H-E-B dislodged Amazon to become the No. 1 U.S. grocery retailer in this year's dunnhumby Retailer Preference Index (RPI), with Costco Wholesale leapfrogging the e-tail giant to take the No. 2 spot on the sixth annual ranking.
The change marked a reversal of sorts after Amazon and H-E-B had finished first and second, respectively, in the previous two years. In the 2023 dunnhumby RPI, released Tuesday, Amazon came in third while Wegmans Food Markets held onto fourth place.
Yet the ascension of two warehouse club chains—Costco (to second from ninth last year) and Sam’s Club (to fourth from eighth last year)—knocked Market Basket (to sixth from third) and Amazon Fresh (to seventh from fifth) out of this year’s top five grocery retailers. Amazon Fresh had made its debut on the RPI list last year.
The latest dunnhumby RPI evaluated 63 of the largest retailers in the $1 trillion U.S. grocery market and ranked them based on consumer emotional sentiment, execution in meeting customer needs and financial performance. Dunnhumby assessed retailer performance using financial data from Edge by Ascential and gauged customer perception from findings in its November 2022 survey of 10,000 U.S. grocery shoppers plus an additional 20,000 consumers polled in May 2022 (10,000) and October 2021 (10,000).
Closer look at top finishers
The top 15 chains form the first quartile of the RPI ranking as the companies presenting the strongest value propositions.
Rounding out the top 10—after H-E-B, Costco, Amazon, Wegmans, Sam’s Club, Market Basket and Amazon Fresh—in the 2023 RPI were Trader Joe’s at No. 8, WinCo Foods at No. 9 and BJ’s Wholesale Club at No. 10. Dunnhumby noted that BJ’s represented the biggest gainer in the RPI over the last three years, jumping 17 spots from No. 27 a year ago. WinCo also surged 12 places in the ranking, rising from No. 21 last year, while Trader Joe’s dropped one rung from No. 7.
Also included in first quartile were Target at No. 11 (same as last year), Aldi at No. 12 (down from No. 6), ShopRite at No. 13 (up from No. 22), Walmart Neighborhood Market at No. 14 (down from No. 10) and Walmart at No. 15 (down from No 13).
“H-E-B. Costco. Amazon. These three retailers headline a group of 15 retailers whose value propositions are currently most aligned to what matters most to customers. They provide the best combination of customer benefits while minimizing customer costs. As a result, they are best-positioned to grow over the long term,” dunnhumby said in its report.
Ranking the chains
This year’s RPI focused on five “preference drivers”—price, promotions and rewards; quality; speed and convenience; digital; and operations—that shape consumers’ emotional connection to a grocery retailer and, in turn, that company’s financial performance, according to customer data science firm dunnhumby. Those “pillars” are based on dunnhumby’s analysis of 30,000 consumers polled between October 2021 and November 2022,
In tandem with the U.S. household survey, which indicates the strength of emotional bonds with shoppers, the index’s statistical model reflects grocery retail financial measures such as size (dollar sales market share), efficiency (sales per square foot and share of individual customer budgets) and sales momentum (five-year compound annual growth rate).
H-E-B bested Amazon on price/promotions/rewards and quality—the two most important preference drivers this year—and closed the gap on Amazon’s lead in digital, dunnhumby said. The Texas grocer trailed Amazon in speed and convenience, yet that driver today matters less with customers.
“H-E-B is unique in the sense that, aside from an average ranking in the speed and convenience pillar, it ranks in the top quartile in every pillar,” the report stated. “It delivers many benefits without asking its customers to trade off.”
Dunnhumby pointed out that, during 2022, the customer proposition shifted more toward saving money and achieving a good overall value—a balance of quality and prices—and traded off on time savings, digital experience and operations.
“2022 was all about finding the right products at the right prices and less about saving time,” the report said.
That differed from 2021, when customers had begun refocusing on dollar savings but also leaned more toward retailers offering better omnichannel experiences.
“In 2017, we set out on a journey to understand how customers’ preferences and retailers’ financial results predicted which retailers would last. But little did we know that, in the ensuing six years, consumers and retailers would have a lifetime of difficulties—including a pandemic—that shook consumer behavior and the global economy, a prolonged period of supply chain struggles and a once-in-a-generation inflation crisis,” Matt O’Grady, president of Chicago-based dunnhumby Americas, said in a statement. “We believe this report can serve as a blueprint to help grocers improve their competitive positions, while providing key findings for marketing and consumer preferences.”
The 15 first-quartile retailers averaged a grocery sales per square foot of $924, five-year CAGR of 7.3% and a U.S. market share of 2.7%, compared with a $928 average sales per square foot, 5.9% five-year CAGR and 1.1% market share for second-quartile chains. Fifty-nine percent of first-quartile retailers had strong emotional bonds with their customers versus 49% for second-quartile operators. The numbers were noticeably lower for third- and fourth-quartile chains except for emotional ties with customers, which stood at 45% and 40%, respectively.
“With the exception of H-E-B, WinCo, Market Basket and ShopRite, regional supermarkets—even those under the umbrella of Kroger, Albertsons-Safeway or Ahold—are looking up at these 15 [first quartile],” dunnhumby explained. “Most of the 15 are national chains and nontraditional formats that together earn more grocery dollars than supermarkets. If you are a regional supermarket chain not named H-E-B, WinCo, Market Basket or ShopRite, you want to be in the second quartile because your customer value proposition will provide a better defense against national chains than the defense provided by a third- or fourth-quartile value proposition.”
Nevertheless, a number of regional banners climbed up the RPI ladder this year, including a 16-spot jump by Schnuck Markets into the second quartile. Other chains outside the top quartile but moving up included Food Lion (14 spots up), Krogers Food 4 Less/Foods Co (12 spots up), Weis Markets (10 spots up) and Food City (nine spots up).
“These five retailers have two things most in common: They displayed superior ability to navigate supply chain issues by improving their ranking in the operations pillar, which measures out-of-stock perceptions, among other things,” dunnhumby observed. “And they have existing strengths or made significant gains in their competitive position on saving customers money.”
Retailers show their strengths
Chains from across dunnhumby’s base of evaluated retailers distinguished themselves in the various preference drivers for the 2023 RPI.
In the most important pillar of price/promotions/rewards, WinCo, Food 4 Less/Foods Co and Market Basket exhibited the strongest combination of mass and personalized pricing levers, according to the report. Aldi turned in its sixth consecutive year of leading on mass pricing levers, while another Kroger banner—Fry’s—came in first in personalized pricing.
Wegmans cemented its position as the best on quality, leading in that preference driver in every RPI since 2017. Among regional grocers, other quality standouts included H-E-B, Publix, Lowes Foods, Big Y Foods and Raley’s, though specialty grocers Trader Joe’s, The Fresh Market, Sprouts and Fresh Thyme Market rounded out the top five.
Fareway Stores came in first in speed and convenience, though No. 2 Publix was the only retailer scoring in the top 10 in both of those measures. The RPI had Fareway in the lead on the speed lever and Walmart at the top on the convenience lever. Also in the speed-and-convenience top five were Aldi and Fresh Thyme.
Unsurprisingly, Amazon and Amazon Fresh were first and second in the digital pillar for grocery retail. They were followed by mass chains: Target, Sam’s Club, Walmart and its Neighborhood Market banner, and BJ’s. H-E-B, Fry’s and Kroger were the only conventional grocery chains to make the top 10 in digital.
WinCo’s first-place finish in operations, dunnhumby said, marked the only time since the RPI’s launch that a retailer took the top spot in two preference drivers (the other being price/promotions/rewards). Costco, Market Basket, BJ’s and H-E-B rounded out the top five in the operations pillar.
Dunnhumby noted a distinct momentum gain by wholesale clubs, as these retailers accounted for three of the top 10 spots in the 2023 RPI: Costco (second), Sam’s Club (fifth), and BJ’s (10th). That’s a brow-raiser from the 2019 index, when no club store ranked higher than seventh, the customer data specialist said.
“Club as a format has been on a winning streak for more than a decade. Since 2010, club formats, limited SKU discounters and digital formats are the only three formats to have gained share—at the expense of supermarkets and supercenters,” dunnhumby said in the report. “These three club retailers achieve a high rank through a combination of top-notch operations, saving customers money while delivering a seamless experience. Another threat from clubs: reducing the basket size of regionals, as shoppers continue to spreading their spend across a mix of preferred stores.”
What’s more, dunnhumby’s analysis found that nontraditional formats and mass chains tended to show a “superior ability to pivot with shifting customer needs” over the 2020 to 2022 period through the pandemic, generating the largest gains in personalization, rewards and online shopping capabilities.
“This serves notice to personalization-led regional supermarket chains that they cannot rest on their past or even current capabilities,” the RPI report said, “and must continue to drive improvements in digital and personalization if they want to gain share against nontraditional formats.”