Two consumer studies of grocery shoppers’ preferences hit my inbox simultaneously. One was from Dunnhumby which rated consumers’ preferences for 60 grocery store brands rated across three key measures called the Grocery RPI (Retailer Preference Index). Spoiler alert: H-E-B wins. The other came courtesy of ServiceChannel which looked more broadly at the shopping experiences grocery store customers want most.
Taken together, these studies provide powerful insights into what grocery shoppers value in a store and which brands are best delivering it. Going from the general to specific view of the $695.3 billion grocery retail sector, I am sharing the most important findings from each of these studies.
Stores matter, big time
While it seems that online order, pickup, and home delivery are the most important innovations in grocery retail since Piggly Wiggly’s Clarence Saunders invented the self-service grocery store in 1916, customers by far prefer to do their grocery shopping the old-fashioned way: in a store.
Some 66% of the 1,505 recent grocery shoppers surveyed by ServiceChannel in their “State of Grocery Report” and who are also the household’s primary purchasers said they actually enjoy grocery shopping most or all of the time.
Further, two-thirds of those shoppers report visiting a grocery store one-to-two times per week. Admittedly, ServiceChannel’s business hinges on helping retailers maintain their store facilities, but Dunnhumby’s research confirms the importance of the physical store, with it being one of their most important RPI measures.
“The consumer who walks into a grocery store has little tolerance for a bad experience,” shared Tom Buiocchi, CEO of ServiceChannel, as we discussed the survey findings. “The physical store is paramount these days.”
Grocery shoppers expect clean floors, bathrooms and carts as well as clean and well organized shelves. Sadly, over one-third of shoppers report that a grocery store they recently visited didn’t measure up to those standards.
Despite people’s preference for the in-store grocery shopping experience, the convenience of online grocery shopping has made a real difference in their expectations. In the research, ServiceChannel identified a segment called omnichannel shoppers who shop for groceries online occasionally. Not unexpectedly, the omnichannel grocery shoppers (58%) are primarily next-generation Millennials or GenZ.
While they value the convenience of online ordering, they are even more engaged in-store shoppers than those who don’t use online. Some 79% of omnichannel shoppers enjoy the in-store shopping experience most or all of the time and half of them visit a physical store one-to-two times per week.
When they choose to visit a store, they are drawn there to select fresh veggies and meats (42%) or they are looking for services that only a store can offer, like restaurant, coffee bar, bank, or pharmacy (30%). The ready availability of freshly prepared food to take home also draws them to the store (24%). And while they are spending time in the store, they also expect to have Wi-Fi service, along with self check-out and price check kiosks.
“Omnichannel shoppers use their grocery stores in a whole new way,” Buiocchi says. “They have many different expectations. The bar has risen. They want something that goes way beyond just groceries.”
As of yet, online has not made inroads in terms of consumer spending – Coresight Research reports that 97% of grocery sales are still made in-store. Digital’s biggest impact has been to change shoppers’ expectations about what they want when it comes to spending time in the grocery store.
“For grocers to survive, and thrive, they must evolve the store experience to meet the modern shoppers’ expectations, which have been strongly influenced by e-commerce in recent years,” Buiocchio concludes.
“Grocers can no longer simply provide a place to buy food and household products. Instead, they should consider a shopping experience that is unique and differentiated from the one-dimensional, transactional and non-sensory nature of online grocery shopping, with experiences, services and amenities that only brick-and-mortar grocers can provide,” he continues.
Local grocery stores are rising to the challenge
Spurred on by shoppers’ new demands, traditional grocery stores are evolving to meet them, based on the findings of the Dunnhumby study. “This year traditional grocers started to come back,” shares Eric Karlson, Dunnhumby’s director of strategy and insights. “But when I say ‘traditional grocers,’ it’s not the old supermarket that has been stuck in the 1960s or 1970s.”
Reporting that traditionalists like H-E-B, Wegmans, Market Basket, Publix, ShopRite, and WinCo were included in the top percentile ranking across 60 brands, he continues, “In the past, traditional grocers have been struggling and been beaten pretty consistently by the warehouse stores, like Costco and Sam’s, the mass merchants, like Walmart and Target, and the discounters, like Aldi. We have also seen competition skyrocket, with small-format stores like Trader Joe’s and even convenience and dollar stores competing in the grocery space.”
This year, H-E-B moved up to number one, knocking Trader Joe’s out of the top spot it held for the past two years and moving it down a slot to No. 2.
Amazon, which also includes Whole Foods, remained even at No. 3. Market Basket (No. 4) and Wegmans (No. 5) rose in the rankings, while Costco (No. 6) dropped. Aldi (No. 7) and Sam’s Club (No. 8) remained level and Walmart (No. 9) dropped.
Rounding out the top quintile grocery performers were Publix (No. 10 and new to the list), WinCo (No. 11), Fresh Thyme (No. 12), Sprouts Farmers Markets (No. 13), and ShopRite (No. 14, and another new entrant).
Three measures of consumers’ preference
Karlson explains that the comparative ratings are based on an exclusive Retailer Preference Index (RPI) that takes into account three key values:
- Preference Pillars: Measures like price, quality of products and the store experience, digital, operations, convenience, discounts and rewards, and speed.
- Emotional Connection: Consumers’ likelihood to recommend, their level of trust, and intensity of attachment.
- Financial Performance: Grocery market share, sales per square foot (efficiency), and five-year compound annual growth rate.
The preference pillars and emotional connection values are derived from surveys of ~7,500 consumers. The financial performance data is gathered from publicly-available sources.
Unlike other industry ratings, Karlson believes the KPI rankings does a better job because it links consumers’ preferences and feelings with the financial benchmarks that companies, their boards and investors use to measure success.
“In looking at other studies that just rate consumers’ satisfaction or emotion, we found they were coming up short,” Karlson explains. “The biggest retailer, Walmart, is usually ranked near the bottom in the those studies. But no one is forcing shoppers to go to Walmart so financial performance also needs to be factored in. Our KPI associates what retailers do (preference drivers) with how customers think and feel (emotional bond) and shop (financial performance).”
With this broad-based view of grocery retail, Karlson believes one gets a more accurate picture of overall grocer performance. “Some variables, like price and quality which relates to both the product assortment as well as the store experience, are more important than others,” he continues. “Speed of getting in and out quickly and discounts and rewards are less so.”
Walmart, for example, does well in price and convenience, but its store experiences and product quality is not rated as highly, the Dunnhumby survey shows.
Price as preference driver loses ground to convenience
A most interesting finding in this year’s survey is that price may be losing ground in driving consumers’ preference. “In the past traditional grocery stores haven’t done as well on price which affected their rankings. But despite this, traditional grocery stores like H-E-B and Publix, rose in the rankings this year,” Karlson says.
“Our hypothesis explaining this is that as the economy does better, price becomes less important in our model, while things like digital, convenience and speed have picked up the slack. People are time-starved today and so are willing to pay more for convenience.”
The grocery retail laggards, which Karlson did not reveal, tend to over-rely on discounts and rewards, which may have factored more strongly when the economy wasn’t as strong. “The dogs in the bottom quintile have a value perception problem,” he explains. “Where they are most successful in the study is in discounts and rewards. They have pulled that lever too much and are over-reliant on it. That is the only thing they have to draw people into their store. They really need to rethink their value proposition.”
Overall, what separates the winners, like H-E-B, Wegmans, Market Basket, Publix, ShopRite, and WinCo from the losers in the Dunnhumby study is they have optimized their customers’ value perception with fair prices, high quality products including private label, wide assortments, and fresh produce and meats. They also offer prepared foods and a store experience that delights, not disappoints, which brings us back to the ServiceChannel study.
“People still love to go grocery shopping,” ServiceChannel’s Buiocchi concludes. “But grocers that make the experience convenient, fun and multi-faceted will capture customer loyalty.”
The emergence of digital and e-commerce in the grocery retail space, including curbside pickup and home delivery, has changed customers expectations around what the in-store grocery store experience should be, but it hasn’t actually changed much about the way and where they ultimately decide to shop. For that, the store experience is what really counts.