Retail Intimacy 2.0: Winning in the Value Channel

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Retail Intimacy 2.0: Winning in the Value Channel

By Michael Applebaum - 09/25/2017

Marketers have an emerging opportunity to invest in value retailers and score big wins with the value shopper

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Traditionally, “value” has never aspired to the top of the food chain in shopper marketing. There were always seemingly far more important classes of trade, even as stores in the value channel proliferated and income disparity in the U.S. widened. But that is starting to change. The massive upheaval in retail has marketers searching for the remaining growth opportunities, while consumers increasingly confront a stark economic reality. Many consumers who once lived comfortably in the middle class are now struggling to make ends meet on stagnant wages and tight household budgets. According to a recent Gallup poll, Americans’ average weekly spending on food has barely budged at around $125 during the last five years.

At a time when mass retailers are fighting to remain relevant and consumer wealth is being concentrated at the extremes, marketers have an emerging opportunity to reprioritize their retailer investments and focus on the needs of value shoppers. Today’s value shopper seeks bargains, convenience and an experience to compete with online shopping. Dollar stores, which have always delivered on value, are now putting greater investments toward the in-store experience. Unlike the broader retail industry, these chains – led by Dollar General and Family Dollar – are growing. While grocery stores and supercenters still account for the bulk of CPG sales, dollar stores and convenience stores together represented more than 87% of the total new store openings between December 2013 and December 2015, according to The Shelby Report.

The value channel is set to expand further, thanks to Aldi’s aggressive growth plans and Lidl’s entrance to the U.S. market this year. Aldi, already in the midst of a major remodeling program, announced it would invest $3.4 billion to expand to 2,500 stores nationwide by the end of 2022. Lidl, a division of German retailer Schwarz Group with U.S. headquarters in Arlington, Virginia, opened its first 20 U.S. stores along the mid-Atlantic coast in June.

“Retailers like Aldi and now Lidl have gone from a no-frills model to investing significant dollars toward enhancing the shopping experience,” says Claire Straus, management supervisor and value channel team member at Catapult. “Competition in the grocery space is going to heat up even more as Amazon prepares to deliver the Whole Foods experience to a wider audience. In this environment, it’s critical for all retailers to offer both functional and emotional value in order to remain relevant.”

Craig Kinnison, senior manager of shopper marketing at Kellogg, says the company has had success in the value channel by launching items at multiple price points, each meeting a unique purpose for the shopper. For example, Kellogg in 2016 introduced ready-to-eat cereals in a bag format that sells for $1 every day. “These SKUs create the perfect solution for the shopper as a way to serve a variety of branded cereals to her family, but also serve as a satisfying, low-cost snack,” Kinnison says. “Additionally, we’ve seen growth in larger-size cereals that offer better value per serving when she can afford to buy a larger box.”

Dollar Stores Rev Up Marketing

Building on their success, dollar stores are rolling out more sophisticated marketing programs to amp up the experience factor and strengthen bonds with customers. Dollar General, for example, is featuring bolder endcap displays to communicate loyalty offers from brands at PepsiCo, Coca-Cola and Procter & Gamble. The program has evolved since PepsiCo introduced a breakfast-themed endcap solution with Starbucks and Quaker products back in 2015. “The creative was initially very Dollar General focused, employing black and yellow throughout, but is now more brand-forward with integrated solutions,” Straus notes.  To reach all dollar store shoppers, marketers need to embrace the message that “resourcefulness is cool” while truly supporting consumers’ needs, says Angie Waller, shopper marketing brand manager at The Clorox Co. “In working on the Dollar General business, a key goal is to marry convenience and in-store value messaging with simple solutions,” Waller says. “True solutions bring a deeper level of personalization, where presence in the digital space is critical for engagement.”

Dollar General is also increasing its digital promotional activity as cross shopping with Amazon and other e-commerce sites continues to increase. For example, it offered free shipping and 15% off online purchases on July 11 (Amazon Prime Day) and looks to build promotions that leverage its new mobile application. “Over the past three years, we’ve significantly increased digital marketing support of key initiatives for Dollar General,” Kinnison says. For example, the new Pringles “Loud” campaign launch included targeted digital advertising, radio advertising, email and multiple digital coupon strategies. The brand’s Q1 displays were up 20,000 versus a year ago, and its performance at Dollar General was 500 basis points better than the rest of market, per the company.

At Family Dollar, marketers have an opportunity to create deeper engagements with customers outside of its stores. The retailer increasingly seeks to develop new forms of content, in addition to value-centric promotions, as it builds off the success of its branded entertainment initiative “Save To Win.” The weekly game show, hosted by celebrity chef Pat Neely on The CW cable network, asks contestants product-related trivia questions and features integrations from CPG marketers, including Kellogg, Colgate, Clorox, Johnson & Johnson, Georgia-Pacific, Mondelez International and Mars Inc.

These kinds of content marketing programs create a two-way conversation that allows Family Dollar to learn more about its customers. In a cluttered entertainment marketplace, “smart experimentation is critical,” says Richard Wright, senior shopper marketing manager at Georgia-Pacific. “Family Dollar’s strategy of taking a unique and differentiated approach toward communicating value will continue to be an important loyalty driver with their shoppers.”

Family Dollar also wants to connect with customers in bold new ways, says Todd Zullo, director and dollar channel team leader at Catapult. Going forward, promotions will heavily integrate with online and offline messaging, he says. With “Save To Win,” a landing page on the retailer’s website allows shoppers to flip through a carousel of products featured on the show and sign up for Smart Coupons. Family Dollar leverages the promotion on social media as part of its efforts to engage with customers beyond the store.

“Social media is increasingly gaining share of voice over retailers in dictating product choices and brand affinity,” Zullo says. “Marketers who provide Family Dollar customers with shareable content will create eager brand ambassadors and drive sales at its network of [more than 8,000] U.S. stores.”

Traditionally, “value” has never aspired to the top of the food chain in shopper marketing. There were always seemingly far more important classes of trade, even as stores in the value channel proliferated and income disparity in the U.S. widened. But that is starting to change. The massive upheaval in retail has marketers searching for the remaining growth opportunities, while consumers increasingly confront a stark economic reality. Many consumers who once lived comfortably in the middle class are now struggling to make ends meet on stagnant wages and tight household budgets. According to a recent Gallup poll, Americans’ average weekly spending on food has barely budged at around $125 during the last five years.

At a time when mass retailers are fighting to remain relevant and consumer wealth is being concentrated at the extremes, marketers have an emerging opportunity to reprioritize their retailer investments and focus on the needs of value shoppers. Today’s value shopper seeks bargains, convenience and an experience to compete with online shopping. Dollar stores, which have always delivered on value, are now putting greater investments toward the in-store experience. Unlike the broader retail industry, these chains – led by Dollar General and Family Dollar – are growing. While grocery stores and supercenters still account for the bulk of CPG sales, dollar stores and convenience stores together represented more than 87% of the total new store openings between December 2013 and December 2015, according to The Shelby Report.

The value channel is set to expand further, thanks to Aldi’s aggressive growth plans and Lidl’s entrance to the U.S. market this year. Aldi, already in the midst of a major remodeling program, announced it would invest $3.4 billion to expand to 2,500 stores nationwide by the end of 2022. Lidl, a division of German retailer Schwarz Group with U.S. headquarters in Arlington, Virginia, opened its first 20 U.S. stores along the mid-Atlantic coast in June.

“Retailers like Aldi and now Lidl have gone from a no-frills model to investing significant dollars toward enhancing the shopping experience,” says Claire Straus, management supervisor and value channel team member at Catapult. “Competition in the grocery space is going to heat up even more as Amazon prepares to deliver the Whole Foods experience to a wider audience. In this environment, it’s critical for all retailers to offer both functional and emotional value in order to remain relevant.”

Craig Kinnison, senior manager of shopper marketing at Kellogg, says the company has had success in the value channel by launching items at multiple price points, each meeting a unique purpose for the shopper. For example, Kellogg in 2016 introduced ready-to-eat cereals in a bag format that sells for $1 every day. “These SKUs create the perfect solution for the shopper as a way to serve a variety of branded cereals to her family, but also serve as a satisfying, low-cost snack,” Kinnison says. “Additionally, we’ve seen growth in larger-size cereals that offer better value per serving when she can afford to buy a larger box.”

Dollar Stores Rev Up Marketing

Building on their success, dollar stores are rolling out more sophisticated marketing programs to amp up the experience factor and strengthen bonds with customers. Dollar General, for example, is featuring bolder endcap displays to communicate loyalty offers from brands at PepsiCo, Coca-Cola and Procter & Gamble. The program has evolved since PepsiCo introduced a breakfast-themed endcap solution with Starbucks and Quaker products back in 2015. “The creative was initially very Dollar General focused, employing black and yellow throughout, but is now more brand-forward with integrated solutions,” Straus notes.  To reach all dollar store shoppers, marketers need to embrace the message that “resourcefulness is cool” while truly supporting consumers’ needs, says Angie Waller, shopper marketing brand manager at The Clorox Co. “In working on the Dollar General business, a key goal is to marry convenience and in-store value messaging with simple solutions,” Waller says. “True solutions bring a deeper level of personalization, where presence in the digital space is critical for engagement.”

Dollar General is also increasing its digital promotional activity as cross shopping with Amazon and other e-commerce sites continues to increase. For example, it offered free shipping and 15% off online purchases on July 11 (Amazon Prime Day) and looks to build promotions that leverage its new mobile application. “Over the past three years, we’ve significantly increased digital marketing support of key initiatives for Dollar General,” Kinnison says. For example, the new Pringles “Loud” campaign launch included targeted digital advertising, radio advertising, email and multiple digital coupon strategies. The brand’s Q1 displays were up 20,000 versus a year ago, and its performance at Dollar General was 500 basis points better than the rest of market, per the company.

At Family Dollar, marketers have an opportunity to create deeper engagements with customers outside of its stores. The retailer increasingly seeks to develop new forms of content, in addition to value-centric promotions, as it builds off the success of its branded entertainment initiative “Save To Win.” The weekly game show, hosted by celebrity chef Pat Neely on The CW cable network, asks contestants product-related trivia questions and features integrations from CPG marketers, including Kellogg, Colgate, Clorox, Johnson & Johnson, Georgia-Pacific, Mondelez International and Mars Inc.

These kinds of content marketing programs create a two-way conversation that allows Family Dollar to learn more about its customers. In a cluttered entertainment marketplace, “smart experimentation is critical,” says Richard Wright, senior shopper marketing manager at Georgia-Pacific. “Family Dollar’s strategy of taking a unique and differentiated approach toward communicating value will continue to be an important loyalty driver with their shoppers.”

Family Dollar also wants to connect with customers in bold new ways, says Todd Zullo, director and dollar channel team leader at Catapult. Going forward, promotions will heavily integrate with online and offline messaging, he says. With “Save To Win,” a landing page on the retailer’s website allows shoppers to flip through a carousel of products featured on the show and sign up for Smart Coupons. Family Dollar leverages the promotion on social media as part of its efforts to engage with customers beyond the store.

“Social media is increasingly gaining share of voice over retailers in dictating product choices and brand affinity,” Zullo says. “Marketers who provide Family Dollar customers with shareable content will create eager brand ambassadors and drive sales at its network of [more than 8,000] U.S. stores.”

Lidl Disrupts the Market

To this point, the U.S. market hasn’t seen a retailer quite like Lidl. The German discount chain, with its strong assortment and well-merchandised shelves, bears some resemblance to Aldi. However, whereas Aldi relies heavily on private label, Lidl carries more traditional brands and is the far more aggressive marketer. In the U.K., the two chains have a combined market share of around 10% yet accounted for half the advertising spending among the top four grocery retailers, according to Kantar research. Lidl is driving most of that spending, per Kantar, and is estimated to be in the top three spenders in almost every major European market.

The U.S. arrival of Lidl is an encouraging sign for marketers and promises to offer value shoppers a more elevated experience. It has also proven itself as a rare retail brand with a distinctive personality. Lidl is known for using social media to communicate directly with customers and inform its promotional strategies in an organic way. In the U.K. last fall, Lidl introduced the “Social Price Drop,” in which it lowered the prices of certain products from week to week based on how many tweets they received. It has similarly used Facebook in the Netherlands to allow fans to select products that receive a discount.

“Lidl takes social media very seriously,” says Simon Johnstone, a U.K.-based analyst with Kantar Retail. “They were the first chain to have 10 million ‘likes’ on Facebook. Lidl is very good at reacting to what’s happening in the marketplace, and they’re one of the best retailers out there in terms of giving shoppers a voice. They’ve got a humorous and fun approach to building the brand.” That kind of positioning might win over Millennial shoppers, who tend to reward companies and brands that communicate in relevant ways and speak to their values. It could also represent a growing threat to dollar stores, notes Steve Abdo, senior vice president, grocery and value channel leader at Catapult. “Dollar stores are positioned well, especially on value, but they need to keep improving the in-store experience with Aldi and now Lidl offering shoppers something new and potentially a better experience,” Abdo says.

Lidl made a splash this year when it launched a partnership with supermodel Heidi Klum. Three winners of a promotion on social media got a sneak peek at the exclusive new Klum apparel collection, which features affordable leather goods. Says Straus: “Lidl is clearly not afraid to take pages out of other retailers’ books – in this case Target, as they’re known for their designer partnerships – and is smart to work with celebrities who are more relatable for the younger generations.”

Others Want Piece of Value Prize

Many retailers outside the value channel are seeking a piece of the value prize. Amazon dipped its toe in the water earlier this year with a discounted Prime membership for individuals on government financial assistance, slashing the usual rates approximately in half for anyone with a valid Electronic Benefits Transfer (EBT) card. Then, the company made a much bigger splash with its acquisition of Whole Foods, which will make the premium grocery chain and its notoriously high-priced products more accessible to value shoppers.

Small-format stores are another way in which mass retailers are reaching out to the price-conscious shopper. Target, for example, plans to open 30 new small-format stores on or near college campuses this year. “Target has always won on experience and is now approaching format in a strategic way,” Abdo says. “I think it’s fair to say college students are a prime subset of value shoppers.”

The idea of creating smaller or unique format stores to cater to value shoppers in local markets is certainly not new. Walmart’s Neighborhood Markets and Kroger’s Fresh Eats MKT are two other examples. In the current environment, the trend could easily accelerate. “A lot of retailers are trying to play in the value channel, whether through store format or pricing and promotions, because it’s the fastest growing segment of shoppers, besides Millennials,” Abdo says. “Retailers are all adjusting to this group, which is going to make the channel lines much blurrier.”

For CPG marketers, the changes are an opportunity to bring back customers to the store. “We’re seeing household essentials purchases challenged across many brick-and-mortar retailers, including the value channel,” says Dalyn Matthews, shopper marketing manager at Georgia-Pacific. “Continuously evolving shopping behaviors, such as buying occasions shifting online as well as consolidated shopping trips, are leading to many of these challenges. For the value channel, continuing to emphasize value beyond price will be critical to maintain loyal channel shoppers and regain lapsed occasions.”

Adds Kinnison: “It is clear that shoppers and retailers in the value channel have a unique set of fundamentals including price points, packaging and display formats, which can present challenges for a company of our size. Ultimately, any success we’ve enjoyed in the channel has been rooted in shopper insights and a genuine focus on serving the needs of the shopper.”    

    FIVE KEYS TO WIN

    What the disappearing middle class in America means to marketers

    By Heidi Froseth, Catapult

    All too often, this is the go-to, non-partisan debate for our public officials: What are we going to do in order to save our suffering yet historically proud middle class? Despite thriving for extended periods over the last century, since the early 1970s nearly everyone agrees that middle class has been, unfortunately, disappearing. In 2015, a Pew Research Center report suggested the middle class no longer represented the majority population in the U.S. A 2016 analysis of government data showed that from 2000 to 2014 the share of adults living in middle-income households fell in 203 of 229 U.S. metropolitan areas. The decrease in the middle-class share measured 6 points or more in 53 metropolitan areas, compared with a 4-point drop nationally, per the report.

    To be sure, some of this wealth is also moving higher – i.e., into the upper class and upper-middle class – creating new opportunities for luxury brands and retailers. However, ample statistics on the widening income disparity levels in the U.S. suggest that much of it is now concentrated at the lower end of the spectrum. Marketers must acknowledge this economic reality as they adjust to the rapidly changing retail landscape. Brands can no longer marginalize value retailers or the value shopper.

    As always, winning in the value channel starts with bringing insights to merchandising teams as part of a comprehensive solution that can grow the entire category. Here are five keys to win:

    • Aim higher than you think you should. Treat your brands and value channel presentations as well if not better than you would at a Walmart.
    • Add value and convenience wherever you can, but go beyond low prices. Speak up to the value shopper; test and learn often. These shoppers embrace innovative solutions as long as they’re affordable.
    • Experiment with package size, function and added value through innovation. Examples: A personal care brand with a complimentary new SKU for trial; a travel size of whitening rinse on a multipack of toothpaste.
    • Develop a more meaningful, holistic and dynamic mobile strategy. In 2016, one-fifth of U.S. shoppers with annual income under $30,000 were smartphone-only users with no broadband at home, according to Pew Center research.
    • Remember: Content matters. Value shoppers tend to have larger immediate and extended families. They are on social media more, and their heritage of sharing with family and friends is even stronger than that of the general population.

     

    About the Sponsor: Catapult is a conversion marketing agency, where branding and buying are part of a total solution. Catapult’s data-driven approach identifies the core, actionable insights that inspire brilliant creative with the power to convert consumers into shoppers, shoppers into buyers, and buyers into loyal advocates. Catapult delivers channel-agnostic solutions that are brand savvy, retailer smart, and digitally enabled. Catapult is an Epsilon brand. Visit them at www.catapultmarketing.com and on Twitter @catapultmktg.