Listen and Learn
Grocery retailers must understand deeper motivations behind purchasing behavior.
As one looks across this year’s Consumer Expenditures Study, one can certainly be tempted to focus more energy on the “what” than the “why” of the data. Clearly, there are useful learnings to be gleaned from the trends of specific channels, for example, the continued growth of other retail channels at the expense of traditional supermarkets. But far more important and, frankly, actionable is the “why” behind the trends that are uncovered by a review of the data.
At a category/product level, the insight when reviewing expenditure data is quite straightforward: Categories that align with consumer demand are growing, and those not aligned are declining.
Five key areas specifically caught our attention, and underscore deeper consumer motivations that will only continue to impact the competitive landscape: • Fresh is foremost: Fresh produce and proteins continue to account for the majority of supermarket growth, while categories dominated by canned/shelved/boxed items are struggling. As consumers continue to gravitate to “real foods” and easy-to-understand ingredient lists, this trend will continue. Making different choices with key center store items while simultaneously driving private brands will be necessary to capitalize on this trend.
• The health halo: Health perception is reality, and health-driven categories are growing (fresh, organic, healthy snacks), while products with perceived compromises lag. Meeting shoppers’ demand for a health “intellectual alibi” is critical, but overstepping on maximum health credentials will not pay dividends.
• Excellent experiences: Alcohol and party foods won out over pantry-filling items last year, a continuation of the consumer’s appetite for new “experiences.” Supermarkets that note this need, and assort and merchandise around events/parties/ celebrations, will enjoy a warm reception from consumers.
• Instant gratification for the win: What used to be a need for convenience has evolved into demand for instant gratification on the go (e.g., meal kits or cereals), continuing to win out over time intensive foods tied to a place. Many supermarkets are quickly moving to this offering, but being first to market convenient products, highlighting
Fresh produce and proteins continue to account for the majority of supermarket growth, while categories dominated by canned/shelved/ boxed items are struggling.
prepared offerings and even innovating privatebrand packaging to be ever more convenient will all add marks in the “W” column.
• New is nice: Interestingly, categories driven by small/new brands are driving growth, while those categories dominated by national brands are often in decline. While some might argue the correlation with the less loyal Millennial population, the trend is more pervasive than that, and consumers, as noted above, are fundamentally seeking new experiences, new products and new brands with which to foster relationships they can be proud of. Investing to prominently display new brands and products ensures that retailers are seen as on the leading edge as well. At a more aggregate channel level, it should come as a shock to no one that the “Amazon effect” has made an impact on the traditional grocery channel this year, with the e-commerce giant stealing share in the predictable stock-up, bulk and subscription-potential categories.
The truth – and, arguably, staying power – of this trend has brought about such industry moves as Walmart’s purchase of Chewy.com for $3.4 billion. Yet traditional grocers, fear not: Grocery will most certainly remain, but increased focus on impulse purchases and destination categories will be critical to grocers’ long-term financial health.
In addition, traditional grocers must also appreciate the losses coming from growing nonfood categories such as personal care and cosmetics. While Amazon has not as significantly impacted these categories, the explosion of points of distribution (drug/c-store/dollar formats) and growth of specialized competitors (e.g., Dollar Shave Club) certainly have. The reality is that while supermarkets have temporarily slowed losses against others via heavy promotions and similar tactics, this is not a sustainable strategy.
In the face of these category and channel pressures, we offer five key strategies around which traditional grocers must innovate to get ahead of accelerating customer demand:
• Prioritize categories to win – and optimize others for profit: Develop and execute category roles to sharpen what to stand for (e.g., fresh, convenience) and what to drop (e.g., general merchandise).
• Specialize with smaller formats: Niche formats are 75 percent of supermarket footprint growth, and dollar/c-store/drug/discount drove most of the overall retail footprint growth in the past decade. The reality is that grocers can no longer win with a “big and generalist” proposition.
• Localize: Small grocery operators know their customers better than massive players do, but ownership and/or systems need to be in place to respond with sensitivity and speed to customer demand. Vendor partnerships are critical to localize effectively.
• Build a moat on experience and service: Lean into the inherent advantages of the grocery format by making statements and experiences across the store with superior merchandising and service. For example, health and beauty and pharmacy are experiential, service-intensive and growing, but grocery isn’t meeting customer expectations – yet.
• Partner on digital: Smaller grocers should partner with established digital players to get ahead of customers’ accelerating expectations and maximize the experience for customers. Progressive Grocer’s Consumer Expenditures Study once again highlights both successes and opportunities for the mindful and diligent reader. Consumers speak clearly with their dollars – the real question is, are we truly listening?
Small grocery operators know their customers better than massive players do, but ownership and/ or systems need to be in place to respond with sensitivity and speed to customer demand.
Pete Killian is a principal and Linda Deeken is CMO of The Cambridge Group (www.thecambridgegroup.com), a growth strategy consulting firm owned by Chicagobased Nielsen.