Let’s start with no surprises: The majority of consumers still say they value price above all other factors when choosing food. Consumers say this is the case with both their regular grocery shopping and with eating out at restaurants. However, this has been the case for some time and is also well-reflected in the current growth landscape of the market. After all, the fastest-growing segment in all of retail is the dollar segment.
At the same time, only 20% of consumers say they pick their food options based on convenience, according to KPMG’s Eating Habits Study. This invited some skepticism from me and my colleagues. After all, convenience is the biggest benefit of the growing online shopping trend, and while overall grocery delivery adoption remains fairly low, it is growing and is particularly popular with younger consumers, indicating that this is a trend set to continue. More broadly, in KPMG’s recent Grocery Retail Consumer Perception Study, 54% of consumers said they end up paying more or sacrificing health or taste to buy something that is convenient, while 50% of consumers’ primary store is the closest to their home, regardless of the type of store.
To better understand this, we decided to look at those customers in KPMG’s Retail Movement Study who shopped the store closest to them and those who were willing to drive the “extra mile” to primarily shop at a different store.
We also found that while all retailers had some “extra mile” customers—those who would drive more than five miles beyond their closest store for a primary shop—when normalized for square footage, some retailers punched above their weight. Some of these players have clearly nailed a value and convenience proposition. Aldi and Trader Joe’s are leaders in this area and are known for great convenience foods, a highly curated assortment and exceptional deals, particularly with great private label items. At the same time, you will find Whole Foods outperforming on “extra mile.” While Whole Foods has been testing price and promotion investments, it is definitely not known as a value play. It is, however, known for a unique proposition and a convenience offering.
Our hypothesis from this research is that in today’s world, it is no longer enough to just be convenient or just a good value—you have to be both. While this may sound daunting to all but the largest players that have a scale advantage that allows for cost leadership, a large number of locations and online ordering infrastructure, it is possible for smaller banners to create distinction through what we have dubbed as a “Net Time Value” equation. It is a simple formula: Net Time Value = Price score + Time enhancers – Time detractors.
The price score represents the price on a key item relative to key competitors that customers have access to. The time enhancers and time detractors vary based on the customer being served, but they can include everything from a large array of prepared food (time enhancer) to long checkout lines (time detractor).
Inherently, retailers know that execution on these basics is a key ingredient of success but so often find that they do not deliver. After all, 29% of customers feel that their primary store is difficult to navigate, and that same group of customers feels overwhelmed and finds it hard to make a decision, according to the Eating Habits Survey. A whopping 60% of customers cited not being able to cook what they wanted because some items were out of stock and they needed to make another trip. The drive time to their store for that meal now just doubled.
At the same time, consumers really value time savers, which can sometimes drive a price premium. Our study shows that consumers are willing to pay three times more for chopped produce. When retailers line price a chopped fruit or vegetable with the whole version, it can be a big traffic driver and margin accretive to the item, category and store. Further, consumers also economize their drive time, per our study, with 34% bundling grocery trips with other missions.
The key in today’s economic environment is finding the sweet spot offer for value and convenience. My view is that there are two options for getting this right. The first option is to devise a unique business model that combines value with simplicity for the consumer. This is very much what we are seeing in the case of Trader Joe’s and Aldi. While this has been proven to be very effective, a wholesale business model shift may not be practical for an incumbent retailer, but there is another option.
For the vast majority of competitors who are in that position and who need to be strategic about how they invest their money, I recommend developing a compelling Net Time Value equation for the customers who shop your store so that you win a greater share of their spend. This starts by understanding how you stack up on a combined convenience and value offer and how consumers perceive it. By linking your net time value offer to individual customers and your sales, you can identify the biggest opportunities for change and tying a dollar figure to the opportunity. While 10 years ago this might have been a difficult task, requiring months of investment because of data availability, it is now highly achievable in a matter of weeks.
There is a lot of uncertainty in today’s competitive environment. Against that backdrop, imagine having clarity on exactly what you need to do, by store and customer group, to continue to thrive. That is the power of the Net Time Value formula.
Katherine Black is principal of Consumer & Retail Strategy for KPMG LLP.