The Consumer is King

There are two kinds of retailers − Those that clearly understand that the consumer is calling the shots; and those that soon will.

Changes in the marketplace are occurring at unprecedented rates. In fact, change has become so pervasive that many retailers are opting to “let the dust settle,” particularly in the area of eCommerce, while others are feverishly fanning the winds of change in order to gain a competitive edge. Consider the following comments from leading retailers...

Doug McMillon, President and CEO of Walmart Stores, Inc. said, “Time is the new currency. Our shoppers want convenience and we recognize that shopping in one of our supercenters isn’t always convenient. Hence, we will continue to build out Neighborhood Markets and Walmart-to-Go (smaller footprint stores).”

Rodney McMullen, Chief Executive Officer at the Kroger Company said, “Shoppers want a one-stop shopping experience. They don’t want to have to go to all of the specialty retailers to get healthy and organic products.”

Brian Cornell, Chairman and CEO at Target said, “We believe we should continue to present a meaningful food offering in our stores and on-line. Our identity in food will be a combination of national and our own and exclusive brands, with increased emphasis on natural, better-for-you products.”

Michael Silverman, Global Communications at Whole Foods said, “Our customers have wanted an affinity program for some time. With such strong existing customer demand for a program like this, we believe it will enhance existing customer loyalty and drive new customers. The rewards will be personalized based on individual preferences.”

These are just a few examples that validate the amount of power that the shopper now wields. Yes, the consumer has spoken, and catering to their wants and needs is causing retailers, in all trade classes, to update their To-Do list for the upcoming year.

The Retailer’s Short List for 2015

For many years retailers have attempted to be all things to all people. And decades ago, that approach worked as supercenters proved that consumer goods and durables could be sold through a single channel and/or banner. But shopper behavior has once again shifted and its causing significant confusion across all consumer goods channels. For example, limited assortment stores are enjoying rapid growth, yet eCommerce is attractive because it offers an endless aisle. So is assortment important or not?

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The answer lies within the bell curve. Growth and competitive differentiation occurs in the periphery. Competing in the middle is dangerous because you are trading market share back and forth with other middle-grounders. The middle is not where growth occurs; therefore, it is not sustainable. This, along with other monumental changes occurring in CPG retail, is requiring retailers to increase their understanding of shopper behaviors; which is why shopper analytics is the first item on the retailer’s short list for 2015.

1. Shopper Analytics

Navigating the changing marketplace starts with shopper analytics. Traditionally, retailers have done a good job of using shopper data to increase volume. However, new tools and data sets will be needed to take their understanding of shopper behavior to the next level. They will need to thoroughly understand their target shoppers’ DNA in order to increase store visits and build a loyal consumer base. One of the best places to start is with the retailer’s existing loyalty card or transaction log data, considering:

  • Eighty-two percent of shoppers are more likely to shop stores offering a loyalty program
  • One loyal household = 8 uncommitted households
  • Loyal shoppers have a greater share of wallet (~10% greater)
  • Loyal shoppers, on average, make up half to two-thirds of total sales

Shopper analytics begins with understanding which shoppers are most important. While this can be accomplished in a number of ways, one of the most common approaches uses simple classifications and shopper segmentation as illustrated below. Note: These examples can use loyalty data and/or transactional data.

Temp Customer Segmentation






Once segmented, retailers can extract meaningful insights that correlate store visits (patterns) with weekly spend rates. This will help retailers establish shopper recency and frequency of periods shopped. From here retailers can determine the average or median spend per period; then segment their shoppers into bands or groups based on opportunity and share of wallet. The final step of value segmentation deals with the breadth of the store, which is determined by the number of categories shopped across the store during each visit.

From here, shopper data can be further mined to develop profiles for each store visit and for establishing price sensitivities for each respective profile. Other analytics will help in determining product and category appeal, as well as multi-channel purchases, including eCommerce.

2. Shopper Experience

The customer or shopper experience is so important that both Walmart and Kroger listed it as a priority in their most recent investor/analyst conferences. Both retail giants consider convenience and simplicity as critical elements that will define their shopping experience.

The importance of the shopping experience will continue to increase as eCommerce gains momentum and as price transparency becomes ubiquitous. Fortunately, there are a number of ways retailers can differentiate their banners, including: formats, private label, and customer service.

Retailers may have different philosophies and/or solutions, but all are striving to make their store(s) convenient by meeting shopper needs. While geography and competition play significantly in this equation, most retailers forget the most important elements are organization and change management. Needless to say, the same traditional mind set doesn’t work in non-traditional formats. Here are examples of those who are addressing a variety of needs.

Express – These stores are smaller in design (usually 20,000 sq.ft. or less) and enable the shopper to get in and out of the store quickly. Small comes in many shapes and strategies such as Fresh & Easy, which provides convenience for the health conscious, Target Express and Walmart Walmat-to-Go, which provides groceries, sandwiches, BBQ, a beer cave, and more.

Value – The battle for price has never been greater and value leaders such as Aldi, Save-A-Lot, and Price Rite continue to thrive and expand with their limited assortment, value-based private label offerings, and limited services. The days of mistaking poor quality for value are gone.

Experience – Many retailers are focusing on shopper experience as a way to differentiate their value equation versus traditional and value competition. While Wegman’s, Stew Leaonards, and HEB Central Market have been around for some time, there are a number of new entrants focused on the in-store experience, such as Price Choppers, Market 32, and Lowes Foods with their Pixar designed stores.

Specialty – Niche players such as Fresh Thyme, Sprouts, and Trader Joes continue to provide a unique and health conscious shopping experience that shoppers embrace, as evidenced by their consistent growth.

Private Label
One of the greatest ways to differentiate the store/banner is by providing a portfolio of private label products which cannot be purchased elsewhere. The days of generics and inferior product quality are behind us. The leaders are seeing private label share of sales in the low 30% range and growing. In fact some private label brands, like Kroger’s Simple Truth, have become billion dollar brands. Retailers are now providing a complete portfolio of lower priced National Brand Equivalents (NBE) throughout the store, including Meat, Produce, Health and Beauty, and nonconsumables. Kroger and Walmart also introduced entry-level brands such as Heritage Farms, psst, Check this Out (Kroger), and Price First (Walmart). These entry-level brands will help fend off competition from dollar stores.

Customer Service
Most retailers, with the exception of the extreme value discounters, believe they provide superior service versus the competition. Unfortunately, in our experience this is not truly the case. Bagging groceries, taking them to the car, full service meat and seafood, walking a shopper to a product in-store, and coffee bars have become table stakes. However, new services are being introduced to up the Customer Service ante. For example:

No Check-Out Lines
Leading retailers like Kroger have incorporated technology that counts shoppers entering the store; then calculates the length of the shopper’s visit, and adjusts the number of check-out lines open to ensure shoppers never wait in-line.

Given the focus on healthy eating and the variety of medical ailments (e.g., obesity/diet, gluten, diabetes, lactose intolerance, etc.), leading retailers have added this valuable member to the store staff to ensure shoppers have this personal assistant to make them more comfortable in-store.

Grocery stores are becoming more than a place to shop. Many retailers are now incorporating cooking schools/classes, meeting rooms, and large seating areas to meet more community needs and enable patrons to spend more time in their stores.

3. Digital Engagement

Retailers should think of digital as the highway to personalization. However, with great power comes great responsibility. Recognizing that compared to electronics, technology, soft goods, and specialty retailers, grocery retail is late in the game, consumer expectations are high. Several leading retailers are already down the digital highway by offering the following:

Personalized Offers and Digital Coupons
No longer is it acceptable for retailers to bombard the shopper with coupons in hope of getting one to stick. Shoppers expect offers to be relevant to them, and these offers should be automatically loaded in to the shoppers loyalty account. In fact, Kroger’s redemption rate for personalized offers exceeds 30%. Similarly, their load-to-card redemption rate is three-to-five times higher than the industry average.

Shopping List
Shoppers expect to see their favorites, or most recently purchased items, readily available. They also expect the retailer to suggest other products they may like (similar to Amazon’s model).

Adsdigital engagement

Almost all retailers put their ads online, which can segment the offers by store location or zone. But best-in-class retailers are delivering a personalized ad that is unique to each household, based on their preferences (e.g., healthy household with more natural/organic preferences).

Apps Replacing Email
The days of mass emailing are no longer acceptable. If emails are not relevant, shoppers will block access; however, that point is becoming moot as more retailers are using their specific apps as their primary communications vehicle.

4. Price and Promotion

Total price transparency and showrooming are enabling shoppers to get the lowest price for their most frequently purchased items. While programs like Walmart’s Savings Catcher occur post-purchase, we expect similar programs and technologies will impact the shoppers purchasing decision in advance of, or during, the store visit. Yet, even with price transparency, the battle for price/value dominance continues as Amazon seeks to become the preferred retailer for groceries, household items, and pet supplies. Of course Walmart is still leading the charge with its hybrid-EDLP format and its Savings Catcher program. But even Walmart is at risk as the merger of Family Dollar with Dollar Tree brings new buying power to the price negotiation table. The good news is that traditional retailers can still benefit from a well-orchestrated shopper value equation by:

  • Using price communication best practices to get full credit for the values being offered
  • Integrating savings strategies across all communication platforms (in-store, print, digital, social)
  • Leveraging private label (national brand equivalents and entry-level price points)
  • Optimizing weekly circulars by understanding the trade offs between margins and traffic

5. Omni-Channel

Winning in the year ahead will require retailers to integrate their digital strategies with their physical stores. Specifically, retailers demonstrating the simplest, most convenient click-and-mortar configurations will leapfrog those just entering the digital marketplace. eCommerce in CPG, which is expected to increase by 60% in the next three years, is creating new opportunities to engage shoppers. Capitalizing on these opportunities requires a unique and integrated shopping experience comprised of the following:

Retailers must continue to connect with shoppers in-store and online (using smart phones, tablets, computers, and kiosks).

Retailers must embrace home delivery and click-and-collect models.

Information-Based Services
Shoppers, particularly millennials, expect retailers to understand their product preferences while providing meal solutions and time-saving services such as automatic prescription refills.

 The Year Ahead

For most of the consumer goods industry, 2014 was a turning point highlighted by declining unemployment and increasing consumer confidence. While this is certainly good news, it does not necessarily indicate that growth in consumer goods will exceed the rate of inflation. However, retailers embracing new strategies and tools that help them to better understand their shoppers’ needs and wants will grow at disproportionate rates. And those focused on shopper analytics and click-and-mortar retailing will position their banners to outperform the market for many years to come.