These projections are based on an amalgamation of forecasts by acknowledged industry experts -- Management Ventures, Inc., Retail Forward, Willard Bishop Consulting, Inc. -- as well as our own estimates based on Nielsen and IRI national trends.

Not surprisingly, hurt the most by the gains of these channels will be Supermarkets, which have lost four share points since 1999, and are projected to lose another five points in a progressively declining curve by the end of 2005.

While the Chain Drug channel is expected to grow only marginally between now and YE2005 (one share point), all of this growth will be driven by Walgreens and CVS. In addition to Supermarkets, the other "losers" will be Traditional Discount and Convenience -- with 7-Eleven as a possible exception due to its highly successful "Retail-Forward" campaign.

The challenges faced by manufacturers in coping with these channel business shifts have never been greater -- but neither have the opportunities presented by these shifts. Why? The retailer community appears to be rapidly dividing into two camps, each of which requires different approaches and neither of which can be ignored.

The first camp is comprised of the "traditional channels" --- Supermarkets, Drug Chains, Traditional Discount and Convenience Stores. With a 65 percent share of CPG sales, these are still the mother-lode channels for most CPG companies (depending on category) and obviously are not channels from which one can simply walk away.

The second camp is comprised of those channels and/or accounts that have "figured it out" and, as a result, are now forecasted to capture virtually all CPG industry incremental growth for the foreseeable future. In this camp are what we would call "Consumer-Focused Retailers" and "National Brand Retailers." Consumer-Focused Retailers are defined as those retailers whose business models focus on a specific consumer segment, lifestyle trend or shopping occasion.

		Warehouse Clubs -- are membership-based and target affluent households making over $75K/year.
		Dollar Stores -- target the under $30K household -- seniors, retirees and economically disadvantaged.
		Supercenters -- one-stop shopping at below market-average prices for the time-pressed, two-wage earner family who wants to get it all out of the way as quickly as possible.

National Brand Retailers are single-banner retailers who are working – and spending – to become National Brands in their own right. The defining characteristics of these retailers are that: a) they have achieved national household penetration (or will soon achieve it), and b) they have adopted clear, precise and consistent positionings that provide a platform for differentiation in national advertising.

Lest anyone think that these retailers' commitment to these campaigns is trivial, let's look at Walgreens. Walgreens just began national advertising in 2002. In 2003, it plans to spend $360MM to convince consumers that Walgreens is the perfect, convenient answer to an imperfect world.

In the past five years, Wal*Mart has moved up the LNA ranking from #78 to #51, surpassing Coca-Cola in absolute spending. Target outspends General Mills and Anheuser-Busch. Importantly, all of these retailers are funding these initiatives out of revenues -- not via supplier trade promotion dollars -- meaning that these retailers are confident of their positioning and committed to promoting it through advertising as a sustainable strategy.

The obvious issue manufacturers have to face in coping with these changes stems from the fact that most CPG manufacturers are set up to sell, service and market primarily to the traditional channels. Channels like Warehouse Clubs, Dollar Stores and Limited Assortment Grocery must be sold, serviced, benchmarked and even accounted differently. For most CPG manufacturers, dealing with these channels has been a huge pain because every decision and/or activity comes across as an expensive exception.

To sell and service the current growth channels effectively, one has to understand how their buying and merchandising practices differ from traditional channels and restructure skill sets, mindsets and organizations accordingly. While space does not permit a thorough cataloguing of these differences, here's a short list:

		Focus on a specific consumer segment, lifestyle trend or shopping occasion. The key here is these retailers' willingness to settle for a piece of the pie rather than going after the whole enchilada.
		Clear, precise and consistent positioning -- the refusal to change one's merchandising strategy or pricing to react to local market threats or the latest supplier deal.
		High SKU velocity -- the result of careful product selection tied directly to target demographics and business model financial requirements.
		Frequent product rotation - quick in-and-outs to lead the trends, create excitement and continually beat store comp objectives.
		Below-market acquisition costs - these retailers want as much A&P spending as possible driven into the price and put constant pressure on suppliers to keep reducing prices after initial distribution is achieved.
		Formats and assortments structured and organized to increase basket size - a skill Dollar Stores have honed to an art form and both CVS and Walgreens are working to master.

		Depending on the categories in which one markets, these channels' share of market and growth trends are now too important to treat casually and work as a back-pocket exercise. For some, these channels are no longer "alternatives" but mainstream and must be addressed as such.
		No more "100 percent distribution, all items, all stores" -- but careful selection based on an understanding of each retailer's particular positioning and in-store merchandising objectives. Add to this the willingness to accept the fact that permanent distribution, even of single items, is now the exception in these retailers and that rotation is the norm.
		KAM's will need to know how to read a brand P&L and be given the authority to negotiate pricing within certain latitudes.
		Category Managers may have to go beyond the Category to understand total store dynamics, competing with other transaction-building items for space and display, regardless of Category.

		Why should we spend heavily to grow share in a channel that is losing share?
		Does it make sense to continue to pay slotting for 100 percent distribution of all items in all stores when our brand sells well in only 20 percent of these stores?
		Why should we continue to support TPRs so heavily when other channels are so much more efficient from a pricing standpoint?
		In broader terms, given the opportunities afforded by the growth, positioning and merchandising practices of the high-growth channels (or accounts), what is the best way I can allocate my trade and consumer spending to take advantage of these trends?

To the last point, for brands feeling squeezed by traditional media fragmentation and the shrinking availability of cost-effective equity-building vehicles, all of these changes can only be interpreted as good news.

While we know there has been a lot of noise in the system about "Stores as Media", the opportunity to capitalize on the household penetration and clear positioning of the single-banner retailers who have achieved national distribution is now here. What's more, these retailers are already committed to advertising and do not have to be educated or "sold" on its merits.

The real issue is no longer whether these retailers can be utilized as cost-effective consumer communications vehicles but the willingness of Brand Groups to get out in the field to evaluate and benchmark these opportunities so that Co-Marketing with these retailers can be incorporated as an integral and routine part of the annual core brand planning process.

		Wal*Mart – "Always Low Prices"
		Target – "Expect More, Pay Less"
		Walgreens – "That's Life. This is Walgreens"
		CVS – "Life to the Fullest"