IRI talks good business in poor economy
LAS VEGAS —Even as the state of the economy has redefined how consumers make purchasing decisions, the fact is that over the course of the two days that comprised Information Resources’ annual CPG Summit event, which convened here late last month, shoppers made an estimated 66 million trips to the store and spent an estimated $1.8 billion. That was the message IRI president of consulting and innovation Thom Blischok had for the crowd of more than 850 retailer, supplier and service company executives in attendance for Summit 2009: Reinventing CPG and Retail Conference.
Set against the overarching theme of “Insights to Impact,” the message was quite clear: Change is occurring faster than ever before; and so the CPG industry, retailers and vendors alike must adapt to these changes faster than ever before.
Examples abound, IRI chairman Romesh Wadhwani. noted. In the last six months, the GDP has slipped 6%—almost $1 trillion. “That is a cataclysmic event that affects manufacturers, retailers, service companies—everyone,” he said. “Six months ago, the government said we were spending too much and not saving enough; six months later, they are telling us that we are saving too much and not spending enough.”
Drawing another chilling metric that the CPG industry traditionally has not paid attention to—but probably should, he admonished—is the Food/GDP, which measures how much consumers spend on food, down 15% in the most recent quarter. Relative to the $600 billion to $700 billion CPG industry, that is $100 billion that retailers are suddenly not getting, Wadhwani explained, and “$100 billion that is not flowing through to the manufacturer, either.”
Wadhwani noted five key trends that IRI had spotted:
The first moment of truth is no longer in the store; 65% of all purchasing decisions now are being made in the home.
Shopper loyalty is becoming an oxymoron. According to IRI data, in good times, the consumer shops eight different stores and purchases no more than 15 to 20 categories at any one retailer.
Manufacturers are losing pricing power. Easy top- and bottom-line gains made possible by rising commodities prices a year ago have since been reversed. And now retailers are taking it on manufacturers, Wadhwani said, promoting private label more aggressively than ever before.
Private label in the United States is going the way of Europe. In Europe, private label is 30% to 35% of the typical retailer’s sales, and as high as 40%. Meanwhile in the United States, private label has traditionally been 15% to 16% of the business. In the past year, it has risen to 20% on average, and up to 30% in some consumable categories.
There are huge channel dislocations and market shifts currently underway.
Better news for the drug channel is that drug store trips are up 6% to 7%. “In the midst of this recession, revenues for most drug retailers are up 11%,” he said.
Walgreens chief marketing officer Kim Feil helped put some of these recent gains into greater perspective. “This is not an ‘atta boy’ chart for me to show you,” Feil said of a chart depicting a fourth-quarter surge in trips and basket ring in drug and online relative to some other channels, “because we won ugly.”
In a strong example of the need to bring insights to impact, Walgreens top managers convened three weeks before Black Friday and overhauled the chain’s holiday program from Thanksgiving to New Year’s Day. “We added offers, we changed our assortment,” Feil said.
Feil noted some of the key reasons drug stores still are growing the business in a bad economy, including the need for consumers to save money on gas, shop more in the neighborhood and get more of their purchases done in one location. And while, in general, consumers are reducing impulse purchases, many still are treating themselves to the kind of “little treats” that drug stores thrive in.
In addition to Feil, other presentations from top executives at big retail and CPG companies included 7-Eleven president and CEO Joe DePinto, and Frito-Lay CMO Jaya Kumar.
Kroger to serve as exclusive supermarket sponsor of Fiesta Atlanta ’09
ATLANTA Kroger will serve as the exclusive supermarket sponsor of Fiesta Atlanta ’09, an outdoor Cinco de Mayo festival celebrating Latino culture, music and food.
Fiesta Atlanta ’09 takes place on Sunday, May 3 at Centennial Olympic Park in downtown Atlanta. For Kroger, the partnership represents the company’s commitment to the Hispanic community.
“We are very excited and looking forward to Fiesta Atlanta,” said Glynn Jenkins, director of communications and public relations for Kroger’s Atlanta Division. “Kroger has always made exceptional efforts to serve the Hispanic community and joining this celebration is another commitment to our Hispanic customers.”
Atlanta’s largest Hispanic outdoor family festival, Fiesta Atlanta attracted over 40,000 attendees last year. This year’s event will once again feature authentic food from many Latin-American countries, arts and crafts, sponsor displays with many free product samples and continuous live musical performances by national and local recording artists.
AARP cites big jump in Rx prices
NEW YORK A report by AARP indicated that prices for branded drugs have increased at a rate outpacing the rate of inflation by more than six percentage points.
The report found that manufacturers’ prices for branded drugs increased by 9% last year, compared with the general inflation rate of 3.8%. Meanwhile, prices of generic drugs decreased, on average, by 10.6%.
Generic drugs have already grown significantly over the years, accounting for 69% of all prescriptions dispensed in the United States, but 16% of money spent on prescriptions, according to IMS Health. In 2007, according to the National Association of Chain Drug Stores, the average price of a generic prescription drug was $34.34, compared to $119.51 for a branded drug.
Price increases for branded drugs significantly higher than the overall rate of inflation, mixed with the recession, are likely to drive more consumers to generics. According to AARP, nearly a quarter of all older Americans skip medication doses because of the cost, while other studies have shown that many Americans facing economic hardship don’t have prescriptions filled at all.
At the same time, many branded pharmaceutical drugs – not to mention biologics – don’t yet have a generic version. This could create difficulties for elderly and other patients who may be able switch to medications that are cheaper, but different from what they take, or who take biologic drugs or newer drugs that have no equivalent on the market.
The Generic Pharmaceutical Association said the report indicated that generic medicines are “the right choice for better health.”
“During these difficult economic times, it is truly disturbing to hear reports that our nation’s seniors cannot afford their prescription drug costs,” GPhA president and CEO Kathleen Jaeger said in a statement responding to the report. “No one should be forced to choose between putting food on their table and paying for needed medicines.”
Jaeger also said the report illustrated the need for a regulatory pathway for biosimilars.
“It’s time to do right by our seniors and all Americans struggling with healthcare costs by approving legislation that brings safe, effective and affordable biogeneric medicines to patients sooner rather than later,” Jaeger said. “GPhA also strongly believes that increasing funding for FDA would ensure the more timely approval of generic medicines, increasing the opportunity for consumers to save immediately.”