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Nonfoods segment performance in the supermarket industry lately resembles something like the topography of Iowa: a small rise or depression here and there, but mostly just flat. According to the latest ACNielsen figures, food retailers’ general merchandise sales are up just 1.2 percent in dollar sales volume this year, with health and beauty care growth down 2.7 percent.
Total nonfoods sales volume for supermarkets, at $18.8 billion, accounts for approximately one-third of the volume in the mass retail channel of $59.1 billion. Aside from a slight uptick in the general merchandise volume this year, supermarkets' performance -- and, for that matter, performance in the other channels, as well -- has been either flat or slightly down for the past five years.
Reviewing the details of some of the major nonfoods categories is enough to make a grown category manager cry: batteries, down 2 percent; film and cameras, down 16.9 percent; and seasonal general merchandise, down 11 percent.
If there's been any growth at all over the past 12 months, it likely stems from new product introductions, as we see when we drill down deeper into the product level. The scent holders category, for example, saw its first positive growth since 2002, at 58.4 percent, most likely the result of P&G's introduction of its Scentstories air freshener, which was launched in June 2004. Other categories that grew from new product activity include cologne-type deodorants, such as AXE and Old Spice body sprays, which continue to grow with new scents; nondisposable razors such as the M3Power razor, which was launched in May 2004, and coffee- and tea-making appliances, a category which saw the launch of a few single-serve coffee-making devices last year.
While it's important that new products drive sales, relying solely on them to grow category numbers can be risky. While anyone can sell an M3Power razor a week after its multimillion-dollar launch, it's much more difficult to sell a private label bucket.
What is this anemia in nonfoods supermarket sales likely to portend? Says General Merchandise Distributors Council president David McConnell: "I worry that many food retailers are simply surrendering many of these categories to the big-box retailers when they should be focusing on GM opportunities in seasonal and solution selling, such as kitchen shops. Food stores can and should be selling GM products to their customers, but the retailer needs to be committed with dedicated departments that offer both value and quality."
Fortunately an analysis of ACNielsen figures points out a few consumer trends that, when exploited by smart retailers, are driving nonfoods growth. What's more, they're trends that can be applied to many other nonfoods categories in the store.
Two of these trends are value and convenience, and in supermarkets with successful nonfoods departments, they must work together to encourage impulse buying. Value alone is apparently not enough, as shoppers can find cheaper prices in other channels. Convenience by itself won't work, either, if the product is too expensive. But when both come together, the velocity can be impressive.
Salt Lake City-based Associated Food Stores, for example, realized shoppers were eyeing the new knife sharpener that meat department clerks were using to sharpen their own knives. They immediately brought the sharpeners out behind the meat counter for shoppers to purchase. When Associated learned that hunters particularly were fond of them -- celebrity rock guitarist/bowman Ted Nugent, in particular -- the retailer boosted its marketing efforts at stores in areas where hunting is popular. This convenience was too strong to resist, and the sharpeners flew off the shelves. Retailing for only $7.99 each, the sharpeners deliver value to the consumer and 30 percent margin to the retailer.
Another fruitful intersection of value and convenience: Stillwater, Minn.-based Cub Foods, in an effort to compete against the mass retail channel for video sales, struck a deal with four of its CPG suppliers to include convenient free products with each purchase of Finding Nemo.
Scanning data shows this effect in action, and in categories that are beyond the grocer's norm: increases in sales of computer and electronic products and accessories such as recordable CD-ROMS, and also in automotive products, signal that convenience is a factor in shoppers' decisions to purchase some nonfoods items. While consumers typically don't think of supermarkets as destinations for these categories, if they're on the shelves when the need arises, chances are good for a sale.
Another standout is the performance of the combination packs, including automotive combos, school and home office product combos, and hair product combos. Each of these shows the power of bundling for providing value and convenience. In most cases the combined products yield better sales than the individual units of similar products in the category.
Nonfood volume and profits in the supermarket will continue to be challenged. But some retailers are meeting this challenge head-on, scoring important victories with specific categories and programs that are making the struggle worthwhile. Here are several case studies demonstrating how grocers can score nonfoods wins without the short-lived lift of a new product launch.
The online grocer is applying the Web's power to breakthrough GM ideas.
Online grocer FreshDirect drives nonfood sales by creating bundled online consumer solutions for specific needs. The only problem is, if FreshDirect's nonfoods sales keep growing, it may have to change its name.
Consumers typically think of FreshDirect as purely a seller of food. The Long Island City, N.Y.-based retailer's name reinforces that perception. But with a little creative Web merchandising, FreshDirect is also holding its own in the nonfoods category.
"Our fresh foods are by far the biggest sellers on the site," acknowledges marketing manager Dana Smith. "However, we do consider HBC items an important part of our product mix. I think one of the most important drivers in promoting these products is creativity and ease of purchase."
Indeed, ease of making purchases online is an effective counterpart to finding what one needs in a brick-and-mortar store. The difference between the two experiences is that after promoting a category, Fresh Direct can bring it to the shopper. And with limitless virtual shelf space, any array of related products can be bundled together in a cyber-end cap.
In the winter, for example, FreshDirect promotes its cough and cold remedies by creating an area called Snow Storm Kit, promoted throughout the company's site by banners that link to it. Shoppers clicking a banner are brought to a page offering a complete solution that includes all the basics needed to weather a cold, such as cough medicine and tissues. But it doesn't stop there: The site also merchandises related comfort food products such as soups and teas. "Having all the products located in one area makes it easy for customers to add to their baskets and helps us drive sales of these types of products," says Smith.
Another clever program is FreshDirect's Spring Cleaning section, which assembles products needed to scrub down a house, inside and out.
FreshDirect is able to create such flexible solutions through constant vigilance of its customers' online shopping and buying patterns. When these behaviors change, offerings quickly follow suit. "Our latest experiences of growth in nonfood items were baby care and batteries," explains Smith. "FreshDirect brought in the latest Pampers line, Cruisers, and have priced them very competitively. The first few months they were offered, sales grew by leaps and bounds. Batteries took off in an instant, and have now become one of the faster-moving items."
Probably the greatest advantage an online retailer has over its brick-and-mortar cousins is the ability to deliver a vast amount of information to the consumer at the moment that consumer is pondering a purchase. And since the Internet is the resource most often used by consumers, they're apt to be more accepting of the information they find on Web sites than they are of a typical in-store promotion.
FreshDirect uses information to creatively promote products that are complementary to those a shopper is considering. "When a shopper purchases a product that has the potential for staining teeth, we'll give them a hint suggesting dental whitening systems," says Smith. "Or when they purchase a shampoo, it will suggest a complementary conditioner or styling product."
And since shoppers don't have to physically move from the cigarette counter to the oral care aisle to make the connection, that means there's one less obstacle between them and the purchase.
By providing such solutions -- in essence, becoming a shopping resource for the consumer, instead of just a product warehouse -- FreshDirect is looking to be the one-stop shop for every New Yorker with access to a computer. "Our mission is to provide not only the highest-quality produce and fresh foods at reduced prices, but also to be the most convenient resource of products to our customers," says Smith. "Our customers value the fact that not only can they have fresh food and grocery items delivered to their door, but also everything they need to make their lives easier -- from diapers and cleaning supplies to 12-minute osso buco."
The case for space
For Associated Wholesalers Inc., the best way to secure the GM aisle's place in the store is to get the product out of the aisle.
It's traditionally been tough enough just getting shoppers to walk down the nonfoods aisle. Now the challenge is almost becoming a matter of making sure there's much of an aisle at all in the supermarket of the future.
In an environment where perishables are increasingly more prominent in the store and top of mind among merchants and shoppers, GM category managers are spending more time and energy than ever defending nonfoods' territory on the selling floor against encroachment.
For Brian Snyder, general merchandise category manager for Associated Wholesalers, Inc., it means selling his retail customers more aggressively than ever on the idea that nonfoods should not become a nonpriority.
"They're not necessarily giving up on GM," says Snyder of the retail accounts that the Robesonia, Pa.-based wholesaler serves. "They're shifting their focus to other areas of the store and making more of a statement with other categories."
Not one to back down from a challenge, Snyder decided that if he couldn't bring enough people to the nonfoods aisle, he'd bring the nonfoods aisle to them. He put together a host of marketing ideas built around an emphasis on cross-merchandising and seasonal programs that put products in different locations throughout the store -- and even outside of it.
"Convenience and impulse are key," recommends Snyder. "Get the right product in front of them at the right price, instead of tucked away in an aisle somewhere." One way he accomplishes this is by building a J-hook program that allows for cross-merchandising without having to squeeze the cross-merchandised product onto a crowded shelf. He has created cross-merchandising plans that strategically place seasonal nonfoods displays in food departments, such as a roaster and baster display near turkeys in the meat department for Thanksgiving, or skewers near the beef section during barbecue season.
He also worked with Portland, Ore.-based Western Family Foods, Inc. to develop a GM/HBC private label program. "We have approximately 1,000 SKUs in our private label program," says Snyder. "PL is particularly good with faster-moving items such as batteries and film. Our private label battery program, which we began four years ago, has grown at double-digit rates every year, while our branded battery sales are flat to slightly up."
Essentially, Snyder's strategy for making sure nonfoods get their due is to help retailers create total merchandising solutions that incorporate nonfoods into the mix. "Some of our retailers have become quite creative in doing this," he says. "One promotes seasonal outdoor items such as barbecue grilling equipment and patio sets -- but by hosting a barbecue in front of the store, tied to a local charity."
The key for Snyder and AWI is enabling retailers to become players in the nonfoods arena, which in turn brings the category front and center in shoppers' minds.
With gas margins tight, Piggly Wiggly is using the category to fuel its frequent shopper program.
Piggly Wiggly Carolina Co.'s Greenbax loyalty card program is now being driven by the customers -- literally -- since s.v.p. David Schools added motor fuels to the retailer's operations.
"Everybody drives down here," says Schools, who installed the first of Piggly Wiggly's three fuel operation three years ago, "so it's a natural fit to include petroleum in our loyalty program. Besides, fuel is very competitive, and with the pricing in South Carolina, there's not a lot of profit in the fuel."
What's more, Schools leveraged the fuel to extend the reach of the Greenbax program to more than 100 fuel-marketing locations throughout the state.
Mansfield Oil, the Gainesville, Ga.-based petroleum marketer that installed Piggly Wiggly's fuel centers, provides the turnkey management system enabling the alignment of off-site fuel purchases with the Greenbax loyalty program. "Mansfield Oil provides remote monitoring services and automated ordering for Piggly Wiggly, which lets us focus on our core business -- retailing," adds Schools.
Piggly Wiggly's fuel operations have already caused a spike in participation for the Greenbax program, according to Schools. "We're currently evaluating our 85 company-owned stores to determine the feasibility of adding fuel," he says, "and we look to incorporate fuel in as many new locations as possible."