Grocers Dismiss ‘Retail Populism’ at Own Peril
As we hurtle toward the presidential inauguration, media outlets that got the electoral outcome very wrong are asking what they missed. Everyone says there is a bifurcation in America, but few people really appreciated how dramatic that split was before Election Day.
That split extends to the grocery sector, where consumers are signaling a preference for “retail populism,” opting for mass-market value and convenience over premium, organic and other pricey, niche retail offerings.
Many market leaders shifted resources to chase long-ballyhooed demographic changes that are perceived to be market-wide, but actually exist primarily within their own cultural bubble. These include the rise of Millennials, participation in online grocery and the growth of organic products.
If grocery manufacturers and retailers continue to chase these emerging trends at the expense of mass-market offerings, they, too, could face a self-inflicted Election Day-style reckoning.
Here are three major ways retail populism is emerging as a force in grocery retail:
1. Millennials aren’t what you think
Despite years of ceaseless attention, millennials represent just 17 percent of the grocery market. They do purchase more organic snacks and drinks, as well as research and buy more consumables online -- but even then, only about 20 percent of 18-to-34s actually buy organic.
Those are numbers to build on, but not to bank on, particularly when about one-third of millennials still live at home with their parents. One problem is that the media focuses not on all 18- to 34-year olds, but a particular subset: the urbanized, affluent and well educated. While 18-to-34s account for only 17 percent of shoppers, the stereotypical urban millennial is just one-third of that group, or 6 percent of all shoppers.
Most high-velocity consumer categories are still driven by families with kids. If you capture 35- to 54-year-old purchasers who head families, you capture most millennials, too. That’s retail populism at work.
2. Organic and other niche products are just that: niche
Last April, Walmart announced a phase-out of Wild Oats organic line, two years after bringing it into stores. A few of the products sold well; the line simply did not justify the space carved out for it. This is an issue for all mass market grocers. Organic drinks and snacks remain sluggish, with only 11 percent of consumers purchasing them on a regular basis.
Take craft beers, much loved by local and national media: After decades of press, none have cracked the top ten bestselling beer brands -- which represent nearly two-thirds of dollar sales. Bud Light, the top brand, enjoys more than twice the sales of the top 10 craft beers combined.
Nor are promotions immune to the pressures niche offerings face. The explosion of retailer loyalty cards -- a massive investment among retailers – hasn’t brought an explosion of new or repeat business; in fact, these card programs convey a sense of exclusivity, elitism, and data tracking that turns off many consumers.
3. Online grocery is failing
For a decade and a half, online grocery sales have been put forth as the wave of the future. In all that time, market penetration has been abysmal. Online represents between 1 and 2 percent of the overall grocery market, and only about 15 percent of those people are buying online regularly. The benchmark loyalty rate for a brick and mortar grocer is 70 to 75 percent. How, in the age of Amazon and iPhones, could any 15-year-old online business underperform so badly? The demand just isn’t there.
Consumers place a very high importance on choice. How big is that family-sized can of baked beans next to a regular one? What flavors and brands are available? There's no online analog to the totality of choices (and sales!) you can see and compare in a store.
Price is also prohibitive in online grocery; costs online can run 25 percent higher than on the shelves of a physical store. Delivery and curbside pickup add to the expense, without enough convenience payoff for most consumers.
Retailers shouldn’t put another penny into online grocery offerings until they study these conditions. That means understanding the mass market’s current trend toward retail populism, which points to growth in value channels such as Dollar General and Aldi.
Don’t get Trumped by the emerging trends
Mass-market consumers are not shopping heavily online, they're not buying organics, and they aren’t shopping at Whole Foods -- but there is a meaningful upscale population that is, and it’s captured outsized media attention and capital investment. That group’s preferences simply don’t drive the high volumes that retailers need to justify warehouse and shelf space.
We have two rapidly diverging worlds out there: the upper 20 percent that has the disposable income to dabble in “trendy” products, and everybody else. Retailers have to guard against the temptation to get distracted by the shiny new things and ignore the work of retail populism -- thinking through who the mass of your consumers are and what they need. Yes, niche markets deserve attention. But they’re not where the vast majority of the money is. Rather than deepening the bifurcation of America, retailers have to account for that mass market in their worldviews -- or risk consumers voting with their feet.