Does increased purchase frequency translate into healthier bottom lines?

WHAT IT MEANS AND WHY IT'S IMPORTANT — Purchase frequency in the drug channel is up 6.7%. Sounds good, right? More shoppers buying more often — that's the end-game, isn't it? Except not so fast, because the real question is whether or not higher frequency of purchases actually translates into greater revenue streams. And, given the rocky road that America's now-you-see-it-now-you-don't recovery has traveled of late, more shoppers may in fact be buying more often, but they actually may be spending less. 

(THE NEWS: Report: Purchase frequency in drug channel up 6.7%. For the full story, click here.)

The underlying reason more of those shoppers are taking trips to their local drug store more often is because of convenience. And pharmacy, with its smaller boxes, extended hours, drive-through windows and the recent trend toward serving up more fresh food, has convenience in spades. That's what those fill-in trips represent. Even if the average consumer brings a smaller market basket to the checkstand, if there are more consumers carrying those market baskets in the store to begin with, that still represents a very healthy revenue stream.

But the concern is if or when the U.S. economy free falls back into a full-blown recession. That may not be too long off with Congress' very-public partisan battle over the debt ceiling and the growing government-debt concerns across Western Europe that are fostering so much volatility on Wall Street — the Dow dropped 500 points just last Thursday. The concern is if or when U.S. companies revert to more-conservative growth strategies that potentially could derail any kind of job growth — there were only 117,000 more jobs reported in July, the most in two months, and unemployment still stands at 9.1%. The concern is if or when consumers become anxious over their future again, and value begins trumping convenience as a result.

Take the growing consumer interest in extreme couponing, for instance. The danger isn't so much the you've-got-to-be-kidding-me extremists who dumpster dive for deals and spend hours upon hours plotting how to get $1 in merchandise by spending only 15 cents. It's the legions of average consumers those extremists inspire.

Overall redemption volume in the U.S. grew 3.1% to 3.3 billion consumer-packaged-goods coupons in 2010, according to NCH, a firm that provides business solutions for the redemption, settlement and analysis of promotional offers. In 2010, 78.3% of consumers reported using coupons regularly, up 14.7 share points from pre-recession levels, and one-third of the respondents in NCH’s annual consumer survey said that they used more coupons in 2010 than the prior year. In total, 2010 consumer CPG coupon usage added up to $3.7 billion of savings in the United States, an increase of $200 million over the prior year.

Over the course of the first half of 2011, redemption volume increased 26% across drug stores; 11.2% across other store types, including dollars stores up 11.2%; and 10.4% across mass.

So, will the momentum behind increased purchase frequency translate into a healthier bottom line, even if the consumer is spending less? If the U.S. economy is standing at the precipice of the second plunge of a double-dip recession, what does that mean for retailers? The winners in all of this will be the retailers who successfully communicate both value and convenience. With the number of drug store retailers enhancing loyalty card programs and increasing consumer touchpoints through technology, that means those winners very well could come out of the drug channel.

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