Smart brands can profit from retailer weakness

valueIn an effort to counter slowing sales growths since the summer, the UK’s major supermarkets have spent 14% more on TV and press advertising in the four weeks to mid-October, as compared to last year. The figures by Nielsen found that aggregate sales value growths for the supermarkets during the four weeks ending 12 October 2013 were up just +1.8% year-on-year; even as volume decreased by 1.9%.

The strongest category growths were in the heavily promoted categories of Confectionery (+8.6% value year-on-year) and Soft Drinks (+4.9%), the latter being helped by September’s warm weather. The weakest growths were reported in Packaged Grocery (-0.1%) and Household (+0.3%) – both areas where discounters are growing market share.

Driven by Morrisons, TV and press advertising spend by the 10 leading UK supermarkets rose 13.8% year-on-year to £28.3m. Morrisons was the highest spending food retailer on TV and press (£5.0m), followed by Tesco (£4.0m) and Asda (£3.7m). Iceland had the biggest year-on-year increase in spend (up 426% to £2.2m) followed by the Co-operative (up 167% to £2.1m).

Nielsen added: “On the back of its significant increase in media spend, Iceland has continued a gradual gain in market share, despite industry-wide softness in the Frozen Food category where value growths of +0.7% remain lower than overall inflation. Sainsbury has also increased market share and strengthened its position as the overall number two retailer across the industry. Retailers will be hoping the recent rise in consumer confidence translates into increased shopper spend and more encouraging figures for Christmas and 2014. But to drive sales in the meantime, we anticipate they’ll continue increasing ad spend to support their Christmas campaigns and promotions.”

customer loyalty drivers chart

Colin Harper, CEO of Retail Vital Statistics has carried out work in this area following a study published by Retail Week, This study showed that – notwithstanding the current position, retailers expected to spend increasing amount recruiting new people, as they perceived their loyal user base dropping away.  On the surface it appears much easier to advertise your way ahead than to actually care for your customers. That is to say, if you are a retailer seeing a way ahead as selling more and more to the same people, and assuming they will always be there for you.

The Retail Week study, however, reporting on the attitudes of 280 UK retail decision makers, also reported that 63% of these decision makes said they made a higher profit margin from existing customers than from new ones.

Over the last few years retailers overall have grown by removing investment from supply chains, and at the shop floor, again taking an easy way out. Which means that the way back would be financially very painful, and for some, in particular Tesco and Asda, unaffordable. Witness here the relative firmness of the Sainsbury brand share.

There is a way to profit from this position on the part of the brands, working in conjunction with retailers.  This is to at least make sure that your products are not the ones out of stock. You can also offer incentives for a return visit, and help retailers to understand what their customers think about your products.

Storecheck have developed the on-pack promotion to a fine art, understanding the cost and the return, and making sure that mis and mal-redemption are effectively a thing of the past. Check out a typical microsite ultima.yousay.org. In rewarding people for answering questions, you also reward them for buying in the first place.

The combination delivers best value ROI from promotion investment AND gives you insight into what new shoppers want from you and the store. Yes, this technique is attractive to people who are not just there for the deal. 15% growth with only 5% redemptions (typical) is a cost sea change from everyone wins at a discount. And you get their e-mail addresses to bring them back in again.

Identify your core stores, and get packs here overstuck so you talk to many more of the right kind of people, in their own language. These people will buy at full price, and tell their friends.

Yes, its not the doubled sales you get when you halve the price, but this effect lasts, and is a win/win/win  for everyone.