Are Coupon Users Getting Clipped? : Food and Home Product Companies are Reducing the Number and Value of Discounts

Rita Hocheiser recently took home $70 worth of groceries for $10, thanks to her skillful use of manufacturers’ coupons and refund offers. But instead of feeling triumphant, the veteran coupon clipper and rebate maven from Long Beach, N.Y., was miffed.

“I used to be able to do this every three months,” she said. “Now it’s more like every six months. They’re not offering as many coupons, and they’re making it very difficult for [coupon clippers]. We’re fit to be tied.”

Food companies and manufacturers of home products admit they’ve scaled back in recent years on the number of coupons they issue, although no company has dared discontinue the practice altogether. Kellogg recently cut a third of the number of coupons it sends out and reduced their face value by an average of 20%. Companies cite high costs of printing, distributing, redeeming and sorting the coupons, along with low redemption rates, as reasons for the move.

Now industry giant Procter & Gamble is experimenting with the idea of getting rid of coupons for good. As of Feb. 1, Procter & Gamble stopped distributing coupons in the New York cities of Buffalo, Rochester and Syracuse to find out what would happen to its business.

Although it’s too early to see results--hundreds of thousands of Procter & Gamble coupons are still circulating in that test market--all industry eyes are on the experiment, and some experts predict that this is the beginning of the end for an advertising and promotional tool that has lasted a century.

“Coupons are dead,” said Phil Lempert, consumer expert and author of “Supermarket Shopping and Value Guide” (Contemporary). “In 18 months, you’re not going to have coupons as we know [them].”

Not all industry experts agree with Lempert’s prediction. While the search for alternatives goes on, one newspaper industry source says coupons will remain with us for the foreseeable future, especially in competitive categories. And as the Times Food section reported recently, some companies are introducing coupons over the Internet.

Few, however, would argue that coupons have become an extravagant practice for both the companies that offer them and the supermarkets that accept them. The business of producing, distributing and processing coupons has grown to a $6.5-billion industry that churns out 300 billion coupons a year. Of that number, only 2% are redeemed.

“Here is a practice that fails 98% of the time,” said Elizabeth Moore, a spokeswoman for Procter & Gamble. “We have worked to eliminate waste in all parts of our business. Coupons are one example. There’s nothing effective about an industry that fails 98% of the time.”

The move has prompted an investigation by the New York state attorney general’s office for possible antitrust violations. Procter & Gamble, Tops Markets Inc. and Wegmans Food Markets Inc. are targets of the investigation, said Jennifer Farina, spokeswoman for New York Atty. Gen. Dennis Vacco. “We’re looking to see if there was any collusion [to stop issuing coupons] on the part of manufacturers or retailers,” she said. “We want to be sure there’s a healthy and competitive marketplace for consumers.”

Clorox Co. and Kimberly-Clark also had announced intentions to test market the no-coupon idea but decided against it. Moore would not say how long Procter & Gamble’s experiment in northern New York would continue nor how Procter & Gamble would determine whether it was a success or failure.

But Jo Natale, a spokeswoman for Wegmans, a major supermarket chain in the region, said some of its customers have phoned to complain. “Certainly there are customers who are not happy,” Natale said. “We have a number of customers who want coupons to continue.

“There are an equal number of customers who really see coupons as a pain in the neck. They don’t have the time to clip them, file them and retrieve them. Yet they feel guilty that they’re not taking advantage of the value.”

Coupons are a burden to supermarkets because of the cost of processing them and the competitive environment they have fostered. Some stores lure customers by offering double coupons--meaning the supermarket will redeem twice the face value of the manufacturer’s coupon--and sometimes even triple coupons.

Even so, the average savings from coupons for a Wegmans customer is only $36 a year. “Couponing costs us a tremendous amount in promotional dollars,” Natale said. “And the benefits only go to those who clip them. We would agree there must be a better way.”

In addition, coupons tend not to accomplish what they set out to do--create brand loyalty, Lempert said. People who use coupons usually buy whichever brand they have a coupon for.

Syndicated consumer columnist Martin Sloane agrees that distributing coupons through Sunday newspaper inserts is too scattershot to be effective. “They’re just being thrown up against the consumer,” he said. “The trend is to look for ways to target coupons.”

Lowering prices across the board may be a better way to lure customers and engender loyalty, said Procter & Gamble’s Moore. Two years ago, General Mills cut $175 million out of its spending for coupons and promotion and reduced prices of all its products by 11%.

David Dix, a spokesman for the company, which makes Cheerios and Wheaties, said it intends to continue offering coupons, however. “A coupon is an advertisement as well as a coupon,” he said. “While [customers] may not clip that coupon, [they] will flip through the Sunday inserts to look at the new products.”

The current cereal wars may be another indication of how competition is being fought with everyday prices. Breakfast cereal is the No. 1 item for which coupons are issued. But when Kraft Foods’ Post division made its bold move to capture a larger share of the breakfast cereal market in April, it reduced prices on its 22 cereals by 20%. Last month Kellogg followed suit by announcing it was cutting prices on 16 popular brands by an average of 19%. General Mills reacted by reducing its prices an additional 11%.

In making the announcement, Steve Sanger, General Mills chairman and chief executive officer, said he expects the cereal category to benefit from “lower everyday prices and less inefficient promotional spending.”

And two weeks ago, Quaker Oats announced it will cut prices by 15% on its ready-to-eat cereals.

For the short term, however, coupons appear to be a firm fixture in American life. Lempert advises consumers to take advantage of the situation by using coupons to buy cereal at the newly lowered prices.

“We’ve got a short window of opportunity,” he said. “As these companies are lowering prices, now is the time to grab those coupons out of every source.”

If companies do stop using coupons, experienced shoppers are skeptical about savings trickling down to them. “Let me tell you, it’s baloney that they’re going to lower our prices,” said shopper Hocheiser. “These big companies are not in the business of doing us any favors.”