The first half of 2012 saw coupon redemption drop 11% versus the first half of 2011. After several years of steadily increasing consumer response to coupons (+35% between 2006 and 2011), interest seems to be moving away from coupons. Long-term shift or temporary condition?
Coupon redemption is down "across the board": both food and non-food coupon redemption fell (11% and 15% respectively) and every major coupon distribution method is showing redemption declines. For example, FSI redemption is down 14% and Internet print-at-home redemption is down 24%. While there are some exceptions to be found, positive activity in the marketplace does not represent a significant offset to the prevailing trend.
This decline has been steady, starting in the first quarter, with a 7% drop in redemption (vs. Q1 2011). Then came April, May and June when coupon redemption fell 17% compared to the same period last year.
Clearly something has changed, but what exactly? The four contributing factors include:
Promotion Support Pullback. Brands started reducing coupon distribution in the second half of 2011, and continued to do so through the first half of 2012 with a 3% distribution decline. And, it seems to be accelerating as the second quarter saw a 7% overall distribution decline. Add to this Nielsen's recent reporting of overall promotion support declines of 6% and 10% for the last two months. It appears that manufacturers are compensating for the earlier redemption pressures by significantly cutting back promotional efforts.
Unattractive Offers. Brands aren't just reducing the number of coupons in the marketplace, they're putting out much less lucrative offers. Face values are down 9.3% overall in the second quarter (vs. Q2 2011) with the value of food coupon declining even more -- 13.1% compared to 7.4% for non-food values. And, the redemption period continues to shrink; it's now down, on average, to 2.1 months. That's a reduction of 12.5% as compared to the redemption periods offered in the second quarter of 2011.
Private Label. Private label sales have been steadily increasing over the last few years; up 14% between 2009 and 2012 according to Nielsen. Arguably improved quality has made private label an acceptable substitute for many and economic pressures make it an easy choice when comparing price. Fewer and less attractive offers from national brands -- plus generally increasing prices -- equals an even bigger price gap between national brands and private labels. Still, private label sales have been somewhat flat in the most recent period as have sales for the national brands.
Unemployment. While all of these other factors weigh on shoppers' coupon use, our research continues to show that the most predictive metric over time is the unemployment rate. When unemployment is down, coupon use is down. In recent months, unemployment has been down — slightly, but down nonetheless. The result is a decline in coupon redemption influenced by a number of factors but significantly affected by improving unemployment numbers.
At the same time, it's clear that the consumer's inherent desire for a deal is not showing any signs of fading. Shoppers continue to seek savings and are finding it in TPRs and private label products. It's the role of coupons and other promotions that appears to be changing.
Looking ahead, unless there's a significant investment by CPG brands in coupons in the second half, we can anticipate a 5% -10% decline in coupon redemption for the year. Look for 3.2 - 3.3 billion coupons to be redeemed for the year and, at best, a leveling off of coupon distribution.