Small City Big ideas

It was a focus group of women 21 to 30 — all residents of Oklahoma City — and the subject was shopping.

“I never go to a regular grocery store,” one woman said.

“My mother still shops at a grocery store,” said another, helpfully.

“I get my groceries at Wal-Mart. I mean, I just buy everything at Wal-Mart now,” added a third.

One young woman summed it up for them all: “Super Wal-Mart has been around more or less since I started taking care of myself.”

The retail evolution has begun, and Oklahoma City is the epicenter.

The city of 506,000, with 27 Wal-Mart stores (from Sam’s Clubs to Neighborhood Markets), shows how Wal-Mart has changed consumers’ attitudes toward shopping, and their expectations of retail promotions. That gives packaged goods marketers a road map to revamp consumer promotion strategy — and to reconsider trade marketing.

“Packaged goods brands haven’t really faced a retailer with as strong a national brand as their own — until Wal-Mart,” says Owen Shapiro, senior VP at Leo J. Shapiro & Associates, Chicago. The marketing research and consulting firm collaborated with promo shop Marketing Drive Worldwide to study Wal-Mart’s impact on Oklahoma City shoppers. They gleaned insights that affect consumer promotion beyond Oklahoma City, and beyond Wal-Mart’s walls.

“Wal-Mart becomes the mainstream experience for consumers,” Shapiro says. “Their attitudes change as they shop Wal-Mart more frequently.”

Wilton, CT-based Marketing Drive and sister shop FCB talked to shoppers, retailers and packaged goods vendors to find out how Wal-Mart has changed the way consumers shop.

Why Oklahoma City? It has all four Wal-Mart formats: six Wal-Mart stores, 10 Supercenters, seven Neighborhood Markets and four Sam’s Clubs. Its demographics mirror the total U.S. It has every other retail format: drug, c-store, club store, home center. It’s Peoria for the 21st century.

“Oklahoma City is a crystal ball into the future of Wal-Mart because of the retailer’s saturation there,” Shapiro says.

Wal-Mart won’t talk about its marketing, or its performance in Oklahoma City. But, in three years, Wal-Mart’s Oklahoma City stores gained significant grocery-sales share at the expense of supermarkets: Its share went from 14% in 2000 to 27% in 2002, per Trade Dimensions. It happens in other cities, too: Wal-Mart’s share of grocery sales in Memphis leapt from 14% in 1999 to 39% in 2003, kicking top grocer Kroger from 22% to 15%, according to Trade Dimensions data.

Grocers have lost 2.25 billion trips per year since 1996; shoppers now average 69 trips to the supermarket each year, Hoyt says. Blame stock-up trips to Wal-Mart or club stores.

“They’re lopping away share chunks from grocers that don’t differentiate themselves,” says Chip Hoyt, senior VP-account management at Marketing Drive. “Wal-Mart is a noisier environment where it’s harder for brands to break through, but the volume [of sales] makes it worth the effort. [Plus], Wal-Mart is a sign of what’s to come. As Albertson’s, Kroger and others expand, they’ll require the same kind of attention that CPGs now give to Wal-Mart.”

That could dramatically change the way packaged goods marketers approach consumers and the trade.

Consumer quandary

Marketing Drive identified four main attitudes towards Wal-Mart among Oklahoma City shoppers. “Champions,” 29% of the population, tend to be young people (with or without kids) and like Wal-Mart for one-stop shopping. “Enthusiasts,” 27% of the population, tend to be on a fixed income and consider Wal-Mart a “trusted advocate.”

“Rejecters,” the 29% of the population that finds Wal-Mart inconvenient, tend to be from double-income households with no kids. “Conflicted” shoppers, 15% of the population, come from upscale families and look down on Wal-Mart’s social and political impact.

But these “conflicted” shoppers are a love/hate crowd: They spend nearly as much as “champions” — an average $289 over four weeks versus $409 for champions — and far more than “enthusiasts” ($90). (“Rejecters” average $39 per month.)

Champions average 7.3 visits a month; conflicted shoppers averaged 5.6 trips, per Marketing Drive’s research. (Enthusiasts averaged one trip a month; rejecters went 0.8 times, on average.)

Fifty-seven percent of conflicted shoppers say one-stop shopping at Wal-Mart saves time (compared to 98% of champions); 82% say they’ll spend more at another store for a less stressful or more convenient experience (compared to 60% of champions). Nearly 60% of the conflicted dislike how Wal-Mart manages properties and shutters stores; only 28% of champions bristle at that.

Wal-Mart has influenced all shoppers’ promotion responsiveness, and some traditional retail promos just don’t engage consumers in a Wal-Mart state of mind (see chart). The chain also reaches almost as many consumers as network TV: Eighty million adults 18-49 shop Wal-Mart, and 94 million watch NBC, the top-ranked network. But adult shoppers recall ads they see in-store on Wal-Mart TV at more than twice the rate they recall TV spots at home (66% recall to 24%, per ACNielsen), Hoyt says.

Heavy Wal-Mart shoppers are highly loyal to national brands. They’re 20% less likely to switch brands for a lower price, Shapiro says. But they’re also choosing from a narrower range: Wal-Mart carries fewer SKUs than most supermarkets, but more inventory, so choice is narrower but out-of-stocks are less frequent. That trains shoppers to look for only top brands, to expect low prices and not to tolerate out-of-stocks in other stores.

“Wal-Mart has taught consumers that the store is in-stock with their brand at a comfortable price, so they’re less tolerant of the old system that [price] promotions are based on,” Shapiro explains.

That throws a monkey wrench in grocers’ temporary price reduction strategy, where tricky volume forecasting often lead to out-of-stocks. Shoppers’ impatience could pressure grocers to abandon sale pricing and turn to more value-added promotions.

Tackling trade promotion

Packaged goods marketers also need to re-think promotion strategy because the advent of national retailing — think Target, CVS and Walgreens as well as Wal-Mart — makes traditional promotion planning obsolete. Hoyt contends that brands can’t keep scripting national promos and expect retailers to just run them uniformly.

“Don’t do a traditional national plan with advertising and promotion and expect Wal-Mart to buy into it,” he advises. “You’re providing ubiquity in an environment where they require differentiation. If you have national accounts, traditional national marketing planning doesn’t give those accounts the service excellence they require.”

Hoyt points to Procter & Gamble’s quarterly umbrella promotions at Costco, which serve Costco more than they build participating brands’ own equity. “Service excellence is at least as important as brand excellence,” he says.

CPGs are used to creating a separate promotion or customized overlay for Wal-Mart. That will spread as the four national chains grow.

Meanwhile, regional retailers, especially grocers, need account-specific promotions that help set them apart too, Hoyt argues. Wal-Mart has the low-price arena wrapped up; “all other retailers will have to differentiate themselves on something other than price,” he says. “Supermarkets are like super-sized convenience stores now, competing with drugstores and c-stores for the convenience business.”

As retailers get more effective at marketing, “they’re more aware of omissions or inadequate plans from brands,” Hoyt adds. Brand excellence is the ante to be on-shelf; only the brands that serve retailers’ promotional needs will get real attention. The best way is for CPGs to integrate sales, marketing and other functions into retailer-specific teams, Hoyt says.

Marketing Drive conducted 2003 phone surveys with 300 Oklahoma City residents and focus groups with 20 local retailers, CPG vendors and consumers (young women without kids; young moms; older, affluent women; and young dads). It’s using the data now for current clients and new-business pitches.

What’s Hot and What’s Not

Shop Talk

Just Do-It-Yourself

Niketown shoppers can design their own shoes using touch-screen technology. Nike has added flat-panel monitors to displays in eight Niketown stores to let shoppers customize shoes, bags and watches. It’s an extension of Nike’s four-year-old NikeID online service, now taking orders at nikeid.com.

In store, shoppers touch screens to choose features and place an order; the display emits two cards with barcodes, one for a cashier to ring up the sale, the other with order data. Orders are shipped to customers’ homes in about two weeks. Planar Systems, Beaverton, OR, handles the displays, which cost about $4,000 per unit.

“Retail is quickly becoming a self-service economy,” says Planar director-marketing Tom Byrnes. “Most U.S. retail is run by teenagers. We looked at the realities of the retail environment to design this system.”

The self-contained displays (hardware and software) are turnkey for store staff; content can be customized by daypart, promotional period, region or store. Other uses in development: A cable company can host kiosks in electronics departments to let TV buyers order cable service; an auto marketer can put its accessories catalog on computer and let new-car buyers order items; a theater chain can build its database via a lobby kiosk that gives a coupon for free popcorn in exchange for an e-mail address.

Sears’ Grand Plans

Sears is getting bigger — and smaller. The department-store chain is reinventing itself with mid-sized stores outside of malls; giant Grand stores with a wide range of merchandise; and a new president of retail.

Sears expects to have 70 off-mall stores, including 12 to 14 Sears Grand stores, by the end of 2005. It piloted the 165,000-square-foot Grand format in 2003 and opened its third Grand store, in Las Vegas, in July with plans to add four more by year end.

Like Sears’ flagship stores, Grand carries everything from apparel to appliances, but adds segments including dry grocery, auto supplies, books, CDs and baby care to compete with mass-merchandisers. Stores will be in “power center” locations surrounded by core competitors “because that’s where our customers are shopping,” says spokesperson Corinne Gudovic. Competitors include Target, Wal-Mart, Best Buy and Home Depot, she says.

Meanwhile, Sears is honing its mid-sized off-mall format for several dozen stores averaging 80,000 square feet. Most of those as-yet-unnamed stores will be former Kmart and Wal-Mart units: Sears is buying up to 54 Kmart and seven Wal-Mart stores (for $620 million) to establish its footprint outside of malls. The Kmart locales are mostly in big cities; the Wal-Mart stores are in mid-sized markets. Three Kmarts will become Sears Grand stores.

Sears also created a new post, president-Sears retail, in July to oversee Sears’ off-mall expansion. The president also takes charge of marketing, merchandising and supply-chain management for all Sears’ formats across 870 mall-based stores and three Grand stores. Sears is searching for candidates now. Chairman-CEO Alan Lacy handles the work in the interim. Mark Cosby, executive VP-president of full-line stores, left Sears in July.

The flanker formats won’t approach promotion any differently. “Even Sears Grand is Sears at its core, so promotion strategy won’t alter that much,” Gudovic says. “Grand will have a different feel in-store, and the mid-sized store will take a lot of learnings from Grand. Vendors are very excited because this is the fastest we’ve grown in our history.”