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Title: Small Steps To Improved CSD Category Profitability in Supermarkets How slight shifts in CSD pack siz


1
Small Steps To Improved CSD Category
Profitability in Supermarkets How slight shifts
in CSD pack size promotion mix can dramatically
improve category profits
  • December 19, 2003

www.hoytnet.com
8912 East Pinnacle Peak Road Scottsdale, AZ
85255 Phone (480) 513-0547 Fax (480) 513-0548
E-Mail chrishoyt_at_hoytnet.com
nancyswift_at_hoytnet.com
2
Today
  • Importance of CSDs to Supermarkets overall
    marketing and merchandising mix
  • The CSD consumer
  • The issues CSD category performance in
    Supermarkets, 2001 - 2003
  • Recommendations

3
Importance of CSDs to Supermarkets overall
marketing and merchandising mix
4
It is no secret that supermarket trip frequencies
have declined precipitously over the past seven
years.
  • One trip 105.5MM visits

Shopper Trips By Channel (1996 2002)(Avg.
Trips/Household/Channel/Year)
Trip Losers
Trip Gainers
Total Trips
Down 2.3 Billion Trips in Seven Years
180 167
Source AC Nielsen Homescan, 2003
5
Meanwhile, spending per trip has remained
relatively flat as Big Buy heavy user families
have migrated to Supercenters and Clubs
  • Annual Shopper Dollars Per Trip By Channel

Source A.C. Nielsen Channel Blurring Study, May
2003
6
Despite These Trends, 100 of U.S. Households
Continue to Shop the Grocery Channel With No
Drop-off in Sight
Household Penetration By Channel Per Year
1996 - 2002
Ptsvs. 96
Channel
1996
1998
1999
2000
2001
2002
1997
Grocery Conv. and Gas Drug Chains Trad.
Discount Warehouse Clubs Supercenters Dollar
Stores
100 52 90 95 49 N/A 39
100 52 86 94 49 47 47
100 50 87 95 50 52 52
100 48 86 94 49 54 55
100 45 86 93 50 60 59
100 46 86 92 52 63 62
-6 -4 -3 3 16 23
100 52 89 94 48 N/A 45
Source AC Nielsen, Channel Blurring Studies,
1998 - 2003 inclusive
7
In Addition, Consumers Shop Grocery Far More
Frequently Than Any Other Channel and 3.5 Xs More
Than Lower-priced Supercenters
US CPG ChannelsTrip Frequency Annual
Trips/Household/Year/Channel, 1996 - 2002
Ptsvs. 96
Channel
1996
1998
1999
2000
2001
2002
Grocery Mass Merchandise Drug Supercenters Dollar
Warehouse Clubs Conv. and Gas Totals
95 29 16 13 6 8 13 180
85 28 15 14 9 9 18 173
83 26 15 15 10 9 13 171
78 25 15 17 10 10 14 169
75 23 15 18 11 10 15 167
73 22 15 21 12 10 14 167
(22) (7) (1) 8 6 2 1 (13)
Source AC Nielsen, Channel Blurring Studies,
1998 - 2003 inclusive
8
Consumer Satisfaction Surveys Repeatedly Show
That Shopper Satisfaction Levels Are Higher With
Supermarkets Than With Any Other Channel
Shopper Satisfaction1-10 Scale 1 not
satisfied, 10 extremely satisfied
Your Supermarket Supermarkets (in general) Mass
Merchandisers Wholesale Clubs Dollar Stores Chain
Drug Stores Fast-food Restaurants Convenience
Stores
7.49 6.67 6.49 6.16 6.05 5.93 5.11 5.09
Source Progressive Grocer, 2003
9
One of the most important reasons for this is
supermarkets ability to meet or exceed consumer
expectations with respect to the following
categories which consumers regard as uniquely the
providence of the food store.
  • Top Grocery Channel Categories, 2002

Share
Growth vs. 2001
Sales (B)F/D/M/WM
F
D
WM
F
D
WM
Total CPG Carbonated Beverages Bread Baked
Goods Milk Fresh Produce Packaged
Meat Snacks Cheese Frozen Prepared Foods   Cereal
407.4 15.8 13.9 12.4 11.2 10.6 11.6 9.0 8.4 8.7
65 77 86 87 90 88 75 89 87 84
10 7 1 2 0 0 4 0 0 1
18 13 12 10 9 11 16 10 12 13
2 3 2 -2 15 1 2 3 2 -1
1 7 4 5 -64 -5 4 -14 11 16
14 15 31 18 40 18 20 21 28 31
Source A.C. Nielsen Strategic Planner, Wal-Mart
Channel Service 2002. Ranking based on total
grocery channel sales.
10
Our purpose today is to focus on one of these
categories carbonated beverages because
  • Excluding perishables, carbonated beverages is
    the 1 merchandisable category in the store
  • Carbonated beverages is one of the few categories
    that offers Supermarkets the opportunity to
    compete head-to-head on price with Supercenters
    and Clubs and win every time
  • With only two exceptions, carbonated beverages is
    the most powerful category Supermarkets can use
    to re-build trip frequencies and recapture heavy
    users
  • Hoyt Company and Beverage Aisle believe that
    there may be an opportunity to increase CSD
    category profits by as much as 53 and
    simultaneously bring this category into much
    better alignment with current CSD heavy user
    shopping preferences

11
Despite the flurry of competitive activity that
Supermarkets have encountered from alternate
channels, Supermarkets remain solidly entrenched
as the industrys destination channel for CSDs
  • Total CSD Volume By Channel

Channel

Supermarket Convenience Gas Mass/Supercenter Dru
g Clubs Total
63.7 18.7 8.3 5.1 4.2 100.0
Source Based on CSD factory volumes, not retail
sales, Hoyt Company Internal Records, 2003
12
Carbonated Beverages rank only behind Bakery and
Milk in terms of this categorys ability to
generate increased Supermarket trip frequencies
among the broadest spectrum of the population
possible
  • Top 15 Supermarket Product Categories Ranked In
    Order of Pulling Power

HHPenetration
PurchaseFrequency
PullingPower

X
Rank
Category
Bread Baked Goods 99.4 35.5 3,529 Milk 97.8 34.3
3,355 Carbonated Beverages 97.6 30.3 2,957 Snacks
98.5 25.7 2,531 Paper Products 99.5 23.5 2,338 Ca
ndy 98.0 21.8 2,136 Juice, Drinks -
Non-Frozen 97.5 20.9 2,038 Packaged Meats -
Deli 96.2 18.9 1,818 Fresh Produce
96.7 18.5 1,789 Cereal 96.6 17.8 1,719 Condiments
, Gravies, and Sauces 98.5 17.2 1,694 Cheese 97.2
17.2 1,672 Vegetables - Canned 96.5 14.6 1,409 Coo
kies 95.3 14.4 1,372 Pet Foods 70.0 19.6 1,372 8
0.1 6.5 473
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Median
Source A.C. Nielsen Consumer Facts
13
Carbonated Beverages also represent the
supermarkets greatest opportunity to increase
top line dollar sales
  • Leading Supermarket Categories Ranked In Order of
    Power


X
X

HHPenetration
PurchaseFrequency
PullingPower
Avg.Purch. Size
DollarPower
Rank
Category
Carbonated Beverages 97.6 30.3 2,957 4.00 11,829
Bread Baked Goods 99.4 35.5 3,529 2.53 8,928 M
ilk 97.8 34.3 3,355 2.64 8,856 Paper
Products 99.5 23.5 2,338 3.46 8,090 Pet
Food 70.0 19.6 1,372 5.79 7,944 Cereal 96.6 17.8
1,719 4.43 7,617 Snacks 98.5 25.7 2,531 2.92 7,3
92 Medications/Remedies/Health Aids 97.3 10.8 1,05
1 7.03 7,387 Packaged Meats-Deli 96.2 18.9 1,818
3.98 7,236 Juice, Drinks - Non-Frozen 97.5 20.9 2,
038 3.43 6,989 Prepared Foods -
Frozen 91.7 12.4 1,137 5.75 6,538 Candy 98.0 21.
8 2,136 2.93 6,260 Cheese 97.2 17.2 1,672 3.50 5,
851 Electronics, Records, Tapes 72.4 4.4 319 15.00
4,778 Ice Cream Novelties 94.1 13.0 1,223 3.82 4
,673 80.1 6.6 473 3.28 1,679
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Median
Source A.C. Nielsen Consumer Facts
14
The CSD Consumer
15
CSD consumers come from relatively large,
affluent households
CSD Consumer Demographics Total U.S. 2000
CSD Consumer Demographics Total U.S. 2002
Size 1 Mem Size 2 Mem Size 3-4 Mem Size
5 Mem. Inc. 30,000 - 39,999 Inc. 40,000 - 49,999 Inc.
50,000 - 59,999 Inc. 70,000
63.1 95.7 123.4 139.0 80.1 91.6 100.3 115.4 111.2
114.1
Size 1 Mem Size 2 Mem Size 3-4 Mem Size
5 Mem. Inc. 30,000 - 39,999 Inc. 40,000 - 49,999 Inc.
50,000 - 69,999 Inc. 70,000
61.7 97.6 122.6 132.8 83.2 95.0 105.7 108.4 113.8
100.4
Source A.C. Nielsen 2003
16
Unfortunately, it is precisely the larger
households who are most aggressive about
migrating their shopping to other channels
  • Avg. Trips Per HH Per Year Supermarkets(2002
    vs. 2001)

-7
-6
-4
-5
Source A.C. Nielsen Channel Blurring Study, 2003
17
In fact, the indications are that the heavy CSD
shopper now buys CSDs in as many as four
different channels with two of these channels
capturing an almost equal share of her take-away
dollars
Total U.S. 52 we 12/28/02 - upc-coded products
Grocery w/SC, Mass, Drug, Club Dollar Store
channels only
Source A.C. Nielsen Channel Blurring Study, 2003
18
It is crucial for supermarkets to recapture as
much of this business as possible because the
heavy CSD shopper...
  • Spends an average of 1,112 or 61 more per year
    in Supermarkets than the average Supermarket
    shopper

Total Spending Per Year
2,929 1,817 1,112
Heavy CSD Buyers Avg. Supermarket Shoppers
Difference
(61)
  • Buys an average of 12 unique CSD brands per year
    compared to 6.6 brands per year for light buyers
  • Ideal for Supermarkets who are perceived as the
    channel of choice for offering incomparable
    variety in core categories.

Source Beverage Marketing, 2003
19
The other reason is that Carbonated Beverages
have become one of the Top 10 Categories at
Wal-Mart
  • The Top 10 Categories At Wal-Mart, 2002

Rank Category Sales 02 01 00 Sales
Chg 1 Computer/Electronics 1 2 5 3.8
Billion 40.9 2 Housewares/Appliances 2 1 1
3.1 Billion -0.1 3 Paper Products 3 3 2 2.8
Billion 8.2 4 Pet Food 4 5 4 2.6
Billion 14.6 5 Office/School Supplies 5 4 3
2.5 Billion 9.0 6 Medications/Remedies 6 6 6
2.0 Billion 9.7 7 Carbonated
Beverages 7 8 8 2.0 Billion 15.4 8 Candy 8
7 7 1.9 Billion 7.7 9 Snacks 9 9 10 1.9
Billion 19.7 10 Hair Care 10 10 9 1.8
Billion 13.8
Source ACNielsen Wal-Mart Channel, 52 Weeks
Ending 12/28/02
20
And, despite its already substantial base,
Carbonated Beverages remain one of Wal-Marts Top
10 Growth categories
  • Top 10 Growth Categories at Wal-Mart, 2002

Categories By Growth Volume Chg
Change 1 Computer/Electronics 3,760
MM 40.9 1,092 MM 2 Bread Baked Goods 1,712
MM 25.0 342 MM 3 Pet Food 2,637
MM 14.6 337 MM 4 Snacks 1,902
MM 19.7 313 MM 5 Fresh Produce 1,012
MM 39.6 287 MM 6 Carbonated Beverages 1,968
MM 15.4 262 MM 7 Cereal 1,083
MM 30.9 256 MM 8 Prepared Foods-Frozen 996
MM 28.0 218 MM 9 Hair Care 1,778
MM 13.8 216 MM 10 Paper Products 2,763
MM 8.2 210 MM
Source ACNielsen Wal-Mart Channel, 52 Weeks
Ending 12/28/02
21
One of the most important things to understand
about heavy user CSD households is that loyalty
to any single brand tends to be relatively low
due to these households need to satisfy so many
different tastes within the same household
  • This is why these households buy an average of 12
    unique brands per year versus light user
    households who buy only 6.6.
  • This is also why we get the following remarkably
    low brand loyalty numbers for taste brands that
    can only be considered national icons.
  • Brand Loyalty Indices Leading CSD Brands, 2002
    vs. 2000

Brand Coke Classic Pepsi Diet Coke CF Diet
Coke Diet Pepsi CF Diet Pepsi CF Pepsi CF Classic
2002 HH Loyalty 22.5 21.6 17.9 15.3 15.0 11.7 9.
0 8.2
Point Chg 00-02 -0.3 -0.8 -0.4 -0.8 -0.1 -0.6 -0
.6 -0.4
Source A.C. Nielsen HomeScan, 2003
22
The other factor to note about recent CSD
purchasing behavior in Supermarkets is that
although CSD shoppers are spending about 2 more
per trip on CSDs than they did in 2000, they are
making 7.7 fewer trips
  • This appears to be due to supermarkets success
    in trading these shoppers up to
    promotionally-driven larger sizes with the
    inadvertent result that the category is not as
    strong as it was as a traffic-puller
  • CSD Supermarket Shopper Purchasing Dynamics, 2002
    vs. 2000

Source A.C. Nielsen HomeScan, Consumer Facts
and Channel Facts, 2003
23
To what extent do Supermarkets promote the larger
CSD pack sizes?
of Total CSD Units Sales On Promotion By Pack
Size, 2003 vs. 2001
Pack Size
2001
2003
20 oz. Single Bottle 67.6 oz. Bottle A/O Bottle
Sizes 6 Pack Cans 12 Pack Cans 24 Pack Cans A/O
Cans Total U.S.
7.7 69.4 46.4 61.7 80.8 82.4 75.7 62.6
12.5 88.0 47.7 57.2 81.5 83.9 71.9 61.9
Source A.C. Nielsen 52 weeks ending 9/8/01 and
9/6/03
24
While the need for Supermarkets to trade shoppers
up to larger pack sizes is obvious, the
indications are that Supermarkets may wish to
moderate this strategy with respect to CSDs
because...
  • The category is unique with respect to its
    utility as a traffic builder for Supermarkets.
    In this context, over-promotion of larger sizes
    appears to be dampening this advantage.
  • Satisfying the purchasing preferences of the
    heavy user CSD household is paramount. Given the
    relatively large number of different CSD brands
    these households buy in a year, enabling these
    shoppers to buy these brands on promotion but in
    trial-friendly, smaller pack sizes would seem to
    be an obvious and simple solution.
  • As we will show in a moment, small shifts in
    promotion emphasis to smaller pack sizes is a way
    for supermarkets to dramatically improve CSD
    category profitability.

25
The last thing we would note about the CSD
consumer is the extent to which this consumer has
been trained to lie in wait for deals a trend
that grows progressively more severe as the price
gap widens between promotional and off-promoted
prices
Trend in Any Promotion Share of Total Volume and
Gap in On-Promotion vs. Off-Promotion Price Total
U.S. Supermarkets 2MM 12-Pack Cans
Source A.C. Nielsen 2003
26
The issues CSD Category Performance In
Supermarkets, 2001 - 2003
27
CSD sales in Supermarkets have grown marginally
since 2001, driven primarily by growth in 12-pack
cases but offset by a major decline in 6-packs.
Overall, CSD growth in the two years between 2001
and 2003 has not kept pace with total Supermarket
growth in the one year between 2001 and 2002.
  • CSD Dollar Sales In Supermarkets, 2003 vs. 2001
    By Pack Size

Pack Size
2001 (B)
2003 (B)
/- Vs. 2001
Contribution
20 oz. Single Bottles 67.6 oz. Bottles A/O Bottle
Sizes 6-Pack Cans 12-Pack Cans 24-Pack Cans A/O
Pack Cans Totals Total Supermarket Sales, 2002
vs. 2001
611.1 2,616.5 1,471.1 808.0 4,856.0 1,350.5 92.1
11,805.3
713.8 2,474.3 1,529.4 575.7 5,422.5 1,363.1 48.2
12,127.0
16.8 (5.4) 4.0 (28.8) 11.7 0.9 (47.7) 2.7
3.4
8.9 (12.3) 5.0 (20.1) 48.9 1.1 (3.7) 100.0
Source A.C. Nielsen 52 weeks ending 9/8/01 and
9/6/03 Progressive Grocer, April 2003, Data Bank
USA, August 2003 Supermarket Profit was
calculated from Data Bank USA wholesale prices,
August 2003, less .70/case for supplier
allowances
28
While only marginal CSD sales gains in
Supermarkets may be unsatisfactory, the serious
issue concerning this category is profitability
Between 2001 and 2003, CSD profits in
Supermarkets dropped 12.1, again driven
primarily by losses in 12-pack cans
  • CSD Profitability in Supermarkets, 2003 vs. 2001
    by Pack Size

Pack Size
2001 (MM)
2003 (MM)
/- 2001
Contribution
20 oz. Single Bottles 67.6 oz. Bottles A/O Bottle
Sizes 6-Pack Cans 12-Pack Cans 24-Pack Cans A/O
Pack Cans Totals
151.2 307.5 486.0 (30.4) 28.2 (30.7) N/A 911.9
190.6 308.1 573.1 (28.7) (140.1) (101.5) N/A 801
.6
26.1 0.2 17.9 (5.4) (596.4) (230.6) N/A (12.
1)
11.1 0.2 23.9 (0.4) (45.0) (19.4) N/A 100.0
Source A.C. Nielsen 52 weeks ending 9/8/01 and
9/6/03 Progressive Grocer, April 2003
29
Unfortunately, 2001 - 2003 Supermarket CSD profit
performance is not an anomaly but a continuation
of a trend that can be traced back as far as 1994
  • Supermarket CSD Category Margins vs. Previous
    Year 1994 - 2003

Year
Pt. Diff. Vs. Previous Year
1994 1995 1996 1997 1998 1999 2000 2001 2002
-1.4 -1.3 -0.4 -0.8 -2.0 -1.2 -0.5 -1.3 -1
.8
Source UBS Warburg Beverage Analysis
Department, 2003
30
All of the six Nielsen regions except the
Southwest showed dollar growth between 2001 and
2003 but only two of these regions achieved
profit gains
  • CSD Sales and Profit Performance By Nielsen
    Region, 2001 - 2003

Sales (MM)
Profits (MM)
Contribution To Profits
NACS Region
2001
2003
/-
2001
2003
/-
Northeast Southeast East Central West
Central Southwest Pacific Total U.S.
2,545.3 2,077.2 2,325.9 1,460.1 1,189.9 2,207.7
11,806.1
3.1 3.7 3.4 2.9 (0.4) 2.3 2.7
2,624.1 2,153.4 2,405.3 1,502.3 1,184.5 2,257.7
12,127.3
323.7 (88.4) 317.2 33.2 158.5 167.7 911.9
25.5 (2.0) (42.7) (85.8) (28.1) 8.1 (12.1)
406.4 (86.6) 181.8 4.7 114.1 181.3 801.7
27.0 (0.6) (44.2) (9.3) (14.5) 4.4 100.0
Source A.C. Nielsen, 52 weeks ending 9/8/01 and
9/6/03
31
Supermarkets have been maximally aggressively in
their attempts to address the CSD profitability
issue. Most common approaches
  • Raise everyday shelf prices
  • Raise average promoted prices
  • Reduce the of units sold on promotion
  • Reduce the depth of the promotional discount

32
Between 2001 and 2003, Supermarkets raised
everyday shelf prices both nationally and in five
of the six Nielsen regions. In addition,
Supermarkets raised the promoted price across the
board
  • 2001- 2003 Supermarket CSD Pricing, Everyday
    Shelf and Promoted Prices

Everyday Shelf Price
Promoted Price
NACS Region
2001
2003
/-
2001
2003
/-
Northeast Southeast East Central West
Central Southwest Pacific Total U.S.
1.17 1.13 1.60 1.07 1.20 1.01 1.18
1.35 1.31 1.65 1.05 1.30 1.10 1.28
15.4 15.9 3.1 (1.9) 8.3 8.9 8.5
1.12 1.26 1.67 1.26 1.69 0.96 1.25
1.32 1.40 1.89 1.35 1.84 1.27 1.46
17.9 11.1 13.2 7.1 8.9 32.3 16.8
Source A.C. Nielsen, 52 weeks ending 9/8/01 and
9/6/03
33
These price increases, however, were limited to
smaller pack sizes comprising about 39 of total
CSD sales. Pricing on all other pack sizes
either remained the same as it was in 2001 or was
marginally reduced
  • 2001 - 2003 Everyday Promoted Price Pricing
    Changes by Pack Size

Everyday Shelf Price
Promoted Price
2003 Total Sales
Pack Size
2001
2003
/-
2001
2003
/-
20 oz. Single Bottles 67.6 oz. Bottles A/O Bottle
Sizes 6-Pack Cans 12-Pack Cans 24-Pack Cans A/O
Pack Cans
0.93 1.16 1.40 1.98 3.61 6.25 4.89 1.18
5.9 20.4 12.6 4.7 44.7 11.2 0.4 100.0
0.99 1.18 1.54 1.98 3.58 6.07 3.90 1.28
6.5 1.7 10.0 0.0 (0.8) (2.9) (20.2) 8.5
0.56 0.88 1.51 1.20 2.53 4.90 3.89 1.25
0.69 0.91 1.66 1.20 2.53 4.89 3.39 1.46
23.2 3.4 9.9 0.0 0.0 (0.2) (12.9) 16.8
Source A.C. Nielsen, 52 weeks ending 9/8/01 and
9/6/03
34
If one compares the changes in everyday and
promoted prices by region since 2001 with the
changes in CSD profitability for these regions
over the same period, nothing pops out to suggest
any reasonably obvious correlation between the
two
  • 2001 - 2003 CSD Everyday Promoted Price Changes
    vs. Profitability Changes by Region

Profitabilityvs. 2001
Promoted Pricevs. 2001
Everyday Price vs. 2001
Region
(12.1)
16.8
8.5
Total US
25.5
17.9
15.4
Northeast
(2.0)
11.1
15.9
Southeast
(42.7)
13.2
3.1
East Central
(85.8)
7.1
(1.9)
West Central
(28.1)
8.9
8.3
Southwest
8.1
32.3
8.9
Pacific
Source A.C. Nielsen, 52 weeks ending 9/8/01 and
9/6/03
35
The other way in which Supermarkets have
attempted to address the profitability issue is
to reduce both the percentage of units sold on
promotion and the depth of the promotion discount
  • Units Sold on Promotion and Promotion
    Discount ChangesCSDs, 2001 - 2003

Units Sold on Promotion
Promotion Discount
NACS Region
2001
2003
/-
2001
2003
/-
Northeast Southeast East Central West
Central Southwest Pacific Total U.S.
63.5 60.0 65.2 61.5 55.4 65.0 62.6
61.9 60.1 65.7 60.1 58.9 62.5 61.8
(2.5) 0.1 0.7 (2.2) 6.2 3.9 (1.2)
-33.3 -25.7 -32.0 -22.4 -25.1 -31.2 -31.0
-34.0 -23.3 -31.5 -17.1 -25.6 -28.0 -28.3
1.9 (9.5) (1.8) (23.7) 1.7 (10.2) (8.7)
Source A.C. Nielsen, 52 weeks ending 9/8/01 and
9/6/03
36
Again, if one attempts to correlate CSD
profitability trends with the changes in the
percentage of cases sold on promotion and/or the
depth of the promotional discounts since 2001, no
solid pattern emerges on which one can base a
decision
  • Note particularly that West Central which has
    been one of the most aggressive in reducing
    promotional investment but nevertheless suffered
    an 86 decline in profits.

Profitabilityvs. 2001
Promo Discountvs. 2001
Sold on Promovs. 2001
Region
(12.1)
(8.7)
(1.2)
Total US
25.5
1.9
(2.5)
Northeast
(2.0)
(9.5)
.1
Southeast
(42.7)
(1.8)
.7
East Central
(85.8)
(23.7)
(2.2)
West Central
(28.1)
1.7
6.2
Southwest
8.1
(10.2)
(3.9)
Pacific
Source A.C. Nielsen, 52 weeks ending 9/8/01 and
9/6/03
37
Although Supermarkets have indeed been creative
about experimenting with different CSD pricing
and promotion scenarios, one area that appears to
invite further exploration is shifting the
emphasis one puts on promoting different CSD pack
sizes
  • What has evolved over the years is a category
    whose sales are now dominated by 12 and 24-pack
    cans, with a slight assist from large bottles.
    This is true not only of total U.S. but of each
    of the 6 Nielsen regions
  • Share of Total 2003 CSD Category Sales By Pack
    Size

Source A.C. Nielsen, 52 weeks ending 9/8/01 and
9/6/03
38
Based on the profits per case delivered by each
of the most common CSD category pack sizes, this
preponderance of 12 and 24-pack can sales is
obviously one of the root causes of the CSD
category profitability issue
CSD Profitability By Pack Size, 2003
Pack Size
Total Case Sales
on Promotion
Profit Per Case
20 oz. Single Bottles 67.6 oz. Bottles A/O Bottle
Sizes 6-Pack Cans 12-Pack Cans 24-Pack Cans
1.7 17.1 6.5 5.2 54.7 14.8
12.5 68.0 47.7 57.2 81.5 83.9
6.09 0.99 4.85 (0.31) (0.14) (0.38)
Source A.C. Nielsen Databank, 2003
39
Between 2001 and 2003, Supermarkets did try to
improve this situation via aggressive promotion
of the 20 oz. Single bottle. However, it appears
that these efforts were diluted by continued
promotion of 12-pack cans resulting in overall
profit declines in all regions but two
  • Change In Share of CSD Promotion Units by Pack
    Size, 2001 - 2003

TotalUS
Reg. 1Northeast
Reg. 2 Southeast
Reg. 3 E. Central
Reg. 4 W. Central
Reg. 5 Southwest
TotalCs. Sales
Reg. 6 Pacific
Pack Size
20 oz. Single Bottles 67.6 oz. Bottles A/O
Bottles 6-Pack Cans 12-Pack Cans 24-Pack
Cans Profitability ? vs. 01
84.1 (8.2) (1.1) (33.4) 15.2 6.4 (12.1)
24.3 (4.2) 0.9 (35.9) 16.8 9.9 25.5
247.6 (7.6) 7.9 (17.3) 2.5 174.3 (2.0)
21.9 (13.0) (4.5) (55.0) 27.9 (8.9) (42.7)
272.5 (6.2) (20.2) (6.8) 8.8 (16.1) (85.8)
192.6 (13.3) 10.5 (35.1) 11.1 (91) (28.1)
1.7 17.1 6.7 5.2 54.6 14.8 100.0
171.7 (6.1) 13.3 (38.5) 19.4 26.3 8.1
Source A.C. Nielsen, 52 weeks ending 9/8/01 and
9/6/03
40
Nevertheless, it is instructive to look at what
happened to 20 oz. Bottle performance as a result
of these efforts, suggesting that relatively
small changes in promotion mix emphasis can yield
disproportionately large rewards, especially on
relatively low base volume pack sizes
  • 2001- 2003 CSD 20 oz. Single Bottle Performance
    in Supermarkets by Region and In Total
  • (All numbers represent change between 2001 and
    2003)

20 oz. Cont. to TotalCSD Category Profits
? Share of CSD Promoted Units
20 oz. Total Cs.
? Sales
? Profitability
NACS Region
2001
2003
?
Northeast Southeast East Central West
Central Southwest Pacific Total U.S.
1.6 1.8 1.7 1.9 1.8 1.6 1.7
16.3 18.5 19.3 12.5 10.1 20.7 16.8
24.3 247.6 21.9 272.5 192.6 171.7 84.1
40.7 21.8 58.2 2.5 11.7 25.3 26.1
8.1 26.7 5.5 5.6 14.3 20.1 16.5
9.1 31.1 15.1 411.9 22.2 23.3 23.8
12.3 16.5 17.5 72.6 55.2 15.9 44.2
Source A.C. Nielsen, 52 weeks ending 9/8/01 and
9/6/03
41
Why 20 oz. Single bottles?
  • Because in 2001, this segment was not only the
    most under-promoted but also the most profitable
  • 20 oz. Single Bottles versus Balance of CSD Pack
    Sizes, 2001

Total CSD Promoted Units
AverageProfit Per Case
Pack Size
20 oz. Single Bottles 67.6 oz. Bottles A/O Bottle
Sizes 6-Pack Cans 12-Pack Cans 24-Pack Cans A/O
Pack Cans
1.2 42.7 10.7 7.5 32.7 4.9 0.4 100.0
5.33 0.91 3.88 (0.23) 0.03 (0.12) N/A N/A
Source A.C. Nielsen, 52 weeks ending 9/8/01 and
9/6/03
42
Recommendations
43
Based on CSD category profitability trends since
2001, the immediate challenge for supermarkets
appears to be shifting the promotion mix away
from 12s and 24s as much as possible without
losing the power of these packs as image and
traffic builders
  • 2001 - 2003 CSD 12 24 Pack Cans Profit
    Performance in Supermarkets By Region and In
    Total
  • (All numbers represent change from 2001 to 2003)

TotalUS
Reg. 1Northeast
Reg. 2 Southeast
Reg. 3 E. Central
Reg. 4 W. Central
Reg. 5 Southwest
Reg. 6 Pacific
Pack Size
12 Pack Cans Total CSD Cs. Sales Chg Share
Ttl CSD Prom. Units Chg Dollar Sales Chg.
Profitability 24 Pack Cans Total CSD Cs.
Sales Chg Share TTL CSD Prom. Units Chg
Dollar Sales Chg. Profitability
54.7 15.2 11.7 (596.4) 14.8 6.4 0.9 (230.6)
45.5 16.8 9.4 (5.5) 12.9 9.9 (1.4) (79.6)
58.7 2.5 1.4 (3.9) 6.5 174.3 113.3 (251.0)
52.5 27.9 18.2 (174.9) 27.8 (8.9) (11.0) (445.7)
62.0 8.8 6.5 (146.2) 9.2 (16.1) (14.6) (31.7)
56.5 11.1 9.4 (57.2) 23.5 (9.1) (9.4) (97.3)
57.3 19.4 8.3 (35.3) 9.1 26.3 22.9 36.6
Source A.C. Nielsen, 52 weeks ending 9/8/01 and
9/6/03
44
To where does one shift this mix? To the
relatively under-promoted segments most small
bottle sizes and especially 6-pack cans
  • 2001 2003 Change in Promotion Emphasis By Pack
    Size, Total CSDs

Change Units Sold on Promotion
Change Share of on Promotion
Pack Size
Sales (Cs)
20 oz. Single Bottles 67.6 oz. Bottles A/O Bottle
Sizes 6-Pack Cans 12-Pack Cans 24-Pack Cans A/O
Pack Cans
1.7 17.1 6.5 5.2 54.8 14.8 N/A 100.0
63.4 (2.0) 2.8 (7.3) 0.8 1.9 (5.1) (1.2)
84.1 (8.2) (1.1) (33.4) 15.2 6.4 (40.7) N/A
Source A.C. Nielsen, 52 weeks ending 9/8/01 and
9/6/03
45
The success that Supermarkets achieved with 20
oz. bottles over the past several years suggests
that this shift the mix solution is doable
without the need for radical changes to overall
CSD category merchandising strategies.
  • For example, lets assume an objective of
    reversing the percentage of units sold on
    promotion for 12-pack cans to 6-pack cans.

Units Sold On Promotion, 2003
Sales
Current Mix
Objective
6-Pack Cans 12-Pack Cans
5.5 54.7
57.2 81.5
81.5 57.2
If supermarkets were able to make this one shift
in CSD promotion mix, the impact on total CSD
category profitability would be enormous
Impact of 6 12-Pack Can Promotion Mix Change on
Total CSD Category Profitability
Mix
Profitability
Mix
Profitability
Difference
6-Pack Cans 12-Pack Cans Total Category
Profitability Change vs. Present
57.2 81.5
(28,722.9) (140,062.7) 801,569.8
81.5 57.2
(100,446.2) 356,230.4 1,226,139.6
(71,723.3) 496,293.1 424,569.8 53
Source A.C. Nielsen, 52 weeks ending 9/8/01 and
9/6/03
46
Obviously, the benefits from doing this will vary
by region and retailer based primarily on the
importance of 12-pack cans to total CSD sales.
Heres how this approach impacts on a
region-by-region basis
  • Impact of 6 12-Pack Can Promotion Mix Changes
    on Total CSD Category Profits

Current 6-Pack/12-Pack Mix
Current Profitability (MM)
Profits if Mix Is Reversed
Change Vs. Present
NACS Region
Sales
Northeast Southeast East Central West
Central Southwest Pacific Total U.S.
21.6 17.8 19.8 12.3 9.8 18.7 100.0
57.2/76.9 59.2/79.7 64.1/81.9 56.4/84.1 48.7/81.1
57.4/84.8 57.2/81.5
406,375.2 (86,631.2) 181,809.5 4,704.5 114,052.8
181,258.9 801,569.8
477,143.8 123,680.9 254,614.6 62,141.1 163,012.4
277,082.2 1,226,139.6
17.4 72.7 40.0 122.7 42.9 52.9 53.0
Source A.C. Nielsen, 52 weeks ending 9/6/03
47
The difference in this approach versus the 2001 -
2003 20 oz. single bottle campaign is that this
approach more directly addresses the 12-pack can
issue. Specifically
  • 6-pack cans are a more viable substitute for
    12-pack cans than the 20 oz. Single bottles from
    a consumer usage point of view.
  • It is not very practical to promote 12-pack cans
    at the same time as 6-pack cans, although this is
    not true of 12-pack cans versus 20 oz. Single
    bottles.
  • Any reduction in 12-pack can promotional volume
    will help increase every day price shelf sales,
    although we recognize that this is not a
    one-to-one trade-off.
  • On a separate note, the indications are that more
    frequent promotions of 6-pack cans (or bottles)
    would enable supermarkets to recapture a small
    but important competitive edge because
  • 6-pack cans are not broadly available in
    Supercenters and Clubs.
  • 6-packs build more trip frequency than 12-packs.
  • Independent research confirms that all of those
    large, heavy-user CSD families who buy 12 unique
    CSD brands per year would welcome the option of
    buying these brands on promotion in 6-packs,
    providing the price differentials make sense.

48
And, speaking of pricing, if the following
scenario is even directionally accurate, it seems
to be in everyones best interest to reduce
promotion emphasis on 12 and 24-pack cans.
Profit Per Case By Pack Size Supermarkets and
Bottlers CSDs, 2003
Ratio ofBottler to SupermarketProfits
Pack Size
Supermarkets
Bottlers
Total Case Sales
20 oz. Single Bottles 67.6 oz. Bottles A/O Bottle
Sizes 6-Pack Cans 12-Pack Cans 24-Pack Cans
6.09 0.99 4.85 (0.31) (0.14) (0.38)
8.72 0.47 2.69 0.61 0.11 0.08
1.7 17.1 6.5 5.2 54.7 14.8
11.43 10.47 10.55 192 125 146
  • In view of the relatively small share of the
    business now done by 6-pack cans, bringing the
    profit ratio between Supermarkets and Bottlers on
    this pack size into better balance should be a
    priority objective.

Source Databank USA, August, 2003.
49
The indications are that the principal bottlers
have become aware of this need and are already
moving in this direction by reducing wholesale
prices on 6-packs much more than 12 or 24 packs
  • Wholesale Price Changes Per Case on Cans 52
    Weeks through 8/31/2003

12-Packs
24-Packs
6-Packs
Pepsi Coke Cadbury Total
.07 (.10) (.16) (.04)
.10 (.08) (.03) .02
(.31) (.71) (.02) (.39)
Source Databank USA 2003
50
Nevertheless, because of virtually universal
over-emphasis on promoting 12-packs, what the
consumer sees on an everyday basis is 1.98 for
6-packs versus 2.53 for 12-packs and acts
accordingly
  • Average Everyday CSD Shelf vs. Average Promoted
    Prices by Pack Size, 2003

Pack Size
Everyday Shelf
Promoted Price
20 oz. Single Bottles 67.6 oz. Bottles A/O Small
Bottles 6-Pack Cans 12-Pack Cans 24-Pack Cans
0.99 1.88 N/A 1.98 3.58 6.07
0.69 0.91 N/A 1.20 2.53 4.89
Anecdotally, we frequently see 6-packs priced at
2.49 while 12-packs are promoted at four (or
even five) for 10.00.
Source A.C. Nielsen Databank USA, 2003
51
To summarize
  • 1. We believe that Supermarkets are leaving money
    on the table with respect to maximizing the
    profit potential of the CSD category
  • Profits have dropped by 12 just in the past two
    years
  • 2003 category margins are relatively low at 6.6
    (versus beer, for example, at 18.5)
  • The principal cause of this appears to be 12 and
    24 pack can Promotion Mania
  • 2. Experimenting with promotion prices and
    promotion depth on the balance of the line has
    done little to address this situation as long as
    Supermarkets continue aggressive promotion of 12
    and 24 pack cans
  • These experiments may have helped but the results
    have been invisible category profits still
    continue to decline
  • There is little evidence of attempts to address
    this problem directly that is, reduce promotion
    on 12 and 24 packs.
  • 12 and 24 pack cans now account for so much of
    the business (70 in most regions) that their
    role in this situation can no longer be ignored.

52
Summary (contd)
  • 3. The success of the 2001 - 2003 20 oz. single
    bottle campaign suggests that only slight changes
    in promotion mix can yield disproportionately
    large rewards in terms of growing total category
    profits
  • By shifting promotion emphasis to 20 oz. single
    bottles during these two years, 20 oz.
    contributions to total CSD category profits
    jumped 44 from 16.5 to 23.8
  • This is all the more remarkable because 20 oz.
    does only 5.9 of total CSD dollar sales and 1.7
    of case sales
  • However, total CSD category profits did not
    improve during this period because of continued
    deep price promotion on 12 and 24 pack cans.

53
Summary (contd)
  • 4. Based on the 20 oz. single bottle example, the
    indicated action is to lay out a strategy to
    shift as much business as possible away from 12
    and 24 pack cans without impairing the power of
    these pack sizes as Supermarket image and traffic
    builders
  • We realize that a delicate balance has to be
    maintained here.
  • Continuing to shift the mix to more profitable
    bottles is ideal but there is only so much one
    can do with these segments before they become
    saturated.
  • An obvious first strike alternative is 6-pack
    cans which are now not only under-promoted but
    quickly becoming the orphan child of the CSD
    category.
  • The key to the success of this is to align prices
    so that 6-packs become more profitable.
  • The indications are that bottlers are now
    supportive of such a strategy they have already
    moved aggressively to reduce 6-pack can wholesale
    prices much more than 12 or 24 packs.

54
Summary (contd)
  • 5. There are compelling reasons to put more
    promotional emphasis on 6-packs especially cans
    as both Supermarkets and bottlers did with 20
    oz. singles between 2001 and 2003
  • Trip frequency Why encourage the shopper to
    stay away by always promoting 12s and 24s
    versus smaller sizes?
  • Leverage and low risk 6-pack cans now do only
    4.7 of total CSD dollar sales and 5.2 of case
    sales.
  • Increased CSD category profitability With
    respect to cans only a max potential of 53 to
    the extent that Supermarkets can reverse the
    percentage of units sold on promotion between 6
    and 12 pack cans
  • Significantly improved alignment with current
    heavy-user CSD household purchasing behavior If
    your family wanted 12 different CSD brands or
    flavors, wouldnt you want the option of buying
    these on promotion in 6-packs versus 12-packs
    more frequently?
  • Competitive edge Supermarkets are now the only
    channel left that carries full variety of
    6-packs. Promoting this size more frequently
    communicates this very important message and
    helps reinforce the consumers perception of
    Supermarkets unique advantage as full assortment
    merchants.

55
Implementation
  • If you think the approach we have outlined in
    this presentation makes sense, then we suggest
    the following steps
  • Ask your Category Captain/leading suppliers to
    lay-out a promotion plan specifically designed to
    improve CSD category profitability. Key areas of
    focus
  • Shifting the promotion emphasis away from 12s
    and 24s to under-promoted pack sizes
  • Consumer rationale
  • Balancing profit goals with category image and
    traffic building objectives
  • Work with your bottlers to align CSD pricing with
    these objectives
  • There is little reason why supermarkets should
    continue to sell 6-pack cans at a loss given the
    fact that this pack size is on the brink of
    defaulting to niche status.
  • Again, bringing 6-pack cans pricing into
    alignment is the key to the successful execution
    of this strategy and, eventually, dramatically
    improved total CSD category profits.

56
Thank You
  • We appreciate the time and attention you gave us
    today and trust that the information provided has
    proven useful.

www.hoytnet.com
8912 East Pinnacle Peak Road Scottsdale, AZ
85255 Phone (480) 513-0547 Fax (480) 513-0548
E-Mail chrishoyt_at_hoytnet.com
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