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Todd
Hale
SVP, Homescan Client Service
ACNielsen
Wal-Mart’s success in retail is unsurpassed. The world’s
largest company hit $265.3 billion in sales for the year ending
January 31, 2003—an increase of 11.6% versus last year.
Their growth in the U.S. is being fueled by store expansion,
primarily from expansion of Wal-Mart Supercenter formats.
As a corporate entity, Wal-Mart is shopped by 84% of U.S.
households. Expansion of Supercenters will continue to drive
Wal-Mart sales growth via increased shopper penetration. In
this article, we will examine the Wal-Mart shopper and discuss
how—through segmentation of their shopper base and subsequent
targeting efforts—manufacturer categories can be leveraged
to drive higher Wal-Mart shopping frequency and shopper loyalty
yielding increased share of wallet among Wal-Mart shoppers.
Today, manufacturers face a challenging market in terms of:
- More product choices for consumers and increased blurring
of competitors
- More media choices
- More shopping choices and continued blurring of retail
channels
- Less loyal customers
As a result, many
consumer packaged goods manufacturers have used customer or
consumer relationship management (CRM) activities to establish
relationships with consumers and drive improved promotion/marketing
impact. These activities have traditionally taken the form
of direct-to-consumer advertising/promotion. Given the large
shopper base and high shopping frequency that Wal-Mart commands,
we are suggesting an alternative approach that leverages the
power of retail partners like Wal-Mart in the CRM process.
Other retailers
can leverage Wal-Mart shopper understanding to gain insight
on the competitive landscape and make tactical and strategic
decisions to enhance how consumers shop their stores.
Segmentation
Not surprisingly, Wal-Mart shoppers are not all alike. Using
the Homescan consumer panel, ACNielsen segmented Wal-Mart
banner shoppers to identify and examine differences in low
and high spending Wal-Mart shoppers. In this approach, Wal-Mart
shoppers were ranked on their annual dollar expenditures (total
dollar ring) at Wal-Mart. Shoppers were placed in four equal
groups representing 25% of Wal-Mart’s shoppers. We used
the same process to array total retail outlet shoppers and
both schemes yielded 16 individual Wal-Mart shopper segments
and one non–Wal-Mart shopper segment.
With the segments created, we then mined our Homescan data
to gain insights into the following areas:
- Segment size—How large and important is each segment
and what kinds of behaviors do they drive?
- Demographic composition—What were the similarities
or differences in the types of households within each segment?
- Competitive frame—In what other retail channels
or retailers do they shop?
- Attitudinal differences—What factors drive different
channel or account behavior?
- Category importance within and outside of Wal-Mart
In terms of segment
size, 66% of Wal-Mart’s sales come from their “top
shoppers”—the 25% of shoppers who were the heaviest
spenders in Wal-Mart [See chart 1]. In fact, a majority of
Wal-Mart sales are from the top two individual shopper segments—those
households who were also in the heavier total retail spending
segments.
Top shoppers are extremely important to Wal-Mart because of
the number of shopping trips they make to Wal-Mart—between
50 and 60 trips per year. We also learned that Wal-Mart per-trip
spending also increased among the heavier Wal-Mart shopper
segments. However, with the exception of the top Wal-Mart
spending segments, heavier total retail spending doesn’t
necessarily lead to higher Wal-Mart shopping frequency [See
chart 2].
Shopper loyalty is also tied to the top Wal-Mart spenders,
but heavier retail spenders are less loyal to Wal-Mart. These
are households that obviously have greater discretionary spending
power, but they are spending more outside of Wal-Mart. Where
are they shopping and what are they buying? [See chart 3]
Demographics
So who are these top two Wal-Mart shopper segments—those
consumers who drive 54% of Wal-Mart sales?
When comparing the distribution of Wal-Mart’s top two
shopper levels to all Wal-Mart shoppers in terms of household
income, the top shopper group has a higher income profile.
This is one reason why they also fall into the heaviest total
retail spend group. In fact, 46% of the top shoppers have
annual incomes higher than $50,000. There is a skew toward
a middle/low income profile for the second top shopper segment.
Of the shoppers in this segment, 55% have annual incomes of
$39,900 or less. These differences imply that the category
and retail channel requirements of these two shopper segments
may be very different [See chart 4].
Top shoppers also have a younger age profile than other shopper
groups, with 50% of them having a female age 44 or under.
Similar to the difference in income, there is a slightly different
profile for the second top shopper
segment, which skews a bit older.
Top shoppers have a larger household profile, while the second
top shopper segment contains a disproportionate number of
one- and two-member households. This would suggest opportunities
for “child” or “family- oriented”
products for the top shopper segment and smaller package sizes
for the second top shopper segment.
Competitive Frame
While shopper segments exhibit differences in shopping behavior
and demographics, it is also important to look at them in
terms of retail channel or retailer mix.
Wal-Mart’s reach varies considerably across retail channels.
While the Wal-Mart banner has 83% of total U.S. household
penetration, there are certain retail channels that have a
much higher percentage of shoppers also shopping at Wal-Mart.
These retailers include dollar stores, automotive retailers,
convenience/gas, home improvement stores, club stores and
toy stores. All of these outlets are in greater competition
for Wal-Mart trips.
Conversely, those retail channels with average or below average
interaction are grocery, office supply, bookstores, electronics,
drug and pet.
However, just like the differences in shopping behaviors and
demographics between the top two Wal-Mart shopper segments,
there are also differences in the penetration levels that
these groups devote to other retail channels. In all retail
channels except dollar stores, penetration by top shoppers
was higher than the second group. Is there an opportunity
for Wal-Mart to capture some of those shopping trips?
Greater channel variety among the top shoppers is also evident
in terms of channel-level shopping frequency. Keeping with
the higher variety theme, top shoppers also make a disproportionate
number of trips to major grocery chains and they exhibit higher
frequency in major chains in other retail channels. This is
also likely influenced by the fact that top shoppers are larger
households that require more total trips to satisfy household
member demand than do smaller households.
When examining channel-specific shopping behavior across Wal-Mart
shopper segments, the share that shoppers devote to the grocery
channel declines dramatically across heavier Wal-Mart shopper
segments. This is particularly true for the lower retail spending
groups. The shopping dimensions driving the lower share can
be attributed to both trips and spending levels.
The heavier Wal-Mart shoppers also make fewer trips to the
drug channel. This could indicate that top shoppers are using
the grocery and drug channels for fill-in or small trips and
Wal-Mart for major shopping trips. Wal-Mart shoppers do shop
the dollar channel much differently than grocery and drug,
as shopping frequency doesn’t vary much across the shopper
segments. This may mean the dollar channel is less affected
by, or more “immune” to Wal-Mart [See chart 5].
Consumer Attitudes
The ACNielsen Homescan consumer panel can identify factors
that drive the selection of the store where consumers shop
most often.
As is usually the case today, convenient location is the primary
reason overall for why consumers choose to shop in the grocery
store where they most often shop for the majority of their
household groceries. However, when comparing Wal-Mart vs.
non–Wal-Mart shoppers, differences begin to show. While
location is the most significant reason for Wal-Mart shoppers,
it is not as strong a reason compared to non–Wal-Mart
shoppers. Price was a much stronger concern for Wal-Mart shoppers,
while assortment ranked high for the non–Wal-Mart crowd
[See chart 6]. When examining consumer attitudes across the
Wal-Mart shopper segments, price and assortment are of greater
importance in determining where heavier Wal-Mart shoppers
shop. Location is the primary factor driving where lighter
Wal-Mart shoppers shop for groceries.
Category Buying
Remember all those trips Wal-Mart shoppers make to both Wal-Mart
and other retailers? What is in those baskets?
Among the top shopper segment, the categories that exhibited
the largest negative category trip gaps—meaning more
trips were made outside of Wal-Mart than within—were
categories with generally high purchase frequency and immediate
consumables [See chart 7]. From this, we learn that one-stop
shopping for a big box isn’t always convenient. How
can Wal-Mart change their assortment, store formats, store
locations, and/or merchandising activity to close these gaps?
Categories where the largest positive gaps occurred (for top
shoppers) were in health & beauty, diapers, pet care and
general merchandise—categories where Wal-Mart typically
is very strong.
Wal-Mart’s Future
Clearly, Wal-Mart success in the U.S. and around the globe
is admired by many companies inside and outside of retailing.
It is hard to knock their track record. For Wal-Mart’s
future, their growth will continue to be fueled by supercenter
store expansion, added services, and the impending expansion
of their neighborhood market format. The only possible storm
clouds on the horizon, besides those pesky dollar stores that
perform well among all Wal-Mart shopper groups, are the challenges
that we read or hear about just about every day in the media:
the potential for unionization of their workforce and local
communities trying to limit big box stores.
Leveraging the Segmentation
Wal-Mart has transformed itself over the years as a leader
in retail growth, focused on the consumer and on an intense
desire to drive costs out of their system. Although future
store expansion will continue to drive Wal-Mart growth via
an expanded shopper base, faster growth will come from enhancing
the frequency in which consumers shop their stores or through
capturing a greater share of their consumers’ overall
retail spending.
Wal-Mart shoppers are quite diverse in terms of their:
- Wal-Mart shopping behavior
- Demographics composition
- Competitive retail channel and retailer mix
- Shopper attitudes
- Category buying (inside and outside of Wal-Mart)
As such, Wal-Mart
must look to shopper segmentation for growth opportunities
and leverage their expertise in the areas of media message
and delivery, store design, store location and item assortment
to achieve their growth objectives.
For manufacturers to help this industry giant, they must leverage
their category, brand and consumer expertise to:
- Impact Wal-Mart shopping behavior
- Appeal to specific consumer segments
- Help Wal-Mart minimize “channel blurring”
impact
- Drive CRM activities and sales through Wal-Mart shopper
segments
For retailers, Wal-Mart’s
commitment to every-day- low-pricing and relentless pursuit
of low go-to-market costs will continue to impact the retail
community as they decide how to compete against Wal-Mart’s
store expansion plans in their markets. There is opportunity
for other retailers to leverage the insights from Wal-Mart
shopper segmentation to modify and refine their strategic
initiatives.
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