Reveries.com - April, 03

Why Shoppers Shop at Supermarkets

Despite that supermarkets can no longer compete on price against value discounters, they maintain an overwhelming advantage when it comes to household penetration and trip frequency.

In fact, 100 percent of households still shop supermarkets an average of about 1.5 times per week -- compared to 63 percent penetration for supercenters and a frequency of a little more than about once every three weeks.

The question is: If price is the key determinant in the consumer's decision of where to shop, how do supermarkets retain their significant advantage?

To answer this question, Hoyt & Company recently undertook an informal survey of why consumers shop supermarkets versus other channels.

We conducted about 100 consumer intercepts per store in the parking lots of Safeway, Albertson's and Fry's (Kroger) and outside Wal-Mart Supercenters and Costco (police blotter coverage is available upon request).

		88 percent of supermarket shoppers said they shop supermarkets primarily for perishables, versus only 64 percent for Wal-Mart and 36 percent for Costco
		Only 13 percent of supermarket shoppers shop supermarkets for price -- versus 71 percent for Wal-Mart and (surprisingly) 50 percent for Costco
		At the time of our interviews, only 12 percent of supermarket shoppers were shopping that day for a "major shop" (as opposed to a "fill-in") versus 36 percent for Wal-Mart and "0 percent" for Costco
		63 percent of supermarket shoppers buy groceries in other supermarkets, 33 percent in supercenters and 56 percent in club stores.
		Importantly, only 52 percent of supermarket shoppers feel that their supermarket carries "all" of the items they want to buy -- versus 57 percent for Wal-Mart and "0 percent" for Costco (but this is to be expected).
		Only 42 percent of supermarket shoppers buy non-edible groceries in supermarkets (pet food, paper, etc.) versus 64 percent at Wal-Mart and 100 percent at Costco.
		In addition to perishables, the other most frequently-cited reasons supermarket shoppers shop at supermarkets are location, service and "more choices"
		Conversely, both Wal-Mart and Costco shoppers have "zero" expectations of either supercenters or clubs to provide either "service" or "more choices."

Net on survey: Consumers no longer perceive supermarkets as grocery price leaders and do not shop the channel primarily for price savings.

Message to supermarket executives: Continuing a 24/7 fixation on price is now counter-productive relative to other ways of meeting shopper expectations that would add genuine value to the overall supermarket shopping experience and leverage supermarkets' inherent strengths in the process.

What other ways? Well, what we are not going to say is, "brand the store" -- a totally unrealistic approach in view of the fact that supermarkets barely have sufficient margin to continue to survive, much less to blow-up their basic business models and re-position all of the bricks.

Assuming, therefore, that most supermarkets are locked into their current configurations, the first constructive step for any supermarket wishing to remain in business long-term is to shift its focus from the relationship it has with its suppliers to the relationship it ought to be building with its customers.

		Instead of "grow share, grow procurement budget, grow sales, grow profits," shift to "give the customer an emotional reason to return." (The former will follow.)
		Instead of "increase trip frequency and transaction size," shift to "pamper, surprise and reward."
		Instead of "just another supermarket selling groceries," embed the store in the local community, and become an acknowledged part of the flow.
		Promote to satisfy your customers, not your suppliers. This is going to be hardest for most supermarkets, because it means changing from a deal-driven to a consumer-driven buying and promotion mentality (but don't worry, the money will still be there!).

The net result of doing these types of things will be to create value beyond price and establish a loyal base of customers that goes beyond the relatively weak arguments currently offered by supermarket frequent shopper programs -- and everything else supermarkets do to imitate other channels or that is easily replicable by other channels.

For supermarkets that do shift to this kind of platform -- and that persist in sticking to it while resisting the temptation to react to competitive threats -- the key benefit will be to start building the store equity everyone has been talking about for years but which apparently has been an elusive goal for large, public, supermarkets.

Why is all of this worth it? The more equity one builds, the less dependent on price one becomes.

What is "equity?" Think of your favorite restaurant and the reasons you go there. Same with your favorite clothes store or hotel. Is price the reason people go to a Nieman's or a Nordstrom's or a Bennigan's or a Friday's with so many others from which to choose?

How to get started? One idea – which seems obvious on the face of it -- is to ask your customers what they expect:

		Of your supermarket!
		How well you are delivering on this!
		What your customers would like to see improved!
		Why they shop other channels -- the specifics of what they like and don't like.

The other resource -- and, in our opinion the best resource supermarkets can tap to begin creating value beyond price – is the data and intellectual capital of its suppliers. What suppliers bring to the party is:

		Built-in consumer focus
		Unparalleled marketing expertise
		A demonstrated willingness to help at every turn

Pick the supplier (or suppliers) you think would be most helpful at this, ask them to do some homework and get their recommendations on what they think you could/should do to begin building sustainable value.

Moral of story: Its not just price; its a combination of factors carefully blended and balanced to satisfy a particular consumer need or aspiration. Each supermarket has to search within its own strengths to find the right formula. There are no easy answers, but -- frankly -- the alternatives look bleak.