Executive Summary
- The Retailer Preference Index (RPI) report details which retailers have the strongest customer value proposition for driving future, long-term market success. The retailers in the 1st Quartile overall of our RPI rankings (those retailers ranked 1-18) are made up of a cross-section of best-in class regional supermarket formats and non-traditional, national banners in club, discount, online and superstore formats. The retailer ranked 1st overall, for the third straight year, is H-E-B. Market Basket, Costco, WinCo and Aldi round out the top 5.
- Retailers with stronger customer value propositions – indicated by higher RPI rankings – grow up to 2.5x faster over the long-term than retailers with lower RPI rankings. In dollar terms, the opportunity cost of not maximizing customer brand equity equates to ~30% less revenue per year. So, if you are a $10B retailer in annual revenue with a lagging customer value proposition, you’re leaving about $3B on the table each year.
- dunnhumby analyzed customer and financial data for the 72 largest supermarket, discount, superstore, club and online banners in the U.S. Customer data analyzed included perceptions of retailers’ value proposition in five different pillars, as well as stated behaviors and emotional connection with retailers. Financial data analyzed included market share, near-term and long-term sales growth.
- The customer perception pillar that is most associated with stronger, long-term market success is Price, Promotion and Rewards. Our advanced modelling of the data revealed that this pillar accounts for ~40% of the variation in U.S. financial and customer outcomes. This means that retailers who have a competitive advantage in this area are more likely to achieve long-term success. The other four customer perception pillars, in descending order of impact on market outcomes, are: Quality of the assortment, Digital experience elements, consistency of experience through Operations elements, and overall Speed and Convenience.
- 2024 was a year in which we saw a new, likely long-term customer mindset solidify. The importance of delivering Savings is more important than it has ever been in our model, which we first started in 2017. At the same time, the importance of delivering Quality, while 2nd overall in our model, is less important than it has ever been. Additionally, the importance of Digital softened for the first time, while the basics of Operations and brick and mortar Speed/Convenience rebounded. This all signals that it is imperative that retailers double down on the fundamentals of grocery retail to set themselves up for future success. At the same time, consumers did not get the grocery price deflation many (rightly or wrongly) have begun to expect after two years or record inflation in 2022-2023. Coupled with the continued emphasis on grocery inflation, pointing of the finger at CPGs and grocers in the press and by government institutions, and the promise of lowering grocery prices paramount in deciding the latest U.S. election, a consumer more scrutinous of prices than ever should be expected for the foreseeable future.
- While the longer-term structural trend we’ve seen in the industry has been the decline of the regional supermarket format share as other formats emerged and expanded their grocery offerings, for the first time ever in our ranking, 3 of the top 4 spots are occupied by regional, supermarket formats. Couple this with the fact that supermarkets are the format that still reaches the most consumers in the U.S., and it’s clear supermarkets still and will likely always have a role. Which role, is the question. H-E-B, Market Basket and WinCo all have much higher share of their average customers’ grocery budgets than the typical retailer. Each are doing this in different ways, which this report discusses. The link between the three is that they minimize the trade-off customers have to make between Quality and Savings in ways that are unique from the competition.
- Banners who are lagging in the back half of our rankings or have seen their rankings slide the most over the past several years tend to struggle on offering differentiated value. This tends to come in two forms. First, either they are Quality-first retailers who are asking for too much of a trade-off in Savings or they are Savings-first retailers asking for too big of a trade-off in Quality. There is clearly a limit to differentiation that consumers will accept, if retailers overly focus on driving a strength without mitigating a key weakness. Second, supermarkets who have attempted to maintain their broader market appeal with largely the same formula as in the past – CPG brand heavy as a way to drive more variety but not necessarily relevant variety, overreliance on promotions to make up the gap on base prices, having a loyalty program that gives some benefit but doesn’t leverage best-in-class personalization practices – tend to not appear different, innovative and tend to languish.
- The idea that differentiated value is more important now than ever is exemplified by the rise of Trader Joe’s in our rankings this year. Since 2018, Trader Joe’s had steadily fallen in our rankings from its top spot to in danger of falling out of the 1st Quartile last year. This year, they finally stalled and reversed that trend in a big way, now ranked 7th and climbing more than most in our rankings this year. Trader Joe’s falls into the “Quality-First” category of retailers, clearly ahead of the market on Quality while being about average at Savings. But they lead other Quality-first retailers in savings perceptions, easily with the most unique formula in the industry: private-brand heavy, EDLP-focused, limited variety, investment in only the most basic, bargain-priced marketing tactics… but with a focus on continuous product innovation, huge investment in people and staff and customer service.
- While the Kroger banner itself held steady in its rank this year, at the back of the 1st Quartile, almost half of the biggest rank declines were Kroger and Albertsons’s banners, particularly in states where there are ongoing high-profile court cases regarding the merger. Their savings perceptions in particular suffered. These banners are examples of retailers whose mid to longer-term prospects are vulnerable to the new solidified consumer mindset, who is paying closer attention than ever grocery prices, swayed also by the prevailing sentiment in mass media, social media and conversations with friends and family. In 2025, we’ll be watching these banners to see if they are able to recover in the eyes of the customer, from the unsuccessful merger.
- Two other retailers we’ll be watching, for different reasons, are Target and Lidl. Target was among one of the biggest rank decliners this years, while Lidl was one of the biggest gainers. The shifts in emphasis we saw consumer make this year toward savings and away from digital helped Lidl, given their strength in the former and vulnerability in the latter. Additionally, Lidl has steadily climbed in the rankings in the Operations pillar the past several years, and are now in the 1st Quartile on this pillar, signaling that they have perhaps firmly found their footing in how they run their operations in the U.S. after years of experimenting and establishing. Will this continue, or is it a mirage? Target, meanwhile, dropped out of the 1st Quartile overall for the first time since 2019. Have the changes in the consumer that have solidified after the past few years of uncertainty, and Target’s ability to weather the storm, left it more vulnerable for the future?
- Finally, we prove that a midmarket strategy meant to appeal to a broad spectrum of consumers is, counter to prevailing sentiment, the best path to long-term growth. However, this is only possible if this strategy is executed extremely well, which retailers like H-E-B and wholesale formats do.