Priceonomics

Be it tabloids or Altoids, you’ve probably done some impulse shopping at the supermarket. And more likely than not, you did it when your guard was down and your wallet was out: at the checkout aisle.

While you stood there, waiting for the chatty octogenarian ahead of you to fish out her debit card, your gaze drifted past the gossip rags and over to the breath strips, the battery-operated fans, the $2 reading glasses, and the peanut M&Ms. A couple of these items caught your eye, and you tossed them onto the conveyor belt. You didn’t intend to buy them, but, well, they were there.

Then again, perhaps you’re immune to the charms of these odds and ends. Maybe you’re blessed with exceptional willpower and financial discipline. Or maybe you’re just too distracted by something else entirely. Something flashier and hard to put down: your cell phone.

Over 61% of adults in the US now have smartphones. We use them all the time, especially at the wrong time. Waiting in line presents a perfect occasion. We might as well check Facebook and text our BFFs. Meanwhile, we’re drifting right past the impulse bins to our left and right, deaf to their siren call, oblivious to their colorful signage, our eyes fixated on our iPhones. 

In many ways, we’re caught in a battle for our attention: Impulsion versus compulsion. Needling urge against entrenched habit. Candy bar versus Candy Crush.

Sizing Up the Stakes

The war has just begun, but merchants and brand managers across the nation worry that they’re losing. In fact, the retail industry has coined a term for this phenomenon: “mobile blinders.” Our “blindness” to all the little things we could be buying while trapped in line is jeopardizing some serious business.

It’s hard to calculate precisely how direct and how critical the threat may be. But the stakes are high for the companies who depend heavily on the captive audiences that the checkout aisle has provided for decades. 

A 2009 study sponsored by Mars, Time-Warner, Wrigley, Coca-Cola, and other manufacturers found that 1% of all supermarket sales can be attributed to items in the checkout aisle. Of those sales, candy accounts for 30%. It’s the largest category bought at checkout, followed by magazines and beverages. Combined, candy, magazines, and drinks make up 80% of all checkout-aisle purchases.

To put those figures in perspective: The US grocery business comprises nearly 65,000 supermarkets and other stores, with total annual revenues approaching $550 billion. This suggests that checkout-aisle revenue is a nearly $5.5 billion-a-year business in the US alone.

A Brief History of Impulse Shopping

In the nearly 200-year-old history of retail design, the impulse section is a pretty recent innovation. Sam Walton, founder of Walmart, is often credited with setting the template for the modern-day checkout aisle – its layout, its inventory tracking, and its assortment – throughout the 1960s, 70s, and 80s. An innovative marketer and skilled merchant, Walton turned a small grocery chain into the largest retailer in the world. Many of his competitors borrowed liberally from Walmart’s playbook.

Prior to Walton, one of the earliest, widely cited pieces of academic research on the topic was conducted by William Applebaum of Stop & Shop, Inc. in 1951. In his paper “Studying Consumer Behavior in Retail Stores,” Applebaum was one of the first modern behaviorists to map a causal relationship between the placement of items in a store and the consumer’s impulsive reaction to buy them.

Hawkins Stern, an economist at the Stanford Research Institute in Southern California, built upon Applebaum’s findings. In 1962, he developed a framework for categorizing impulse shopping occasions.

Dr. David Lewis, neuroscientist and founder of research firm Mindlab International, summarizes Stern’s categories as follows:

(1) Pure impulse buying: is a novelty or escape purchase which breaks a normal buying pattern.

(2) Reminder impulse buying: occurs when a shopper sees an item or recalls an advertisement or other information and remembers that the stock at home is low or exhausted.

(3) Suggestion impulse buying: is triggered when a shopper sees a product for the first time and visualizes a need for it.

(4) Planned impulse buying: takes place when the shopper makes specific purchase decisions on the basis of price specials, coupon offers and so forth.

The “suggestion” impulse, Type 3 in Stern’s rubric, is the essence of the modern-day checkout aisle. It informs how retailers position everything from gossip magazines to packs of gum and herbal energy pills in the store.

Consumers will buy these items but rarely seek them out. That’s why, ever since the 1960s, small goods have crept steadily closer to the checkout counter where the captive shopper can easily spot them, grab them, and pay for them before having the chance to reconsider. By minimizing the time to purchase, retailers capitalize on the short-lived nature of your impulses. (In a sense, this is the real-world precursor to Amazon’s one-click button).

But product placement is only half the battle: It wears down your resistance to suggestion, but something needs to make that suggestion in the first place. That’s where packaging comes in. Over the years, designers have optimized products sold at checkout to tell tiny stories. Packaging creates subconscious contexts, presenting you with problems (and solutions) you didn’t realize you had.

Consider that impulse items are often sold individually, not in cartons or 12-packs. This makes them immediately consumable, and it short-circuits the money saving mental calculations you’d otherwise crunch on a bulk purchase. The drinks in the checkout aisle are usually refrigerated, suggesting that you’re parched and could use refreshment.

Candy is a particularly interesting case. Everyone loves it, and it’s particularly effective at tapping the brain’s pleasure centers (so good, in fact, that consumption has been shown to make people more hungry after eating it). But candy is a heavily seasonal business. A large percentage of annual sales occur in the Fall during the Halloween and post-Halloween discount period when we let our guard down, give ourselves permission to indulge, and actually plan bulk purchases of candy.

Candy companies don’t want to be boxed into a small yearly window. Fortunately for them, their products and the impulse aisle are a sweet combination. Placement at checkout gives them the chance to put small treats within arm’s reach to hedge against seasonality and to test out new formulas and flavors. For years, it’s been a lucrative strategy.

But with our phones distracting us at the register, candy may struggle to remain relevant on a non-seasonal basis.

The Sweet and the Sour

Pity the poor Tootsie Roll, a childhood staple in apparent decline. Tootsie Roll Industries, an undiversified candy business with heavy exposure to the impulse aisle, has been suffering disproportionately to its industry competitors. In mid-August, Tootsie’s stock price dipped below its 200-day moving average of $29.58 per share. In its Q2 earnings report, Tootsie acknowledged a 3% decrease in its first-half-year net sales as compared to 2012, and a 6% decrease in Q2 year over year.

Things aren’t so rosy for the better-positioned candy companies, either. The Hershey Company, for example, is the largest candy producer in the US by market share (43.3% in 2011, according to the New York Times). Recently Hershey CEO John Bilbrey hinted that mobile blindness might be a primary factor behind the 5.5% decline in the company’s gum business in 2012.

And other retail categories with strong dependencies on the impulse aisle are being hit hard. Consumer research firm Mintel estimates that the “gum, mints, and breath fresheners” category alone represented a $4.3 billion business in the US in 2012, driven significantly by checkout-aisle sales. That market “started showing softness in 2010,” according to Mintel’s December 2012 industry report. The report predicts weakened sales through at least 2017, to be offset only in the event of significant innovation in formulation and merchandising strategies.

It’s hard to pin down precisely how detrimental smartphones are to candy companies' bottom lines. These companies do not publicly disclose the strength of their checkout aisle sales each quarter. But we can extrapolate potential damage. For instance, Hershey discloses in its financial reports that distribution channels including food and drug stores, mass merchandisers including Walmart, and convenience stores account for 90% of its US revenues. Many of these retailers, Walmart in particular, sell a lot of their candy at the checkout aisle. As several high-profile companies have openly expressed concern about mobile blinders, it seems to be a major threat.

The Future of Impulse Shopping

“Well, it’s louder, isn’t it? It’s not ten….These ones go to eleven.” 

- Nigel Tufnel, This is Spinal Tap

Will the decline of the impulse aisle usher in a glorious new era of moderation? Will everyone shed a few pounds, overlook the Miley Cyrus headlines, and just say no to Five Hour Energy? Will we trade orange soda for fresh oranges? Will the smartphone actually have made us smarter?

Don’t count on it.

Big retailers are already testing new ways to grab your attention in-store, be it at checkout or any other aisle. And there are plenty of technologies to help them do it. Mobile networks like Retailigence help brands and retailers target promotions directly to consumers’ phones: If you’re in the vicinity of a supermarket, for instance, you might receive grocery ads through the mobile web. Startup Zoomkube aims to bring face-recognition technologies to the supermarket, allowing brands to target ads directly to shoppers in stores. (Those scenes from Minority Report may be science fiction no longer). And mobile messaging behemoth Snapchat announced its intentions to partner with brands for in-app advertising and spot promotions. Geo-targeted, time-sensitive, and context-based advertising could make shopping suggestions based on your history, your demographic or behavioral profile, and even your appearance.

Facial recognition, image matching, and preference-based retargeting have already gone live in Asia and the U.K., as well as in some higher-end stores and hotels in the U.S. It seems only a matter of time until we’ll be greeted with, “Hello, shopper! I see your eyes are slightly bloodshot, you’re wearing a Pink Floyd t-shirt, and there’s a big smile on your face. Can I interest you in some Munchies?”

Essentially, we expect the supermarket of the future to be louder, more intrusive, more interactive, and more direct. It will trade the subliminal for the blunt, the whisper for the bullhorn. If we can’t hear the advertisers over the sound of our push notifications, they’ll simply raise their voices.

This post was written by contributor Jon Nathanson. Follow him on Twitter here. To get occasional notifications when we write blog posts, sign up for our email list.


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