Transcript Document
Small Steps To Improved CSD Category Profitability in Supermarkets
– How slight shifts in CSD pack size promotion mix can dramatically improve category profits – December 19, 2003 www.hoytnet.com
8912 East Pinnacle Peak Road • Scottsdale, AZ 85255 Phone (480) 513 0547 • Fax (480) 513-0548 • E-Mail: [email protected] • [email protected]
Today
Importance of CSDs to Supermarkets’ overall marketing and merchandising mix The CSD consumer The issues – CSD category performance in Supermarkets, 2001 2003 Recommendations 2 BevAisleR1.ppt
Importance of CSDs to Supermarkets’ overall marketing and merchandising mix
BevAisleR1.ppt
3
It is no secret that supermarket trip frequencies have declined precipitously over the past seven years.
One trip = 105.5MM visits Shopper Trips By Channel (1996 – 2002) (Avg. # Trips/Household/Channel/Year) Trip Losers Trip Gainers 100 90 80 70 60 50 40 30 20 10 0 95 73 Down 2.3 Billion Trips in Seven Years 16 15 Grocery Drug
Source: AC Nielsen Homescan, 2003 BevAisleR1.ppt
29 22 Traditional Discount 8 10 Clubs
4
6 12 Dollar Stores 1996 2002 Total Trips 180 167 13 14 C&G 13 21 Supercenters
Meanwhile, spending per trip has remained relatively flat as Big Buy heavy user families have migrated to Supercenters and Clubs Annual Shopper Dollars Per Trip By Channel $90 $80 $70 $60 $50 $40 $30 $20 $10 $0 $32 $32 $33 Grocery $19 $19 $20 $38 $39 $41 $49 $50 $53 $83 $82 $83 $10 $10 $10 2000 2001 2002 $11 $11 $11 Drug Stores Mass Merch Supercenters Club/ Warehouse Convenience/ Gase Marts Dollar Stores
Source: A.C. Nielsen Channel Blurring Study, May 2003 BevAisleR1.ppt
5
Despite These Trends, 100% of U.S. Households Continue to Shop the Grocery Channel With No Drop-off in Sight: % Household Penetration By Channel Per Year: 1996 - 2002 Channel Grocery Conv. and Gas Drug Chains Trad. Discount Warehouse Clubs Supercenters Dollar Stores 1996
100 52 90 95 49 N/A 39
1997
100 52 89 94 48 N/A 45
1998
100 52 86 94 49 47 47
1999
100 50 87 95 50 52 52
2000
100 48 86 94 49 54 55
2001
100 45 86 93 50 60 59
2002
100 46 86 92 52 63 62
+ Pts vs. ‘96
– -6 -4 -3 +3 +16 +23 Source: AC Nielsen, Channel Blurring Studies, 1998 - 2003 inclusive BevAisleR1.ppt
6
In Addition, Consumers Shop Grocery Far More Frequently Than Any Other Channel and 3.5 Xs More Than Lower-priced Supercenters US CPG Channels Trip Frequency – Annual # Trips/Household/Year/Channel, 1996 - 2002 Channel
Grocery Mass Merchandise Drug Supercenters Dollar Warehouse Clubs Conv. and Gas Totals
1996
95 29 16 13 6 8 13 180
1998
85 28 15 14 9 9 18 173
1999
83 26 15 15 10 9 13 171
2000
78 25 15 17 10 10 14 169
2001
75 23 15 18 11 10 15 167
2002
73 22 15 21 12 10 14 167
+ Pts vs. ‘96
(22) (7) (1) 8 6 2 1 (13) Source: AC Nielsen, Channel Blurring Studies, 1998 - 2003 inclusive BevAisleR1.ppt
7
Consumer Satisfaction Surveys Repeatedly Show That Shopper Satisfaction Levels Are Higher With Supermarkets Than With Any Other Channel Shopper Satisfaction 1-10 Scale: 1 = not satisfied, 10 = extremely satisfied
Your Supermarket Supermarkets (in general) Mass Merchandisers Wholesale Clubs Dollar Stores Chain Drug Stores Fast-food Restaurants Convenience Stores 7.49
6.67
6.49
6.16
6.05
5.93
5.11
5.09
Source: Progressive Grocer, 2003 BevAisleR1.ppt
8
One of the most important reasons for this is supermarkets’ ability to meet or exceed consumer expectations with respect to the following categories which consumers regard as uniquely the providence of the food store.
Top Grocery Channel Categories, 2002 Total CPG Carbonated Beverages Bread & Baked Goods Milk Fresh Produce Packaged Meat Snacks Cheese Frozen Prepared Foods Cereal $ Sales (B) F/D/M/WM
$407.4
15.8
13.9
12.4
11.2
10.6
11.6
9.0
8.4
8.7
F Share D WM
65% 77% 10% 7% 86% 87% 90% 88% 75% 1% 2% 0% 0% 4% 89% 87% 84% 0% 0% 1% 18% 13% 12% 10% 9% 11% 16% 10% 12% 13%
% Growth vs. 2001 F D WM 2 3 2 -2 15 1 2 3 2 -1
1 7 4 5 -64 -5 4 -14 11 16
14 15 31 18 40 18 20 21 28 31
Source: A.C. Nielsen Strategic Planner, Wal-Mart Channel Service; 2002. Ranking based on total grocery channel sales.
BevAisleR1.ppt
9
Our purpose today is to focus on one of these categories – carbonated beverages – because:
Excluding perishables, carbonated beverages is the #1 merchandisable category in the store Carbonated beverages is one of the few categories that offers Supermarkets the opportunity to compete head-to-head on price with Supercenters and Clubs and win every time With only two exceptions, carbonated beverages is the most powerful category Supermarkets can use to re-build trip frequencies and recapture heavy users Hoyt & Company and Beverage Aisle believe that there may be an opportunity to increase CSD category profits by as much as 53% and simultaneously bring this category into much better alignment with current CSD heavy user shopping preferences 10 BevAisleR1.ppt
Despite the flurry of competitive activity that Supermarkets have encountered from alternate channels, Supermarkets remain solidly entrenched as the industry’s destination channel for CSDs: % Total CSD Volume By Channel Channel
Supermarket Convenience & Gas Mass/Supercenter Drug Clubs
Total %
63.7% 18.7% 8.3% 5.1% 4.2%
100.0%
Source: Based on CSD factory volumes, not retail sales, Hoyt & Company Internal Records, 2003 BevAisleR1.ppt
11
Carbonated Beverages rank only behind Bakery and Milk in terms of this category’s ability to generate increased Supermarket trip frequencies among the broadest spectrum of the population possible: Top 15 Supermarket Product Categories Ranked In Order of Pulling Power Rank
4 5 6 1 2
3
7 8 9 10 11 12 13 14 15 Median
Category
Bread & Baked Goods Milk
Carbonated Beverages
Snacks Paper Products Candy Juice, Drinks - Non-Frozen Packaged Meats - Deli Fresh Produce Cereal Condiments, Gravies, and Sauces Cheese Vegetables - Canned Cookies Pet Foods
HH Penetration
99.4
97.8
97.6
98.5
99.5
98.0
97.5
96.2
96.7
96.6
98.5
97.2
96.5
95.3
70.0
80.1
X Purchase Frequency
35.5
34.3
30.3
25.7
23.5
21.8
20.9
18.9
18.5
17.8
17.2
17.2
14.6
14.4
19.6
6.5
= Pulling Power
3,529 3,355
2,957
2,531 2,338 2,136 2,038 1,818 1,789 1,719 1,694 1,672 1,409 1,372 1,372 473 Source: A.C. Nielsen Consumer Facts BevAisleR1.ppt
12
Carbonated Beverages also represent the supermarket’s greatest opportunity to increase top line dollar sales: Leading Supermarket Categories Ranked In Order of $ Power Rank Category
5 6 7
1
2 3 4
Carbonated Beverages
Bread & Baked Goods Milk Paper Products Pet Food Cereal Snacks 8 9 10 11 Medications/Remedies/Health Aids Packaged Meats-Deli Juice, Drinks - Non-Frozen Prepared Foods - Frozen 12 13 Candy Cheese 14 15 Median Electronics, Records, Tapes Ice Cream Novelties
HH Penetration X 97.6
99.4
97.8
99.5
70.0
96.6
98.5
97.3
96.2
97.5
91.7
98.0
97.2
72.4
94.1
80.1
Purchase Frequency 30.3
35.5
34.3
23.5
19.6
17.8
25.7
10.8
18.9
20.9
12.4
21.8
17.2
4.4
13.0
6.6
= Pulling Power X 2,957
3,529 3,355 2,338 1,372 1,719 2,531 1,051 1,818 2,038 1,137 2,136 1,672 319 1,223 473
Avg.
Purch. Size = $4.00
2.53
2.64
3.46
5.79
4.43
2.92
7.03
3.98
3.43
5.75
2.93
3.50
15.00
3.82
3.28
Dollar Power 11,829
8,928 8,856 8,090 7,944 7,617 7,392 7,387 7,236 6,989 6,538 6,260 5,851 4,778 4,673 1,679 Source: A.C. Nielsen Consumer Facts BevAisleR1.ppt
13
The CSD Consumer
BevAisleR1.ppt
14
CSD consumers come from relatively large, affluent households: CSD Consumer Demographics Total U.S. 2000
Size – 1 Mem Size – 2 Mem
Size – 3-4 Mem Size – 5+ Mem.
Inc. <$20,000 Inc. $20,000 - $29,999 Inc. $30,000 - $39,999
Inc. $40,000 - $49,999 Inc. $50,000 - $59,999 Inc. $70,000+
63.1
95.7
123.4
139.0
80.1
91.6
100.3
115.4
111.2
114.1
CSD Consumer Demographics Total U.S. 2002
Size – 1 Mem Size – 2 Mem
Size – 3-4 Mem Size – 5+ Mem.
Inc. <$20,000 Inc. $20,000 - $29,999 Inc. $30,000 - $39,999
Inc. $40,000 - $49,999 Inc. $50,000 - $69,999
Inc. $70,000+ 61.7
97.6
122.6
132.8
83.2
95.0
105.7
108.4
113.8
100.4
Source: A.C. Nielsen 2003 BevAisleR1.ppt
15
Unfortunately, it is precisely the larger households who are most aggressive about migrating their shopping to other channels: Avg. # Trips Per HH Per Year – Supermarkets (2002 vs. 2001) 5+ members 3-4 members 2 members 1 member 73 80 72 78 -7 -6 79 83 -4 67 72 -5 2000 2002
Source: A.C. Nielsen Channel Blurring Study, 2003 BevAisleR1.ppt
16
In fact, the indications are that the heavy CSD shopper now buys CSDs in as many as four different channels with two of these channels capturing an almost equal share of her take-away dollars:
Paper Products Snac ks Oral Hygiene Detergents Hair Care Carb Beverages Pet Food Cook ies Cough & Cold SS Juices/Drinks Vitamins Disp Diapers Cereal Coffee Fzn Prepared Foods
Exclusive 2 channels 3 channels 4+ channels 19 26 33 35 38 39 40 44 50 48 51 54 53 61 36 36 41 41 38 37 37 38 71 % of Category Buyers 31 34 35 34 32 34 26 30 14 12 21 20 20 19 27 18 15 14 13 13 12 11 8 5 4 4 5 5 3 2 4 2 2 2 1 2 0
Total U.S. – 52 we 12/28/02 - upc-coded products; Grocery w/SC, Mass, Drug, Club & Dollar Store channels only Source: A.C. Nielsen Channel Blurring Study, 2003 BevAisleR1.ppt
17
It is crucial for supermarkets to recapture as much of this business as possible because the heavy CSD shopper...
Spends an average of $1,112 or 61% more per year in Supermarkets than the average Supermarket shopper:
Total Spending Per Year
Heavy CSD Buyers Avg. Supermarket Shoppers Difference $2,929 $1,817 $1,112 (+61%) Buys an average of 12
unique
CSD brands per year compared to 6.6 brands per year for light buyers: • Ideal for Supermarkets who are perceived as the channel of choice for offering incomparable variety in core categories.
Source: Beverage Marketing, 2003 BevAisleR1.ppt
18
The other reason is that Carbonated Beverages have become one of the Top 10 Categories at Wal-Mart: The Top 10 Categories At Wal-Mart, 2002 Category Sales
1 Computer/Electronics 2 Housewares/Appliances 3 Paper Products 4 Pet Food 5 6
7
8 Office/School Supplies Medications/Remedies
Carbonated Beverages
Candy 9 Snacks 10 Hair Care
Rank ‘02 ‘01
#1 #2 #2 #1 #3 #4 #5 #6
#7
#8 #3 #5 #4 #6
#8
#7
‘00
#5 #1 #9 #9 #10 #10 #10 #9 #2 #4 #3 #6
#8
#7
$ Sales
$3.8 Billion $3.1 Billion $2.8 Billion $2.6 Billion $2.5 Billion $2.0 Billion
$2.0 Billion
$1.9 Billion $1.9 Billion $1.8 Billion Source: ACNielsen Wal-Mart Channel, 52 Weeks Ending 12/28/02 BevAisleR1.ppt
19
% Chg
+40.9% -0.1% +8.2% +14.6% +9.0% +9.7%
+15.4%
+7.7% +19.7% +13.8%
And, despite its already substantial base, Carbonated Beverages remain one of Wal-Mart’s Top 10
Growth
categories Top 10 Growth Categories at Wal-Mart, 2002 Categories By $ Growth
1 Computer/Electronics 2 3 4 5 Bread & Baked Goods Pet Food Snacks Fresh Produce
6
7 8 9
Carbonated Beverages
Cereal Prepared Foods-Frozen Hair Care 10 Paper Products Source: ACNielsen Wal-Mart Channel, 52 Weeks Ending 12/28/02 BevAisleR1.ppt
$ Volume
$3,760 MM $1,712 MM $2,637 MM $1,902 MM $1,012 MM
$1,968 MM
$1,083 MM $996 MM $1,778 MM $2,763 MM
% Chg
+40.9% +25.0% +14.6% +19.7% +39.6%
+15.4%
+30.9% +28.0% +13.8% +8.2%
$ Change
+$1,092 MM +$342 MM +$337 MM +$313 MM +$287 MM
+$262 MM
+$256 MM +$218 MM +$216 MM +$210 MM 20
One of the most important things to understand about heavy user CSD households is that loyalty to any single brand tends to be relatively low due to these households’ need to satisfy so many different tastes within the same household:
This is why these households buy an average of 12 unique brands per year versus light user households who buy only 6.6.
This is also why we get the following remarkably low brand loyalty numbers for
taste brands
that can only be considered national icons.
Brand Loyalty Indices Leading CSD Brands, 2002 vs. 2000 Brand
Coke Classic Pepsi Diet Coke CF Diet Coke Diet Pepsi CF Diet Pepsi CF Pepsi CF Classic
2002 HH Loyalty %
22.5
21.6
17.9
15.3
15.0
11.7
9.0
8.2
Point Chg ’00-’02
-0.3
-0.8
-0.4
-0.8
-0.1
-0.6
-0.6
-0.4
Source: A.C. Nielsen HomeScan, 2003 BevAisleR1.ppt
21
The other factor to note about recent CSD purchasing behavior in Supermarkets is that although CSD shoppers are spending about 2% more per trip on CSDs than they did in 2000, they are making 7.7% fewer trips:
This appears to be due to supermarkets’ success in trading these shoppers up to promotionally-driven larger sizes with the inadvertent result that the category is not as strong as it was as a traffic-puller:
CSD Supermarket Shopper Purchasing Dynamics, 2002 vs. 2000 180 160 140 120 100 80 60 40 20 0 97.9 97.9
Penetration 159.2
151.2
33.7
31.3
CSD $/Buyer CSD T rips/Buyer 4.7
4.8
$/CSD T rip
Source: A.C. Nielsen HomeScan, Consumer Facts and Channel Facts, 2003 BevAisleR1.ppt
22
2000 2001
To what extent do Supermarkets promote the larger CSD pack sizes?
% of Total CSD Units Sales On Promotion By Pack Size, 2003 vs. 2001 Pack Size 2001 2003
20 oz. Single Bottle 67.6 oz. Bottle A/O Bottle Sizes 6 Pack Cans 12 Pack Cans 24 Pack Cans A/O Cans
Total U.S.
7.7% 69.4% 46.4% 61.7%
80.8% 82.4%
75.7%
62.6%
12.5% 88.0% 47.7% 57.2%
81.5% 83.9%
71.9%
61.9%
Source: A.C. Nielsen 52 weeks ending 9/8/01 and 9/6/03 BevAisleR1.ppt
23
While the need for Supermarkets to trade shoppers up to larger pack sizes is obvious, the indications are that Supermarkets may wish to moderate this strategy with respect to CSDs because...
The category is unique with respect to its utility as a traffic builder for Supermarkets. In this context, over-promotion of larger sizes appears to be dampening this advantage.
Satisfying the purchasing preferences of the heavy user CSD household is paramount. Given the relatively large number of different CSD brands these households buy in a year, enabling these shoppers to buy these brands on promotion but in trial-friendly, smaller pack sizes would seem to be an obvious and simple solution.
As we will show in a moment, small shifts in promotion emphasis to smaller pack sizes is a way for supermarkets to
dramatically
improve CSD category profitability.
24 BevAisleR1.ppt
The last thing we would note about the CSD consumer is the extent to which this consumer has been trained to lie in wait for deals – a trend that grows progressively more severe as the price gap widens between promotional and off-promoted prices Trend in Any Promotion Share of Total Volume and Gap in On-Promotion vs. Off-Promotion Price
Total U.S.: Supermarkets > $2MM
12-Pack Cans
90 88 85 83 80 0.00
-0.20
-0.40
-0.60
-0.80
-1.00
-1.20
-1.40
-1.60
Source: A.C. Nielsen 2003 BevAisleR1.ppt
% Any Promo Volume Price Gap 25
The issues – CSD Category Performance In Supermarkets, 2001 - 2003
BevAisleR1.ppt
26
CSD sales in Supermarkets have grown marginally since 2001, driven primarily by growth in 12-pack cases but offset by a major decline in 6-packs. Overall, CSD growth in the two years between 2001 and 2003 has not kept pace with total Supermarket growth in the one year between 2001 and 2002.
CSD Dollar Sales In Supermarkets, 2003 vs. 2001 By Pack Size Pack Size
20 oz. Single Bottles 67.6 oz. Bottles A/O Bottle Sizes 6-Pack Cans 12-Pack Cans 24-Pack Cans A/O Pack Cans
Totals 2001 ($B)
$611.1
2,616.5
1,471.1
808.0
4,856.0
1,350.5
92.1
$11,805.3
2003 ($B)
$713.8
2,474.3
1,529.4
575.7
5,422.5
1,363.1
48.2
$12,127.0
% +/- Vs. 2001
16.8% (5.4)% 4.0%
(28.8)%
11.7% 0.9% (47.7)%
2.7% % Contribution
8.9% (12.3)% 5.0%
(20.1)%
48.9% 1.1% (3.7)%
100.0% Total Supermarket Sales, 2002 vs. 2001: 3.4%
Source: A.C. Nielsen 52 weeks ending 9/8/01 and 9/6/03; Progressive Grocer, April 2003, Data Bank USA, August 2003 Supermarket Profit was calculated from Data Bank USA wholesale prices, August 2003, less $.70/case for supplier allowances BevAisleR1.ppt
27
While only marginal CSD sales gains in Supermarkets may be unsatisfactory, the serious issue concerning this category is profitability: Between 2001 and 2003, CSD profits in Supermarkets dropped 12.1%, again driven primarily by losses in 12-pack cans: CSD Profitability in Supermarkets, 2003 vs. 2001 by Pack Size Pack Size
20 oz. Single Bottles 67.6 oz. Bottles A/O Bottle Sizes 6-Pack Cans 12-Pack Cans 24-Pack Cans A/O Pack Cans
Totals 2001 ($MM)
$151.2
307.5
486.0
(30.4) 28.2
(30.7) N/A
$911.9
2003 ($MM)
$190.6
308.1
573.1
(28.7) (140.1) (101.5) N/A
$801.6
% +/- 2001
26.1% 0.2% 17.9% (5.4)% (596.4)% (230.6)% N/A
(12.1%) % Contribution
11.1% 0.2% 23.9% (0.4)% (45.0)% (19.4)% N/A
100.0%
Source: A.C. Nielsen 52 weeks ending 9/8/01 and 9/6/03; Progressive Grocer, April 2003 BevAisleR1.ppt
28
Unfortunately, 2001 - 2003 Supermarket CSD profit performance is not an anomaly but a continuation of a trend that can be traced back as far as 1994 Supermarket CSD Category Margins vs. Previous Year: 1994 - 2003 Year
1994 1995 1996 1997 1998 1999 2000 2001 2002
Pt. Diff. Vs. Previous Year
-1.4% -1.3% -0.4% -0.8% -2.0% -1.2% -0.5% -1.3% -1.8% Source: UBS Warburg Beverage Analysis Department, 2003 BevAisleR1.ppt
29
All of the six Nielsen regions except the Southwest showed dollar growth between 2001 and 2003 but only two of these regions achieved profit gains: CSD Sales and Profit Performance By Nielsen Region, 2001 - 2003 NACS Region
Northeast Southeast East Central West Central Southwest Pacific
Total U.S.
2001 $ Sales (MM) 2003 % +/-
$2,545.3
2,077.2
2,325.9
1,460.1
1,189.9
2,207.7
$11,806.1
$2,624.1
2,153.4
2,405.3
1,502.3
1,184.5
2,257.7
$12,127.3
3.1% 3.7% 3.4% 2.9% (0.4)% 2.3%
2.7% 2001 $ Profits (MM) 2003 % +/ % Contribution To Profits
$323.7
(88.4) 317.2
33.2
158.5
167.7
$911.9
$406.4
(86.6) 181.8
4.7
114.1
181.3
$801.7
25.5% (2.0)% (42.7)% (85.8)% (28.1)% 8.1%
(12.1)%
27.0% (0.6)% (44.2)% (9.3)% (14.5)% 4.4%
$100.0%
Source: A.C. Nielsen, 52 weeks ending 9/8/01 and 9/6/03 BevAisleR1.ppt
30
Supermarkets have been maximally aggressively in their attempts to address the CSD profitability issue. Most common approaches:
Raise everyday shelf prices
Raise average promoted prices
Reduce the % of units sold on promotion
Reduce the depth of the promotional discount
31 BevAisleR1.ppt
Between 2001 and 2003, Supermarkets raised everyday shelf prices both nationally and in five of the six Nielsen regions. In addition, Supermarkets raised the promoted price across the board: 2001- 2003 Supermarket CSD Pricing, Everyday Shelf and Promoted Prices NACS Region
Northeast Southeast East Central West Central Southwest Pacific Total U.S.
Everyday Shelf Price 2001 2003 % +/-
1.17
1.13
1.60
1.07
1.20
1.01
1.18
1.35
1.31
1.65
1.05
1.30
1.10
1.28
15.4% 15.9% 3.1% (1.9)% 8.3% 8.9%
8.5% Promoted Price 2001 2003 % +/-
1.12
1.26
1.67
1.26
1.69
0.96
1.25
1.32
1.40
1.89
1.35
1.84
1.27
1.46
17.9% 11.1% 13.2% 7.1% 8.9% 32.3%
16.8%
Source: A.C. Nielsen, 52 weeks ending 9/8/01 and 9/6/03 BevAisleR1.ppt
32
These price increases, however, were limited to smaller pack sizes comprising about 39% of total CSD sales. Pricing on all other pack sizes either remained the same as it was in 2001 or was marginally reduced 2001 - 2003 Everyday & Promoted Price Pricing Changes by Pack Size Pack Size 2003 % Total $ Sales
20 oz. Single Bottles 67.6 oz. Bottles A/O Bottle Sizes 6-Pack Cans 12-Pack Cans 24-Pack Cans A/O Pack Cans
5.9% 20.4% 12.6%
4.7% 44.7% 11.2% 0.4%
100.0% Everyday Shelf Price 2001 2003 % +/-
$0.93
1.16
1.40
1.98
3.61
6.25
4.89
$1.18
$0.99
1.18
1.54
1.98
3.58
6.07
3.90
$1.28
6.5% 1.7% 10.0%
0.0% (0.8)% (2.9)% (20.2)%
8.5% Promoted Price 2001 2003 % +/-
$0.56
0.88
1.51
1.20
2.53
4.90
3.89
$1.25
$0.69
0.91
1.66
1.20
2.53
4.89
3.39
$1.46
23.2% 3.4% 9.9%
0.0% 0.0% (0.2)% (12.9)%
16.8%
Source: A.C. Nielsen, 52 weeks ending 9/8/01 and 9/6/03 BevAisleR1.ppt
33
If one compares the
changes
in everyday and promoted prices by region since 2001 with the
changes
in CSD profitability for these regions over the same period, nothing pops out to suggest any reasonably obvious correlation between the two: 2001 - 2003 CSD Everyday & Promoted Price Changes vs. Profitability Changes by Region Region
Total US Northeast Southeast East Central West Central Southwest Pacific
Everyday Price vs. 2001
8.5% 15.4% 15.9% 3.1% (1.9%) 8.3% 8.9%
Promoted Price vs. 2001
16.8% 17.9% 11.1% 13.2% 7.1% 8.9% 32.3%
Profitability vs. 2001
(12.1) 25.5
(2.0) (42.7) (85.8) (28.1) 8.1
Source: A.C. Nielsen, 52 weeks ending 9/8/01 and 9/6/03 BevAisleR1.ppt
34
The other way in which Supermarkets have attempted to address the profitability issue is to reduce both the percentage of units sold on promotion and the depth of the promotion discount: % Units Sold on Promotion and % Promotion Discount Changes CSDs, 2001 - 2003 NACS Region
Northeast Southeast East Central West Central Southwest Pacific Total U.S.
% Units Sold on Promotion 2001 2003 % +/-
63.5% 60.0% 65.2% 61.5% 55.4% 65.0% 62.6% 61.9% 60.1% 65.7% 60.1% 58.9% 62.5% 61.8% (2.5)% 0.1% 0.7% (2.2)% 6.2% 3.9% (1.2)%
% Promotion Discount 2001 2003 % +/-
-33.3% -25.7% -32.0% -22.4% -25.1% -31.2% -31.0% -34.0% -23.3% -31.5% -17.1% -25.6% -28.0% -28.3% 1.9% (9.5)% (1.8)% (23.7)% 1.7% (10.2)% (8.7)% Source: A.C. Nielsen, 52 weeks ending 9/8/01 and 9/6/03 BevAisleR1.ppt
35
Again, if one attempts to correlate CSD profitability trends with the changes in the percentage of cases sold on promotion and/or the depth of the promotional discounts since 2001, no solid pattern emerges on which one can base a decision:
Note particularly that West Central which has been one of the most aggressive in reducing promotional investment but nevertheless suffered an 86% decline in profits.
Region
Total US Northeast Southeast East Central
West Central
Southwest Pacific
% Sold on Promo vs. 2001
(1.2) (2.5) .1
.7
(2.2)
6.2
(3.9)
Promo Discount vs. 2001
(8.7) 1.9
(9.5) (1.8)
(23.7)
1.7
(10.2)
Profitability vs. 2001
(12.1) 25.5
(2.0) (42.7)
(85.8)
(28.1) 8.1
Source: A.C. Nielsen, 52 weeks ending 9/8/01 and 9/6/03 BevAisleR1.ppt
36
Although Supermarkets have indeed been creative about experimenting with different CSD pricing and promotion scenarios, one area that appears to invite further exploration is shifting the emphasis one puts on promoting different CSD pack sizes: What has evolved over the years is a category whose sales are now dominated by 12 and 24-pack cans, with a slight assist from large bottles. This is true not only of total U.S. but of each of the 6 Nielsen regions: Share of Total 2003 CSD Category Sales By Pack Size 30 20 10 0 70 60 50 40 20 oz. Singles 67.6 oz. Bottles 6-Pack Cans 12-Pack Cans 24-Pack Cans US NE SE E Central W Central SW Pacific
Source: A.C. Nielsen, 52 weeks ending 9/8/01 and 9/6/03 BevAisleR1.ppt
37
Based on the profits per case delivered by each of the most common CSD category pack sizes, this preponderance of 12 and 24-pack can sales is obviously one of the root causes of the CSD category profitability issue CSD Profitability By Pack Size, 2003 Pack Size
20 oz. Single Bottles 67.6 oz. Bottles A/O Bottle Sizes 6-Pack Cans 12-Pack Cans 24-Pack Cans
% Total Case Sales
1.7% 17.1% 6.5% 5.2% 54.7% 14.8%
% on Promotion
12.5% 68.0% 47.7% 57.2% 81.5% 83.9%
Profit Per Case
$6.09
$0.99
$4.85
($0.31) ($0.14) ($0.38) Source: A.C. Nielsen Databank, 2003 BevAisleR1.ppt
38
Between 2001 and 2003, Supermarkets did try to improve this situation via aggressive promotion of the 20 oz. Single bottle. However, it appears that these efforts were diluted by continued promotion of 12-pack cans resulting in overall profit declines in all regions but two: % Change In Share of CSD Promotion Units by Pack Size, 2001 - 2003 Pack Size
20 oz. Single Bottles 67.6 oz. Bottles A/O Bottles 6-Pack Cans 12-Pack Cans 24-Pack Cans Profitability % ∆ vs. ‘01
% Total Cs. Sales Reg. 1 Northeast Reg. 2 Southeast Reg. 3 E. Central Reg. 4 W. Central Reg. 5 Southwest Reg. 6 Pacific
1.7
17.1
6.7
5.2
54.6
14.8
100.0
24.3
(4.2) 0.9
(35.9) 16.8
9.9
25.5
247.6
(7.6) 7.9
(17.3) 2.5
174.3
(2.0) 21.9
(13.0) (4.5) (55.0) 27.9
(8.9) (42.7) 272.5
(6.2) (20.2) (6.8) 8.8
(16.1) (85.8) 192.6
(13.3) 10.5
(35.1) 11.1
(91) (28.1) 171.7
(6.1) 13.3
(38.5) 19.4
26.3
8.1
Total US
84.1
(8.2) (1.1) (33.4) 15.2
6.4
(12.1) Source: A.C. Nielsen, 52 weeks ending 9/8/01 and 9/6/03 BevAisleR1.ppt
39
Nevertheless, it is instructive to look at what happened to 20 oz. Bottle performance as a result of these efforts, suggesting that relatively small changes in promotion mix emphasis can yield disproportionately large rewards, especially on relatively low base volume pack sizes: 2001- 2003 CSD 20 oz. Single Bottle Performance in Supermarkets by Region and In Total
(All numbers represent
% change
between 2001 and 2003)
NACS Region
Northeast Southeast East Central West Central Southwest Pacific Total U.S.
20 oz.
% Total Cs.
% ∆ Share of CSD Promoted Units
1.6% 1.8% 1.7% 1.9% 1.8% 1.6% 1.7% 24.3% 247.6% 21.9% 272.5% 192.6% 171.7% 84.1%
% ∆ $ Sales
16.3% 18.5% 19.3% 12.5% 10.1% 20.7% 16.8%
% ∆ Profitability
40.7% 21.8% 58.2% 2.5% 11.7% 25.3% 26.1%
% 20 oz. Cont. to Total CSD Category Profits 2001 2003 %∆
8.1% 26.7% 5.5% 5.6% 14.3% 20.1% 16.5% 9.1% 31.1% 15.1% 411.9% 22.2% 23.3% 23.8% 12.3% 16.5% 17.5% 72.6% 55.2% 15.9% 44.2% Source: A.C. Nielsen, 52 weeks ending 9/8/01 and 9/6/03 BevAisleR1.ppt
40
Why 20 oz. Single bottles?
Because in 2001, this segment was not only the most under-promoted but also the most profitable:
20 oz. Single Bottles versus Balance of CSD Pack Sizes, 2001 Pack Size
20 oz. Single Bottles 67.6 oz. Bottles A/O Bottle Sizes 6-Pack Cans 12-Pack Cans 24-Pack Cans A/O Pack Cans
% Total CSD Promoted Units
1.2% 42.7% 10.7% 7.5% 32.7% 4.9% 0.4% 100.0%
Average Profit Per Case
$5.33
0.91
3.88
(0.23) 0.03
(0.12) N/A N/A Source: A.C. Nielsen, 52 weeks ending 9/8/01 and 9/6/03 BevAisleR1.ppt
41
Recommendations
BevAisleR1.ppt
42
Based on CSD category profitability trends since 2001, the immediate challenge for supermarkets appears to be shifting the promotion mix away from 12’s and 24’s as much as possible without losing the power of these packs as image and traffic builders: 2001 - 2003 CSD 12 + 24 Pack Cans Profit Performance in Supermarkets By Region and In Total
(All numbers represent
% change
from 2001 to 2003)
Pack Size Reg. 1 Northeast
12 Pack Cans % Total CSD Cs. Sales % Chg Share Ttl CSD Prom. Units % Chg Dollar Sales % Chg. Profitability 24 Pack Cans % Total CSD Cs. Sales % Chg Share TTL CSD Prom. Units % Chg Dollar Sales % Chg. Profitability 45.5
16.8
9.4
(5.5) 12.9
9.9
(1.4) (79.6)
Reg. 2 Southeast
58.7
2.5
1.4
(3.9) 6.5
174.3
113.3
(251.0)
Reg. 3 E. Central
52.5
27.9
18.2
(174.9) 27.8
(8.9) (11.0) (445.7)
Reg. 4 W. Central Reg. 5 Southwest
62.0
8.8
6.5
(146.2) 9.2
(16.1) (14.6) (31.7) 56.5
11.1
9.4
(57.2) 23.5
(9.1) (9.4) (97.3)
Reg. 6 Pacific
57.3
19.4
8.3
(35.3) 9.1
26.3
22.9
36.6
Total US
54.7
15.2
11.7
(596.4) 14.8
6.4
0.9
(230.6) Source: A.C. Nielsen, 52 weeks ending 9/8/01 and 9/6/03 BevAisleR1.ppt
43
To where does one shift this mix? To the relatively under-promoted segments – most small bottle sizes and especially 6-pack cans: 2001 – 2003 Change in Promotion Emphasis By Pack Size, Total CSDs Pack Size
20 oz. Single Bottles 67.6 oz. Bottles A/O Bottle Sizes 6-Pack Cans 12-Pack Cans 24-Pack Cans A/O Pack Cans
% Sales (Cs)
1.7% 17.1% 6.5% 5.2% 54.8% 14.8% N/A 100.0%
% Change Units Sold on Promotion
63.4
(2.0) 2.8
(7.3) 0.8
1.9
(5.1) (1.2)
% Change Share of on Promotion
84.1
(8.2) (1.1) (33.4) 15.2
6.4
(40.7) N/A Source: A.C. Nielsen, 52 weeks ending 9/8/01 and 9/6/03 BevAisleR1.ppt
44
The success that Supermarkets achieved with 20 oz. bottles over the past several years suggests that this “shift the mix” solution is doable without the need for radical changes to overall CSD category merchandising strategies.
For example, let’s assume an objective of
reversing
the percentage of units sold on promotion for 12-pack cans to 6-pack cans.
6-Pack Cans 12-Pack Cans
% Units Sold On Promotion, 2003 % Sales
5.5% 54.7%
Current Mix
57.2% 81.5%
Objective
81.5% 57.2%
If supermarkets were able to make this
one
shift in CSD promotion mix, the impact on total CSD category profitability would be enormous: Impact of 6 & 12-Pack Can Promotion Mix Change on Total CSD Category Profitability
6-Pack Cans 12-Pack Cans Total Category Profitability % Change vs. Present
% Mix
57.2% 81.5%
Profitability
($28,722.9) ($140,062.7) $801,569.8
% Mix
81.5% 57.2%
Profitability
($100,446.2) $356,230.4
$1,226,139.6
Difference
($71,723.3) $496,293.1
$424,569.8
+53% Source: A.C. Nielsen, 52 weeks ending 9/8/01 and 9/6/03 BevAisleR1.ppt
45
Obviously, the benefits from doing this will vary by region and retailer based primarily on the importance of 12-pack cans to total CSD sales. Here’s how this approach impacts on a region-by-region basis: Impact of 6 & 12-Pack Can Promotion Mix Changes on Total CSD Category Profits NACS Region
Northeast Southeast East Central West Central Southwest Pacific Total U.S.
% Sales
21.6% 17.8% 19.8% 12.3% 9.8% 18.7% 100.0%
Current 6-Pack/12-Pack Mix
57.2/76.9
59.2/79.7
64.1/81.9
56.4/84.1
48.7/81.1
57.4/84.8
57.2/81.5
Current Profitability ($MM)
$406,375.2
($86,631.2) 181,809.5
4,704.5
114,052.8
181,258.9
801,569.8
Profits if Mix Is Reversed
$477,143.8
123,680.9
254,614.6
62,141.1
163,012.4
277,082.2
1,226,139.6
% Change Vs. Present
+17.4% +72.7% +40.0% +122.7% +42.9% +52.9% +53.0% Source: A.C. Nielsen, 52 weeks ending 9/6/03 BevAisleR1.ppt
46
The difference in this approach versus the 2001 - 2003 20 oz. single bottle campaign is that this approach more directly addresses the 12-pack can issue. Specifically:
6-pack cans are a more viable substitute for 12-pack cans than the 20 oz. Single bottles from a consumer usage point of view.
It is not very practical to promote 12-pack cans at the same time as 6-pack cans, although this is not true of 12-pack cans versus 20 oz. Single bottles.
Any
reduction in 12-pack can promotional volume will help increase every day price shelf sales, although we recognize that this is not a one-to-one trade-off.
On a separate note, the indications are that more frequent promotions of 6 pack cans (or bottles) would enable supermarkets to recapture a small but important competitive edge because: • 6-pack cans are not broadly available in Supercenters and Clubs.
• 6-packs build more trip frequency than 12-packs.
• Independent research confirms that all of those large, heavy-user CSD families who buy 12 unique CSD brands per year would welcome the option of buying these brands on promotion in
6-packs
, providing the price differentials make sense.
47 BevAisleR1.ppt
And, speaking of pricing, if the following scenario is even directionally accurate, it seems to be in everyone’s best interest to reduce promotion emphasis on 12 and 24-pack cans.
Profit Per Case By Pack Size – Supermarkets and Bottlers – CSDs, 2003 Pack Size % Total Case Sales Supermarkets Bottlers Ratio of Bottler to Supermarket Profits
20 oz. Single Bottles 67.6 oz. Bottles A/O Bottle Sizes 6-Pack Cans 12-Pack Cans 24-Pack Cans 1.7% 17.1% 6.5% 5.2% 54.7% 14.8% $6.09
$0.99
$4.85
($0.31) ($0.14) ($0.38) $8.72
$0.47
$2.69
$0.61
$0.11
$0.08
1:1.43
1:0.47
1:0.55
1:92 1:25 1:46 In view of the relatively small share of the business now done by 6-pack cans, bringing the profit ratio between Supermarkets and Bottlers on this pack size into better balance should be a priority objective. Source: Databank USA, August, 2003.
BevAisleR1.ppt
48
The indications are that the principal bottlers have become aware of this need and are already moving in this direction by reducing wholesale prices on 6-packs much more than 12 or 24 packs: Wholesale Price Changes Per Case on Cans: 52 Weeks through 8/31/2003
Pepsi Coke Cadbury Total
12-Packs
$ .07
(.10) (.16) (.04)
24-Packs
$ .10
(.08) (.03) .02
6-Packs
$ (.31) (.71) (.02) (.39) BevAisleR1.ppt
Source: Databank USA 2003 49
Nevertheless, because of virtually universal over-emphasis on promoting 12-packs, what the consumer “sees” on an everyday basis is $1.98 for 6 packs versus $2.53 for 12-packs – and acts accordingly: Average Everyday CSD Shelf vs. Average Promoted Prices by Pack Size, 2003 Pack Size
20 oz. Single Bottles 67.6 oz. Bottles A/O Small Bottles 6-Pack Cans 12-Pack Cans 24-Pack Cans
Everyday Shelf
$0.99
$1.88
N/A $1.98
$3.58
$6.07
Promoted Price
$0.69
$0.91
N/A $1.20
$2.53
$4.89
Anecdotally, we frequently see 6-packs priced at $2.49 while 12-packs are promoted at four (or even five) for $10.00.
Source: A.C. Nielsen & Databank USA, 2003 BevAisleR1.ppt
50
To summarize:
1. We believe that Supermarkets are leaving money on the table with respect to maximizing the profit potential of the CSD category: • • Profits have dropped by 12% just in the past two years • 2003 category margins are relatively low at 6.6% (versus beer, for example, at 18.5%) The principal cause of this appears to be 12 and 24 pack can “Promotion Mania” 2. Experimenting with promotion prices and promotion depth on the balance of the line has done little to address this situation as long as Supermarkets continue aggressive promotion of 12 and 24 pack cans: • These experiments may have helped but the results have been “invisible” – category profits still continue to decline • There is little evidence of attempts to address this problem directly – that is, reduce promotion on 12 and 24 packs.
• 12 and 24 pack cans now account for so much of the business (70+% in most regions) that their role in this situation can no longer be ignored.
51 BevAisleR1.ppt
Summary (cont’d)
3. The success of the 2001 - 2003 20 oz. single bottle campaign suggests that only
slight
changes in promotion mix can yield disproportionately large rewards in terms of growing total category profits: • By shifting promotion emphasis to 20 oz. single bottles during these two years, 20 oz. contributions to total CSD
category
profits jumped 44% – from 16.5% to 23.8% • This is all the more remarkable because 20 oz. does only 5.9% of total CSD dollar sales and 1.7% of case sales • However, total CSD category profits did not improve during this period because of continued deep price promotion on 12 and 24 pack cans.
52 BevAisleR1.ppt
Summary (cont’d)
4. Based on the 20 oz. single bottle example, the indicated action is to lay out a strategy to shift as much business as possible away from 12 and 24 pack cans without impairing the power of these pack sizes as Supermarket image and traffic builders: • We realize that a delicate balance has to be maintained here.
• Continuing to shift the mix to more profitable bottles is ideal but there is only so much one can do with these segments before they become saturated.
• An obvious “first strike” alternative is 6-pack cans which are now not only under promoted but quickly becoming the “orphan child” of the CSD category.
• The key to the success of this is to align prices so that 6-packs become more profitable.
• The indications are that bottlers are now supportive of such a strategy – they have already moved aggressively to reduce 6-pack can wholesale prices much more than 12 or 24 packs.
53 BevAisleR1.ppt
Summary (cont’d)
5. There are compelling reasons to put more promotional emphasis on 6-packs – especially cans – as both Supermarkets and bottlers did with 20 oz. singles between 2001 and 2003: • • •
Trip frequency – Why encourage the shopper to stay away by always promoting 12’s and 24’s versus smaller sizes?
Leverage and low risk – 6-pack cans now do only 4.7% of total CSD dollar sales and 5.2% of case sales.
Increased CSD category profitability – With respect to cans only – a max potential of 53% to the extent that Supermarkets can reverse the percentage of units sold on promotion between 6 and 12 pack cans
• •
Significantly improved alignment with current heavy-user CSD household purchasing behavior – If your family wanted 12 different CSD brands or flavors, wouldn’t you want the option of buying these on promotion in 6 packs versus 12-packs more frequently?
Competitive edge – Supermarkets are now the only channel left that carries full variety of 6-packs. Promoting this size more frequently communicates this very important message and helps reinforce the consumer’s perception of Supermarkets’ unique advantage as full assortment merchants.
54 BevAisleR1.ppt
Implementation: If you think the approach we have outlined in this presentation makes sense, then we suggest the following steps:
Ask your Category Captain/leading suppliers to lay-out a promotion plan specifically designed to improve CSD category profitability. Key areas of focus: • Shifting the promotion emphasis away from 12’s and 24’s to under promoted pack sizes • Consumer rationale • Balancing profit goals with category image and traffic building objectives Work with your bottlers to align CSD pricing with these objectives: • There is little reason why supermarkets should continue to sell 6-pack cans at a loss given the fact that this pack size is on the brink of defaulting to “niche” status.
• Again, bringing 6 pack cans’ pricing into alignment
is
the key to the successful execution of this strategy and, eventually, dramatically improved total CSD category profits.
55 BevAisleR1.ppt
Thank You
We appreciate the time and attention you gave us today and trust that the information provided has proven useful.
www.hoytnet.com
8912 East Pinnacle Peak Road • Scottsdale, AZ 85255 Phone (480) 513 0547 • Fax (480) 513-0548 • E-Mail: [email protected] • [email protected]