RETAILNETGROUP STRATEGY ALERT No. 23 Issue
The (re)Emerging Discounters
February 2009
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Greetings!
A new reality is settling in for retailers all around the world: a tougher economic
environment is accelerating the growth & absolute number of lower income
consumers.
In the US alone, more than 70 million people are stressed for income (retired,
unemployed, or underemployed*). In other words, almost 1 out of 4 people is
strapped for cash in the US today.
Retailers operating in segments targeting to lower income consumers will have an
opportunity to strengthen their positions during this economic downturn.
Conversely, mainstream operators will be faced with new price reference points
that will challenge them to look for ways to adapt to changing shopping behaviors
& market conditions.
Below are our thoughts on how retailers are approaching this in the marketplace.
As always, please reach out with any questions.
Aaron Chio,
Senior Analyst
RetailNetGroup.com
In This Issue
Addressable Market
RNG Topic Survey
Discounter-Like Behavior
Commonalities
Retailers Fight Back
Photo Examples
What Next?
Prior Strategy Alerts
RetailNet Group has published
over 20 Strategy Alerts with
the most important themes that
retailers & suppliers should be
aware of today to be ready for
the future.
Here is a sample of our latest
reports, for a full list, visit
retailnetgroup.com
- Get Real on Pricing
- Perishables Private Label 2009
- Latin America Outlook Pt. 1:
Mexico
- How consumers are managing
through the crisis
The Addressable Market
Meet Our Analysts
This group of cash-strapped and typically lower income shoppers - what we call
the addressable market - totaled 72.5 million in 2008 and could easily grow to
77.6 million by 2012E. (Figure 1).
The group is comprised of unemployed, underemployed (i.e., people wanting to
work full-time but only working part-time), and retirees (typically people on fixed
income, savings might be devastated, and might be emotionally distressed due to
the latter)
Figure 1: Addressable Market (click images to enlarge)
Dan W. O'Connor is the President
& CEO of the RetailNet Group.
He also is the Founder of
Management Ventures, Inc.
(MVI), a WPP Group company.
Dan is a widely known industry
speaker and thought leader.
Email | LinkedIn
Source: BLS, RetailNet Group
This group of consumers naturally grows & shrinks with each economic cycle.
However, 2007-2008 marked only the first year of a period typically lasting 3-4
years and characterized by rapid growth for this group consumers. Simply put,
most forecasts point toward hefty growth for this group of consumers in the US.
(Figure 2).
Figure 2: Group is likely to continue to grow in the next 3-4 years
Aaron Chio is a Senior Analyst
leading RNG's development of
new research, insights and
growth strategies in Latin
America.
Email | LinkedIn | Twitter
Tim O'Connor is Vice President
at RNG, currently responsible for
RNG's Growth Strategies
Curriculum and European market
insights.
Email | LinkedIn
Source: BLS, RetailNet Group
RNG Topic Survey
What do you want to learn more about in 2009?
Keith Anderson is a Senior
Analyst and responsible for
RNG's North American research
practice and transformational
capabilities
curriculum.
Email | LinkedIn | Twitter |
Windows Live Messenger
Click here for our short survey which will help us deliver the most important and
relevant topics to you.
Discounter-Like Behavior
As a response to the difficult economic times and a growing number of fixedincome consumers, RNG is seeing more and more retailers engaging in behaviors
traditionally associated more with discounters than mainstream operators. This
is happening not only in markets where discounters are already highly developed
(like Europe/UK) but also in the US and to some extent even in Latin America
(subscribers see RNG's recent store visit of Bodega Aurrera Express in Mexico,
non subscribers contact us for information on buying this report)
In the US, we have segmented some of these retailers into an 'extreme value'
group, which when put together, is expected to grow 2x faster than the US chain
retail average for the 2009E-2011E period (Figure 3). Individually their stories
are significantly different, but put together, that are some common traits that are
worth exploring.
Figure 3: Sample of extreme value retailers (click to enlarge)
Symantha Chow is a Research
Analyst and supports RNG's North
American and Latin American
research, including its database
of chain retailers.
Email | LinkedIn
Source: RetailNet Group
Extreme Value Retailer Commonalities
These retailers, despite belonging to a wide variety of segments, have several
things in common. Most of them actually fit somewhere in between a traditional
discounter and a mainstream supermarket operator (Figure 4).
Figure 4: RNG's framework for extreme value retailers
Source: RetailNet Group
Here are some highlights that differentiate these extreme value retailers from
their mainstream competition:
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Clear value positioning targeting extremely value-conscious, incomechallenged, and/or lower-income consumers.
Competing directly with OPP (opening price point) food retailers.
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Fewer assortment trade-offs compared to limited assortment grocers
(particularly true for retailers like Winco, Kroger's Food4Less).
Narrow merchandising ladders in private label but high price
differentials on OPP vs. branded, meaning there aren't 3-4 tiers of private
label within the same category.
Focus on convenient shopping. For example good real estate, colocated to retailers that drive a lot of traffic, convenient hours (most
Winco's open 24 hrs).
Offer a dignified shopping experience: Treasure hunt feel with a
focus on food; clean stores with wide aisles, and no frills experience to
reflect their pricing image & value proposition.
Focus on simple affordable food offerings, offering easy-to-make
meals requiring 1 or 2 ingredients with little/no preparation.
Availability of bulk food & global palette of food offerings.
Unique labor & economic model, requiring high velocity & low cost
operations.
Scroll down to the bottom of this newsletter to see some in-store example photos
of how retailers are doing this.
Mainstream Retailers Fight Back
As new reference price points become available in the marketplace driven by a lot
of these 'extreme value' retailers, mainstream operators are experimenting with
ways to fight back and lure consumers back into their stores, including:
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Rapid private label extension with the introduction of new discounter
brands, particularly in the UK, but also in the US with more SKUs showing
up at the OPP level.
Improvements in private label packaging & shelf presentation.
Visible in almost every store around the US, retailers are focusing more
on trying to deliver extra benefits at a lower price.
Big push in perishables private label growth. RNG is seeing the
advent of 4-5 tiers of private label in some categories (such as
perishables) becoming more and more prominent globally. See this report
we wrote a few weeks ago.
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Increasing in-store value communications. Retailers getting more
tactical at the store level around communicating value to consumers. So
the function here is shifting not only to offering relevant price points but
more importantly making sure the message is heard across the shopper
base.
Comparable pricing. In line with communicating value to consumers,
retailers are becoming more aggressive around highlighting the areas
where there are price gaps vs. competition. With January 2009 CPI
increasing over December 2008 numbers, demand will pressure prices
down while inflation might pressure prices up, meaning retailers will have
to be efficient & right on price.
Price point merchandising (i.e., even dollar price points) We reported
on this a few weeks back (see this short PDF), but we continue to see and
hear retailers focusing more on price point merchandising all over the
world.
Deflating aspirational goods whenever possible. As consumers shift
their buying habits from wants to needs, retailers are focusing on
delivering aspirational goods at more accessible price points.
Re-configured essentials. Retailers pushing for re-configuring the
essentials as a way of freeing up discretionary spending and converting
shoppers to higher margin impulse/seasonal/aspirational goods.
Extreme Value & Mainstream Examples
Retailers hitting hard on opening price points: In the US, shoppers can get
breakfast, lunch, and a small dinner for $1 each at Dollar Tree.
Retailers establishing new price point references. $0.99 cents perishables
at 99 Cents Only; Aldi's Super 6 in the UK; Winco's perishables for under $1
Focus on offering affordable essentials. Winco a clear winner on this, Publix
trying hard to communicate this value to shoppers
Winco
Publix
Price point merchandising. See ASDA (slide 9 in this document) or RNG
subscribers click here to see full store visit.
Source for all photos: RetailNet Group store visits
Final Thoughts
Retailers that are defending & enhancing their position stand to come out of the
economic downturn stronger than in the past. Those that are overtly changing
strategies risk their longer-term plans & vision, especially if the stray from their
core business & capabilities, or optimize too aggressively.
At the same time, retailers who are blending value positioning with continued
sensitivity to consumer interest in good taste, global flavors, fresh foods, and
health and wellness lifestyles will retain trips and volume through the recession,
and more importantly, be prepared for eventual growth.
Those who compromise long term strategies for price-only differentiation risk
being at the bottom of consumer interest once income and spending rebound.
* These are not mutually exclusive, but overlap is a relatively small percentage of
this total calculation.
RetailNet Group is the leading insight and advisory firm focused on retail
growth strategies and consumer-facing transformational capabilities. We
are deeply experienced retail/consumer analysts and strategists working
exclusively to help brand-led businesses and large-scale retailers grow.
Sincerely,
RetailNet Group
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