Times are tough for some retailers: Price pressures continue to increase, and digital grocery shopping growth is speeding up changes in shopper needs and behaviors.
Grocers that focus on maximizing their value perception, however, are rising to the top of the industry. Built on a core of price and quality, stronger value perception results in better emotional connection and improved financial performance for retailers. In dunnhumby’s Retailer Preference Index: Grocery Channel Edition, released in January 2019, it’s reported that among the 56 largest U.S. grocers, the top 13 excel in value perception. In fact, the top group’s sales growth is two times greater than that of retailers in the second quartile and nine times above that of retailers in the bottom two quartiles. In short, shoppers’ perception of the value that a store offers has a big impact on the store’s bottom line.
Most of these top 13 retailers are non-traditional grocers that have created highly targeted offerings designed to boost value perception for their customers. More traditional regional grocers, on the other hand, tend to have relatively poorer performing financials and/or emotional bonds and lower value perception, according to dunnhumby’s report. Some traditional regional retailers also rely on rewards, promotions and discounts to contribute to sales growth, which can add to their financial difficulties.
So what else creates value?
Value Core: Pricing and Quality rule
Perceived prices are the most important factor to customers deciding which retailer deserves their loyalty. Desirable private brands can be a key element of overall pricing perception overall, with many of the most successful traditional regional grocers offering strong private brands that complement highly relevant assortments.
Quality is the second-biggest determinant of value perception, and customers don’t generally distinguish between quality of assortment and quality of the store experience, according to dunnhumby. To improve quality perception of their assortment, retailers need to upgrade the quality perception of their store experience too.
Well-executed digital investment certainly has the potential to help drive higher value perception, and most retailers are already looking at differentiating themselves through digital platforms. But digital that comes at the expense of the value core can weaken customer loyalty and financial performance, so it’s important to have retail basics firmly in place before spending digital dollars. Dazzling online platforms won’t compensate for mismanaged out-of-stocks and uncompetitive pricing.
To maximize digital investment, retailers must be good at price and be a desired destination for center store products (but not necessarily fresh products), according to dunnhumby’s report. Beyond providing a convenient, easy online shopping experience, the most successful digital retailers maintain a well-priced offering of digitally in-demand, center store products on a scale that reaches a wide audience in their target markets.
A value core built on a strong foundation of price and quality will continue to be the most essential building block for retailers as they seek to maximize financial performance in the increasingly digital and fragmented grocery marketplace.
This post is sponsored by dunnhumby