Going to Market

Download PDF Version

The 2011 AlixPartners Grocery Shopper Preference Survey

Despite the fragile economy, 70% of consumers are making trips to the grocery store at least once per week and 50% plan to spend more on groceries in the coming year, while nearly 40% expect to spend the same amount, according to the 2011 AlixPartners Grocery Shopper Preferences Survey. But how will they choose where to shop?

In retail in general, price and promotion are the name of the game as the U.S. economy continues its sluggish and uneven recovery. But, the AlixPartners survey reveals that, for grocers, it’s not enough for grocers to play to win on price alone. While still very interested in price, shoppers are looking for more from their grocery store. They say food quality and store atmosphere are equally as important considerations as price, and if a grocery store doesn’t offer these as well as value, they will shop elsewhere.
 
These insights represent a critical opportunity for grocers looking to win—or win back—market share in the sluggish economy. Through a focus on promotions, private-label assortments, and customer segmentation, grocers can prepare themselves to compete for and win customers’ increasing grocery dollars.

EVERYONE LOVES A SALE

While quality of perishable goods, store atmosphere, and price are the primary factors influencing consumers’ grocery store choice, the survey showed “frequent sales and promotions” can also have a big impact on shoppers’ in-store purchasing decisions. Eighty-six percent 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. Grocers looking to communicate value and stretch customers’ spending should focus on improving these two purchase-influencing devices. Furthermore, 79% of those surveyed indicated that in-store product sampling can persuade them to purchase new items.

SHIFTING CHANNELS AND GOING PRIVATE

Competition between traditional and non-traditional grocery retailers is nothing new, but non-traditional players appear now 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 grocer y stores—mass merchandisers are capturing 30% of the total grocery spend, followed by club stores with 13%. Dollar and Drug channels continue to increase consumable assortments, as well as more movement into fresh and perishables. And perhaps most disturbing for old-line players, a relatively new competitor—Internet retailers —is capturing 2% of shoppers’ grocery dollars. Shoppers are more willing than ever to try new venues and, unfortunately for traditional grocery stores, many shoppers are finding a better fit elsewhere.

Indeed, 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%), 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 must not lose sight of the fact that consumers at all income levels are willing to trade down to value-focused stores and products. In addition to carefully targeted promotional strategies, grocers would do well to carefully evaluate their private-label assortment and employ a private-label strategy that offers quality and value to customers of all incomes. To¬day, 45% of consumers say they purchase more private-label food products than they did pre-recession. Consumer preference for private-label/store brands is expected to remain intact. According to our survey, price and quality are the most important factors driving private-label purchases. Interestingly, price needs to be lower, but not so low that it creates an impression of inferiority. Now is the time for grocers to evaluate their private-label selection across all categories—shelf stable, packaged, and fresh—as 54% of consumers say that private-label selection influences their choice of where they shop.

KNOWING YOUR AUDIENCE

Grocers cannot continue ‘business as usual’ and expect to maintain their share. While there is no ‘silver-bullet’ strategy, customer segmentation is key. 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 to tap into those resources and make the strategic calls that will bolster their profitable customer base.

AlixPartners research indicates that loyal customers can purchase 20-30 times the amount purchased by the occasional or new shopper. Clearly, these customers can be a major source of revenue growth. Loyalty-card programs have become a gold mine of information on frequent customers’ behavior and preferences, but very few grocers have unlocked the power of these programs. Those who leverage existing loyalty programs to identify and understand their customers, and then use that information to develop customer segmentation strategies, will be far better able to compete for customers’ increasing grocery dollars.

A fully developed loyalty program can also guide growth into new services such as in-store pharmacies. According to the survey, only 18% of consumers fill their prescriptions at grocer y stores, leaving considerable room for growth. Well planned in-store pharmacies can lead to a significant margin boost, and mining the data from loyalty programs can be the key differentiator. Traditional grocery stores with full-service pharmacies should leverage their loyalty data to identify market baskets where a pharmacy item is not purchased, seldom purchased, or have been abandoned. Tactics such as extending targeted offers to bring back the consumer to fill a prescription; having the pharmacist visit local hospitals, clinics and doctors to raise awareness; and ensuring that the pharmacist is coming out from behind the counter to meet customers and answer questions can all prove to be beneficial. Evaluating pharmacy operating hours and instituting metrics such as cost-per-script can help evaluate profitability and determine whether it is beneficial to continue pharmacy operations in a particular store.

THE TAKEAWAY

As grocers face increased competition from non-traditional channels, in addition to the considerable challenges of a sluggish economy, it will be critical to take advantage of every opportunity to grow the bottom line. Consumers expect to spend more on groceries in the coming year. Those grocers who act now to strengthen their promotional strategies, private-label assortment, and loyalty-card programs, will be best able to ensure those extra dollars come to them, not the competition.