For retailers, price and promotion have been the name of the game as the U.S. economic recovery continues at its sluggish and uneven pace. But when it comes to choosing a grocery store, shoppers say food quality and store atmosphere remain equally as important considerations as price.
That’s according to a consumer survey by AlixPartners, the global business-advisory firm, which reveals that, despite the fragile economy, 70 percent of consumers are making trips to the grocery store at least once per week and 50 percent plan to spend more on groceries in the coming year, with 39 percent expecting to spend the same amount.
“Grocery shoppers are just as choosy as ever – it’s not enough for grocers to win on price alone,” said Keith Jelinek, director in the global retail practice at AlixPartners. “Shoppers are looking for more from their grocery store; if it doesn’t offer quality and a pleasant experience and value, then they’re out the door. And, with expected increases in grocery spending this year, the big question is: what stores will earn those grocery dollars?”
While perishable quality, store atmosphere and price are the primary factors influencing consumers’ grocery store choice, the survey showed “frequent sales and promotions” are a factor, and can have a big impact on shoppers’ in-store purchasing decisions.
The survey found that 86 percent of shoppers indicated they use a shopping list at least “sometimes,” and 79 percent use coupons when developing those lists. Despite careful preparation ahead of grocery-shopping trips, 93 percent of those surveyed said that product displays and in-store signage – which typically point to promotional and sale items – can influence them to purchase items not on their shopping list. Furthermore, 79 percent of those surveyed indicated that in-store product sampling can persuade them to purchase new items.
“Consumers remain focused on value, regardless of income levels, and promotions and coupons continue to stretch their spending on groceries,” said Russ Jones, director in AlixPartners’ global retail practice. “And, as product display and signage remain two of the most important factors influencing purchasing, this continues to be an area of opportunity for grocers to communicate value.”
Competition between traditional and non-traditional grocery retailers is nothing new, but non-traditional players appear to be growing market share at a stronger-than-expected clip. According to the survey, shoppers are purchasing only 51 percent of their items in traditional grocery stores; mass merchandisers are capturing 30 percent of the total grocery spend, followed by club stores with 13 percent. And perhaps most disturbing for old-line players, a relatively new competitor – Internet retailers – are capturing 2 percent of shoppers’ grocery dollars.
“The battle with mass merchandisers, club stores and dollar stores has been dragging on for years, but it’s heating up and traditional grocery retailers are losing ground,” Jones said. “Shoppers are more willing than ever to try new venues – and, unfortunately for traditional grocery stores, many shoppers are finding a better fit elsewhere.”
When shoppers were asked to name and rank their preferred grocery retailers, the five most-cited in the top three on shoppers’ lists included two traditional grocery stores, two mass merchandisers and one club store. Nearly half of consumers surveyed ranked Walmart either first, second or third on their list of favorite places to shop for groceries, followed by Target and Kroger, Costco and Publix.
According to the survey, the lowest-income shoppers are purchasing only 45 percent of their groceries at grocery stores, with mass merchandisers capturing 38 percent of total spending from these consumers. However, it’s not just low- to mid-income consumers who are looking elsewhere for value. The highest-income shoppers (those with incomes of $100,000 and above) purchase most (56 percent) of their groceries at grocery stores, but club stores have become extremely popular, capturing 17 percent of this group’s traditionally larger grocery spending.
“Grocery retailers cannot lose sight of the fact that consumers at all income levels are willing to trade down to value-focused stores and products,” Jelinek said. “In addition to carefully targeted promotional strategies, grocers would do well to look at their private-label assortment and employ a ‘good-better-best’ strategy that offers quality and value to customers of all incomes.
“With growing threats from other channels, increasing price transparency made possible by mobile devices and the tepid economy, we see the potential for significant consolidation in the coming year,” he continued. “Grocers cannot continue ‘business as usual’ and expect to come out on top – and, though there is no ‘silver-bullet’ strategy, customer segmentation is key and it’s critical that grocers take a step back and look at their market and how they’re serving it. Fortunately, due to shopping frequency and existing customer-focused programs, grocery retailers have the means to know both their markets and customers better than any other type of retailer – it’s time for them to tap into those resources and make the strategic calls that will bolster their profitable customer base.”
Though earning new customers is important, keeping existing customers and getting them to spend more is critical. Loyalty-card programs, according AlixPartners, have become a gold mine of information on frequent customers’ behavior and preferences, but have not reached their full potential. According to the firm’s research, loyal customers can purchase 20 to 30 times the amount purchased by the occasional or new shopper, and can be a major source of revenue growth.
“Most grocers have loyalty programs now, and we’ve seen a lot of new ones lately, but very few grocers have unlocked the power of these programs,” Jelinek said. “Grocers who leverage existing loyalty programs to identify and understand their customers, and then use that information to develop customer segmentation strategies, will come out on top.”
A fully-developed loyalty program can also inform growth into new services such as in-store pharmacies. The AlixPartners survey showed that only 18 percent of consumers fill their prescriptions at grocery stores.
“With consumers looking to maximize efficiency and minimize shopping trips, this is a big opportunity for grocery stores,” Jones said. “Well-planned in-store pharmacies can lead to a significant margin boost, and mining the data from loyalty programs can be the key differentiator.”
The AlixPartners Grocery Shopper Preferences Survey was conducted April 11-12 among 1,000 U.S. adults. AlixPartners LLP is a global business-advisory firm offering comprehensive services in four major areas: enterprise improvement, turnaround and restructuring, financial-advisory services and information-management services.