After a turmoil-filled year with almost complete senior management turnover and restatement of its earnings, Catalina Marketing is regrouping, sharpening the focus on its core Checkout Coupon business to wrest funds from package-goods marketers' newspaper coupons and media advertising budgets.
Catalina earlier this year divested its loyalty-card and direct-mail operations and announced plans to sell its Alliance market-research unit. Now, it's enlisting help from a similarly embattled ally-the supermarket chains where nearly all of its 17,000 Checkout Coupon machines are located in the U.S.
Their common adversary is Wal-Mart Stores. For each new supercenter that opens, an average of two supermarkets close, and Wal-Mart plans to open more than 200 supercenters nationwide this year.
To back a program called Catalina Category Management, the company is armed with letters of support from supermarket retailers, including units of No. 3 grocery chain Albertson's, urging marketers to shift some of the $3.5 billion they now spend for coupons in newspaper free-standing inserts into the program.
"CCM is an important strategic vehicle for Pathmark and an excellent alternative to FSIs," reads an endorsement letter from the Ahold chain to brand marketers. "Please be assured we will be certain we remain in stock on your brands when you decide to run CCM programs." Meijer and Delhaize's Food Lion have written similar letters.
narrow the gap
The idea is to use marketers' promotion dollars to help chains close some of the average $5.55 gap between what a shopper pays for the same groceries on a trip to a supermarket vs. one to a Wal-Mart Supercenter, said Stephen Seckar, Chicago-based VP-marketing of Catalina.
Via the program, targeted consumers first get a Checkout Message telling them they can get $2 to $4 off a subsequent shopping trip at the supermarket chain if they buy two or more of sponsoring brand's products. When they buy the products, they get the coupon for money off their next shopping trip, redeemable only at the chain. Catalina research indicates the program increases supermarket spending 4% among all households that get the offer and 18% among households that redeem it, with a redemption rate of 43%.
The program, which runs over four to five weeks, helps Catalina address a weakness in its battle for coupon dollars, Mr. Seckar said. National newspaper coupon drops have given manufacturers more leverage than Catalina in getting retailers to increase in-store display, he said. CCM will "provide a focal point for integrated marketing discussions between manufacturers and retailers," he said.
Even though their share has declined, supermarkets still have enough clout, particularly in food categories where they control a collective 70% to 80% of sales, to prove valuable allies for Catalina, said Ken Harris, partner with Cannondale Associates. He said there's been a shift of funds lately toward FSIs from Checkout Coupons and other alternatives because of concern about cost effectiveness. The program "at least gives manufacturers something to think about."
But an executive for one personal-care marketer said wasn't swayed. "Supermarkets are only 15%-20% of my business," he said, "so Catalina just doesn't work for us."
Newspaper-coupon distributor Valassis Communications isn't unduly concerned, noting it has exclusive tie-in deals with supermarkets, including No. 1 Kroger Co. and No. 2 Safeway.