New retailers dominate consumer preference

January 18, 2018

Trader Joe’s is the top U.S. grocery retailer according to a study that also showed price and quality are the most important preference drivers for consumers. The study suggested retailers focus on shoring up that weakness before turning attention to other drivers such as convenience, rewards or speed. The other retailers on the top-10 list are 2) Costco, 3) Amazon, 4) H-E-B, 5) Walmart, 6) Wegmans, 7) Aldi, 8) Sam’s Club, 9) Sprouts Farmers Market and 10) Whole Foods Market.

Top performing grocery retailers include relatively recent entries into the supermarket business and are more likely to be a national banner. All of the top 10 banners, except H-E-B, were either established or began to expand around the 1980s, which allowed many of them to carefully select store locations. As a result, many of these banners can focus and differentiate their prices, products, and store experience more effectively than older mainstream banners.

Leading customer data science company dunnhumby's inaugural Retailer Preference Index study that explores the evolving $700 billion U.S. grocery landscape. The RPI study surveyed 11,000 U.S. households and analyzed consumer emotional sentiment for 59 grocery retailers and then combined the survey data with the retailers’ financial performance which then created each retailer’s preference index.

“Does the grocery retail world really need another top 10 list?” asked Jose Gomes, managing director of North America for dunnhumby. “We believe there is a need because other studies either rank retailers on financial measures or survey responses, never both. Our model captures the complexity of customers’ preferences and their actual choices by quantifying the relationship between how they perceive a retailer with their emotional connection and the financial performance.”

The RPI found that the top quartile retailers share four effective strategies:

• Price-focused. Aldi’s laser focus on price and certain high-volume staple categories like dairy and packaged foods secured the discount retailer with high rankings on price and overall RPI. Stores that index high enough on price, can often sacrifice on convenience, speed, digital and personalized discounts and information and still rank highly.
• Quality-focused. Although Whole Foods Market performs below average on prices, it still achieves a high overall RPI because they index so high on quality.
• Value-focused. Trader Joe’s, Costco, Sprouts Farmers Market and H-E-B all indexed high on quality and price. Stores that index high enough on price and quality can sacrifice on convenience, speed, digital and personalized discounts and information and still rank highly.
• Price-focused and supported by digital execution. Walmart’s success in digital translates into a high RPI ranking and from indexing high on price and convenience. Target ranked second on digital execution but ranked only average on the other supporting factors, moving it out of the top quartile of the RPI.

“We firmly believe that retailers must differentiate themselves today to be competitive in face of the myriad of options shoppers have,” said Gomes. “Differentiation begins with the retailer identifying the shoppers that they can serve better than their competition. A solid customer-first strategy, backed by customer data science, will help the retailer focus its finite resources and attention on the customers that are the most important to their success. This study is intended as a first step on that path of understanding.”

The second best performing quartile of retailers include some of the higher performing, older grocery banners, including Meijer, Publix and Kroger. This quartile has the highest top of mind recall and the second highest financial performance. This group does not perform as well as the top quartile because their price and quality scores are not as strong, but this second group differentiates itself by excelling at secondary preference drivers, such as promotions, rewards and information.

Many undifferentiated mainstream banners are delivering minimal value to their shoppers. Even though many have been shopped at for a longer period, they have the weakest emotional connection. The study suggested they must focus on improving value perceptions and reconnect with their shoppers or profitability will be a challenge in an increasingly competitive market.