It used to be that you’d buy your pantry items from the grocery store, your medication and beauty products from the drugstore, your gigantic packages of toilet paper at the club store, and your smaller, lower-priced knick-knacks at the dollar store. But that was the past.
According to a new report titled, “Channel Migration: The Road to Growth Has Many Lanes,” by Information Resources, Inc. (IRI), a Chicago-based market research firm, consumers nowadays have more than 2,500 unique paths to purchase, and digital advancement is responsible for a lot of that.
IRI found that four retail channels are most benefiting consumer migration.
- Dollar stores are becoming a bigger channel for share of CPG spending, capturing 65 percent household penetration. Research shows consumers are confining the channels they shop at to just the ones they perceive as the best value.
- Although drug channels are losing shares to competing channels, it wins a disproportionate share of spending from Hispanic shoppers, who spend heavily on beauty and personal care products.
- Mass/super stores have seen a 4.8 percent increase in number of trips from consumers and an increase of 4 percent in basket size over the past year.
- E-Commerce is growing at more than 10 percent a year. Twenty percent of all online CPG sales are made through retailers offering in-store pick up and/or home delivery via the store’s own delivery fleet. The other 80 percent of CPG online sales are ordered online and shipped to consumers’ homes via services like UPS and FedEx.
It is also worth noting that according to IRI, the fastest growing CPG categories from 2011 to 2014 are refrigerated meat (43.8 percent), coffee (29 percent), snack nuts and seeds (27.1 percent), and yogurt (24.1 percent). The increase reflects the influence of a home-based eating trend. In addition, the top growth categories by channel include wine at drug stores, refrigerated meat and yogurt at mass/super stores, and canned foods and deli meat via the Internet.
But why exactly are consumers shifting their shopping destinations? IRI identified four key reasons:
- Uncertainty about the economy – With the recession, dollar and mass/super stores saw significant upticks. However, other channels fought back and offered more variety of goods at lower price points to attract the conservative customer. Channel lines started to blur and consumers saw their options broaden.
- Increasing demographic diversity – According to the US Bureau of Census, Hispanics are projected to account for just over one-fifth of the population by 2030. Add to that the growth of the Asian population at 6.1 percent by 2030 and you’re looking at profound changes to CPG purchase and consumption behaviors.
- Millennial gaining purchasing power – By the year 2020, millennials will account for nearly 30 percent of CPG spending, and will overtake that of baby boomers. They exhibit unique price comparison strategies and are more likely to get recommendations from online, blogs, and social media before they buy. They are also more likely to use smartphones in their transactions as they are more likely to buy online.
- The rise of e-commerce: E-commerce is becoming more attractive to consumers and is growing quickly. Several new companies like Instacart, Foxtrot, and Burpy are making e-commerce even more accessible to consumers by offering to deliver items found in brick-and mortar stores (ex. Walmart, Costco and Whole Foods) right to their homes.
As a result of the shifting retail environment, IRI suggests a few strategies for CPG marketers and retailers in order to best attract new consumers and retain current ones:
- Protect your base – IRI notes that it’s easier, cheaper, and more effective to retain current shoppers than it is to acquire new ones. Holding onto them is vital to maintaining revenue.
- Develop channel specific products and packages – Having products with customized packaging and pricing solutions ensures that the needs of varying consumers are met.
- Invest in technology and analysis – With consumers changing where they shop, how they shop, and the factors they consider when they shop, advanced technology can help retailers and manufacturers figure out what influences a consumer’s “pre-tail” activity to identify the factors behind what consumers want and respond to on an individual, channel-by-channel, store-by-store basis.