Penetrating Insights of the Penetration Index

How big is Wal-Mart? How pervasive is McDonald’s? Dollar Tree? Dunkin’ Donuts?

In the intense and lucrative battle for consumers’ attention and dollars, which retailers and restaurants have become fully woven into American life?

These were the questions we set out to answer with the Checkout Penetration Index.

The Index is based on millions of receipts from actual consumers across all retailers and restaurants, both online and in brick and mortar, yielding a revolutionary way to understand market penetration and performance.

The index is based on one simple question: “What percentage of all U. S. consumers bought at each store or restaurant?”

The data is fascinating. And it has received considerable attention from clients and the media.

But what is most important is what the data underlying the Index mean for retailers.

How to use it

When viewed in conjunction with Checkout Tracking data on sales-per-buyer, the Index offers a path to growth.

Here’s why: 

A merchant can have a high penetration rate but a low rate of sales per buyer, or vice-versa.  Costco, for example, has relatively low penetration (so low that Costco doesn’t make the Top 25 list on the Index.) But the warehouse club ranks quite high in total sales.

When a retailer has relatively low penetration combined with high sales per buyer, it indicates a growth opportunity if the retailer can expand its buyer base. A retailer in that position should consider running more ads, creating special offers for brand-new customers, adding more locations, improving in-store experience and merchandise quality, offering price-comparison calculators, and removing or lowering obstacles (i.e. membership fees).

To understand the power of such insights, it’s probably helpful to look only within a specific channel (department stores, restaurants, warehouse clubs, electronics stores, etc.)

Lowe’s and Home Depot both appear on the Penetration Index Top 25, but Lowe’s penetration is considerably lower than Home Depot. Burger King and Wendy’s both make the Top 25 too, but Wendy’s penetration level is lower than Burger King’s.

Lowe’s and Burger King would both be wise to compare their sales-per-buyer numbers with their rivals before deciding on a course of action to boost revenue.

High/Low

The reverse situation -- high penetration and low sales-per-buyer -- suggests a different path to increasing revenue.

Consider the situation with the major dollar stores:

Dollar Tree, owner of the Dollar Tree and Family Dollar stores, has overall sales levels that are similar to its competitor, Dollar General. 

But the two corporations take very different approaches to revenue.

Dollar Tree boasts a sizable penetration number for its Dollar Tree stores (71%) but a relatively low sales per buyer rate, while Dollar General has a smaller buyer base (44% penetration) but those buyers purchase at a rate more than double that of Dollar Tree.

Dollar Tree has been pushing hard to increase penetration by adding stores. (Its 3 percentage point increase in the past year is the largest among retailers in the Top 25 list.)

Stores that find themselves in a situation like Dollar Tree’s – higher penetration than a competitor, but lower sales-per buyer – but which don’t have the capital to fund store expansion, may instead wish to focus on driving higher tickets and more frequent trips. Store layouts that promote impulse purchases and cross-purchased categories can prove crucial. Offering two-for-one deals, “spend only $9.99 more for FREE SHIPPING!” and “10% off purchases of $50 or more” offers, loyalty programs, etc. should all be arrows in the quiver of the high penetration/low sales-per-buyer store.

Variations

We’ve shared only the Top 25 brands in the Index with the press, based upon nationwide penetration of all demographics. But there are numerous options available to our clients.

Checkout Tracking can measure penetration among Millennials, for example. Or among Affluent Boomers. Or among parents in Poughkeepsie. Or just about any group you can imagine. And we can compare those penetration numbers against comparable sales-per-buyer figures.

If you’d like to know where you (or your competitors) stand in the Checkout Penetration Index, and which paths to growth we’d suggest, let us know.

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