In dunnhumby's second annual Retailer Preference Index (RPI) study, a comprehensive nationwide study, we re-examine the evolving US grocery landscape to help retailers navigate an increasingly fragmented market where shoppers are, on average, shopping at four grocery stores per month and regularly buying groceries from at least three other channels. The study focuses on the following questions:
- What drives preference?
- Who is winning and losing?
- Why are they winning or losing?
- What can grocery retailers do to improve preference and performance?
Existing retailer rankings by Consumer Reports or Market Force only use survey data to capture how shoppers feel about the various banners without linking the emotion to financial performance. Others, like Supermarket News, rank banners based on financial metrics but fail to capture how people feel.
Our study is different because it quantifies the preference driver importance based on a combination of a banner's emotional connection and financial performance. The emotional connection was captured through a 15-minute online survey across 7,000 US households about how customers think and feel about 56 US grocery retailers.
The list of banners evaluated, in alphabetical order, include:
Big Y Foods
Frys Food Stores
Smart & Final
Stop & Shop
The Fresh Market
To learn more, download a free copy of the report. If your banner is in our report and you'd like your custom brief, contact us.
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.
The traditional, regional U.S. grocery store—it's the institution that has fed communities for decades and families for generations. It offers that connection to a simpler time, a time when the guy behind the meat counter would know Customers by name, a time when a dad pushed his child around in a shopping cart while they "helped" him shop and a time before mobile phones invaded our lives and sped up the pace of life…
That place—the traditional grocery store—has history. Customers and the people who work there are part of a family. That kind of emotional connection is priceless.
If this is true, then why does Aldi—which borrows a quarter per shopping cart and operates with a small crew that arranges shelves while taking care of customers—have a stronger emotional connection with shoppers than 90% of its competitors?
Yes, that's right. Aldi, known for its cost cutting and low prices, has– an emotional connection that is stronger than nine out of 10 traditional grocery stores.
Traditional grocers may take for granted that they have an advantage over non-traditional channels in the strength of their emotional connection with shoppers, but that doesn't appear to be the case at all. So just how bad is it for traditional grocers?
The inconvenient truth is that the average traditional grocery store has a lower emotional connection with its shopper than the average store in any other major channel where groceries are sold. While traditional grocers have been focused on selling groceries to the same towns for decades, non-traditional grocers have been able to move into those towns and secure a stronger emotional connection in far less time.
How? Well, it appears that emotional connection does have a price, after all. In fact, price perception is slightly more associated with emotional connection than perception of the quality of products and store experience:
And, whereas traditional grocers have managed to hold their own on quality perceptions, they lose on price perception.
So, where does the traditional grocer start if they want to win back the hearts of their local constituents? After all, there are many levers they can pull within pricing, assortment, and store experience to move perceptions. A close look at data from our 2019 Retailer Preference Index: Grocery Channel Edition offers some hints. Stores who have the strongest emotional connection separate themselves from the pack with the following:
- Private brands that customers love
- Leading prices on natural and organic items
- Fast checkout
- Staff who show they value shoppers
Translated into language customers might use, that means:
- Have products I can't get anywhere else, at competitive prices
- Make healthy food affordable
- Don't waste my time
- Treat me like a person
Of the 56 retailers ranked by emotional connection, 24 of the bottom 25 are traditional retailers. And while Aldi, ranked 17th for emotional connection, has been used as a stark example to illustrate traditional grocers' emotional connection issue, many other non-traditional stores have a stronger emotional connection with their shoppers than Aldi does with theirs.
However, 3 traditional grocery stores buck the trend and join non-traditional retailers in the top 10: Market Basket (4th), H-E-B (5th) and Publix (6th). They each check more than one of the boxes on the core ingredients of emotional connection.
These retailers, more than any other traditional, regional grocer, have established with their emotional connection an insurance policy for an uncertain grocery industry future. And the prevalence of non-traditional grocers with superior emotional connection proves the point that this insurance policy is more a product of "what have you done for me lately" than a product of consumer nostalgia. Non-traditional grocers are buying emotional connection with better prices while delivering on some combination of a superior private label, offering the best natural and organic prices and having staff who show they value customers.
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.
Article originally appeared on Chain Store Age
Forget the headlines. Grocery stores are nowhere near extinction due to the battle between online and brick-and-mortar grocery stores. Although online grocery is now the fastest growing grocery channel with a CAGR of 19.5%, it represents only 2.0% to 4.3% of the $700 billion U.S. grocery market, and has a long way to go to dethrone physical grocery stores. According to IGD, the U.S. online grocery market was $23.9 billion in 2018 and is predicted to grow to $59.5 billion by 2023, still less than 10% of the size of the entire grocery channel.
Grocery stores are in fact in a new period of growth and reinvention. Although the Amazon effect is placing pressure on both brick-and-mortar and online retailers, it is also ushering in a future of transformative changes for grocery stores. Here are some of the changes coming.
Customer experience will be huge
In the future, stores will cater to shoppers' insistence on a seamless experience whether they are in the store or shopping online. Retailers will create experiences that easily guide customers through the store to make shopping trips faster and easier. For example, some stores are activating customer data and working closely with brands to create new in-store experiences that make shopping easier for customers including organizing product sections around consumer needs, such as gluten-free and organics, or moving ready-to-eat meals to the front of stores. Metro, Canada has created new in-store experiences in dairy, frozen food, and beverage and snacks.
Grocers will also be taking a page from retailers that are creating "experience destinations" based on the needs of their communities. For example, Raley's is building a new flagship store that "will emphasize healthy living and destination meal offerings, with key features including a loft dining area, wine tasting room, sushi and bakery departments and 25,000 square feet of outdoor seating."
Future shoppers' grocery store visits will be driven by a desire for inspiration in their leisure time, instead of just needing to restock their kitchens. They'll visit to experience new products in-person and via augmented reality, participate in cooking demonstrations, and enjoy activities like wine tastings.
Convenience will be center stage
Twenty years ago Jeff Bezos predicted that brick and mortar stores would survive only if they provided either entertainment value or immediate convenience, and that has proved largely true for grocery stores. Shoppers in the future will continue to be pressed for time and will want to shop at stores that are conveniently located, have the right variety of products to meet their needs, and where they can get into and out of quickly.
Before even leaving for home, the shopper's integrated smart home will help inventory what items need to be purchased and add those items to the list that is then automatically relayed to the retailer to prepare for the shopper for either home delivery or click and collect in store. Once the shopper arrives, the retailer will alert the shopper of real-time promotions that are based not only on their shopping patterns but also on other variables such as the weather. On a rainy day, a shopper may have soup coupons displayed on their phones, whereas on a hot day a shopper may have coupon deals for a barbecue dinner.
Once inside, shoppers can open a mobile app to enable personal pricing on digital shelf edges. They will also be able to scan and pay for their items with their phone. Before exiting, shoppers will also have "infinite" options available for home delivery or click and collect.
Grocery stores will shrink
While the superstores and hypermarkets still command the largest share of the customer basket today, future grocery stores will be one third to one half the size of what they are today. The average grocery store built over the last 10 years has a footprint of 45,000 square feet but newer stores are already shrinking with many closer to 20,000 square feet. Future grocery stores will be even smaller.
The stores will carry about 5,000 items compared to today's stores that have 45,000+ SKUs. The stores will focus more on local, regional offerings as well as on private brands. Dark stores will likely attach to the smaller footprint store from where products will be picked and staged for pickup or delivery.
Discount grocery shares will capture increasing market share
Beginning with the Great Recession, consumers have become very price conscious and have grown used to looking for the lowest prices for their groceries. And more than 10 years later, consumers remain very price conscious resulting in the price sensitive and low-income consumer demographic is the fastest growing demographic. So, it's not surprising that 2018 saw a 30% increase over 2017 in new grocery store openings according to JLL that were largely propelled by the number of discount stores openings.
Aldi opened 82 stores in 2018, accounting for nearly 16% of all grocery stores opened during the year.
Aldi alone opened 82 stores accounting for nearly 16% of all grocery stores opened in 2018. Over the next five years, the discounter will build 800 more stores and have just shy of 3,000 stores in the U.S. In fact, Aldi plans to be the third largest grocer – after Walmart and Kroger – by 2022. Trader Joe's, part of the Aldi Global family, also plans to add 25 to 30 new stores this year and due to its superior focus on price and quality was named for the second year in a row as the top-rated grocery retailer in dunnhumby's Grocery Retailer Preference Index. Lidl recently announced plans to open 25 more stores in the U.S. as it continues its expansion in the U.S. market.
Discount stores are the second fastest growing grocery channel next to online grocery and are expected to grow at a CAGR of 5.8% and will be $514 billion by 2022. With discount stores offering lower prices, private brands that consumers are growing to love, and with nimble stores to get into and out of quickly, it is not surprising they are expected to continue growing at a brisk rate in the future.
The robots are here — and more are coming
Robots, drones and other forms of automation have already arrived to a number of grocery retailers and more will be coming. Some retailers are already using automation and artificial intelligence to closely monitor inventory and picking in the warehouse and to make sure their inventories can be replenished within a day instead of weekly. Drones will also be used to hover above the aisles and scan inventory. In fact, Pensa, a startup based in Austin, drone solution that does just that is expected to be in stores by the end of the year.
Grocery stores will be automating routine and time-consuming tasks, to not only save money but also free up customer service people to engage with customers. Retailers that have built up troves of customer data through loyalty programs over the years will also be at an advantage. By utilizing video analytics and artificial intelligence, retailers will be able to predict customers' state of mind and then be able to make timely recommendations to customers as they shop.
Autonomous vehicles delivering groceries, similar to the ones Kroger has introduced, will also be in play delivering groceries to customers who don't want to shop in the store. And, robotic assistants like Giant Food Stores' "Marty" will be common place scanning shelves, identifying spills, and even scrubbing floors.
Online or offline, customers will demand an exceptional experience from retailers. And the best way for retailers to ensure they are creating the store of the future their customers want is to make sure they understand not only the technology on the horizon, but more importantly are listening to what their customers are already telling them through their data.