of Categories % Shoppers (N=158,699) % Buyers (N=149,848) Traffic – Store visitors who passed by category; Shoppers – Traffic that stops to interact with category; Buyers – Shoppers who make a purchase from category Source: Videomining Research, 2013 27 Converting Active Shopper to Buyers Is High Across All Lanes Traditional lanes do a better job of converting Glance Shoppers to Active Shoppers Overall Front-End Path to Purchase by Lane Type Front-End Traffic Traditional Lane 11,578 Express Lane 2,627 Self-Checkout Lane 4,162 Consider Glance Shoppers Active Shoppers Buyers 6,065 52% 1,126 43% 1,189 29% 1,616 27% 56 5% 94 8% 1,517 94% 55 98% 92 98% What merchandising techniques can be used on Express & Self-Checkout Lanes to convert more Glance Shoppers into Active Shoppers? *$ sales assuming each buyer purchased 1 item at Front End. Traffic – Store visitors who passed by category; Shoppers – Traffic that stops to interact with category; Buyers – Shoppers who make a purchase from category *source: Videomining Research, 2013 28 Conversion rates Vary by Category & Type of Shopper Conversion Rates of Front-End Category Front-End Traffic Glance Shoppers Active Shoppers Buyers Avg $/Unit Total Front-End Checkstand 18,266 41% 23% 94% $1.71 Beverages 14,718 13% 59% 74% $1.64 Candy 16,299 24% 16% 66% $1.09 Gum & Mints 18,266 25% 8% 64% $1.52 HBC 3,688 8% 79% 6% $1.70 Magazines 18,266 21% 24% 20% $3.70 • • • • Gum/Mints, Candy & Magazines have a higher conversion rate of Glance Shopper HBC converts the highest percentage of Glance Shoppers into Active Shoppers followed by Beverages Beverage converts 74% of Active Shoppers into Buyers followed by Candy (66%) & Gum/Mints (64%) Magazines price the highest dollar sales per unit 29 Seven Key Insights for Checkout Optimization 1 The power categories of Beverages, Magazines & Confectionery generate over 90% of front-end checkout sales 2 Improving C/O Shopper Conversion by 1% nationwide could add over $560M in Revenue Annually ($15,350 per store) 3 Merchandising the Power Categories on every lane is critical 4 Shoppers spend more time looking at the Customer Left Arm & ROS top tiers when approaching checkout. Power Categories must be available in these areas 5 Secondary displays detract significantly from primary end-cap displays 6 Most C/O categories are not growing in step with historical growth rates; ensure that quality and space of space is allocated those categories/items with the highest sales potential 7 Focus should also be provided on those categories that get a higher percentage of their total store sales from the front-end checkouts. Those categories are primarily Magazines & Gum. 30 Recommendations • Of foremost importance the research reconfirms the importance of the power categories (Beverages, Confectionery, & Magazines) to front-end checkstands. Retailers need to focus on the appropriate merchandising efforts, across all types of lanes, for these key categories to drive the highest incremental sales. • Focus should also be provided on those categories that get a higher percentage of their total store sales from the front-end checkouts. Those categories are primarily Magazines & Gum. • Temporary Displays in front of the checkstand endcaps do not drive incremental sales. Find other locations for those temporary displays. • Make sure that key products are being carried in the checkstand hotspots. • Try new/different merchandising approaches to help drive higher conversion rates and increase front-end basket size. These efforts will be rewarded; potential best practice grow could yield +$15,350 (incremental sales per store). 31 Appendix A Granular Consumer Insights 32 Rating of Important Kinds of Product to Have Available at the Front-End – All Products % Shoppers Rating the Category as Somewhat, Very or Extremely Important to Carry at the Checkout Counters Category Purchase Ever Gum & Mints 93% Magazines 93% Lip Care (lip balm, etc.) 87% Phone/Gift Cards 87% Non-Carbonated Drinks 84% Batteries 81% Candy 69% Nutrition Bars 61% Carbonated Soft Drinks 59% Salty Snacks (chips, pretzels, etc.) 52% Oral Care (toothbrush, floss, etc.) 49% Cookies Crackers 48% Other Snacks 45% Other 33% Books 31% Film/Disposable Cameras 29% Cosmetics 28% Razors/Blades 24% Cigarettes/Tobacco 23% Audio/Video/CED 14% Source: TWR In-Store Survey, March, 2013 33 Items Most Purchased by Consumers – All Categories Did you Purchase These Items At Checkout? (% of Respondents) Category Purchase Ever Purchase Today Other Items 6% 11% Cigarettes/ Tobacco 9% 8% Phone/Gift Card 24% 3% Oral Care 17% 3% Lip Care 37% 3% Cosmetics 13% 5% Audio/ Video/ CD 9% 0% Books 11% 3% Razors/ Blades 16% 0% Film/ Disposable Cameras 10% 0% Batteries 30% 0% Other Snacks 21% 16% Nutrition Bars 21% 14% Salty Snacks 28% 24% Cookies/ Crackers 22% 19% Non-Carbonated Drinks 45% 35% Carbonated Soft Drinks 41% 11% Magazines 48% 11% Gum/ Mints 74% 46% Candy 53% 32% Source: TWR In-Store Survey, March, 2013 34 Category Purchase Frequency - All Categories How frequently would you say you buy these products? (% of Respondents purchasing once a month or more) Cigarettes/ Tobacco 57% Phone/Gift Card 18% Oral Care 44% Lip Care 35% Cosmetics 37% Audio/ Video/ CD 20% Books 27% Razors/ Blades 38% Film/ Disposable Cameras 16% Batteries 22% Other Snacks 57% Nutrition Bars 51% Salty Snacks 63% Cookies/ Crackers 68% Non-Carbonated Drinks 63% Carbonated Soft Drinks 52% Magazines 38% Gum/ Mints 73% Candy 62% Source: TWR In-Store Survey, March, 2013 35 Impulse Purchases – All Categories Do you plan to buy the product you purchased before you come into the store? (% of Respondents purchasing category on impulse) Cigarettes/ Tobacco 10% Phone/Gift Card 19% Oral Care 9% Lip Care 54% Cosmetics 53% Audio/ Video/ CD 85% Books 92% Razors/ Blades 15% Film/ Disposable Cameras 58% Batteries 36% Other Snacks 52% Nutrition Bars 38% Salty Snacks 50% Cookies/ Crackers 48% Non-Carbonated Drinks 60% Carbonated Soft Drinks 56% Magazines 90% Gum/ Mints 67% Candy 90% Source: TWR In-Store Survey, March, 2013 36 Consumers Felt That There Were Key Categories That Need To Be Stocked At The Checkout How important do you think it is for the following products to be available at the checkout? (% of Respondents) 9% 11% 12% 22% 6% 11% 2% 5% 3% 5% 6% 4% 6% 10% 3% 6% 5% 5% 2% 6% 12% 15% 17% 14% 22% 18% 21% 1% 2% 15% 10% 20% 27% 5% 20% 15% 1% 2% 8% 7% 12% 20% 22% 5% 19% 11% 5% 2% 5% 2% 0% 4% 19% 31% 34% 35% 31% 35% 37% 41% 79% 76% 70% 54% 68% 70% 77% 82% 89% 85% 94% 70% 69% Extremely Important 52% 41% 31% 40% 37% 38% Very Important Somewhat Important 19% Not Important Gum/mints, magazines, lip care & phone/gift cards were rated high 37 Source: TWR In-Store Survey, March, 2013 Most Shoppers Spent 5 Minutes Or Less Waiting In Line & Checking Out Shoppers spent more time shopping in store than they had originally intended • 71% intended on spending 0-20 minutes shopping, yet only 47% actually did so Time Spent Waiting in Line & Checking Out of Store (minutes) 2% 12% 0-5 45% 6 to 10 36% 11 to 20 33% 86% 26% 18% 11% 7% 6% 6% 1% 0-10 11 to 20 21-30 31-40 Intended Shop Time 41-50 3% 4% 51-60 0% 2% 61-120 Actual Shop Time 40% of shoppers actually spent 21-40 minutes in store, vs. 19% intending to spend 21-40 minutes 38 Source: TWR In-Store Survey, March, 2013 Magazines Are Highly Impulsive Which Will Help Drive Front-End Incremental Sales Do you plan to buy magazines before you come into the store, or do you decide to buy them at checkout? 10% 48% Impulse Plan 11% Purchased Magazine Today 90% Purchase Magazine Ever How important do you think it is for magazines to be available at the checkout? 12% • Almost 50% of shoppers have purchased a magazine from the front-end checkstand • Shoppers felt that it was important to have magazines at the front-end checkstands 31% Extremely Important 20% Very Important Somewhat Important Not Important 37% 39 Source: TWR In-Store Survey, March, 2013 Products Displayed At Checkout Play An Important Role In Engaging & Entertaining Shoppers Percent Of Respondents “Looking at products at the checkout counter gives you something to do while waiting in line” “The checkout counter contains a lot of products that you don’t need” “You like to read magazines while waiting in line at the checkout” “You often buy products on impulse when you see them at the checkout counter” “You sometimes select an item from one checkout lane & then go to another to check out” “Sometimes you have to look at all of the checkout counters just to find an item you want” “You often select a certain checkout lane because of the particular items displayed there” “You sometimes get frustrated trying to find a particular item you want at the checkout counter” 84% 67% 67% 41% 26% 16% 13% 3% 2/3 of respondents like to read magazines while waiting in line at the checkout 40 Source: Eye Tracking Research, 2013