Monday, March 9, 2009

Consumer Use and Retailer Redemption of Manufacturers' Coupons Soaring Says Leading Redemption Company in the U.S.; But Not at Tesco's Fresh & Easy

Inmar Inc., the leading promotions transaction settlement provider in the U.S., said late last week that manufacturers' "cents-off" coupon redemption in the fourth quarter of 2008 grew nearly 10%, compared to the fourth quarter of 2007, making it the first jump in redemption since the early 1990's.

Inmar operates one of the leading U.S. clearinghouse operations for the redemption of manufacturers' coupons by retailers and the payment to those supermarket and other format retailers by the manufacturers'-marketers.

According to data just released by Inmar, consumer response to manufacturers' coupons remained strong for 2008, with 2.6 billion coupons redeemed, the third year in a row at that level.

The peak year for coupon redemption was 1992, at the end of the last major recession, when 7.9 billion coupons were redeemed, Inmar says. [Fresh & Easy Buzz thinks 2009 could come comparatively close to that number. It won't be 7.9 billion because manufacturers aren't distributing coupons in the same volume as they were in the late 1980's-early 1990's. However, we bet when 2009 is over the total redemption amount will be much higher than 2.6 billion.)

"Consumers responded to the financial uncertainty (in 2008), in part, by using more coupons," says Bob Carter, president of Inmar CMS Promotion Services. "When everyone started hearing reports of record unemployment, drops in consumer confidence and losses on Wall Street, coupon redemption volume started to go up."

CMS Promotion Services is the brand solutions and promotions arm of Inmar.

The first three quarters of 2008 saw coupon redemption dip slightly, compared to the same three quarters in 2007, according to Inmar's data.

But manufacturer-issued food, grocery and non-food item coupon redemption surged up by nearly 10% in the fourth quarter of 2008, compared to the fourth quarter in 2007.

That increase came in November and December which both saw double digit redemption growth.

A double-digit increase in the use of food coupons primarily drove the jump in redemption, although non-food coupon redemption also rose by nearly 10%, Inmar says. [Note: This compares to the search trends by consumers we analyzed and published in this piece on March 8:

The increase in coupon use also accompanied an unprecedented shift in the channels in which consumers used coupons, according to Inmar.

"For years, nearly 70% of coupons were redeemed in conventional supermarkets," says Jennifer Mauldin, president of Inmar Carolina Services Revenue Recovery Services. "But in 2008, the mass-merchandiser channel saw a 15% increase in redemption overall, made up by a 20% increase in redemption for food coupons and a 13% increase in non-food coupons."

Inmar's Carolina Services Revenue Recovery Services processes coupons and manages third party pharmacy claims for retailers.

The majority of non-food coupons issued by manufacturers are for items like household cleaning supplies and essentials (toilet tissue, paper towels, cleaning products) and health and beauty care category items (vitamins, OTC drugs, body care products) that are sold in supermarkets, mass-merchandise stores and drug stores.

The mass-merchandiser channel includes retailers such as Wal-Mart, Target and Costco, all three of which accept manufacturer-issued coupons for food and non-food items.

Every major (and most minor) food, grocery and related format retailers in the U.S. accepts manufacturer-issued "cents-off" coupons in their respective stores.

Tesco's Fresh & Easy Neighborhood Market does not accept manufacturers' coupons at all in any of its stores in California, Nevada and Arizona, which currently number 115. Since Fresh & Easy is owned by the third-largest retailer in the world, Tesco, which also is the number on retailer of food and groceries in the United Kingdom, is qualifies in the major retailer category mentioned above.

Supermarkets and grocery stores still remain the top retail channel for the redemption of manufacturers' coupons, with about 64% of all coupons being redeemed in the channel, according to data provided by Inmar, which is based in Winston-Salem North Carolina.

However, coupon redemption is growing in the mass-merchandiser channel, largely because the mass-merchandiser channel is a fast-growing seller of food and groceries. About 19% of manufacturers' coupons are now redeemed in the mass-merchandiser channel, according to Inmar's data.

The remaining percentage of coupons are redeemed from other retail classes of trade, such as the drug store channel, and others.

Much of this growth in the mass-merchandiser retail channel in 2008 can be attributed to the fact that more and more shoppers have been turning to the channel, particularly to Wal-Mart, but also to other mass-merchandisers like Costco, to buy their food and grocery items, taking the manufactures' coupons with them to those stores.

Based on our research and analysis, it's not that fewer shoppers are using the coupons at supermarkets. Rather, it's the fact that over the last few years the mass-merchandiser channel has gain a much bigger share of the overall food and grocery (and non-food) consumer dollar. This therefore is reflected in the growth in coupon redemption for the channel.

For example, the overall number one retailer of food and groceries in the U.S. today is a mass-merchandiser, Wal-Mart. The number two seller of food and groceries nationally in the U.S. is Costco, also a mass-merchandiser, with a membership club store specialty. Kroger Co., the largest supermarket chain in the U.S., now comes in as number three. Just two years ago Kroger was the overall top-retailer of food and groceries in the U.S., and Supervalu, Inc. (now number four) and Safeway Stores, Inc. (now number five), were both in front of Costco.

Inmar CMS Promotion Services' president Bob Carter says food and grocery manufacturers'-marketers continue to believe in the power of coupons, proven by a 5% increase in the number of coupons made available to consumers last year. "At 317 billion coupons, distribution is not just up over the previous year, but is back up to levels from a decade ago," Carter says.

"This high level of (manufacturer-issued coupon) distribution, combined with a 9% increase in the average face value and a generally sour economy, make coupon offers more attractive to consumers than ever," says Carter.

As Fresh & Easy Buzz has been writing about and offer analysis on in a variety of pieces over the last many months, all of the empirical evidence out there demonstrates that Bob Carter is correct; that the use of manufacturers' "cents-off" coupons by consumers will continue to increase, and do so significantly.

To demonstrate this point, Inmar's Carter says current data shows consumers' use of manufacturers' coupons increased substantially in January, 2009, over January, 2008. Over 9% more manufacturer-marketer-issued food, grocery and non-food item coupons were redeemed (meaning they passed through retail stores) in the U.S. in January of 2009 than were redeemed in January , 2008.

"While we can't predict the future, it is safe to say that the traditional coupon is back in vogue for consumers, says Inmar's Jennifer Mauldin. "Even if the economy turns a corner sooner than later, a combination of factors have put coupons back on the radar of many consumers and introduced some to them for the first time."

Inmar is a logistics company that specializes in providing services and solutions between trading partners for the physical, financial and information flows within the supply chain. It's the nation's largest provider of promotions logistics and settlement services, serving over 1,700 business clients, including manufacturers, wholesalers and retailers. The company says it processes more than 3.5 billion transactions annually.

The Inmar data matches that from supermarket and other format retailers, which we've reported on and written about previously in Fresh & Easy Buzz . The retailers report that food and grocery coupon volume (use by shoppers) in their stores is at what some say is at an all time high, and what others say is significantly higher volume than they've seen in many years.

But since Tesco's Fresh & Easy has a policy of not accepting the manufacturer-issued coupons in its stores, the many shoppers who use the coupons take them to stores operated by its competitors, where they spend their money because those grocers accept the coupons.

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