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Trader Joe’s, Costco, Amazon Lead Dunnhumby Retail Rankings

Alternative formats dominate the Retail Preference Index
Photograph by WGB Staff

Thirteen U.S. retail food banners—many representing so-called “alternative formats” to traditional U.S. supermarkets—scored in the top quartile of Dunnhumby’s annual Retailer Preference Index (RPI), which examines companies based on consumer perceptions in seven drivers of customer preference.

Those top-rated retailers tend to have both stronger emotional connections to consumers and better financial performance than their peers—advantages that are likely to become more pronounced as the industry approaches new economic uncertainty and cost pressures coming along with the need to invest to keep up with shifting customer demands, Jose Luis Gomes, president of Dunnhumby North America, told WGB.

“We’ve learned the hard way that all good times come to an end,” Gomes said. “There’s a correction coming.”

While consumer confidence in the United States is at a near 18-year high and economic growth is outpacing the rest of the world, rising costs and interest rates are signals of turbulent times ahead, Gomes said, making it critical for retailers to focus on the customer preference levers identified in the report.

For the second straight year, Trader Joe’s took the top spot in Dunnhumby’s RPI rankings, followed by Costco Wholesale (No. 2), Amazon (No. 3), H-E-B (No. 4), Wegmans Food Markets (No.5), Market Basket (No. 6), Sam’s Club (No. 7), Sprouts Farmers Markets (No. 8), WinCo Foods (No. 9), Walmart (No. 10), Aldi (No. 11), Peapod (No. 12) and The Fresh Market (No. 13).

Dunnhumby rated 55 banners overall but its report only identified overall rankings of the top 13 finishers. Its rankings are a result of a statistical model that predicts how retailer execution on customer needs—specifically, price, quality, digital, convenience, discounts, speed and operations—impact emotional bonds and financial success. Data used in the statistical modeling was gathered from publicly available financial data and an online survey of 7,000 U.S. households. Financial measures include market share, sales per square foot and recent sales growth. Emotional measures include trust, intensity of attachment, satisfaction and recommendation.

Price and Quality Matter Most

Of the preference drivers measured, Dunnhumby noted price (perceived prices vs. competitors) and quality (a mix of assortment and store experience) had the greatest correlation with financial success and emotional connectivity. Retailers that ranked in the first quartile overall have sales growth two times greater than peers in the second quartile—and nine times greater than retailers in the bottom half. The latter figure has accelerated since the 2018 RPI, Gomes said.

“If a retailer does not excel at one or both of [price and quality], it’s going to have trouble maintaining customer visits and basket spend when faced with a competitor who does, especially when economic times are tougher and when competition intensifies,” the report noted. “Price and quality, considered together, can be thought of as the two biggest facets of value perception—or what customers feel like they’re getting for what they’re paying.”

Because private brand impacts both price and quality perceptions, it is a common strength of the top retailers and a key to improving customer preference for retailers up and down the rankings.

The report noted that the most successful retailers are not necessary excelling in all areas measured, but instead make trade-offs to execute on particular aspects. Top-ranked Trader Joe’s “is a prime example of a retailer making trade-offs in order to deliver superior value, and it has earned them the top spot in our rankings two years in a row.”

The Monrovia, Calif.-based retailer has a small format and virtually no digital offering, Dunnhumby noted, but “this bricks-and-mortar-only, private-brand approach minimizes costs and keeps prices low, allowing them to pad margins and reinvest in customer service, product quality and in-store experience. This strategy sacrifices reaching customers through a growing digital channel and breadth of assortment—particularly in non-food items—and therefore Trader Joe’s loses on one-stop shop-ability and convenience. However, this loss is also their gain, since it allows them to be excellent at what matters most to their customers.”

Targeted Locations, Relevant Offers

The rankings also underscore advantages that relatively younger retail brands have over their more established forbearers. This, Gomes said, reflects real estate and assortments that are more targeted to their desired shoppers.

“The first quartile retailers—unlike most traditional grocers—have been able to carefully select the store locations that best align their offering with the right local customer base. Traditional grocers, by contrast, are operating with a store base configured for success in a different era, when their dense store count in a region signaled to shoppers they were a local institution, and their extensive SKU count allowed shoppers to get everything they needed in one place.”

Among other preference drivers, traditional grocers tended to score well in providing discounts, rewards and information, with The Kroger Co.'s banners, including Fry’s, Kroger, King Soopers and Smith’s, achieving four of the top five ranks in that category. Top scorers in this measure however need to be relevant and price competitive, Gomes said, or risk eroding financial performance on ineffective promotions.

Digital Winners, Operations Losers?

Gomes said one of the report’s most interesting revelations was volatility in the digital and operations levers of customer preference, most likely reflecting a “learning curve” for digital shopping and possibly the effects of digital’s high cost on operations elsewhere.

The financial performances of retailers identified by consumers as having the best digital offers varied wildly, he said: While they all were perceived as having excellent online shopping and digital communication offerings, the best performing of them were showing five-year sales growth at 11.1%, with others essentially flat.

Among the major differences? The thriving ones were bigger and scored better in price perception and private brands than the laggards. This, he said, indicates that scale matters for retailers looking to amplify sales through digital—and that a digital offering by itself won’t be enough to save a retailer struggling in other areas.

Conversely, the “winners” in perception of digital shopping tended to be “losers” when it came to operations. While Gomes was careful not to characterize digital investment as the cause of those operations woes, it likely reflects a “learning curve” as retailers executing click-and-collect in their stores may also be experiencing disruption.

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