Being Good Is No Longer Good Enough

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Being Good Is No Longer Good Enough

By David Bishop - 03/06/2018

If supermarkets want to survive in this new age of retailing, then they need to know how to respond to the external threats facing their legacy business models. The challenge is determining what to do when all of the competitive forces combine to form a threat matrix.

Is retailing still about “location, location, location,” or is it “me, me, me?” What does “convenience” mean now? And is it no longer good enough to satisfy customers, but rather delight them?  

These are critical and complicated questions, as there are many variables to consider. So rather than attempt to answer, I’ll share my own household’s grocery patterns to illustrate the realities facing retailers, and then you can turn to recently published guidance from Brick Meets Click that examines what supermarkets should consider going forward.

Proximity rules physical

In 2003, my family spent 83 percent of its grocery dollars at the Jewel-Osco store less than  half a mile from our home. It wasn’t the cheapest place to shop, but it was the most conveniently located – the nearest alternative was more than 5 miles away. Since then, however, many other shopping options have opened nearby, and in 2017, we spent just 51 percent of our grocery dollars at the Jewel-Osco location.

Our household essentially bought groceries from only two retailers in 2003: Jewel-Osco and Costco accounted for 97 percent of our grocery spending. By 2017, six brick-and-mortar retailers captured 86 percent. Target joined our list in 2011, followed by Mariano’s in 2012, Heinen’s in 2013 and Aldi in 2015. 

Our share of wallet began shifting as we gained access to a greater range of options. Although other new outlets may have been closer, our family was attracted to these new formats for a variety of reasons. We initially tried Aldi because of positive word-of-mouth from others we trust, and we now spend more than 3 percent of our grocery dollars with the company as it continues to exceed our expectations.

So, if the physical world of retailing is ruled by being close to the customers, Aldi is becoming a larger threat to others' in-store business. Not only will its store base grow 50 percent by 2022, but it's upgrading nearly 80 percent of its existing stores to improve the overall experience. Combined, this means that more households will have access, the format will attract new customers, and spending per visit will likely increase.

Personalization dominates digital

My household was just getting started with shopping online in 2003 – enjoying the fact that we could find the authors and book titles that we wanted to read – and spending a few hundred dollars online per year. By the end of 2017, we bought many other things online and spent considerably more than 10 times that amount. Although Amazon doesn’t capture many of our grocery-related purchases, we are gradually buying more online from other sources.

Walmart wins our cleaning and paper supplies. We simply shop before we run out, throw enough of these products in the basket to take advantage of free shipping, and receive the order a few days later. Ironically, we prefer to shop at a Target store that’s also closer to us; however, it’s more important that we’re able to shop the way we want, and Walmart offers us a better online experience.

PetSmart has long captured most of our pet food and supply dollars, and in 2017, it introduced us to buying these products online. This shopping option was very appealing, as we’d typically made two visits a month to the store and spent 30-plus minutes driving round-trip. Saving time was our motivator in this instance, and the fact that we could still buy what we had bought before was good, too. We could save money via auto-ship or store pickup fulfillment options, but neither really clicked for us.

Less than a year later, we’ve shifted dollars to, since online has given us access to a whole host of other shopping options. Our switch was triggered by finding better chew treats that were good for our dogs. We would have shifted all of our spending to Chewy, but we still needed to buy our preferred dog food, a store brand from PetSmart.

Welcome to the matrix

While our grocery buying online may be more ship-to-home via common carrier, we see the Peapod van making at least a few stops on our street each week. The way our household buys groceries is influenced by the fact that my wife has the time and enjoys shopping. On the other hand, one of our neighbors who uses Peapod is a single working mom, while another is a dual-income family with four kids, so they value their personal time differently.

We know that most grocery trips and spending will still occur in the physical store; however, we also believe that more households and spending will shift online as better options that consumers prefer become available. Physical retailing will remain, and digital will make it an even better experience – and vice versa. All of this will introduce more complexity and cost into the system that retailers will need to manage in order to grow profits. How all of this happens will vary by retailer.

These are the realities that retail is facing, and it’s clear that being simply good isn't good enough, as consumers will continue considering new options that better meet their preferences. If you can’t beat the competition, can you buy them like PetSmart did with Chewy in 2017? If not, can you find ways to partner that make sense? If not, how are your consumer value proposition and operating model going to change so that you survive and hopefully thrive in the new age of retailing?

Brick Meets Clicks has highlighted the strategic imperative for supermarkets to consider in a new guidance paper. View it here.

About the Author

David Bishop

David Bishop

David Bishop is a partner at Barrington, Ill.-based retail consultancy Brick Meets Click. Read More