The content of this research report is a result of a study commissioned by IDDBA in partnership with Nielsen Perishables Group.

Transcription

1 The content of this research report is a result of a study commissioned by IDDBA in partnership with Nielsen Perishables Group. 1

2 Some may have heard or seen last year s connectivity research on specialty cheese or the content presented earlier this year by Sarah Schmansky on entertaining connectivity. For others, connectivity may be a new concept. We ll spend some time today discussing what exactly connectivity means, why it s so important and how to act on it. But before we get to that, and before the s start piling up and the distractions start rolling in, some people may be wondering why bakery breads was selected as a category to focus on. And there were many reasons, including insights from separate Nielsen research which highlights the important role that bread plays in bakery success. And yet over the past five years, national sales of bread volume has been flat to declining every single year. It s time to find new pathways to success, and my goal today is to help you uncover some. 2

3 And besides, if Oprah is talking about how much she loves bread, shouldn t we? 3

4 Total Store Connectivity provides the first comprehensive and integrated store connectivity solution. It utilizes individual store/week sales and consumer data inputs across 200+ categories, through which value is redefined, new partnerships realized, and a new competitive advantage can be built. What s really special about this study and some of the others we ve conducted with IDDBA, is our utilization of Nielsen s brand-new total view of the store with integrated UPC and random weight sales which means this study provides the most holistic view of the entire store as a consumer views it. Why is connectivity an important research method? Because it takes the store and reframes the way we think about our products so we re evaluating them as the consumer does; an ecosystem of products across the entire store that solve a purpose or fulfill a need. In fact, nearly two-thirds of all shopping trips include items from both the perimeter and center aisles. This means how we define our competition, and our opportunities, needs to radically shift. We ll evaluate in more detail some of those partnerships and opportunities listed on the right hand side in more detail in coming slides. 4

5 But what else does connectivity tell us? It tells us that when a consumer walks into a grocery store, there are literally trillions of combinations of purchases that her or she could make. Now I don t want you to get hung up on the data points on this slide. It s in here to show that A LOT of math, calculations and science far outside my personal comfort zone went into this study. But from the TRILLIONS of data points this type of analysis yields, we ve boiled this study down to only the most relevant and pertinent information for you. This study was connected at the national level and includes sales from grocery, mass/supercenters and club stores. There is likelihood that we would see some variances at a regional or retail level, but by-in-large we expect the connectivity to carry through. 5

6 The study has two main parts sales data and consumer data. The sales data looks at the correlation between sales of 200+ categories across the store at the store/week level. Sales correlation shows the relationship between two categories. For this project, we used Pearson correlation methodology at the store/week level to produce correlation coefficients between -1 and 1 that explain the relationship between categories. In our study, over 0.5 is considered to be a statistically significant strong positive correlation, while less than -0.5 is considered a statistically significant strong negative correlation. With a correlation of positive 1, we see hypothetical results such as when bananas grow in sales, apples grow the same amount in sales at the same times. A correlation of -1 would be the opposite such as when bananas grow in sales, apples decrease in sales the same amount at the same times. We overlay consumer information, specifically buyer overlap (% of buyers that are shared between the two categories) and trip overlap (% of trips that contain the two items) to understand whether this correlation is driven by buyers, trips or both. 6

7 Before we get into the connectivity research, first a little background on performance and the timeliness of this research 7

8 A lot of folks joining this morning have likely seen this slide from Nielsen before or heard our message. But we feel it s worth repeating. Fresh is IMPORTANT! More than that, it s a growth driver. In separate research from Nielsen Perishables Group called the Fresh Guiding Principles, we tested just how important fresh is and we found that retailers who focus on fresh and make it a point of differentiation have the success transfer to the rest of the store as well. From 2013 to 2015, the share of store sales shifted in favor of perishable items which include fresh meat, seafood, deli, produce and bakery. Looking at this slide, 1.3 percentage points may not sound like a whole lot, but that translates to billions of dollars.

9 And the success of perishable sales is evident across all departments both in terms of dollars and volume. This is extremely important during a time when many center store food departments have been flat to declining over the past 5 years, and still within the latest 52 weeks. This means that fresh is, and should be, in the driver s seat. More than ever, retailers and CPG manufacturers have a watchful eye on fresh trends. Hopefully some have embraced this as a chance to form new partnerships to drive mutual growth. Focusing specifically on in-store bakery (which in world EXCLUDES all commercial breads, cookies etc) but does INCLUDE both random-weight and UPC items in the fresh bakery department, sales growth in 2015 were a healthy 4% in volume and 5% in dollars. 9

10 Taking it one level lower, performance varied across different products. Pies, for example, have had tremendous growth the past several years with a continued focus and introduction of smaller, mini pies aimed at smaller households and more general dessert occasions versus holidays. Breads, the focus of this study, meanwhile increased dollars at a modest 2% while volume increased 5%; but if we expand that view to the past 5 years, volume growth has been flat while dollars have increased just slightly as prices increase. But as fresh breads accounts for 15% of all ISB sales, it also takes a lot more success to move the needle of the second largest category than it does some of the smaller categories. Yes, even more than Oprah s proclamation that she loves bread! 10

11 Crusty/traditional hearth breads account for the largest share of bread dollars at 40% and also had the strongest growth. Following that are artisan and sandwich breads. If you recall I mentioned another piece of research we ve completed called the Fresh Guiding Principles. When evaluating what successful fresh retailers do differently from less successful fresh retailers, we analyzed differences by departments and breads was a critical piece of the success and therefore deserves the attention. 11

12 The variety in size and price points allows fresh breads to reach a broad audience. 70% of households purchased a fresh bread item at least once over the course of the year, and on average those households purchased about 6 times per year. Of the 70% of households that purchased bread from the in-store bakery last year, 91% purchased fresh bread at least 2x, but some households contribute far more to sales than others. Household penetration = households that purchased the focus product at least once in the last year. 12

13 When we look at who over and under-spends on fresh breads, it s very clear the polarization of the category very similar to other bakery categories. Larger, affluent and older households over spend on fresh bread. On the other end of the spectrum, smaller, less affluent and younger households really underspend on fresh breads. This is not to say that only this group buys breads or the folks on the right hand side do not buy at all. It s representative of each demographic s share of sales of all store sales and how that compares to their share of bread sales. The low price point of crusty breads makes them an attractive option for this under-indexing group, but many other opportunities also exist to reach new consumers. 13

14 One of the biggest barriers breads have faced over the past 5-10 years have been the focus on carbs and a consumer desire to cut carbs out of the diet. This will continue to be a challenge for the category to overcome and cannot be ignored. However, the definition of health and wellness has changed. The points of emphasis that consumers seek out and notice now include more emphasis on fresh, natural ingredients and cleaner labels with simple ingredients.

15 Of course the importance of different health claims differs by age and income level. But what we notice here is that the more recent popular wellness claims really resonate with bakery s core, affluent shopper base. 15

16 Across the store, traditional claims still account for a significant amount of sales. But the growing is coming from new claims like organic and gluten free which both continue to grow at double-digit rates every year. 16

17 Yet the bakery department has failed to capitalize. This is by no means a proclamation that you should all switch your product lines to organic or gluten free, and certainly most consumers do not head to the bakery department with the intention of selecting a healthy snack equivalent to fruits or vegetables. But that doesn t mean the bakery department couldn t make strides in this direction. Currently, 95% of sales have no declared health benefit. Focusing on the simple ingredient list that make the ISB so fresh and free of the preservatives necessary for the commercial items is a good start. 17

18 And brands are best positioned to deliver this message to consumers with more opportunities on packaging to communicate these claims. But in a department where unbranded products play such a critical role, it s important to work with retailers on stickers, labels or other tactics to still inform consumers of the health claims on the products. 18

19 Health, innovation, and marketing are all examples of how to tweak strategies to increase bread sales. Another strategy is through the power of store connectivity. So as a reminder, this is an evaluation of fresh bread s sales correlation and basket connection to other categories across the store. Of the 200+ distinct categories in the store, fresh breads are strongly connected to 56 categories spanning eight different departments which is a relatively low degree of existing connectivity compared to other categories. I would say this can be viewed both positively and negatively. From the negative standpoint, it means the no-duh isn t quite as obvious and some of the recommendations aren t necessarily tried and true. From the positive, it means that a lot of opportunities exist to better connect breads with other categories across the store which means a lot of potential for a relatively stagnant category. And those categories range in size and trendiness with large categories such as yogurt or deli meat and fast growing categories such as salmon and value-added vegetables. 19

20 For anyone who has worked with Nielsen in the past, you know we love our quadrants which is exactly how we re going to talk about this research. The first quadrant that we ll evaluate are products that have strong sales connections and strong basket connections. This means there is a high degree of correlation in sales trends (growth or decline) of breads with complementary products and that consumers often purchase these products on the same trip. Our recommendation for these connected categories is to really build and grow these connections to naturally existing partners, particularly those with a high penetration, unique audience or high sales growth. The second quadrant are products that aren t necessarily correlated from a sales standpoint, but they are often purchased at the same time. For example, if the price of cheese skyrocketed, consumers wouldn t suddenly stop purchasing bread. But given normal market conditions, consumers will often buy them at the same time. These connections are also important opportunities through co-promotions and cross-merchandising since consumers are often buying them together on the same trip. The third quadrant are products that are closely connected in sales, but consumers aren t often buying them on the same trip. This means that consumers often pair these products together, but some work could be done to link them together on the same trip. Finally, there are simply categories that are neither connected from a sales standpoint or basket connection and that s ok. As marketers we can t be everything to everyone or we ll fail. However, it also doesn t mean we should completely ignore these categories because they do represent opportunities to gain new trips since bread shoppers are not currently connecting with these categories on a routine basis. 20

21 Here you can see a sample of the different categories that fall into each quadrant. This is not a comprehensive list of categories, but the ones that we ll analyze in the most detail. Even a bit chaotic. Based on the color coding you can see the representation across the 8 different departments. At first the list, and this slide, was overwhelming. But as we thought about it and evaluated further, patterns emerged. 21

22 The strongest category connections to fresh breads were primarily with other fresh categories namely produce and deli. The majority of these categories were more expensive, perhaps even more premium offerings. For this reason it seems logical that consumers could be pairing them with fresh breads for a nice dinner or even entertaining. The strong basket connections but weak sales connections were with more specialized products that have a lower purchase frequency and are typically purchased for certain occasions. So the connections are happening, but only with the frequency in which the categories are purchased. Where weak basket connections existed were with categories primarily in the deli department where consumers were making quick trips. Because of the proximity in location between the bakery and deli departments, these connections represent good opportunities. And those categories with the least connectivity were primarily value-alternatives that focus on low prices. 22

23 So let s move into the upper right quadrant. 23

24 These are the categories with both strong sales connections and basket connections. Of the categories included in this quadrant, we ve selected six to discuss in more detail: yogurt, salmon, value-added vegetables, specialty deli meat, bakery sweet goods and deli dips/spreads/condiments. But depending on your business and the retailer, these other categories may have just as much relevance and opportunity to your shopper. So the key takeaway of this section is more about the principles highlighted than the exact category. 24

25 One school of thought is to form partnerships with exhibiting strong growth to capture some of the halo effect. As one of the fastest growing areas of the entire store, partnering with the deli is an obvious choice. Both Deli Specialty Meat and Dei Dips are growing in dollar sales. As part of the personification process, we create custom buyer groups for bakery breads and the selected categories to see how the behavior is similar and how they are differ. So we look at just bakery bread household demographics, and then we look at the demographics of households that purchase both bakery breads and category X. What we observed is that households that purchase both bakery breads and deli dips, or bakery breads and deli specialty meat share a number of similarities with just the core bakery bread buyer. Particularly, larger, affluent and generally older households. On this and each subsequent slide, we ve provided thought starters of how to put this information into action. Remember the general principle of this quadrant is the connection with other premium fresh products. A search of Pinterest of visit to a number of restaurants will take the typical spinach & artichoke dip or something similar and serve it in a bread bowl. Spicy food is also extremely popular, so consider connecting with salami to create a slightly more gourmet set of slider sandwiches. Or perhaps use recipe cards or signage to inspire DIY items of trendy products such as naan pizzas. 25

26 Fresh salmon and value-added vegetables also represent good opportunities to capitalize on the health trend - as well as the high basket dollars they represent! Again, Fresh Salmon and Value Added Vegetables are high growth categories as a result of the uptick in purchase frequency, and both cater to a more health minded shopper, and both more affluent. Especially with VA vegetables we see that these shoppers will pay more for convenience. Perhaps suggest a meal solution with a Mediterranean theme and promoting low calories or other health benefits. Since these are more affluent shoppers, we can focus on artisanal or specialty breads. Or encourage retailers to run a promotion that features salmon, value-added vegetables and a nice artisanal bread on the same page of the circular with a suggested meal recipe. 26

27 Yogurt is one of our largest category connections, and also one of the only highly connected categories outside of our traditional definition of perishable departments. With nearly $5 billion in annual sales and a household penetration rate of 83%, partnering with yogurt could open up breads to new households. Different from the other four categories we just looked at, the Bakery Bread and Yogurt shopper is a family with children still in the household, typically middle school and high school age. Consider a breakfast theme with sandwich breads, yogurt and fresh fruit. Or simply observe the flavors and claims that are driving growth in yogurt and bring those to the bakery department such as a grain bread with chia seeds or a pumpkin protein power bread. 27

28 Sweet Goods and Bakery Breads are also strong in sales and trip connection, and similar to Yogurt, are high indexing with higher income families. At first this connection might seem a little odd as it s hard to picture joint usage of these products. But when you think about the occasions of usage it makes more sense as both of these categories have strong dollar indexes for key holidays in comparison to the average week. People might be purchasing a nice loaf of bread for the evening meal and then cinnamon rolls or a coffee cake for breakfast the following morning. We outlined a few product types from each category that indexed for the three major holidays. For example side dish rolls, artisan breads, flavored sweet breads and coffeecakes for Christmas. However it s not enough to just have these products ready to go for the actual holiday week. Sampling the festive products, such as cranberry walnut artisan bread will get shoppers thinking about purchasing for the actual holiday, or to increase festivity in the weeks before! Sweet goods includes items such as cinnamon rolls, coffee cakes, danishes and flavored sweet breads 28

29 Next we re going to look into the upper left hand quadrant at categories with weak sales connections but strong basket connections. 29

30 When we evaluate this list, many of these categories (perhaps with the exception of dry pasta) have low purchase frequencies and some such as pies and roasts are generally served for special occasions or holidays. In this quadrant we ll be diving into Tilapia and Baking Ingredients and Supplies. 30

31 First we look at Tilapia, which has relatively low penetration in comparison to other categories at just 9% of households. Think about that for a second, this category has sales of more than $500 Million yet fewer than 1 in 10 households accounts for all of those sales. This means there is a loyal, frequent shopper group to tap into. When we look at these categories, trip type plays an important role. On nearly half of all trips when bakery bread is purchased and tilapia is not, fewer than 5 items are included that purchase. Conversely, when they are often purchased at the same time it s generally on a stock up trip. This is another opportunity to capitalize on health by promoting meals featuring tilapia with a whole grain or enriched bread. 31

32 In one of our calls with the IDDBA team, there was mentioned an interesting concept, such that in the beer market there are many people who now brew their own beers, and those people who do, we hypothesized, are more likely to purchase higher quality craft beers when necessary, since they see it as more of an art, and an investment in quality. Could we not then also theorize that same concept with people who like to scratch bake, and the types of pre-made products that they would like to purchase. We think that this has some truth to it. We do see that the trip overlap is fairly high with Bakery Breads and Baking Ingredients, and 88% of buyers purchase both. Much of this overlap occurs in the holiday season. And remember, the categories in this quadrant are often purchased for special occasion usage. Sales of both categories peak for Easter, Thanksgiving and Christmas. peak. To grow sales we recommend highlighting more premium breads during these holidays that focus around entertaining and large group. Since these shoppers like to cook and or bake in some capacity, especially notes around the holidays, retailers could offer recipes and ideas with Bakery Bread. For example recipes for Christmas morning French Toast, or garlic bread that utilize ingredients from the Baking Supplies aisle. 32

33 Next are products with strong sales connections but weak basket connections. 33

34 And there weren t many for bakery breads so we ve only highlighted one in this study which is deli soups and sandwiches 34

35 Penetration is about half of households for Deli Soups and Sandwiches, but similar to Tilapia, Deli Soups and Sandwiches are most often bought with Bakery Breads on stock up trips. This is such a natural connection to make it s actually surprising we don t see it more often. In retailers with a good soup and sandwich program, we recommend displaying smaller sized artisan breads by the deli soups between 11 a.m. and 1 p.m., where sales peak to help gain that incremental Bakery Breads purchase. This would be another great opportunity to elevate the role of a deli soup by offering bread bowls as well for the added dinner touch. Since these categories together also index high with Older Bustling Families, we thought a soup and sandwich meal deal for the weekdays would offer a quick and unique meal solution. Shoppers could select from a few different soup and sandwich offerings and select different sizes of deals to cater to their family size. This could be highlighted in the weekly ads. 35

36 And the final quadrant is weak basket and sales connections 36

37 And the final quadrant is weak basket and sales connections where we ve chosen to highlight grocery or commercial bread. We think this is an important opportunity to differentiate and showcase the value of fresh bakery bread. 37

38 When we look at these two categories side by side we see that they are really not the same at all. Although everyone buys commercial bread, the primary shopper demographics are very different from the bakery bread buyer. And yet a key statistic here is that Grocery Bread is twice as likely to be purchased on a Bakery Breads trip than on average and they share about 19% of bakery bread trips which suggests that many households use them for different purposes. By building on these differences and highlighting the premium view of Bakery breads, consumers will continue to see a need for both categories for their own occasion. We recommend focusing on increasing frequency for bakery breads by having fresh, warm Crusty Breads by the front registers between 4 p.m. and 7 p.m. to drive impulse purchase for immediate consumption with dinner that evening. 38

39 To close, as consumer purchase patterns and media consumption behaviors change over time, so must our strategies. These are just a few opportunities that we ve selected to highlight. It s important to restructure our thinking to shift from a focus of product attributes to a consumer experience, while understanding that consumer experiences and values can change depending on the occasion. Acting on these principles can ultimately drive growth and position your products for success. I d like to close with a quote that I think demonstrates that message perfectly. Specialize by product, lifestyle, pursuit, service or convenience. Searching for the magic bullet is a distracting waste of resources. Adapting is a game of singles, not home runs. With that in mind, we provided several suggestions for how to put these insights into action, but we recognize the various challenges (space, labor, budgets) that can prevent you from implementing everything. However, we hope that at least one strategy fits your business model and plans and let that single start you off on a path to home runs of success. 39

40 40

41 41

42 42

43 43

44 44

45 45

46 46

47 47

48 48

49 49

50 50