Upcoming Webinar | Insights from the 2021 dunnhumby Retailer Preference Index for U.S. Grocery
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.
Customer First Radio Episode 2 | Erich Kahner, Associate Director of Customer Strategy at dunnhumby
The 2021 Retailer Preference Index: Who's winning and why. David Ciancio, Global Head of Grocery discusses the 2021 U.S Retailer Preference Index (RPI): Grocery Edition with the lead author of the RPI, Erich Kahner. They unveil key insights and discuss who is winning and who is best positioned for the future.
Why North America’s health and wellbeing could be the next big retail pharmacy battleground
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
The ‘why’ behind the ‘panic buy’
Memories of panic buying may be fading here in the UK but have resurfaced elsewhere1. The near constant threat of another wave of Covid-19 may yet prompt another round of hyper demand. Whilst there is little hard evidence to determine the underlying drivers of panic buying2, there are numerous theories that the retail industry may benefit from exploring.
Feroud Seeparsand, dunnhumby's Senior Consumer Psychologist, outlines some likely theories to explain the 'why' behind the 'panic buy' and some implications for retailers to prevent it reoccurring in future.
Nobel Prize-winning economist Daniel Kahneman stated that 'loss aversion' was his and Amos Tversky's single greatest contribution to decision-making theory3.
We feel the pain of loss more than an equivalent gain. In other words, losing £100 hurts more than the joy of winning £100. When applied to panic buying, we fear for the loss of a product we could otherwise have had. Perhaps more to the point, we would normally have had access to a variety of products. Relative to this normal point of reference, the relative loss of not possessing a product helped lead to panic. As customers would normally possess a certain product, the relative loss of it created pain.
A curious detail is that small numbers can make big differences, a concept called 'diminishing sensitivity'; winning £200 does not double the joy relative to winning £100. In other words, even small numbers of a valued product can have a significant effect on one's decision making. It is because of this diminishing sensitivity customers may lean towards zero risk aversion, in other words not to risk missing out on a product; if you see it, buy it!
Implication for retailers: Use the new reference point that past panic buying did not stop most customers obtaining products.
Another Nobel Prize-winning economist, Richard Thaler, and his colleague Cass Sunstein highlighted numerous heuristics to nudge behaviour4; one of these is social norms or copycat behaviour. We are perhaps all guilty of assuming restaurants with longer queues have superior dishes or assuming that the more popular films, plays or books are worth consuming. When applied to retail, if a customer sees another purchasing a particular item, the odds are that they will follow. This can easily be exaggerated through social media and news reports.
It does not matter if this perception is factually inaccurate; perception will still hold sway. If customers do cause products to sell out as a result, this is likely to lead to a scarcity effect, where those products are valued even more than before. This can be further exacerbated if such products are perceived to be potential life savers, like hand sanitisers or medicine.
Implication for retailers: Highlight how most people are not panic buying. Foodstuffs North Island and South Island, in New Zealand, got out ahead by introducing their 'Shop Normal' campaign, which encouraged customers to 'shop normally and be kind in supermarkets'. Tesco in the UK also ran a 'Together we can do this' campaign in national media to encourage people to 'shop normally together'.
3.Uncertainty Breeds a Desire for Control
Sometimes the actions that can save lives, such as hand washing and social distancing, are simply not enough to regain a sense of control5, as they are too dependent upon the goodwill of others. Therefore, there remains a need to reduce anxiety. Stockpiling or buying more, as a form of retail therapy, is a manner for regaining control.
Scientists have found uncertainty leads to the consumption of utilitarian products (such as cleaning agents and cooking ingredients), i.e. products that give you something to do6. Shoppers are less likely to be interested in the latest fashion trends. When one adds to the mix a virus that demands hygiene, the hyper-demand for particular products can be better understood. The same scientists explore the concept of 'displaced coping', where shoppers purchased items that are of no direct relevance to their uncertainty. This may go one step to explain the recent insatiable worldwide desire for toilet paper.
Implication for retailers: Provide customers with products that may provide a sense of control, such as gardening, DIY, crafts, puzzles.
Whilst behavioural economics and nudge theory assume irrationality, game theory (which also can claim a Nobel Prize by John Nash, as featured in the film A Beautiful Mind), assumes rationality.
In the same way panic buying exists, customers may panic and create a bank run, where customers take money out en masse which then collapses a bank. In one study, it was found that asking participants to recount a time when they felt fear was found to increase the likelihood of a bank run in the form of a game format7. There was some evidence that inducing sadness was less likely to create a bank run. Given the emotion of fear led to bank runs, it is of little wonder that the fear of a pandemic may have led to panic buying.
Implication for retailers: Influence emotion to avoid fear (e.g. through in-store media and music).
A recent global survey addressed toilet paper hoarding through personality traits8. It was found that customers who felt more threatened by the pandemic, possessed greater emotionality and greater conscientiousness (i.e. planned more) led to more toilet paper hoarding. This study may suggest that appealing to higher values2,9 (ie encouraging responsible behaviour) may not help to avoid panic buying.
Implication: Encourage long term planning and purchase of long shelf life products, to ease supplies if a second or third wave returns.
This is not an exhaustive causal list, but instead focuses on theories that could have at least some practical application to limit panic buying. The theories covered include areas that assume irrationality, such as behavioural economics and nudge theory, or rationality such as game theory. Other theories may sit more on the fence.
Whatever the drivers for panic buying this is a topic that retailers need to address. Even if panic buying does not reoccur within the Covid-19 pandemic, it is likely to return in some future event whether it be a natural disaster, climate change, strikes or supply shortages.
2. Lunn, P. et al (2020). Using Behavioural Science to Help Fight the Coronavirus: A Rapid, Narrative Review. Journal of Behavioral Public Administration Vol 3(1): doi: 10.30636/jbpa.31.147
3. Kahneman, D. (2011). Thinking Fast and Slow. Penguin
4. Thaler and Sunstein (2008). Nudge. Improving Decisions About Health, Wealth, and Happiness. Penguin
5. Taylor, S (2019). The Psychology of Pandemics. Cambridge
6. Chen, C.Y. and Pham, M.T. (2018). Affect regulation and consumer behaviour. Consumer Psychology Review 2(1): 114-144
7. Dijk, O. (2017). Bank Run psychology. Journal of Economic Behavior & Organization 144: 87-96.
8. Garbe L., et al (2020) Influence of perceived threat of Covid-19 and HEXACO personality traits on toilet paper stockpiling. PLoS ONE 15(6): e0234232.