“And, with expected increases in grocery spending this year,” continued Jelinek, “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% of shoppers indicated they use a shopping list at least “sometimes,” and 79% use coupons when developing those lists. Despite careful preparation ahead of grocery-shopping trips, 93% 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% 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.”
Grocery Retailer Preferences
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% of their items in traditional grocery stores – mass merchandisers are capturing 30% of the total grocery spend, followed by club stores with 13%. And perhaps most disturbing for old-line players, a relatively new competitor – Internet retailers – are capturing 2% 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,” said Jones. “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 (47%), ranked Walmart either first, second or third on their list of favorite places to shop for groceries – followed by Target and Kroger (16% each), Costco (14%) and Publix (11%).
According to the survey, the lowest-income shoppers are purchasing only 45% of their groceries at grocery stores, with mass merchandisers capturing a significant 38% 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%) of their groceries at grocery stores, but club stores have become extremely popular, capturing 17% 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,” said Jelinek. “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.”
Opportunities in Grocery
“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,” said Jelinek. “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,” continued Jelinek.
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 20-30 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,” said Jelinek. “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% 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,” said Jones. “Well-planned in-store pharmacies can lead to a significant margin boost, and mining the data from loyalty programs can be the key differentiator.”
