Use of Manufacturers' Coupons Soaring Among U.S. Consumers; Coupon Delivery Systems Going High-Tech; But Fresh & Easy Stores Don't Accept the Coupons

Merchandising and Promotional Report

U.S. consumers are using manufacturer's cents off coupons in higher percentages today than at anytime in recent history, and that use is expected to increase even more throughout next year as the current economic recession gets even deeper.

The use of manufactuerers' coupons, particularly for food and grocery items, hase been an entrenched merchandising and promotional feature of U.S. food and grocery marketing and retailing for decades. The coupons allow consumers to save various amounts on their purchases, allow marketers to control and track their promotional spending (compared to offering off-invoice type promotions to retailers, for example) and are a win for retailers because they get added sales while getting paid-back for the coupons' value by manufacturers.

According to data compiled by Nielsen, coupon-clipping Americans now comprise a whopping 86% of all U.S. households. Those coupon-clippers drive 89% of all-outlet dollar sales, Nielsen says its research shows.

The primary vehicles for manufacturers cents off coupons today still are paper-based. Most manufacturers' coupons are still distributed in newspaper free-standing-inserts (FSI's) or through direct mail.

However that traditional coupon delivery system is changing. The Internet and other digital media are making it much easier for companies to distribute coupons, and making it much more convenient for shoppers to gain access to the coupons in real time.

For example, lets say a consumer wants a 50 cent off coupon for Tide Laundry Detergent before heading off to the supermarket. No problem generally. Today she can go online and most likely find the Tide coupon, along with many others, on the Proctor & Gamble company Web site or one of the many third party Web sites like coupons.com that are devoted to coupons. Once the coupon is found, she just has to download it and print it.

We think, as does Nielsen, digital methods of distributing manufacturers' coupons are currently just in their infancy. Eventually we see manufacturers regularly making coupons available in real time to consumers right at the point-of-purchase via their cell phones and other handheld electronic devices, for example.

Writing in this month's issue of Nielsen's "Consumer Insight" online newsletter, Todd Hale, senior vice president for consumer and shopper insights for the research firm outlines what today's coupon shopper can expect as new technologies revolutionize couponing methods and media:

1. Reduced reliance on paper-based feature and coupon circulation. A race for dominance is taking place with computer-based Internet applications, mobile phones, credit and frequent shopper cards and in-store applications. Global positioning systems (GPS), radio frequency identity tags (RFID), eye movement tracking cameras and similar devices will enable location- and interest-specific promotional offers to be delivered at actionable sites.

2. Electronic or store entrance coupon delivery. Instead of tagging consumers as they leave the store post-purchase, next generation systems will deliver coupons via mobile phones, Internet or in-store devices when shoppers enter the retail location or are in the mood and in the aisle, ready to buy.

3. Smart appliances provide in-store shopping assistance. What's for dinner tonight? Visit the produce or meat department and allow your personal chef avatar to generate some electronic menu suggestions and automatically create a shopping list with aisle and item locator cues.

4. Stores offering engagement and entertainment opportunities. Look for personal shopper holograms to guide you through the store or shelf talkers activated by your cell phone to offer special discounts. Walmart has pledged to invest $10 million and two years of testing to determine the optimal placement of in-store screens and special shopper programming.

5. One-to-one personalized promotions. Stores will become increasingly interactive and consumer-specific, marrying data from multiple sources to deliver an involving shopping experience that reflects individual interests and buying preferences. Social networks based on shopping proclivities will be formed to build demand and drive sales.6. Integrated strategic promotional planning. Shopper marketing comes of age, dominating the retail landscape, displacing product-centric marketing planning. Technology enables a holistic planning approach that puts the consumer front and center while "benefitting the brand, the consumer, the shopper and the retailer."

Tesco's Fresh & Easy Neighborhood Market stores don't accept manufacturers' cents off coupons from consumers, which in our analysis puts the grocery chain at a serious competitive disadvantage, particularly in current recessionary America where shoppers are using coupons at an ever-increasing clip. Numerous studies show 30% more consumers are clipping manufacturers coupons this year compared to 2007, for example.

Fresh & Easy does create its own coupons. The grocer's current coupon, which it includes in its direct mail advertising circular every three weeks, sometimes posts on its Web site, and distributes in the stores in a now limited fashion, is a $6 off total purchases of $30 or more coupon.

This coupon though, unlike manufacturers' coupons that all other supermarkets and discounters like Wal-Mart, Target and others accept, is funded by Tesco's Fresh & Easy, meaning the $6 comes out of the retailers profit margins. When shoppers use one of those coupons and buy only $30 worth of purchases, for example, that results in a 20% reduction for Fresh & Easy, right off the top line, and ultimately right off the bottom line.

On the other hand, manufacturers pay retailers the face value of the manufacturers' coupon plus a handling charge of a few cents each for the coupons. While it is true there is a certain amount of labor involved for a supermarket chain to gather all the paper coupons each day and to regularly ship them off to a coupon clearing house, the benefits of accepting them -- increased sales, shopper loyalty, ect. -- far outweigh the negatives of doing so, which is why close to 100% of U.S. supermarkets, grocery stores, mass merchandisers and drug stores accept manufacturers coupons.

Many supermarket chains even partner with manufacturers and run special manufacturer coupons in their advertising circulars. These are most often called "manufacturers' in-ad coupons." Retailers love these because they can only be used at their supermarkets, which guarantees manufacturer-funded incremental sales on the items in their stores.

Tesco's Fresh & Easy decided not to accept manufacturers' coupons from the beginning (the first stores opened in November, 2007) as part of its philosophy of eliminating as much labor as possible in its stores, which includes eliminating store clerks' handling of paper (accept cash of course). That's why Fresh & Easy stores don't accept paper checks of any kind. They also refuse to accept WIC vouchers, which are the paper coupons the U.S. government gives to the poorest of the poor mothers so they can purchase infant formula, fresh milk and juice, whole grain cereals and fresh produce for their infants and toddlers.

Like manufacturers' coupons, the WIC vouchers are free money in that 100% of the value of the purchases made using the coupons is paid to the retailer by the federal government.

Nearly every supermarket in the U.S., as well as most drug chains, mass merchandisers and even most convenience stores, accept WIC vouchers. Tesco's Fresh & Easy doesn't as part of its paper avoidance model. The WIC vouchers are different than food stamps. Fresh & Easy accepts food stamps from shoppers because the federal government now distributes them to people in plastic debit card form rather than as paper, which used to be the case.

Earlier this year, Tesco's Fresh & Easy reported sales of alightly over $300 million for its first nine months of operations. Based on the number of new stores opened since then, we estimate the chain is approaching annual sales of about $500 million.

Assume that if the chain accepted manufacturers' coupons it could add 2% (and that is a reasonable assumption) to its total sales. That means an additional $1 million in gross sales (based on the $500 million sales number), which isn't too shabby considering doing so would merely be a policy that all of its competitors already have.

Additionally, think about all the shoppers who probably don't shop at Fresh & Easy at all because the stores don't accept the manufacturers' coupons. Accepting them could increase the potential customer pool of the stores.

Lastly, there likely are consumers who might use Fresh & Easy more as their primary food and grocery shopping venue if the grocer accepted the manufacturers' coupons. But since they don't, many shoppers split their shopping between stores that do accept the coupons and perhaps Fresh & Easy.

The result: These shoppers spend far less at Fresh & Easy stores than they likely would if the chain accepted manufacturers' coupons. The other supermarket, the one that accepts the coupons, is getting the rest of those shoppers' money, rather than Fresh & Easy. As a result, Fresh & Easy's store market basket sizes are smaller than they might be if the grocer accepted manufacturers' coupons. It makes "cents" (and added sales dollars) to us.

Sunday Supplement: 'America's Cheapest Family' Helping to Spur Increased Use of Manufacturers' Coupons At the Grocery Store; Accept At Fresh & Easy

The Economides', America's self-proclaimed "cheapest family" likely wouldn't shop at a Tesco Fresh & Easy Neighborhood Market even if one was located just a few steps from the front door of their house.

It's not that the family, who's last name (pronounced economy-dis) even sounds frugal, has anything against Fresh & Easy in general. Rather, they have one specific problem with the grocery chain's stores, which would be a deal breaker for the family to shop them: Tesco's Fresh & Easy Neighborhood Market grocery stores do not accept manufacturers' cents off coupons.

The Economides' use manufacturers' coupons as their key strategy in spending only $350 a month on groceries for their family of six. And despite spending such an amazingly small amount of money each month on food and groceries, the husband and wife team say they eat very well, thank you.

Husband and wife Steve and Annette Economides, the heads of the self-proclaimed cheapest family in America, say they are able to stock a lot of food for a little bit of money, thanks, in part, to coupons. They use them for almost every item. During one recent shopping venture, for instance, the Economides' bought more than $140.58 worth of food for $53.01, Annette Economides told ABC TV's Good Morning America last Thursday in this report.

The Economides' told Fresh & Easy Buzz that manufacturer cents off coupons are the key to their multi-level strategy, which allows the family of six to spend a mere $350 monthly for groceries.

Last week ABC TV's Good Morning America decided to put America's self proclaimed "cheapest family" to the frugal grocery shopper test.

The morning show's producers gave Annette and Steve Economides $100, telling them to employ all their frugal shopper strategies including using manufacturers' coupons, and see how much they could buy with the $100.

The Economides' did their America's Cheapest Family" image, and Good Morning America, proud. They left the supermarket with 13 full grocery bags, buying everything they intended to, going over the $100 budget by only $1.77. Thirteen full bags of groceries, including fresh produce, meats and everything else for $101.77 isn't anything to sneeze at. Most of us feel pretty good if we can get away with four bags at that cost.

Chief among the tools Annette and Steve Economides said they used to achieve the 13 bags of groceries for a shade over $100 bargain was manufacturers' coupons, and lots of them--but only for those items they regularly buy--which is one of their hard and fast rules. No impulse item coupons for "America's Cheapest Family."

The Economides' may be cheap but they also are savvy marketers. They've created a website called (what else) America's Cheapest Family. On the website they offer frugal grocery shopping advice and strategies, sort of a primer in strategic shopping, as well as sell their New York Times' best selling book titled (what else) America's Cheapest Family. The also offer a subscription-based newsletter, The HomeEconomiser, that is packed full of strategies and tips for families to save money. The website also sells other related books and items, along with having a few ads on it.

Annette Economides has been called the" Coupon Queen" for her strategic method of using manufacturers' coupons to save substantial sums of money at the supermarket. She's even taught classes in strategic coupon use.

Last week on ABC's Good Morning America, the "First Family of Frugality" offered a few other tips to viewers in addition to strategically using manufacturers' cents off coupons to save money on groceries. Three tips from the Economides from ABC's Good Morning America:

Don't go to the grocery store often
A lot of families are going three, four, five times a week. You have to take a challenge and say, "I'm going to plan a menu. I'm going to plan five dinners. And I am going to go shopping once this week, and buy the stuff I need, use what's in my pantry."

Leave the kids at home.
You'll save three times the price of the baby sitter if you have time to really think and walk through the store and pick up the things you really need.

Slice your own luncheon meat.
Buying meat and asking the deli to slice it can save $1 to $5 a pound. The Economides family also recommend that you grind your own meat. You can buy the cheapest cuts of chuck roast or chuck steak at $1.50 a pound, leave most of the fat on and grind it to look and cook as if you had bought $5-a-pound lean ground beef. The say the savings can be $3.50 a pound.

These three strategies, along with the strategic use of manufacturers' coupons, are merely the tip of the frugality list from "America's Cheapest Family." That's why they created the website, which is turning into an industry along with their book.

Hits on the website, sales of their book and other related items are soaring even higher than the cost of food and groceries are in the U.S. The high food inflation, soaring gasoline price and all together poor economy is creating a demand for what the frugal family is preaching, evidenced by the fact that requests for them to speak to groups, appear on television, be interviewed for publications and teach classes, are keeping them so busy Annette Economides is having a hard time finding time to do her grocery shopping.

Of course, what the Economides are teaching and preaching isn't the best music to the retail food and grocery industry's ears. In what is arguably the lowest margin business in the U.S., grocers count on impulse sales to give them a sales and profit boost. And manufacturers like to use coupons in many cases as a way to generate new trial and boost sales of impulse-oriented products. However, if the Economides family's strategic grocery shopping program ever becomes widespread, the industry just might have to rethink its entire business model.

But the frugal family also are partly responsible for the soaring increase in coupon use among American shoppers in the last year. Not as responsible as the poor economy and fast-rising food prices of course. However, their message is being publicized in media far and wide which is helping to generate the highest levels of manufacturer coupon use ever seen in recenttimes, according to a recent report from the Food Marketing Institute (FMI). Coupons are like cash (eventually) to grocers, so they generally welcome and even encourage their use.

Earlier we mentioned Annette Economides is so busy with the business and money-making aspects of "America's Cheapest Family" she's finding it hard to carve out time for frugal grocery shopping. She makes time for the strategic shopping though, along with making time to clip manufacturers' cents off coupons and use the Internet and other sources to obtain them. Shoping on the cheap and using the coupons are her bread and butter in more ways than one after all.

The frugal Economides family is helping to make cheap chic in the U.S. during these tough economic times. We predict there even soon might be low-priced cheap-chic designer versions of manufacturer cents off coupon mini carrybags. After all, even the cheap should get to do so in style.