1st Quartile retailers clearly have achieved leadership in customer perception of the value proposition.

Generally, they have achieved a leadership position in either a Benefits-First strategy, a Savings-First strategy or a midmarket strategy balancing Benefits and Savings in a superior way. Benefits are made up of the following pillars: Quality, Digital, Speed and Convenience, Operations. In other words – delivering either great quality or a great experience (or both). Savings are made up of the pillar of Price, Promo, Rewards.

As you can see, there is a clear relationship between Benefits perceptions and Savings perception. Typically retailers that score better on Benefits tend to score worse in Savings (or vice-versa). This makes sense. Typically, if a retailer invests in Quality, it costs more to do so and prices are accordingly higher.

However, H-E-B is the biggest exception to that rule, delivering clearly above average Benefits and Savings.

If a firm is deciding to shift strategic direction, it is important to understand what the ROI is between different alternatives.

Broadly, retailers can pursue one of the three strategies:

• Benefits-first

• Saving-first

• Balanced Benefits/Savings

A Benefits-first strategy will generally appeal more to customers who prioritize Quality more than others. A Savings-first strategy will appeal to those who are more price sensitive than average. And a Balanced-Value strategy appeals to consumers juggling multiple requirements. When we look at retailers who have pursued these strategies the most successfully (retailers in the top two quartiles), we begin to see the ROI.

• Benefits-first: higher sales per square foot

• Savings-first: higher share of customer wallet

• Balanced Benefits/Savings: higher growth, emotional connection

If growth is your primary goal, pursuing a strategy that balances quality and savings concerns is the best path. This may seem like a counterfactual, from the prevailing sentiment that midmarket retailers are a dying breed given, to borrow an overused phrase, “the bifurcation of retail”. The critical piece to remember here is that these results here are ones that are achieved by retailers who are executing these strategies better than their peers. There are advantageous outcomes in either strategic path but only if they are well executed.

What do those in the top of the 1st Quartile do well? Where do they require trade-offs from customers? Looking at the top 3 and then a few others that round out different strategies, we find answers in our data. All of them perform clearly better than market average on offering low, everyday prices, even without promotions or sales. They also all score above average on private brand as a way to save.

In the savings side, this is where the universal similarities end. Trader Joe’s especially does not rely on any other levers of savings. H-E-B and, to a lesser extent, Market Basket drive a large volume of promotions, while H-E-B is the sole retailer at the top to also focus on driving promotion relevance. Costco and Amazon/Amazon Fresh are getting some credit for a loyalty program that saves them money, with consumers viewing their paid memberships as a loyalty program.

On the Quality side, both H-E-B get credit on multiple dimensions. Trader Joe’s especially excels in “Staff value me”, Amazon/Amazon Fresh in “new and different variety”. H-E-B, Costco and Trader Joe’s “highest quality products” perceptions are notable considering that they are also strong in everyday low prices. When it comes to ease of finding superior overall value in products, these three retailers are in a class apart. Their private brand focus is a large (all three) or limited SKU focus (TJ’s and Costco) goes a long way toward explaining this superior equation.

Notably, H-E-B is the only one of these best-in-class retailers to be leaning heavily into local.

On the rest of the pillars, which together capture elements of how frictionless the experience is, H-E-B, Costco and Amazon/Amazon Fresh get strong markets for easy online shopping. On the other hand, Market Basket, Aldi, Trader Joe’s clearly are well below average, in addition to also not having a strong app to support the in-store experience. This dichotomy at the top yields an important lesson: digital capabilities and online shopping are not a requirement for strong growth and market leadership. Grocery is a basic needs business, and the heart of it is making the quality a customer seeks at prices that are affordable and/or make people feel like they are being smart with their money. Trader Joe’s, Market Basket and Aldi instead focus on other ways to take friction out of the experience: Market Basket through their relatively more dependable in-stock experience, Trader Joe’s through product recommendations from staff, and Aldi through their speedy overall experience.