Our last blog posting detailed key trends that will increasingly impact grocery retailers. In short, the increase in co-shopping in households – in particular the increasing role of male household members in grocery shopping – together with the shift towards food preparation as an engaging experience (rather than a chore) have led to an increase in the number of channels and brands shoppers use.
In light of these trends, there are specific opportunities for grocery retailers, depending on their positioning.
Traditional supermarkets are increasingly being squeezed by competitive forces from value-driven retailers on one side, and premium and specialist retailers on the other. This is the case in most developed markets. In the US, mid-market supermarkets have been the subjects of significant mergers and acquisitions activity, as well as victims of bankruptcy. In Europe, and especially the UK, discount supermarket chains like Aldi and Lidl have seen substantial market share gains, to the detriment of former mid-market leaders like Tesco and Sainsbury’s.
These competitive forces have been created by shoppers’ migration to different channels based on specific category-based needs and desires. For example, staple household products are increasingly bought at bulk, value and discount grocery retailers, while increased shopper desire for quality, local, specialist or organic products has led to significant growth in specialty and premium stores.
The effect of this has been twofold. First of all, basket sizes in mid-market supermarkets are declining as shoppers seek channels and brands that better meet category needs. Secondly, some types of trip missions (specialty needs, quick trips and fill-in shopping missions) are increasingly made away from traditional supermarket formats.
For a traditional mid-market supermarket, combatting these trends requires action on a number of fronts.
Ensure a Strong Value Proposition
It is unlikely that a traditional supermarket can compete effectively on price with discount retailers across all product categories and skus. However, to maximize sales opportunities, a mid-market retailer can manage price perceptions, thereby ensuring that prices of key staples are as close as possible to those offered in discount and value retailers. To do this, they must first understand which items within their stores are key to managing price perceptions. Effective management of these categories and skus can enable a mid-market retailer to establish a stronger price proposition compared to value-driven grocery retailers.
In addition, as price is just one measure of value, consideration should be given to the other drivers of value equity for grocery shoppers – convenience and experience. Exploring and identifying ways to differentiate all three drivers (price, convenience, experience) should create strong opportunities to build revenue.
For example, much shopper data shows that shoppers are often frustrated by the lack of convenience offered by traditional supermarkets, from familiar woes about the length of checkout lines to out-of-stock issues and transaction errors.
Design Stores to Meet Needs of Different Trip Missions
Mid-market supermarket floor plans are often designed for specific trip missions, namely stock-ups and routine shopping trips, which involve shoppers walking through most of the store. While this eases the experience for major shopping trips, it creates complexity for shoppers on trips with smaller basket sizes. This is shown by the fact that a fill-in shopping trip takes 20 minutes on average to complete, while a weekly shop takes on average 33 minutes.
One way to help meet the needs of shoppers on smaller basket trips is to merchandise key items in different locations within the same store, ideally with strong adjacencies to complementary products. These adjacencies can be identified based on a micro understanding of what products are most commonly purchased together, and what basket drivers exist for specific missions. This requires detailed analysis of shopping behaviour and basket drivers. The analysis of transaction data also enables supermarkets to test different combinations in order to identify those that have the greatest revenue impact.
This trend of smaller, more frequent shopping occasions is likely long term, given that millennials tend to shop for grocery products they will be consuming that same day.
Data indicates that at least 80% of all grocery shopping is covered by just 1,400 skus, while a typical supermarket carries 3,500 skus. This discrepancy shows there’s a clear opportunity for sku rationalization and simplification, in order to meet shopper needs more effectively.
Build Quality Equity Through Excellence in Produce
To help combat the impact of specialty-, premium- and organic-focused retailers, mid-market supermarkets should evaluate the strength of their quality proposition. Produce especially is a key driver of quality equity in shoppers’ minds, and a strong produce proposition can boost performance by 10% or more. Not only does produce have a substantive impact on shopper perceptions, it is also a key basket builder, accounting typically for 11% of total store sales on average. A strong produce proposition not only builds basket value (shoppers typically spend 50% more when produce is purchased), it can also – given the items’ perishable nature – be used to increase trip frequency. Ways to build quality equity in produce include strengthening both organic and locally sourced produce offerings.