Monday, November 5, 2007

Monday Morning Java

New Study Suggests Consumer Dissatisfaction With Primary Grocers: Analysis and Ways to Move Forward for Food Retailers

A new survey conducted for information industry giant IBM suggests consumers have widespread dissatisfaction with their primary grocers.

The survey, conducted for IBM by the market research firm Zoomerang, found a whopping 73% of the 6,000 U.S. consumers surveyed feel either antagonistic towards or have no loyalty to their local supermarket. The study also found that this dissatisfaction is creating legions of disloyal customers sharing their negative experiences and shopping around for a better alternative to their local supermarket.

This sharing of negative experiences by consumers is made all the easier today with the internet and the numerous websites available where shoppers can post reviews of supermarkets, restaurants and other retail businesses.

According to the study's results, this widespread dissatisfaction is directly impacting the shopping choices consumers make. Only a scant 27% of grocery shoppers are acting as "advocates" for a particular retail food store. "Advocates" are loyal customers who recommend their grocer to others, by more from their food retailer, and stay with their primary grocer instead of going to the competition.

The study, and IBM's analysis, says these "advocates" place a high quality on quality, selection, store employees, product availability, and the emerging category of social responsibility and ethical retailing.

In the study, the researchers identified nearly half (46%) of the respondents as "antagonists." These are customers who have a poor attitude towards their grocer and may be actively causing damage to the food retailers business reputation through their vocal displeasure. These "antagonists" place a high value on the same attributes "advocates" do but feel their primary grocer falls short in delivering on them, according to IBM's analysis of the survey data.
Fred Balboni, IBM's global retail industry leader for its Global Business Services division, says "loyalty card efforts across the U.S. grocery industry have fallen short of their goals as grocers sacrifice customer experience to focus on lower prices."

"Building differentiation with today's savvy and vocal consumer requires a whole new approach for businesses," Balboni says. "Grocers that emphasize using deep customer insights throughout their business operations, applying them in a personalized and tailored way, will build strong advocates and loyal customers."

We aren't sure we can agree with Mr. Balboni's first quote above. Why? At least 30% or more of U.S food retailers today (upscale grocers, supernatural food retailers and others) have positioned their business to focus on customer experience rather than price. Safeway Stores with its Lifestyle format stores, Kroger and Supervalu with their upscale banners, Wegmans, Publix, Raley's Superstores--the list of food retailers positioning on customer experience attributes over price goes on and on.

Therefore, if Mr. Balboni is right, then that means these grocers are in the main doing it all wrong. Rather, we think he may be correct in regards to the majority of food retailers who still put price positioning over customer experience. That segment is decreasing though. And even highly differentiated, lifestyle-oriented retailers have to focus to a certain extend on price if they are going to be more than small, niche retailers.

Regarding Mr. Balboni's second point--that differentiating retail operations and using deep customer insights and applying them in a personalized and tailored way is important for grocers to do with today's consumer--we agree with it as a general proposition. But it's only a part of the equation. After all, that's just what loyalty card programs were supposed to help do. And if Mr. Balboni is right they aren't working for grocers, then it essentially supports the argument that more is needed to create loyal customers who will be advocates for a food retailer.

To achieve this we believe grocers need a clear positioning strategy. Food retailers need to know who they are (or find out) and what their target market is. If price is key, create the customer experience around low prices. Food retailers like WinCo in the Western U.S., German-based limited-assortment grocer Aldi (its U.S stores), Supervalu's Save-A-Lot banner, Food Maxx (owned by Save Mart Supermarkets) in California and others all do extremely well--and have loyal customers--by clearly positioning their stores as price-oriented. In other words, evidence suggests it's not the sacrificing of customer experience to the grocery sales god of price that's the problem in the main. Rather, it's a lack of a clear positioning statement and mission for the grocer.

The study, Why Advocacy Matters to Grocers, recommends grocers place a greater emphasis on understanding and catering to their most loyal customers. We agree with this suggestion completely. We recall our Grocery 101: Primary customers are key, give them the most focus and attention. Secondary customers are good, but "your" main job is to convert them into primary customers. Teriary customers are welcomed. Take their money but don't spend too much time on them unless you think you can convert them to primary shoppers.

The study also looks at the difference between specialty stores, like Whole Foods, Trader Joe's and others, and supermarket retailers. According to IBM's analysis, specialty-oriented stores focus more on customer service, product selection and quality, which gives them an edge over other grocers. The survey found 46% of customers who shop at these type of stores act as "advocates," compared to the 27% for supermarkets. "Specialty stores fine-tune their operations to the specific needs of the community, offer local assortments and are better equipped to develop truly personal relationships," says Mr. Balboni.

We generally agree with this point. However it's important to add that numerous non-specialty stores do the same. These are basic grocers, rather than upscale or specialty ones, who focus on their regions, communities and neighborhoods. Examples include Stater Bros. in Southern California, Save Mart in Central and Northern California, WinCo in the Idaho-Montana region and numerous others.

None of these food retailers are specialty-oriented, but they all have one thing in common: they're known as the "local guy" and generally loved by shoppers and the communities they do business in. These type of community retailers obtained this distinction by supporting their regions and communities in every way--and doing so sincerely. It's not so much about being a specialty retailer we believe but rather having a clear positioning point and executing it. In terms of creating "advocates," one can never underestimate the importance for grocers--national or regional, conventional or specialty--of becoming part of the communities their stores are located in.

You can read a summary of the study written by its authors and obtain a copy of the complete study here.

Sidebar: Related Research, Ways Grocers Can Move Forward
As we discussed above, the first step to building customer loyalty is for food retailers to know who they are, who they want to target, and what those targeted consumers are looking for. Once that knowledge is gleaned, the grocer then needs to position its stores in a way that serves this target market--and creates loyalty. Once a solid positioning strategy is in place, the grocer can then begin to create "advocates," as the IBM study so importantly points out. Below is an FMI study that, like the IBM survey, shows the challenging consumer landscape grocers currently face. However, as the two examples of two very different grocers--Whole Foods and WinCo--demonstrate below, it's a landscape that can be navigated with success.

FMI Research:The End of One-Stop Grocery Shopping

The Food Marketing Institute (FMI), the national trade association for U.S. grocers, has surveyed consumer food shopping habits and behaviors since 1974. This year, FMI found strong evidence for the first time in its 33 years of conducting the study, that food shoppers have abandoned one-stop supermarket shopping. In other words, consumers are shopping multiple stores for multiple reasons. This article in the Hartford Courant (11-04-07) newspaper reviews the results of this year's FMI Consumer Shopping Habits study and discusses what might be going on with food shoppers, including their reasons for shopping multiple retailers for food and grocery products.

Combined with the results from the IBM study, FMI's survey results add emphasis to the fact that retailers need to create clear, strong positioning statements and implement them using consumer insight information in order to differentiate their retail operations and create what the IBM study calls "advocates."

Whole Foods: Clear Differentiation and Retail Positioning

Whole Foods Market, Inc. has become a success for many reasons. These reasons include its appeal to shoppers who desire healthy, all natural foods and products, its successful prepared foods program and the warmth and excitement shoppers feel when in the grocer's stores. These offerings are only the execution though of a very well researched, formulated and developed marketing position program, which the retailer has turned into a mission statement. This positioning then was made the centerpiece of the grocer's corporate culture and is the primary ingredient of everything Whole Foods executes at retail., an online marketing publication, has a well-written piece today on Whole Foods' corporate and retail positioning and how it guides everything the grocer does and executes. The piece also talks about how this positioning has allowed Whole Foods to develop a strong customer base (what the IBM study refers to as advocates) of primary shoppers. In fact, Whole Foods is such a differentiated grocer, like Trader Joe's and a few others, that residents in communities where there isn't a Whole Foods store nearby often launch campaigns to get the supernatural grocer to locate a store in their city or neighborhood.

WinCo: Low-Price Grocer Builds Loyalty With Clear Positioning

Idaho-based Winco, an employee-owned food retailer with stores in the Western U.S., including the Pacific Northwest and California, is an example of a grocer who builds strong customer loyalty without appealing to everybody, and does so based on low prices and the basics of grocery retailing. WinCo currently has 62 stores and does $3 billion annually in sales. (note: many grocers with twice the number of stores don't do $3 billion annually.)

This article in today's Idaho Times-News gives an overview of WinCo and discusses how the grocer is winning loyalty from the segment of shoppers it is targeting.

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