Lis­ten and Learn

Gro­cery re­tail­ers must un­der­stand deeper mo­ti­va­tions be­hind pur­chas­ing be­hav­ior.

Progressive Grocer (India) - - Contents - By Pete Kil­lian and Linda Deeken

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.

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