21 August 2013

Retail Indaba : Consumer Trends 2013 Presented by Gareth Pearson

2 / Retail Indaba

Consumer versus Shopper

Consumer

• Consumers become

shoppers when embarking

on a purchase path

• Consumers have a different

mind-set to shoppers

• Shoppers indeed need not

necessarily be one in the

same as consumers

• Consumers use/consume a

product or service

• Consumer marketing

focuses on building brand

awareness

Shopper

• Consumers are more

concerned about the brand

& aspirations whilst the

shopper seeks convenient

solutions, value &

differentiations

• Shoppers shop/buy a

product or service

• Shopper marketing, targets

consumer in a shopper

mind-set, aiming at decision

making process in store

South African Consumers Under Fire

4 / Retail Indaba

South African Consumers Under Fire

• Economist warn inflation will

rise to 9% by end 2013

• Weaker Rand, high electricity

& fuel prices, labour costs &

droughts are to blame- in turn

grain & red meat expected to

rise, placing consumers

under stress as these are

staple foods

• Food price hikes will further

burden those struggling to

pay for electricity, health

insurance & school fees

• Due to high food, petrol,

electricity, transport and

labour costs, South Africans

have been counting on debt

to get them through the

month

• Consumers are increasingly

loaning to survive, often to

pay for lifestyles they cant

afford

5 / Retail Indaba

South African Consumers Under Fire (Continued)

• Petrol price adding pressure

on indebted consumers,

having short & long term

effects;

• Short Term: Consumer will

have less disposable income

as many SA’s already live

below the breadline

• Long Term: Knock-on effect,

a price increase on food,

transport, electricity & other

necessities

• Due to high food, petrol,

electricity, transport and

labour costs, South Africans

have been counting on debt

to get them through the

month

• Consumers are increasingly

loaning to survive, often to

pay for lifestyles they cant

afford

6 / Retail Indaba

South African Consumers Under Fire (Continued)

• Due to high food, petrol,

electricity, transport & labour

costs, SAs are relying on

debt to get them through the

month

• Consumers are increasingly

becoming indebted to

survive, often to pay for

lifestyles they can’t afford

“Consumers will be counting their coins this year as high food inflation, spiralling electricity cost and fuel

price hike bite hard. However, despite the pressure on wallets, retailers are not likely to change their

game plans”- Mail and Guardian, January 4th, 2013

7 / Retail Indaba

Weighing on Retailers in South Africa in 2013

1) Price Strategies

2) Ranging

3) Right Sizing

4) Inflationary

• Pressure on carrying accurate

KVI’s at store level

• Discarding low profit contributors

• Understanding key price points

• Reducing pack sizes & retaining

price points

• Effective price increase

• Price sensitivity

• Price points

• Promotions (Depth & Length)

• Hybrid of EDLP & HILO

• Pressure on prices

• Energy inflation on manufacture &

logistics

• Fuel inflation in RM & FG

• Weakening Rand placing

additional inflation on imports

8 / Retail Indaba

Consumer/Shopper and the Shelf Face

Wage inflation stagnant versus rising grocery basket

inflation

Seeking Value: Buying on promo & trip missions are

geared around promotions

Household usage is changing as consumers use

less and reduce waste

Trading down or across categories to extend value

on grocery basket

Trading down to smaller pack sizes due to the lower

price points

Trading across to lower valued categories effectively

substituting

Consumer/Shopper’s Reality Impact on Shelf Face

Basket spend is capped, change in

basket composition

Basket

Consumers are actively seeking the

promo deals

Deals

Stretching consumption of products:

Micro ROI approach

Usage

Moving down to lower tiered

offerings

Tier Steps

Sizes

Smaller pack sizes in more demand

Pack

Sizes

Switching categories & brands

Subs

9 / Retail Indaba

Consumer/Shopper using Technology

Growing internet usage among consumers &

shoppers

Info savvy shoppers comparing price in real time

Brand & product information awareness at

unprecedented levels

Consumer /Shopper’s Reality Impact on Retailers

• Web offering need growing with

internet users

E-Com

• Web pricing versus in-store, needs

to correlate

Pricing

• Retailers have to respond & engage

with consumers in more compelling

conversations

Transparent

10 / Retail Indaba

Understanding the Shopper

People shop in different ways and have different

needs

They are also likely to be shopping at different times

of the month and on different occasions

The way they shop different categories are also likely

to vary

These differences in behaviour highlight a need for

tailored target marketing for effectively engagement

with shoppers

Shopper’s Behaviour How to better understand the Shopper

Shopper characteristics in terms of

demographics and lifestyle

Who

Channels or retailers of choice,

identifying drivers & motivators

Where

Purchasing as well as consumption

or usage occasions

When

Category choice, frequency & spend

What

Pre-store planning & in-store

behaviour

How

Reasons for category & brand

choice

Why

The Professional Shopper Seeking Value

12 / Retail Indaba

Professional Shopper

Consumers

challenging the way

retailers package,

price & distribute

products

Using resources like

smartphone apps,

websites, cut-out

coupons, QR codes,

broad sheets & loyalty

cards to find best value

deals

Protracted economic

pressure &

technological

advances, bring rise to

this motivated, tech-

savvy & informed

shopper

Retailers are bundling

products together like

adding value to loyalty

programmes, offering

deals & investing more

in their PL to attract

consumers

70 % of shoppers

make shopping lists

prior to going to stores

whilst others download

coupons (U.S.)

Digital deals &

shoppers making use

of traditional tools

such as broadsheets,

cut-out coupons &

newspapers inserts are

on the rise

People will map out a

route to buy various

items from a number of

different retailers to get

the best deal

Reward programmes

also remain a key retail

strategy in SA, with an

estimated 10 million

people carrying at least

one loyalty card

13 / Retail Indaba

Professional Shopper (continued)

Source: Daily Mail: “Rise of the ‘Professional Shoppers’: The Penny-Saving Consumers Making Supermarkets Nervous”, 9 March, 2013

“Supermarket consumer who approaches the weekly shop

with military precision in a bid to save money, taking no

prisoners when it comes to sniffing out a bargains. Those

who hunt out and share information online on the best

deals. Type of customers who will take to social networking

sites to communicate their penny-saving experiences”.

Private Label

15 / Retail Indaba

Private Label Growth

Private Label challenging national manufacturer

brands

Private Label share increased throughout Europe in

Q1 2013

Retailers moving to multi-tiered Private Label

offerings

Packaging plays a significant role in Private Label

success

Private Label focus for retailer

Private Label Activity Insights

Helping shoppers reduce their

weekly shop

Why

Shoppers willing to switch brands for

value/savings

Value

PL previously view as Econo offer,

now able to shift perceptions

Driver

Shoppers focus on quality of

packaging when evaluating PL

Pack

Profit, catman influence, purchasing

power, brand equity

WIFM

16 / Retail Indaba

European Private Label Trends

Private Label

Share

• PL’s share growing across Europe with its value share up 0.5% at 35.6% & unit

share also up 0.5% at 45.1%

Unit Market

Share

• Manufacturers are fighting hard to protect their value & unit market share with

clever promotion & pricing strategies

Creativity &

Value

• Creativity & new value is a powerful sales driver & differentiator especially in

such a long economic slump

Trend Description

Consumer Trends

18 / Retail Indaba

The Consumer and Recession

Post 2009 recession, SA consumers seem to have changed their consumption habits:

Consumers began to “Down Trade”

Then “Product Substitution” as Down Trading was no longer

effective

Unrelenting economic pressure has pushed some consumers to “No Trading”, where

they just cease buying & consuming

19 / Retail Indaba

Global Consumer Trends (Eurocentric)

Growing inflation driving grocery basket upwards on

cost curve

Shopper wallet not growing in relation to rising

inflation

Shift away from non-food as food becomes priority

Consumption patterns shifting as consumers adjust

to the times

Consumer and Shopper Trends Retail Implication

Cost push factors, energy &

resources

Pricing

Shoppers have to spend more effort

& energy in seeking value

Basket

Food purchasing prioritised over

non-food

Basics

• Using less product

• More multipurpose products

• Less wastage

• Less stock, more on demand

Change

in Usage

Patterns

20 / Retail Indaba

Global Consumer Trends Involving Technology

On/Off Shopping is where the shopper seeks online

experience/data while in-store

Online pricing comparisons are becoming a key

measure of retailer competitiveness

Click and Collect: Ordering online but collecting your

purchases at the store

Loyalty cards are important to shoppers because this

supports the value aspirations

Consumer and Shopper Trends Retailer Implication

Retailers need to offer in-store web

portals with online offer

Tech

Webscraping competitor web sites to

compare pricing offers

Real time

Retailers developed a dedicated

drive through lane for collections

Adapting

• Basket analytics

• Trip mission analytics

• Targeted promotions by store

• Significant analytics skills

Shopper

analytics

21 / Retail Indaba

Shopper in Europe 2013 Q1

Shopper in Europe is adapting to tough times

Struggling South Africa consumer’s woes perhaps light compared to heavy European woes, but the local

burden may increase

“Smart Shopper” price cautious: High promotion activity Strong presence of PL Price war

Shoppers are extremely price sensitive

Price is the heart of the battle

Shoppers are willing to buy value for money

Non Food categories are the victim of the tough times

22 / Retail Indaba

Promotion in Europe 2013 Q1

• UK remains the champion with 52,7% of volumes sales on promotion

• Germany, solid discounter & PL culture, remains the country with lowest promotion

• Growth of hypermarkets, which is impacting hard discounters

Unprecedented Promotional Activity

Trend already reflecting in SA & will continue to grow as the mechanic of discounting becomes a key retail

strategy for success

23 / Retail Indaba

Consumer Trends

Seeking Value • Searching for best prices, using all available resources

• Promotional purchases

Consumption

Patterns

• “Down Trading”

• “Product Substitution”

• “No Trading”

Basket Changes • Smaller basket numerically

• Increased frequency of trips

Household Debt

Rising

• PCE pressure

• Rising inflation vs flat income

Tech Savvy

• Growth in smartphone sales will increase e-commerce from its present infancy

• Price apps providing shoppers with pricing & product comparisons at store level

are growing

Product usage

• Using less

• Using multi-usable products

• Reducing wastage

• Lower stock levels

Trend Description

24 / Retail Indaba

What it all means, so what ?

“Understand and respond to all the dynamics at play at the Shelf Face which affect your strategy”

• Shoppers seeking value, so huge focus on accuracy of pricing and promotions

• PL will continue to grow and develop in SA (opportunity)

• Manufacturers will be fighting to protect their share of sales (innovation crucial)

• Right sizing will continue, can create innovative opportunities

• Price points insight is key to strategy (supported by price sensitivity data)

• Promotions – level of discount, length of promotion & product combinations

• Pricing strategy needs to be dynamic & executed in real time

• Basket Analytics is a growing strategic tool required to discern consumption & buying

patterns

• Ranging accuracy at store level growing factor as ROI at Shelf Face receives focus

• E –Commerce effect is going to grow strongly as Smart Phone sales grow

Actionable items for retail players seeking success

Thank you

www.bmi.co.za