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.
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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.
Webinar On-demand | Customer First Category Management and COVID-19: Life After the Curve
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
Continuing our regular series exploring Grocery Retail's response to the Coronavirus pandemic, this week we analyse the results from dunnhumby's latest piece of consumer research, the increasing importance of Category Management, and the actions that Retailers need to be taking now to ready themselves for an eventual recovery.
Checking in on Customer concerns
In our last post in this series, we unveiled the dunnhumby Customer Pulse, a survey of consumers from 19 global markets conducted at the end of March. Keen to develop our understanding of how Coronavirus continues to shape Customer demands, we moved ahead with a new wave of surveys using the same geographic and demographic framework.
Once again, three key issues came through loud and clear from our respondents.
- As worry declines, Customer perceptions are changing The 'worry score' – the number of respondents in each country who self-identify as concerned about Coronavirus – went down for more countries than up. While this may not be surprising in isolation, where worry scores decrease, so too does interest in the preventative measures being taken by Retailers. As worries ease, many Retailers may find themselves pressured to loosen restrictions faster than originally planned.
- Customer satisfaction is on a knife edge Across all markets, we found little evidence to suggest any correlation between preventative measures and Customer satisfaction. Instead, satisfaction is dictated primarily by one defining issue: stock levels. Where customers acknowledge having noticed out-of-stock items, their satisfaction levels are likely to be much lower than those who have not. Raising prices on, and limiting availability of, virus-related items can have a similarly corrosive effect on Customer satisfaction.
- Simple actions can have a big impact While Retailers may continue to find stock levels difficult to control over the coming weeks and months, other avenues may help them to mitigate dwindling levels of Customer satisfaction. Actions that are seen to have a major positive impact on perceptions include removing delivery charges for certain Customers, discounting virus-related products, and increasing the frequency of store cleaning.
A third wave of the dunnhumby Customer Pulse will be available soon.
Keeping pace means clever use of Category Management
As is apparent from the results above, one of the only constants for Grocery Retail during the Coronavirus pandemic is the speed at which Customer demands continue to change. While it might not be possible to prepare for every eventuality, adapting or refining your approach to Category Management can be a smart and effective way to keep pace with those shifting need states.
We believe that Retailers should funnel Category Management activity towards three areas.
- Aim for nimble management of product assortment As product shortages and changing demands continue to impact Customer experience, agility is vital. Customer decision trees and need states should be used as a guide when managing supply levels, emphasising higher-order needs in each category. Breadth – not depth – is one of the most pressing factors here, and Retailers can best serve Customers by ensuring that the most important need states are addressed above all else.
- Ensure your Private Brand is fit for the future Customers are looking to find increasing value in every shop as household budgets come under intense pressure. Private (Store/Own) Brand labels can provide shoppers with just that kind of reassurance, and we believe that now is the time for Retailers to shore up those lines. Reassessing the relevance of Private Brands on a category-by-category basis is a good starting point, as it is likely to reveal prominent gaps or areas that would benefit from further investment.
- Maintain your investment into essential online channels Soaring demand for online grocery has become one of the defining trends of the past few months, and there are no signs that this will change post-pandemic. Loyalty data can be a major differentiator here, providing an opportunity to create a frictionless experience by surfacing in-store favourites and relevant recommendations in a similar manner online. Retailers will also be well served by ensuring the accuracy of substitutions (particularly by arming packers with good suitability metrics) and emphasising issues of hygiene and quality around fresh produce.
The journey towards Recovery
Much of the work we're doing to help Retailers through these unprecedented times revolves around anticipating changing Customer needs at three distinct stages of the crisis: Insecurity, Transition, and Recovery. As we move through Transition, we believe that Grocery Retailers must take action now to ensure their business is ready for the new challenges ahead.
- Reset your categories to focus on what Customers care most about The product assortment you have today may not be right for tomorrow. With economic challenges almost certain to trail the Coronavirus pandemic, Retailers need to begin looking at wholesale category resets that will make assortments leaner, fitter, and more relevant for cost-conscious Customers. Prepare to maximise shelf space for categories where variety is essential and scale down categories where it is not.
- Bring a Customer First approach to assortment and space planning Reviewing your latest customer data sets will identify changing category roles and importance of key marketing levers such as price, variety, and channels. There are already new adjacency and layout opportunities to implement by looking at the changing mix and frequency of purchase in the Customers shopping basket, especially in categories like personal hygiene and cleaning, fresh food and cooking from scratch missions. As Customer behaviours continue to change, understanding and monitoring these changes by different customer groups and different shopping missions will be critical in order to make the most informed and best retail decisions.