Advertising & Promotional Practices Among U.S. Supermarket Retailers

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2015Advertising &

Promotional PracticesAmong U.S. Supermarket Retailers

Published by:

Prepared by: 210 Analytics, LLC

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About the study

Advertising is an essential, but changing part of food retailing:

• Customers are increasingly in control• Consumers demand relevant content• Emerging communication vehicles• Shifting ad budgets

Study examines current and futureadvertising and promotionalpractices/strategies in food retailing

Aptaris & Topco 2015 Advertising & Promotional Practices

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Methodology

• 2-page survey

• 21 respondents– Mix of large and small retailers– Wholesalers with retail operations

• Sample reflects industry averages– Weekly sales per store: $383,044– Average transaction size: $29.86– Average weekly transactions/store: 12,252– SKUs/store: 40,000


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AdvertisingBudgets

Dollars AllocationBrand Mix


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Retailers increase ad budgets

Advertising budget as % of sales*2002 2010 20151.2% 1.0% 1.3%

* Sales excl. gasoline and pharmacy sales - 2002 and 2010: FMI Speaks

23% Admin 77%Include Exp. Exclude

1.5% Budget 1.2%


2015 Ad budget vs. 2014

↑ = ↓24% 62% 14%

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Wide range of practices for co-op dollars

Manufacturer’s ad paid for in whole or partby the supplier with a retailer’s name,logo and location inserted.

Co-op dollars as % of total ad budget:• Ranges from 0% to 75%

– 35% don’t use/secure co-op dollars• Average as % of total ad budget: 18.1%


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% of sales

% ad budget allocation

National brands

79.6%

81%

National brands receive bulk of ad budget

Ranges from 65%-95%

Private brands

20.4%

19%


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Advertising mix shifting in favor of digital

2015Newspaper 42.3%

Television 11.8%

Direct mail & shared mail 9.3%

Loyalty program 8.6%

Radio 7.4%

Email/website 3.8%

Social media/mobile 3.1%

Community donations 3.0%

Billboards/outdoor signage 1.5%

Other 9.2%

Sources for 2002 and 2010: Food Marketing Institute, New Directions in Advertising: Marketing the Retail Store as a Brand 2002


201046.7%

6.0%

19.1%

2.0%

6.5%

2.0%

1.0%

3.0%

1.5%

12.2%

200260.0%

8.1%

14.1%

N/A

7.4%

0.6%

N/A

3.0%

1.5%

5.2%

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Substantial differences among retailers

2015 Ad budget allocation All respondentsNewspaper 42.3%

Direct mail & shared mail 9.3%

Radio 7.4%

Television 11.8%

Billboards/outdoor signage 1.5%

Community donations 3.0%

Loyalty program 8.6%

Social media/mobile 3.1%

Email/website 3.8%

Other 9.2%

Sources for 2002 and 2010: Food Marketing Institute, New Directions in Advertising: Marketing the Retail Store as a Brand 2002


100+ stores35.1%

8.4%

6.6%

10.4%

1.3%

2.5%

18.3%

3.3%

4.7%

9.4%

< 100 stores46.9%

11.6%

8.3%

12.2%

2.0%

3.8%

0.9%

3.4%

2.4%

8.5%

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Have loyalty programs

58.8%

<100 stores: 38%

Loyalty programs linked to higher basket size

$34.18


Avg. basketoverall

$29.56Avg. basket

loyalty programs

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AdvertisingStrategies

The Company BrandChanging Approach

Targeted Advertising


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Supermarket company image vs. ad strategy

• In the ever-growing competitive environment,more retailers are building brand equity for stores,item promise and shopping experience

• 3 recurring themes– Quality– Variety– Service

…executed throughadvertising strategy,often in combinationwith value, not price.


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“

”

Exceptional fresh foods and creative solutions to inspire your family's eating

National brand quality, store brand price

Our stores and our store brands are viewed as "trusted neighbors and trusted brands" by our customers

Value every day Quality, variety and service

Enabling our customers/the communities we serve to live more generously

Providing value to our customers starting with the best sales, the freshest foods and providing a positive in-store experience…


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Economy driving change in ad strategy

Changing advertising and promotional strategies relative to the economy

3 recurring themes:– Adjusting the depth of

promotional discounts– Increased customization– Shift in delivery strategies


47%

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“

”

We're looking at the aggressiveness of promotional price reductions to see if we can dial back some of the discounts

As pricing becomes a little less sensitive, we're startingto look if adjustments can be made to promotional pricing

We're testing the depth of discounts and our delivery methods(print vs. digital, as well as total footprint vs. geo-targeted)

Greater emphasis on emerging and innovativecategories and items, and less on value only

Shifting to more digital and more personalized promotions vs. blanket, deeply discounted promotions on trip drivers


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Fewer than half grocers do targeted advertising

More likely to usetargeted advertising:

• Larger companies• Companies with

loyalty programs


Targetedadvertising?

46%YES

64%using

demographics

54%using

psychographic

s

54%NO

64%using

behavioral variables

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AdvertisingExecution

MeasuringAgency vs. In-house

Share of Total


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Majority use ad agencies; but role differs

In-house Agency N/A

Creative planning 72% 28% 0%

Ad/promotional research 68% 21% 11%

Production 32% 58% 10%

Media buying 22% 61% 17%

Database management 57% 5% 38%


Team up withadvertising agencies81%

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Promotional sales results differ widely

Promotional salesas % of total sales

All respondents

<100 stores

100+ stores

< 10% 16% 25% 12%

11%-20% 32% 38% 25%

21%-30% 36% 19% 50%

>30% 16% 18% 13%


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Majority measure promotional lift

Promotional/sales lift: Measurement of advertising effectiveness tracking the difference in sales when items were promoted vs. its relative baseline when sold at regular price

Some retailers also take into account:Halo effect: Promoting one item may influence the purchase of others

Cannibalization: Promoted item may increase its own sales, but decrease sales of another that was not promoted

Pull-forward: The effect of sales promotions on longer-term sales for items with a long shelf life (i.e. detergent) when consumers buy in larger volumes than usual — affecting sales in subsequent months

Track promotional lift


72%

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Sales incrementality

Sales incrementality: a sale oraction that resulted from a particularmarketing activity that would nothave realized without the promotiontaking place.

Track sales incrementalityLarger companies are much more likely to track incrementality,at 76%


50%

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Ad awareness

Ad awareness: extent to which shoppers are aware of an advertised message. Ad awareness may be useful when reallocating the marketing mix.


Track sales ad awareness

17%

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PromotionalVehicles & Types

Communication VehiclesPromotion Types Used

Future Predictions


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Number of promotional vehicles grows

Level now vs. 3 years ago Expected level 3 years from now

0 00 0

0.290.35

0.520.55

0.19

0.1

The number of communication vehicles usedA lot less Somewhat less About the same Somewhat more A lot more


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Types of vehicles used

Current usePrinted circulars 100%Shelf tags/signs 100%Email 93%Radio 93%End caps 93%Website/elec. circular 93%Digital coupons 79%Facebook 79%Sponsorships/donations 79%Direct mail 71%In-store sampling 71%

Current useWindow signs 64%Printed coupons 64%Twitter 64%Television 57%Receipt coupons 57%Mobile coupons/ offers 57%Other off-shelf POP 50%Pinterest 36%Kiosks 21%Other social media 7%Marketing guide 7%


Average number of media/ad vehicles used per company14

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Current and future use: printed materials

Circular Direct mail Marketing guide

100% 71% 7%

0%46%54%

25%50%25%

0%100%0%


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Shelf tags End caps Sampling

100% 93% 71%

Current and future use: in-store activities

8%85% 8%

0%92% 8%

8%58%33%


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Window signs Kiosks Other off-shelf POP

64% 21% 50%

Current and future use: in-store activities

0%91% 9%

38%25%38%

0%82%18%

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Printed Receipt Digital Mobile

64% 57% 79% 57%

Future use: coupons

38%54% 8%

25%67% 8%

0% 0%100%

0% 0%100%


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Website Facebook Twitter Pinterest Other

93% 79% 64% 36% 7%

Future use: digital and social media

0% 8%92%

8%17%75%

10%20%70%

9%36%55%

17%25%58%


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Food retailers average 8 promotional types

Current useAll retailers

Temporary price reductions 100%Two for $x events 100%Buy one, get one (BOGO) 100%Advertising bill-back 93%Coupons 93%Lump sum 79%Loyalty discount 71%Mix and match 71%Market basket 64%Buy one, get one for half price 43%

Expected use 3 years from nowMore Same Less29% 71% 0%14% 79% 7%14% 86% 0%14% 71% 14%36% 57% 7%18% 64% 18%70% 30% 0%21% 79% 0%30% 60% 10%17% 50% 33%


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Software use driven by larger food retailers

The majority of retailers use in-house or 3rd-party software solutions to plan, execute, track and optimize advertising

Most commonly used:1. Promotional planning software2. - Vendor portal for tracking cost changes, new items

& new vendors- Sales forecasting software

3. Ad planning and execution


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Mix of in-house and 3rd party

Current use of promotional softwareUse

in-house solution

Use3rd party solution

Don’tuse

Don’tknow

Promotion planning 69% 15% 0% 15%

Sales forecasting 62% 0% 15% 23%

Vendor portal 62% 8% 15% 15%

Ad planning and execution 58% 8% 17% 17%

Deal portal 54% 0% 31% 15%

Out of stock detection/prevention 54% 0% 31% 15%

Product information mgmt (PIM) 54% 0% 23% 23%

Data warehouse with business intelligence reporting 39% 0% 46% 15%

Automated store ordering system 31% 0% 54% 15%

Ad score carding 31% 0% 54% 15%

Promotion optimization 31% 8% 39% 23%

Customer relationship mgmt 31% 23% 31% 15%

Markdown optimization 23% 0% 54% 23%

Price optimization 23% 39% 23% 15%

Marketing resource mgmt (MRM) 15% 15% 62% 8%

Digital asset management 15% 23% 46% 15%

Shopper segmentation/targeting 15% 31% 39% 15%


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Areas ofImprovementOperational Areas

Where Issues Arise


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Operational areas where issues arise

Frequent issues — 6 in 10 retailers– Point-of-sales (POS) limitations– Choosing the right items to promote/advertise– Ad versioning

Common issues — 3-5 in 10 retailers – Errors in the weekly circular– Quick access to historical data during planning– Coordinating promo messages across media types– Proofing and reviewing process– Out-of-stock on promotions– Timely results to enable mid-promotion adjustments– Timely reports at the right level of detail

Infrequent issues — 2 in 10 retailers or fewer– Missing UPCs on promoted family of items – Wrong scan price– Proof of performance for supplier <100 stores >100 stores


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• To obtain a copy, email Josh St. Aubin– [email protected]– 813.202.8060 ext. 30

• For questions or additional information– [email protected]– 210.651.2719

36Aptaris & Topco 2015 Advertising & Promotional Practices

Advertising & Promotional Practices Among U.S. Supermarket Retailers

Retail

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