The Great Recession programmed lasting value-consciousness into the minds of consumers. How might COVID-19 rewire us again?
The fourth annual dunnhumby Retailer Preference Index for U.S. Grocery (RPI) sheds light on what makes a retail winner, and how the pandemic has impacted consumer shopping behaviors. Known as retail's equivalent of the Gartner Magic Quadrant, the RPI surveyed about 10,000 consumers to understand what's driving customer preference and rank the top 57 grocery retailers in the United States.
Join dunnhumby CEO Guillaume Bacuvier as he dives into the latest study, revealing the levers for success, and which retailers are winning the hearts, and wallets, of shoppers today.
The retail sector has experienced both of these extremes, with some seeing strong sales while others have been forced into bankruptcy and liquidation.
What we have seen is an acceleration of trends that were in motion prior to the pandemic but are now even more essential for success. One such trend is, understandably, the enhanced focus in retail on health and wellness. This is not a new phenomenon especially within Retail Pharmacy as "buy and build" expansion pushed the market towards saturation. More savvy competition, both within the sector, as well as grocery, mass merchant, and ecommerce began to expand into Health & Beauty (H&B) and prescriptions.
Prescription benefit managers (PBMs) grew increasingly powerful and began demanding lower reimbursement terms and restricted access to customers. Some even set up their own mail order prescription businesses and became direct competitors. This direct attack on the pharmacy business model, combined with the erosion of the convenience advantage forced chains to find other ways to extend their reach. For many, the answer lay in diversification and, specifically, the integration of products and services that had previously sat with dedicated medical providers.
Faced with limited development prospects, retail pharmacies once again needed to re-examine their offering and carve out a distinctive customer proposition.
In the US, prescription medicines account for around two-thirds of retail pharmacy revenues¹. As a result, repeat business is vital. Clinical services – a longer-term, more consultative offering than pure dispensary – can help to encourage ongoing business by building a stronger relationship between pharmacist and patient.
With that in mind, it's little wonder that for many retail pharmacies in the mid-2000s, the decision to expand into clinical services seemed like a natural evolution.
CVS, Walgreens and others went through a flurry of acquisitions, purchasing small health service companies up and down the US. In-store facilities were rolled out to capture new clinical business and commence the shift into a wider "health services" offering.
Certain activities, such as immunizations, had successful starts. But the growth of these clinics and their services rapidly dropped off and it soon became apparent that success would not be as readily won as those retailers may have hoped.
One major problem lay deep in the complex inner workings of US healthcare. Limited by their insurance plan benefit structures, customers would often find themselves unable to access the full range of services offered in-store. Clinical service costs, while usually lower than those available at a hospital or doctor's office, would likely be higher than the insured co-pay price paid by the consumer at the latter.
Retailers quickly learned that in order to integrate into the healthcare industry, they would need to learn how to influence and control it as well.
Playing a long game
CVS, which made the strongest initial investment into in-store clinics, has spent more than a decade in pursuit of that goal. Major product decisions, such as the removal of tobacco from stores (itself a $1bn annual business) were executed in the name of a slow repositioning towards healthcare.
Strategic acquisitions have only helped to further that ambition. With its first major vertical healthcare purchase – that of PBM Caremark in 2006 – CVS gained control of the levers of customer access and prescription reimbursement for millions of lives. 13 years later, with the acquisition of Aetna, the company added the ability to provide health, dental, vision and other insurance plans to customers.
Taken to its logical conclusion, this trajectory could lead to the eventual formation of an integrated healthcare system supported by some 10,000 points of service.
There is growing evidence that an empire of that kind is firmly in the retailer's plans. CVS has already announced its intention to evolve clinics into more expansive "Health Hubs", bringing enhanced services to 1,500 locations by 2021. Health Hubs include more space devoted to clinical services and a broader focus on proactive wellness and nutrition alongside extensive health services.
That wider remit is immediately evident in an enhanced product assortment, one that includes numerous specialized items and categories for maintaining health and preventative wellness products –. And, perhaps influenced by insights delivered by Aetna, CVS has also chosen to put significant emphasis on chronic condition management, an area that can provide a pharmacy with some of its most valuable customers.
While CVS is playing a highly strategic game, though, it is by no means the only player to watch.
Save money, live better
As the world's largest retailer, just about anything Walmart does is reason for the competition to pay attention. It may have taken more than a quarter of a century for Walmart to start selling groceries after all, but the retail behemoth now holds top position in that segment in North America by an overwhelming margin.
With that precedent in mind, and in light of Walmart now holding the position as the nation's third largest retail pharmacy provider, it seems likely that another fierce battle for the future of retail pharma is about to begin.
Launched in fall 2019, the Walmart Health Care Clinic serves as a good indicator as to the strength of the company's ambitions.
Staffed to deliver an expansive set of services that range from primary care and disease management through to dental, hearing, nutrition and fitness, these sleek, modern facilities offer the same one-stop-shop approach as Walmart's core store.
Moreover, Health Care Clinics also employ the company's "everyday low pricing" model, something that makes for a compelling proposition regardless of insurance coverage. Medicare and Medicaid are both accepted too, encompassing what is likely a significant number of customers.
The battle within
Similar at their core yet, subtly different, these offerings from CVS and Walmart represent a dramatic shift in healthcare delivery in the US.
While the scale of each remains too small at this point to draw many conclusions, those small differences could carve out room enough for both to flourish. CVS' focus on providing specialist-level health and chronic condition care is different enough from Walmart's "low price, one-stop shop" approach to appeal to a distinct group of customers.
Rather than between each other, the biggest challenges ahead for CVS and Walmart may actually be found within. As both companies make fundamental changes in order to facilitate a future in which healthcare is a significant part of their offering, they will need to focus on evolving their relationships with their long-term customers too.
CVS, for instance, will need to ask customers to reconcile the idea that a company that continues to dominate in snacks and candy is now an active participant in their healthcare. And Walmart, famed for its leadership in building highly efficient operations, will need to scale and sustain a healthcare business rooted in flat, affordable pricing, as well as build the credibility as a viable provider of quality healthcare.
Neither challenge is easy. But if history has taught us anything, it's that when companies of this size decide to redefine an industry from the ground-up, they tend to succeed.
The arrival of Covid-19 also introduces a new reality unthinkable less than a year ago. Health and wellness permeates all aspects of our lives and vigilance is essential to protect ourselves and our loved ones.
- PPE has become a category in its own right with massive and sustained demand across such items as masks and sanitizers.
- Hospital capacity is being tested repeatedly with infection surges and unable to address lower level and elective procedures
- Vaccination is now a global necessity requiring a distribution network capable of rapidly reaching billions of people
With the balance of power shifting from business to consumer, it's no surprise that improving the Customer experience is something high on the agenda of many brands and retailers right now. This month for our 3 minute interview, we talked to Emily Turner, Customer Engagement Director for dunnhumby in North America, to hear her views on what retailers and brands must prioritise to deliver truly high-value Customer experiences…
With the changes going on in the retail landscape, what factors do you think retailers and brands need to prioritise more than ever?
Building trusted and transparent relationships with their customers. A good relationship starts with being open and honest about how they use their Customers' data and what benefits they deliver in return.
Customers generally trust retailers with their shopping data and are happy to share it providing there is a fair exchange of value. Not providing value back to customers in return through the experiences retailers and brands deliver, whether that's in the form of irrelevant messages or ignoring channel preferences, is one of the fastest ways to erode that trust.
By using Customer data to design and deliver a superior experience for the Customer, retailers and brands have a greater opportunity of making every interaction more personalized and more rewarding, meeting the customers' needs in that moment.
What do you see being the biggest challenge that retailers face in putting Customers First?
Commitment. Being truly Customer First takes unwavering organisational commitment. It is not for the faint of heart!
Yet to keep pace with Customers' ever-evolving needs and expectations, retailers can't afford not to put the Customer at the heart of their decision-making. We work with many partners around the world to develop the right strategies that enable them to undergo this transformation.
It's not easy to do and another of the biggest challenges is knowing where to start and how to make the change manageable. With over 30 years' experience in using Customer data and advanced science to create unique and meaningful Customer moments, we have the necessary know-how to help retailers and brands achieve it.
Tell us a little bit about how the Customer Engagement team at dunnhumby helps customers win.
We start and end with the customer. We're committed to helping our clients keep up with their connected Customers to improve every interaction their customers have with them, by delivering highly personalised and relevant experiences.
What are your trend predictions for the upcoming year?
Customers will continue to want to be treated like individuals, to choose how and when they want retailers and brands to communicate with them. They're also increasingly looking to exercise more control over the experience they receive through things like selecting the benefits they want within a loyalty program for example.
For retailers, there will be an increased focus on removing friction, reducing barriers and building seamless Customer journeys across channels.
Customers are becoming more and more aware of the value of their personal data, questioning who is collecting it and why. They expect companies to treat it with respect and use it wisely to provide more personalised services and offers.
Customers are only going to get more demanding, and as such, retailers and brands will need to relentlessly pursue what matters most to their Customers. Or else someone else will.
The Customer Engagement team at dunnhumby helps retailers and brands identify and quantify Customer headroom opportunities, to enable personalised communication strategies and enhanced Customer experiences. Contact us to find out more.
The "new normal" isn't really normal at all. Life amid COVID-19 has forced U.S. consumers to adopt new behaviors, dramatically impacting how they shop, work and go about their daily lives. Trips to the grocery store are now once weekly trips to buy essentials and stock the pantry for home cooking. And, vulnerable consumers now rely on online ordering and delivery services they were once reluctant to try.
On average, it takes 66 days for new behaviors to become automatic. The majority of U.S. consumers will cross that milestone under pandemic restrictions very soon. Retailers should prepare now to successfully serve their customers after the "COVID curve."
Join dunnhumby's Daryl Wehmeyer, Head of Category Management for North America, and John O'Reilly, Head of Customer Development for North America, as they discuss:
- dunnhumby's model of the current and future phases of the Coronavirus pandemic and implications for category management
- Customers' attitudes about shopping during COVID-19
- How Retailers should manage their assortments during and after the Covid recovery to prepare themselves for the new normal