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[13 comments]

Nielsen: Supercenters Outperforming Competing Channels

February 4, 2009

By George Anderson

Big boxes rule. For all the talk about the shift to smaller box stores, consumers are spending their hard earned money in supercenters more than any other format, according to new research from The Nielsen Company.

An analysis of unit sales in 2008 found that consumers looking to save money spent more across nearly every department in supercenters. In fact, according to Nielsen, supercenters were the only channel to post overall unit sales growth (one percent) last year.

While others, including drug, clubs and dollar stores, posted dollar sales gains, frugal consumers actually purchased fewer units overall.

"Mass merchandisers and grocery stores are feeling the impact of the supercenter," Todd Hale, senior vice president, consumer & shopper insights for Nielsen, said in a press release. "Where we really start to see the expanding reach of the supercenter is in grocery, where a shift is occurring in everything from dairy and produce to meat and frozen foods. While the grocery channel has traditionally been viewed as recession-resistant, it is not recession-proof."

Grocery stores were able to make some gains as convenient locations led to the channel capturing sales from other formats, including mass merchandisers, dollar stores and others.

"Grocery stores have found gas promotion tie-ins to be very successful in capturing shopper trips, especially when high gas prices were putting a serious crimp on consumer spending for the first eight months of the year," said Mr. Hale.

Warehouse clubs have seen sales increases across all departments and dollar stores have achieved gains in all but a couple of categories since the recession began.

"Consumers continue to look for ways to stretch their dollar, and in some areas, that means shifting their spending in traditional grocery departments such as frozen and dry goods to warehouse clubs and dollar stores," said Mr. Hale. "That said the positive shifting trends for the warehouse and dollar channels are not enough to offset losses due to consumers simply cutting back in this difficult economy."

This year promises to be difficult for retailers as the ranks of the unemployed grow and economic uncertainty continues to restrain purchases, according to Nielsen.

"The good news for traditional retailers is that this means consumers will be spending more time at home, serving up opportunities for at-home consumption of food and non-food products," said Mr. Hale.

Discussion Questions: Why did supercenters apparently perform better in 2008 than competitive formats, such as clubs and dollar stores? Do you see another channel gaining similar ground in 2009?

Discussion Questions:

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

What channel do you think will achieve the best year-over-year improvement when 2009 is complete?

Comments:

Supercenters might perform better because they offer a more ideal mix of assortment and price. I've said before in this forum that we may need to think of Walmart and Target as grocery stores with lower prices, rather than as mass merchandisers. As the supercenter concept expands, the shopper can get the best of both worlds, price and variety.

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Dr. Stephen Needel, Managing Partner, Advanced Simulations

So this is a very interesting topic...oh that we all had a real crystal ball! There are contributing factors that led to supercenter sales outpacing the broader set of retailers. I think the one-stop idea favored the format with gas prices at or over $4. Then you have the very aggressive pricing on everything from plasma screen TVs to laundry detergent. Finally you have location, location, location. These guys are everywhere.

Here's the real challenge. The economy will recover. There is a distinct window of opportunity. Will supercenters and grocers take advantage of this opportunity with customers shopping their format who had previously made other choices when times were better? Now that the customer counts are up (I checked the survey and the belief is that supercenters and grocers will both have high year over year comps) will these retailers find new and better ways to connect with their customers? Ways that will attract and retain when the economy recovers? Or will they miss the opportunity and a new set of retailers become the darlings of the industry?

I think it is in the hands of those who run the big boxes and the grocers to determine who wins that battle. The message here is...find out what your customers really want and deliver better than ever before and you'll find great success, regardless of the economy.

Kevin Sterneckert, Research Director, Retail, AMR Research

Supercenters can fulfill pretty much any type of shopping list that a customer can think up. When you add the 'price confidence' that Walmart has created for itself, it's a no-brainer for the customer. And when this report says 'supercenters' did well, I'm thinking they are talking about Walmart or the numbers they are using are influenced heavily by Walmart (if I'm wrong, somebody please correct me).

I am currently working with a 'club' and I do agree that the sales pace is slowing. The 'view from the field' in regards to clubs is that customers don't want to tie up their money in 20 gallon vats of mustard or 30 pound bags of nutmeg. The psychology is "I either spend $10 on a bottle of barbecue sauce or I get 4 or 5 different regular sized products at a non-warehouse retailer for $10." When customers are in dollar stretching mode, it is obvious they are going to go for the 4 or 5 products for $10.

Doron Levy, President, TheMortgageMachine.ca

I'm with the "Anne's" on this one--2008 was all about gas, at least until the fourth quarter. But I'm in Anne Bieler's camp--one -stop shopping won the day. Combine that with Walmarts' low price guarantee on brands and away you go.

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Ben Ball, Senior Vice President, Dechert-Hampe

The one-stop logic of big-box, the value proposition of multi-packs, the rising fuel prices--all would point to one inexorable conclusion: supercenters rule. But--and I have less of an answer on this, more a question--as the economy remains tough, consumers must/will begin questioning the amount of capital they have stuck in the back of the fridge/freezer, in the multi-pack mega-jars of mayonnaise or the super-sized something else.

I'm repeating this question that I asked in a column a few months ago: what if US consumers actually came to a decision that they had "enough"? What if their excessive consumption was no longer the role model for consumers in emerging economies? What if, instead, the frugal consumers of India and China became the global role model? (The column is available online here: "Less Could Be More")

What would that do to retailers' business models?

Devangshu Dutta, Chief Executive, Third Eyesight

I really don't think that, in this particular year, you can tout any one type of retailer over another. I don't think a gain of 1% even indicates that one particular channel did better than another.

I still see clubs such as Costco being the leader in gains for the coming year, even in spite of their minor stall in the last quarter.

Going back to the question on comparing traffic to sales as was done (supposedly) with Apple Stores in a previous discussion, I'd like to see some sort of comparison.

If traffic was measured (if it even can be), I think the clubs are holding their own and gaining. There is real perceived value at retailers like Costco, along with the experience and excitement factors. In the end, during recessionary times, I think these characteristics win time and again. In spite of the depth of the wallet, consumers retain the same characteristics even in spite of total dollars spent. They will continue to seek experience combined with value, even when they hedge their dollars.

'Scanner'

Supercenters offer one-stop shopping for many, if not most, family needs. And they offer products at competitive, if not lower, prices. Unlike clubs or dollar stores, supercenters have a relatively stable assortment of goods. It seems as if consumers want to know that they will be able to find the goods and groceries they want at prices they can afford.

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Max Goldberg, President, Max Goldberg & Associates

The trend in "downsizing" consumer lifestyles indicates that the traditional grocery store has more opportunity than ever in 2009 to give people the things they can't live without. Add this to the work our grocery clients are focused on in innovating Center of Store toward a more consumer-centric, intuitive experience and you have a recipe for overtaking the supercenters.

Rachel Magni, Director of Consumer Insights, WD Partners

Shoppers cut back on shopping trips in 2008 as fuel prices soared, likely consolidating to a major stock up trip at a supercenter where most items were available at fair prices. As shoppers now look down the aisles more carefully, supercenters deliver good value on most grocery items. Selections are broad and package size options are available for every demographic.

General merchandise is available too, eliminating extra stops for one or two items. Private label brands help in specific categories, giving more choice on where to spend. As long as supercenters meet expectations and promote well, they have a lot to gain in days ahead.

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Anne Bieler, Sr. Associate, Packaging and Technology Integrated Solutions

2008's Supercenter successes come down to one word: Gas! (the price of). One stop shopping was the shopper "mission" mantra for 2008. However, not just any ol' Supercenter will do. Walmart leaped ahead of the pack by having its grocery act together; the linchpin of a one-stop-shop advantage. Target showed weakness here and we are seeing the results.

Should we see any significant economic progress this year (hey, it could happen!), I would bet on well-run convenience stores picking up some market share...but only if gas remains affordable and convenience stores continue to up the ante in product assortment, quality and female-friendly attributes.

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Carol Spieckerman, President, newmarketbuilders

Supercenters and dollar stores are winning because of the appeal of low prices--even if it's low quality, the unit cost is still lower. Supercenters are also winning because of one-stop shopping and because they have learned how to make customers perceive them as a grocery store with everything else.

As the economy improves, I think the winner is going to be the Club Store because of the perceived value for better quality.

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Mel Kleiman, President, Humetrics

One-stop shopping and lower gas prices helped the supercenters in December. Low prices are going to be important in at least the first part of 2009 and that may also favor the supercenters. However, that does not mean other formats have no place. There is not a homogeneous customer base out there and if other formats provide what their customer base wants they can also be successful.

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Camille P. Schuster, Ph.D., President, Global Collaborations, Inc.

Now that gas is cheap, consumers are willing to travel the extra miles to the superstores. If (or should I say when) gas goes back up, there is some risk for behavior change. Also, unemployed consumers have more time in their day to hunt down the deals. But dollar stores have a huge opportunity to be the convenience alternative to a growing base of mid-income shoppers who are still employed, raising families and are time-stressed.

I hope the strong dollar channel operators work hard to improve the "feeling" in the stores. Many of them just make you feel crummy and poor. If they can brighten it up a bit, I think they have a significant opportunity in the next 2 years!

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Anne Howe, Senior Vice President, Shopper Solutions, part of Acosta Mosaic Group

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