Optimistic Outlook


Amid a sluggish economic recovery, grocery retailers still are more optimistic about 2014 than they’ve been about the coming year for the past decade, exclusive research from Progressive Grocer reveals.

On a scale of 0 (awful) to 100 (sensational), retailers are close to 72, up more than four points from 2013. It was just a handful of years ago, at the height of the economic recession, that the retailer — as well as consumer — sentiment index was in the 50s, so the subsequent recovery has them in a jubilant state.

Retailers from chains with 100 or more units, as well as retailers from the South, are particularly upbeat about the 12-month outlook, rating the year at 75.8 and 78.3, respectively. The numbers skew slightly lower for independents and smaller chains. Dan Shanahan, president and COO of Buehler’s, a 14-unit chain based in Wooster, Ohio, is upbeat, but not to the degree of overall respondents. “We’re generally optimistic,” he says, “but there have been a number of events in the past year, including SNAP benefits being reduced, and we just haven’t crossed over those issues … we’re maybe a 60” on the scale.

Despite numbers indicating that independents are the least optimistic about 2014, Seth Stutzman, SVP of operations for Baton Rouge, La.-based Associated Grocers, which distributes to more than 220 independent retailers in Alabama, Louisiana and Texas, says: “The independents out there are embracing the change, and they’re keeping their focus on moving forward. It’s exciting to be part of that. We continue to look for new ways to serve them, and that feeds our enthusiasm. We want fun things for the customer and [work on] interesting ways to interact with them.”

Among large chains, the spectrum is equally split, with the likes of Cincinnati-based Kroger forging ahead in 2014 after a strong 2013. Its acquisition of Harris Teeter closed in late January 2014 amid reports of a smooth transition. In announcing fourth-quarter results (ending February 2014), CEO Rodney McMullen said: “Kroger’s ‘Customer 1st’ strategy is a powerful foundation on which to continue growing and differentiating our business in 2014. … We are well positioned to continue delivering sustainable high performance that benefits our customers and shareholders today and in the future.”

Pleasanton, Calif.-based Safeway, which ranked No. 4 on Progressive Grocer’s Top 50 in 2013, on the other hand, is poised to be sold for $9 billion to Cerberus Capital Management, which manages Albertsons, Acme, Jewel-Osco and Shaw’s supermarkets. Safeway sold off its Canadian operations as well as its Chicago-based Dominick’s stores in 2013, and rumors surfaced that the company was looking to sell. The sale of Safeway demonstrates the importance — and the difficulty — of executing against differentiation in today’s ultracompetitive marketplace.

Leveling Sense of Well-being

Progressive Grocer also asked respondents if they were more optimistic, less optimistic or unchanged compared with last year. A little more than 39 percent of respondents indicate they’re more optimistic than last year, down from 41.5 percent in 2013 and 44 percent in 2012.

The slight decline doesn’t appear as dramatic when analyzed against the size of the retail operations responding to the survey. More than half of respondents from chains of 100 stores or more are optimistic this year, compared with just more than a third, 35.9 percent, who reported being more optimistic in 2013. Conversely, 28.2 percent of respondents overall are less optimistic, but 35.4 percent of independent/small-chain respondents are less optimistic, compared with 18.2 percent of large-chain respondents. Economic issues, including benefits and overhead costs, weigh most heavily on independents and operators with 10 or fewer units.

Despite his less optimistic forecast for 2014, Buehler’s Shanahan says his company feels more optimistic this year than last. “We’re in a growth mode. We opened a store last year, and we’re opening a hardware store this year [Buehler’s owns both dual grocery/Ace hardware stores as well as stand-alone stores]. “We have a go-to-market strategy we kicked off two years ago, which includes a renewed focus on pricing as well as 100 other small things.”

What’s Keeping Retailers Up at Night?

Retailers are vexed by large issues such as benefits, competitive threats and labor, and anticipate that these issues will only increase in the coming year. Nearly six in 10 worry about benefits, including the potential for an increased minimum wage, and higher costs associated with the Affordable Care Act.

In addition to reporting which issues were their organizations’ main concerns, respondents were asked to rate the level of concern regarding a variety of organizational problems on a scale of 0 to 100 (where 0 is a decrease in concern, 50 is no change, and 100 is an increase in concern). Respondents indicate that benefit costs will be a major concern, at 84.3, spiking to 88.2 for independents and chains of 10 or fewer stores. For these smaller operators, the number (88.9) is nearly the same as for wage costs, and energy/fuel costs are 82.6, 10 points higher than for respondents from larger chains.

Respondents from chains with 11-99 and 100 or more stores are most concerned about competitive threats. For the largest chains, it tends to take a longer time to make strategic changes. One distributor that PG spoke with routinely takes independent retailers on field trips to study retail concepts across a spectrum of channels. Changes are often inspired — if not copied outright — from larger retailers, but at much swifter rates due to the nature of adapting for one or only a few stores. It’s not always larger chains that launch the most innovative concepts, but it’s easier for smaller chains to make such changes, which shortens the “differentiator” period for larger chains.

“There’s a lot of competition coming in from the U.S. and other countries,” says Stutzman of Associated Grocers. “There are new formats and new ideas, lots of convenient ways to get to customers. We have to continually evolve our game plan and figure out how to stay competitive, and we are staying competitive. We have retailers who are very attuned to competition. They’re aware of market share and how they’re getting feet in the door and items into the basket.”

Another retailer responding to PG’s survey indicates his chain placed a major emphasis on tackling out-of-stocks, but now is weighed down by price increases, particularly for beef, which is a staple in his part of the country. “Prices continue to move in the wrong direction,” he says.

The costs associated with running the business will remain as key issues plaguing the industry. But on the upside are the feel-good aspects of bringing healthy, safe food to consumers; interacting and forging relationships with people on a regular basis; and genuinely enjoying the work.

“How you look at things is the one thing you can really control,” says Stutzman. “If you want positive results, you have to have a positive outlook.”

Supermarket Sales by Store Format

Supermarket sales were $620 billion, an increase of 2.9 percent ($17.6 billion) in 2013, which is relatively on par with the 3.1 percent growth enjoyed in 2012. But when the 3.7 percent growth in 2011 is factored in, it appears that industry sales are experiencing a slight downward slide.

Where the news in 2012 was the increase in conventional store formats, 2013’s growth segment is natural/gourmet supermarkets, which saw sales gains of 11.4 percent accompanying an 11.7 percent increase in the number of stores in this format.

Conventional supermarkets continue to hold the lion’s share of the industry, at 65.8 percent of all stores, but saw a slight dip (-0.7 percent) in units and modest (1.6 percent) sales gains.

Supercenters hold a 25.1 percent slice of the pie, with units up 4 percent and sales up 4.7 percent. Limited-assortment stores hold 2.6 percent of the market, but saw gains similar to those of supercenters, with a 4.2 percent increase in the number of units and 4.4 percent sales gains.

When compared with other channels that sell groceries, convenience stores saw an increase in units of 1.4 percent, but sales gains of 5.6 percent, indicating that efforts to offer a wider selection of grocery products are resonating with consumers. The number of club stores increased by 2 percent last year, and enjoyed sales gains of 6.4 percent.

Supermarket Sales by Store Count

Dollar sales growth outpaced unit growth among chains with 11 or more stores, as well as among independents, with the latter showing slightly stronger growth on both counts. The number of new chain units was up a tepid 1.2 percent, or 406 stores, compared with a flat 0.6 percent (42 new units) for independents. Chain sales growth was up 3 percent, compared with 1.5 percent for independents. Chains far outpace independents in their share of total dollar sales, with 94.4 percent of dollar sales coming from chains, illustrating that chains have the upper hand in terms of the amount they sell. What the data don’t reflect is that many independents are in lower-population areas, where they simply don’t have the base of consumers that chains have focused on. Dollar growth for chains from 2012 to 2013 was just more than $17 billion, compared with independent growth of $498 million.

Store Performance Measures

An investment in people, an investment in space and an investment in service: All are reflected, if only modestly, in average per-store supermarket performance measures, as reported by Nielsen TDLinx. The best news: Investments are showing a positive return. Sales volume is up, selling area is slightly increased from 2012, the number of checkouts is on the rise, and stores have more employees.


Making Connections

Methods for enhancing the consumer experience vary by retailer size.

Grocery retailers will agree that creating a memorable shopper experience is key to delighting customers, ensuring return visits and growing sales over the long haul. But they don’t necessarily agree on the best methods for delivering that experience, as demonstrated by the responses to PG’s annual report survey.

Asked to name the most important consumer marketing strategies, nearly two-thirds of respondents said “in-store signage/digital media,” although that number soared to more than 80 percent among operators of midlevel grocery chains. Newspaper inserts and direct-mail circulars continue to rank highly (41.5 percent and 38.4 percent, respectively), with mobile marketing rounding out the top five.

While more grocers continue to invest in digital, many still cling to the traditional paper circular. “I think paper ads are our No. 1 method of communication to get people into the stores, and we work hard to serve them when they get here,” says Seth Stutzman, SVP of operations at Baton Rouge, La.-based Associated Grocers.

For engaging consumers, Stutzman says radio is popular, along with television, for many of his company’s member retailers. But many are also making inroads with digital media sites like Facebook, Twitter and Instagram, as well as their own home pages. “We have a team that helps retailers design their own websites,” he notes. “We’ve started digging in on social media.”

Customer relationship marketing remains tops, named by more than three-quarters of overall respondents, while social media ranks third at just more than half overall. Loyalty incentive programs are favored by nearly 60 percent of respondents, although chains of at least 100 stores rank them well above average, while operators of 10 or fewer stores rank them well below — not a surprise, since smaller operators usually aren’t equipped to launch loyalty initiatives and, in fact, often brag that they know their customers better because of their size. However, the potential of such programs isn’t totally lost, and third-party suppliers are stepping up turnkey loyalty programs that can be customized for each retailer.

Dan Shanahan, president and COO of Wooster, Ohio-based Buehler’s, says his company is “cleaning up” its loyalty card program “to make it more usable.” For instance, rewards formerly redeemable only as cash will be awarded for cash and/or fuel, something that he says is fairly unique to the industry, and was done in “direct response to competitors in our market.”

Further, Buehler’s created a new position to handle consumer marketing and social media. Shanahan says this spot is filled by a younger person “with an affinity for social media.”

In-store Services

It goes without saying: The better a retailer engages with shoppers, the better overall sales will be. The opposite, of course, is also true: Grocers that have low customer engagement strategies are apt to generate less than stellar sales, and are more than likely facing other operational and financial issues that are hampering overall performance.

Topping the list of services that deliver the greatest in-store experience returns is that of on-site butchers, named by more than 70 percent of overall respondents. This mirrors findings by the annual “Power of Meat” study, conducted by the American Meat Institute (AMI) and Food Marketing Institute (FMI), which indicates that consumers want more customer service and guidance on specific cuts, alternate cuts and preparation tips when shopping their grocers’ meat departments.

Buehler’s is emphasizing its meat department, along with produce and other fresh areas. “We’re coming up with macro strategies on a department-by-department basis,” Shanahan explains. “The deli is where all the sizzle is right now.”

Not surprisingly, a well-seasoned seafood department staff was deemed to be the second-leading customer engagement tactic in this year’s state-of-the-supermarket-industry survey among slightly fewer than half of panelists (45.2 percent). While conventional grocery stores continue to reign supreme as the captive outlet for seafood sales as the primary channel of distribution, grocers making the investment in seafood specialists to help shoppers gain confidence and familiarity with various products greatly enhance the shopping experience and help build customer loyalty.

The third most rewarding in-store service to enhance the customer experience was that of wellness experts, cited by 37.2 percent of survey participants. The wellness segment has exploded in popularity among progressive grocers, which are increasingly leveraging the platform as a top priority to build connections with a more health-conscious food-shopping public. Meanwhile, as wellness ranks more highly among grocers’ priorities, in-store pharmacies rank seventh in importance (44 percent overall) among favored merchandising and brand enhancements, albeit significantly higher among big chains than the lower tiers. Cross-merchandising, private label programs and signature products top this list fairly evenly across the board.

To be sure, grocers are in a unique position to foster the continuing focus on health, not only as it pertains to consumers, but also with their own associates, through such programs as personalized counseling from in-store nutritionists or dietitians, cooking demos, informational signage, online information, recipes and nutrition tips, store tours for schoolchildren and other groups, and initiatives that encourage weight loss, exercise, smoking cessation and other lifestyle changes — not to mention stocking the latest better-for-you products.

For customer interaction, grocers say nothing beats good old-fashioned community involvement, named by more than three-quarters of overall respondents.

“The saying ‘This is a relationship business’ still rings true,” Stutzman says. “Our retailers practice this day in and day out.” Many of Associated Grocers’ retail members operate rural store locations that “really get involved in community activities,” he notes. “It’s really grass-roots marketing at its best — getting out in the trenches, creating that customer connection. … They don’t have huge budgets, but they maximize them.”

Mobile Marketing

The use of smartphones and other mobile devices by consumers is achieving near ubiquity, and grocers are exploring ways to leverage this mode of consumer connection. Larger chains with vast resources tend to be ahead of the curve, although such technology seems tailor-made for smaller independent operators, which often have a greater degree of intimacy with their shoppers than do huge operations.

For example, Wisconsin-based Madison Fresh Market has abandoned the old print circular and, according to Store Director Kristie Maurer, who spoke on this topic at the latest NGA Show, shoppers haven’t missed it. Instead, Madison employs a four-member digital team that oversees marketing efforts on social media as well as radio. Team members aren’t just tech nerds — they’re grocery-savvy as well, which allows them to respond more effectively to new product launches, daily specials and other changes to which they alert the store’s loyal customer base.

Among grocers responding to PG’s survey, more than 52 percent identify e-coupons as the most important use of mobile technology; that number soars above 67 percent among large chains. A distant second, at 37 percent, is Facebook (named by nearly half of small operators but only a fifth of large chains), with digital circulars following closely behind. Predictably, larger chains place more importance on personalized discounts and POS loyalty cards than do smaller operators.

But third-party suppliers are stepping in to help level the digital playing field for independent operators, Stutzman notes. “A lot of companies are helping to bridge the gap, so you don’t have to start from scratch,” he says. “Some of our retailers have really embraced it. … The big chains have had more influence … but I’m excited to see more of our independents get involved.”

When asked to grade their company’s strategy for connecting with consumers, a solid 30 percent of respondents choose the option “We’re just getting started,” followed closely, at 29.3 percent, with “We’ve got a strategy that we’re executing.” About 16 percent overall say they have a fully integrated omni-channel strategy, while just more than 6 percent (zero among large chains) admit to being ignorant of the omni-channel concept.

Merchandising/Brand Enhancements

At the heart of the key components that retailers are employing to reinforce their overall image and brand propositions — including private brands, signature products, specialty products and services, and prepared foods — is indispensable cross-merchandising, which ranks as the leading means of merchandising engagement among 69 percent of panelists.

While displays are a fundamental part of the grocery business, eye-catching assortments that broadcast the unique value or interconnectedness of products — be it seasonal or sale items with a relatively high profit margin, or faithful loss leaders — offer a compelling way to differentiate promotional items and engage customers. Another inherent benefit of cross-merchandising is the built-in convenience aspects and improved visual flow between departments that helps break down the problematic “silo mentality” that otherwise prevents various department heads from working together to see the bigger picture and, in turn, impart higher collective margins.

Merchandising complementary items across the center store, refrigerated and frozen departments is an increasingly hot tactic that blends greater convenience for time-strapped customers and can lead to big sales lifts. Cross-merchandising is particularly effective when fulfilling specific needs such as meal solutions and healthy snack centers. CPG stalwart ConAgra Foods, for instance, has done considerable research into dinner prep stations across the store to understand consumer needs and shopping patterns, which has subsequently yielded feedback resulting in a “dinner scorecard” of the items shoppers buy the most and least often.

Recently piloting a dinner prep project with five retailers to discover various consumers’ needs, Omaha, Neb.-based ConAgra built cross-solutions across various departments and temperature states to merchandise meal components that shoppers were most interested in preparing, while further building on existing customer interactions, whether through giveaways, coupons or other methods. The end result: Meal solution shopper marketing events generated twice the sales lifts of other types of marketing events. Moreover, the convenience factor was found to be so strong that not everything had to be discounted to encourage purchase. In other words, it’s not about discounts, but instead about solutions: The easier it is for shoppers to solve their problems, the more they’re inclined to buy.

Pacing cross-merchandising by one point on the brand enhancement leaderboard are increasingly influential private label programs, which rated strongly among a collective 68 percent of Annual Report respondents.

In the smallest to the largest of retailers, consumers are seeing an improved and expanded private label presence in nearly every part of the store. According to multiple industry studies, sales of store brands grew by upwards of 20 percent over the past three years — more than twice as fast as national brands.

According to the 2014 State of the Industry Research Study by PG’s sister publication Store Brands, retailers’ commitment to store-brand product differentiation as a means to drive traffic and build shopper loyalty is here to stay. Beyond differentiation and loyalty building, other specific advantages of store brands for retailers/wholesalers include higher margins, lower-cost alternatives to national brands for consumers, strong marketing platforms and future growth engines. Tiered private brands, incidentally, appear to be the preferred differential platform for many retailers, notes Store Brands.

Signature products, pegged as the third most influential merchandising move among 59 percent of respondents, are helping supermarket retailers impart a compelling differentiator in various departments, particularly in fresh food, and most notably in the in-store bakery. The bakery department is generally considered to be among the most underdeveloped driver of brand equity across the whole store. But don’t tell that to Buehler’s, which earlier this year added fellow Buckeye State grocer Dorothy Lane Market’s renowned signature Killer Brownies to its 14 in-store bakeries. Originally created in the 1980s by Dayton-based Dorothy Lane and made available to Buehler’s through an exclusive licensing agreement, the sweet treats have been rebranded under Buehler’s own “Forbidden Brownies” moniker, courtesy of a “Name the Brownie” customer contest that yielded more than 1,200 entries.

Meanwhile, store-within-store specialty departments — organic, gluten-free, specialty cheese and housewares — ranked as a leading merchandising/brand enhancer among a collective 57.4 percent, followed closely by prepared foods (56.6 percent), which are poised to continue gaining steam at the expense of restaurants through 2022, according to a 2013 foodservice forecast from The NPD Group. The promising prognostication from the Port Washington, N.Y.-based market research firm indicates retail prepared food purchases for at-home consumption will increase by 10 percent over the next decade, compared with a 4 percent increase forecast for commercial foodservice outlets.


The Measure of Success

Gauging store departments by sales, coupon redemption.

Generating Sales

When asked to rate the store department that’s most influential in terms of driving sales, 17.4 percent of survey respondents chose meat, giving it the top spot. But during a cycle of rising prices that are taking a discernible bite out of retail meat department sales — in turn causing volume to remain flat or decrease for the majority of categories, save fresh chicken, which posted the highest increase in dollar sales in years — retailers are engaged in a delicate balancing act to deliver budget-friendly staples with limited production. The rising cost of beef coincides with the decreasing total inventory of calf and cattle, which hit a 60-year low last year.

While the center store is often lamented for its inability to deliver healthy gains on grocers’ P&Ls, the flagship supermarket department continues to be regarded as a strong sales-generating ally among 13.6 percent of panelists. New products, packaging, merchandising and category management innovation are exploding at a feverish clip in center store mainstay categories, which are providing grocers with an abundance of creative opportunities to bolster sales and better deliver on more discriminating shopper needs. More than one retailer cites the use of extended-curved displays to showcase special sections, such as allergy-free or specialty offerings. “We’re using rounded shelving so customers see it immediately when they enter an aisle,” one retailer indicates.

Produce, pegged as the third most powerful sales driver among nearly 10 percent of grocery executives, is also regarded as a bright spot. With consumer interest in better dietary choices steadily on the rise, fresh produce departments are increasingly viewed as an extremely influential destination for shoppers to heed the call to action.

Yet, while the extensive media attention increasingly devoted to the role fresh produce plays in healthy diets hasn’t necessarily translated into commensurate dollars for retailers, the majority of grocery executives acknowledge fundamental shifts taking place, with many produce departments enjoying nearly double the sales growth of total store sales in recent years.

To that end, a telling point about the shift was shared at a PG produce roundtable in late 2013 by Jeff Garrett, produce supervisor at Rio Rico, Ariz.-based Garrett’s IGA: “The meat department used to just destroy produce sales, but our produce departments are now commanding a greater percentage of sales than our meat departments.” However, Garrett said the exact opposite was true with category sales trends 10 to 15 years ago. “Meat has gone down, and vegetables and fruits have definitely gone up,” he observed.

Coupon Redemption

Industry-wide coupon redemption remained steady in 2013, at 2.9 billion coupons redeemed, while distribution grew 3.6 percent compared with 2012, according to Winston-Salem, N.C.-based Inmar. Some 329 billion CPG coupons — including both traditional paper coupons and digital paperless coupons — were distributed in the United States last year. Of the coupons distributed in 2013, roughly 40 percent were for food products and 60 percent for nonfood products, which is in reverse proportion to what PG’s Annual Report data suggest (center store, 30.3 percent; dairy, 4.5 percent; health, beauty and wellness, 7.6 percent; and general merchandise, 5.3 percent).

As for the preferred method of distribution for marketers — and the most popular method for redemption by consumers — FSIs continue to reign supreme, which, according to Inmar, represented 87.3 percent of all coupons distributed in 2013 and accounted for 41 percent of all redeemed coupons. According to the “Inmar 2014 Shopper Behavior Study,” 49 percent of shoppers regularly use FSI coupons — making them the most frequently used method among shoppers (when ranked against the other discovery/acquisition methods). In terms of redeemed offer count, more than 1 billion of the 2.9 billion coupons redeemed in 2013 were FSIs.

At the same time, digital coupons enabling more personalized promotions and deployed by marketers with enhanced targeting continued to grow ahead of the overall rate of coupon growth and, consequently, increased their share of redemption. Digital coupons, which are loaded directly to shopper loyalty accounts from retailer and publisher websites, with no paper involved, tallied more than 66 million redemptions in 2013, according to Inmar estimates — a 141 percent increase over 2012.

Other methods accounting for sizable portions of coupons redeemed, per Inmar, included instant redeemable (15.6 percent), electronic checkout (8.4 percent), shelf pad (5.9 percent), internet print-at-home (5.2 percent) and direct mail (4.1 percent).

Industry studies indicate nonfood coupon redemption is typically higher at mass-merchandise retailers than at grocery retailers. To that end, recent research from Marx, a subsidiary of London-based Kantar Media, denotes significant shifts in advertising and promotion activity among leading retailers across the mass, food, drug and other retail sales channels. Walmart had the greatest levels of actual advertising expenditures and the highest level of participation in retailer FSIs in 2013, increasing its activity in these areas by 32.9 percent and 30.8 percent, respectively. Bentonville, Ark.-based Walmart further benefited from a 25.2 percent increase in digital coupon activity on its Walmart.com website and a 43.7 percent increase in retail feature ad pages distributed in 2013. However, Minneapolis-based Target kept pace with Walmart by also driving double-digit increases across all four of these tactics in 2013.

Moving forward, Marx/Kantar advises manufacturers to understand which departments and categories are being featured in their retailers’ weekly advertising and promotions, because it will influence where within the store the shopper is more likely to shop. Retailers, meanwhile, should consider how best to leverage the brand advertising and promotion support offered by manufacturers to create purchase intent for the category and their brands. Ultimately, how retailer and manufacturer activity aligns or competes will have the greatest impact on purchase decisions, retail sales and promotion effectiveness.

Customer Interaction

To be successful in this fast-paced, data-driven, self-serve era, the most industrious retailers are finding new and improved ways to interact with customers to establish relevant, meaningful connections; solidify satisfaction; and reinforce loyalty. Among the most productive departments to accomplish those all-important goals, based on feedback from PG’s 2014 Annual Report participants, are deli/prepared foods (13.7 percent), front end (11.5 percent), meat (8.4 percent), and pharmacy (7 percent), all of which clearly have stellar opportunities to make strong and lasting impressions with customers on a regular basis.

To be sure, in the hyper-competitive retail food business, where prices and products are often similar from one store to the next, visible, knowledgeable, engaged associates ultimately separate the good from the great. Aside from meat and seafood, where customer service has long been viewed as the fulcrum to leverage trust and loyalty, other supermarket departments that offer robust opportunities to court strong customer interaction include the front end, deli, bakery, pharmacy and, increasingly, fresh produce.

Recent research from the National Grocers Association’s (NGA) consumer survey reveals heightened expectations for store associates on the selling floor to help guide customers’ food-buying decisions, particularly in the fresh food departments, where shoppers are spending more than half their dollars. Having polled more than 1,380 chief household shoppers about their experiences, behaviors and sentiments on what appeals to them (or not) about supermarkets, time-saving checkouts, courteousness, custom services and palpable customer care all scored high. “The more personalized the shopping experience … the greater their edge over retailers less connected to communities and less empowered to please people as personal situations arise,” said NGA President/CEO Peter J. Larkin.

Among the tactics grocers can focus on to further develop excellent customer experiences: Develop ways to personally engage shoppers that simplify their lives by helping them keep track of what they’ve bought, especially what’s important to them; test new approaches for affordable, fee-based services; and expand cooking and product demos in the deli/prepared food departments to help shoppers remain involved in food preparation with the help of ready-made specials.

Investment Priorities

Grocers acknowledge that technology is a top priority for their businesses, as reflected in their responses to PG’s survey. More than 16 percent of respondents say new and upgraded technology has been their best investment in the past five years. That’s followed closely by remodeling existing stores, with expanded assortments (such as “free-from” products) named by about 9 percent of respondents.

Grocers take a bit of a flip-flop when looking ahead to the next five years. In the future, store remodels will be more important (18 percent) than tech investments (16 percent), followed in third place by new store construction. Though statistically not a great shift, perhaps, the reversal indicates grocers feel they’re finally catching up with upgrades to their tech infrastructures.

Buehler’s is in step with new stores, planning about 10 new markets in the coming years, according to Shanahan. The company is looking at locations within 45 minutes of its existing 100,000-square-foot supermarkets to build smaller stores in the 30,000-square-foot range, Shanahan says. Supplied by larger stores, these smaller markets would offer “full perishable departments and a modified center store,” he adds.

Associated Grocers’ Stutzman is more broad in his response: “We invest in a lot of ways. We provide intellectual capital to help our retailers know what’s going on in the marketplace. We spend thousands of hours in our stores; we focus on support in the store. … Capital-wise, we have a loan program. We figure out ways to lessen the burden and risk when we look at new equipment. … We’re noticing that there’s a lot of success in bringing in innovation and looking for new opportunities for merchandising and cross-merchandising.”

Over the past five years, Shanahan says Buehler’s money was best spent on more than a dozen barbecue smokers, whose output has become a customer favorite. “We paid for them in three weeks,” he observes, noting that the grocer sold 700 pounds of smoked meats from in front of one store over a single weekend. 


Making the most of WOM

A few STEPPS can be a big game changer for grocery retailers.

Product mix, merchandising, advertising and customer engagement: They’ll all mean much more if your customers are spreading the good word.

“You need to turn your customers into advocates,” says Jonah Berger, a professor at the Wharton School at the University of Pennsylvania and author of Contagious: Why Things Catch On (2013, Simon & Schuster).

“Word of mouth (WOM) is powerful on many levels for the grocery retailer,” he explains. “Consumers rely on word of mouth for the new products they try, to learn about new offerings; they’re looking to other people to learn the right thing to do.”

In Contagious, Berger demonstrates — and supports with science — how WOM and social transmission work. He maps out six principles or STEPPS that are often at work in successful campaigns and that can be used to promote a contagious strategy:

  • Social currency: Consumers want to feel smart and in the know; retailers should make customers feel like insiders.
  • Triggers: Top of mind means tip of tongue. 
  • How can what you do trigger people to think about your store and its offerings in a positive light?
  • Emotion: When we care, we share. Emotion is a great driver of social engagement. Focus on your shoppers’ feelings.
  • Public: Built to show, built to grow. Design products and initiatives that promote your store. How about deli products in store-branded Tupperware-like containers?
  • Practical Value: News you can use. Highlight value and expertise so that people can pass it on.
  • Stories: Stories are vessels, so build a Trojan horse, and your store can go along for the ride.

It’s no secret that if shoppers share a positive experience or are enticed to put one additional product in their basket, the retailer will be more successful. Monrovia, Calif.-based Trader Joe’s is a good example of a retailer that’s good at interacting well with customers. “They do small but big things,” says Berger. Trader Joe’s doesn’t just feature new products, it also promotes items that are truly different.

“Every time I’m there, I wonder what they’ll have that’s interesting and novel and remarkable,” he continues. “People like Trader Joe’s for the sense of discovery.” That explorer-like feeling translates to social currency, he adds. It makes people feel smart, it makes them want to tell others, and it makes them want to return to the store.

Grocery a Good Match for WOM

Retailers are well positioned to deliver something useful. Recipes, or solutions for a particular event or simplified living, will not only gain traction with shoppers, but will also resonate through WOM. If it fills a need for one customer, it likely will for others.

Even trying to determine when consumers might be talking about you is fairly easy fodder for grocery retailers. After all, consumers visit supermarkets an average of 1.7 times per week, and items being purchased are with consumers throughout the day. If the shopper was amazed enough by the recipe or solution the retailer provided — or the manner in which it was provided — it will likely be talked about.

“No retailer doesn’t care about service,” says Berger. “But retailers have to go above and beyond in creating an experience so remarkable that customers have to share. What can show the customer how friendly the salespeople are, or what is a story that will take that brand along for the ride? Maybe it’s that someone forgot their groceries and the store delivered them. Maybe it’s a free car wash or free child care while you shop. Maybe a store makes a personal call to an elderly customer they haven’t seen for a while to make sure they’re OK, or it’s free delivery for customers over the age of 65.” Make it remarkable enough that people will want to share it.

For a free workbook of ideas and steps, visit the resources tab at Jonahberger.com.

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