How to Compete
A 2017 Bain & Co. report highlighted price as the most crucial factor in competing with hard discounters and laid out five rules for growing share: Embrace your own private brands before your shoppers move on to someone else’s, lead with fresh, become more convenient while your competitors become less so, transform your cost structure rather than just tweak it, and employ advanced analytics to unlock new sources of value. While all five are still key, two have risen in significance, the company noted: investing in convenience, and using advanced analytics or other new technologies to boost operational efficiencies.
Examples of convenient measures adopted by grocers cited by Bain & Co. are Amazon Go and Walmart’s free curbside pickup at 1,800 locations. Further, the company’s research found that while just 26 percent of respondents reported shopping online for groceries, these customers spend more money more often than customers whose purchases are just in brick-and-mortar stores. On average, customers who shop online spend $122 per month, versus the $63 a month spent by customers who shop only in stores. Bain & Co. stressed that this is a prime area for differentiation for traditional grocers, as just 1 percent of Aldi shoppers surveyed reported buying groceries online.
As for data and analytics, Kroger acquired a research firm to enhance its grocery data analysis, and Amazon is expected to integrate high-frequency, real-time data across platforms. As the cost of data plunges while overall computational power and ability rises, mainstream grocers will have to be increasingly strategic about how and where they make use advanced analytics and digital technologies, Bain & Co. advised, noting that just 5 percent of grocers surveyed name analytics as an important priority. As top grocers gain ground, followers will need to spend commensurately just to keep up.
“While hard discounters’ expansion into the U.S. turned out to be less overwhelming than expected, it still will prove tumultuous for traditional grocers who are slow to differentiate,” noted Kent Knudson, a partner in Bain & Co.’s retail practice and a co-author of the report. “As we’ve seen over the past year, the hard discounters know how to pivot their strategies in real time as they get a feel for the U.S. market. They are still a force to be reckoned with.”
The study of more than 17,400 consumers was conducted in partnership with research services company ROIRocket, which has offices in Denver; Vancouver, Wash.; and Jacksonville, Fla.