In order to reflect on how the grocery world changed in 2020, we have changed how we calculate our overall Grocery RPI score. Given the historically unique metrics we've witnessed in the economy, the restaurant industry and the grocery industry, along with the rare influence a global pandemic has brought to consumer behavior, we're viewing grocery success in 2020 through a different lens than we viewed grocery success in prior years.
The Prophets of Aisle Six is the first online reality series focusing on innovation in the food retail industry. In this episode, Jose Gomes, dunnhumby's North America Managing Director, travels to the downtown Cleveland store of Heinen's Fine Foods. Jose meets with Tom and Jeff Heinen, co-owners and brothers, and learns how they are evolving their grandfather's mission of delivering excellent customer service. With 23 stores in Northeast Ohio and the greater Chicago area, and a 90-year legacy, Heinen's is proving that being a small retailer can be an advantage when it comes to data.
In this series, dunnhumby tours the globe and speaks with some of the world's greatest brands, exploring their biggest challenges and how they are using customer data science to meet those challenges.
Retail success takes many forms in today's dynamic marketplace. From large legacy retailers to disruptive start-ups and all manner of competitors in between, the paths to retail success involves common principals around which there is a wide variation of understanding and execution.
To bring clarity to the issue of what makes a winner, dunnhumby, the global customer data science firm, conducted a massive survey of more than 7,000 U.S. shoppers for the second annual Retailer Preference Index (RPI), the first study of its kind in the industry. In what's quickly become known as retailing's equivalent of research firm Gartner's often-cited Magic Quadrant, dunnhumby's RPI is a ranking of more than 50 large food and consumable retailers based on a combination of shopper sentiment and financial performance.
Join Retail Leader and dunnhumby's Grant Steadman, SVP of Client Services, and Erich Kahner, Associate Director of Strategy, for a deep dive into the RPI, the levers for success, and an unvarnished look at why some retailers win and others don't.
Topics discussed include:
- The 7 drivers of consumer preference and what's changed.
- Understanding the RPI methodology.
- How retail winners make emotional connections.
- The new rules of value perception, key drivers and amplifiers.
- The three things RPI laggards must do to improve their appeal to shoppers.
For a look at the retailer rankings and to understand how your business can benefit from implementing the RPI success framework, watch our webinar which took place on Thursday, September 5, 2019.
A new format in grocery retail is emerging: the 50,000 square foot convenience store. Its value proposition to customers is simple: higher quality perishables and ready-to-eat items than your typical grocery store. Thousands of the same center-store products you can also find at Walmart, Target, Amazon, Costco and Sam's Club. Everything at higher prices. Added bonus: since the store is 10x to 20x bigger than your typical c-store, you can get your steps in and burn calories at the same time.
The reality is that this is not a new format—rather the customer-led repurposing of a familiar one: the traditional, regional grocery store. This finding comes from a follow-up analysis of data collected for the recent 2019 Grocery Retailer Preference Index report, a report which identified winners and losers among the 56 largest retailers in the U.S. Grocery Retail Industry. In this follow-up analysis, we examined the types of trips people took (e.g. bigger vs. smaller) to each retailer, as well as the categories they bought (e.g. produce, ready-to-eat or paper products). The findings cast further light on the problems faced by traditional grocers in an evolving grocery landscape that has seen national mass, club, drug, dollar, convenience and digital players invest more in the grocery game the past few decades.
When considering trip types and categories sought by customers, five general types of retail destinations emerge:
- All-around grocery shop
- Perishable and ready-to-eat small basket
- Quick and convenient meal
- Non-perishable stock-up
- Non-perishable small basket
Certain channels lend themselves to certain destination types. Specialty grocers like Trader Joe's or Sprouts, with fewer SKUs and smaller formats than the traditional grocer, tend to fall in the "Perishable and ready-to-eat small basket" destination type. Club and mass are non-perishable stock-up destination. Drug, dollar and digital in non-perishable small basket. C-stores in quick and convenient meals. However, many traditional grocers have an identity crisis. Only 6 in ten are seen primarily as "all around grocery shop" destinations, despite all of them carrying the full complement of SKUs.
In other words, almost half of traditional grocery stores are shopped more like a convenience and specialty store than like a store with 10-20x more products than that. At best, categories beyond perishable and RTE food are typically an afterthought and only shopped in a pinch. At worst, those categories are bypassed completely by shoppers, who instead buy the same products for cheaper at widely available mass, club, digital, dollar or drug channels.
The result of being treated as a perishable c-store is a lower share of customer wallet. Traditional grocers who are all-around grocery destinations win 33% of their customer's share of wallet, versus only 20% for traditional grocers shopped like a perishable c-store.
So, what can traditional grocers who are not being viewed as an all-around grocery shop do about it?
According to an analysis of customer needs gathered from a survey sent to 7,000 shoppers in the U.S., if traditional grocers want to ensure they'll be an all-around grocery shop, they need to ensure some key ingredients are in place:
- Highly relevant assortment, which is rarely out of stock
- Prices that are consistent on inelastic and competitive on key-value items, while offering discounts on the products that are important to customers and responsive to promotions
- Decent perishable quality
For now, traditional retailers aiming to be all-around grocery shops can trade-off on having the best digital offering and the best ability to get customers in and out quickly. These things are less important to customers when picking an all-around grocery destination.
While some traditional grocers are struggling to win the title of all-around grocery shop, one non-traditional store isn't: Aldi. Aldi's consistently industry-leading prices and their ability to manage out of stocks and store cleanliness just as well as your average traditional grocery store, has made them a stock-up destination for perimeter categories, like produce and dairy, as well as center store packaged food items. As a result, despite having stores which carry less than 2,000 SKUs, Aldi's share of customer wallet is in line with that of the average traditional grocery store, which often carry more than 40,000 SKUs.
Of course, the reality is that no single non-traditional competitor is eating away at traditional grocers' hold on the all-around grocery shop. Rather, a host of non-traditional competition, each with unique value propositions, are all taking small bites, which add up. The data suggests that this is because traditional grocers took their eye off the retail basics, perhaps because they grew complacent after decades of dominance and relatively little industry disruption from non-traditional substitutes.
So, the call to action is clear: before overinvesting on any shiny new toys, like eCommerce or technology to speed up checkout, get back to your roots and make sure you're offering the right prices on the right products.