Under met, Highly Relevant Needs

Low base prices, promotion relevance and keeping products in stock are the most relevant, under met needs in the market. Customers say these are highly important to them, and the perception of market performance is relatively low. But before we jump to conclusions about each of these, it is also important to consider how much differentiation between each retailer that customers perceive on these measures.

Within these three needs, customers generally feel like out of stocks are a pain point they are stuck with. For “Always in Stock,” market performance falls far short of how important this need is to the average consumer, and perceived competitive differentiation is relatively low. In other words, customers see most competitors as being equally bad at always having products they are looking for in stock, so the pain of occasional out of stocks has just become a routine part of grocery shopping. It is still important for a grocer to minimize, but customers do not expect you to always have the items they want in stock. In other words, minimizing out of stocks is table stakes, and the bar is high, but you need not be perfect.

However, “Low Base Prices” and “Promotion Relevance” are two critical unmet needs where there is more perceived competitive differentiation. This means that, while many retailers are not meeting these needs, there are some that meet or exceed these needs (Aldi is the most well-known example for Low Base Prices and probably Kroger Company for Promotion Relevance). The retailers who solve these pain points will not only win over customers, but also shine a light on the inadequacies of retailers not meeting those needs. It is important for grocers who are not base price leaders to always pay attention to prices of competitors, especially base price leaders, because their customers will not hesitate to shift dollars elsewhere should the price gap get too large. And it’s important for retailers who promote to do so on the products most relevant to an individual consumer, because if they do not do it well there is an option out there that is.

Met, Highly Relevant Needs

Many other highly relevant needs are viewed as being adequately met by the array of retailers a customer could shop at. These are product quality, checkout speed, fast shopping experience, promotion depth and volume. Some highly relevant needs could even be viewed as over met; shoppers have an overabundance of convenient locations, each bursting with product variety. Since the pandemic, convenience in grocery is not a broad pain point.

On the points of location convenience and speed of shopping experience, there is relatively little perceived competitive differentiation. There are lots of great options out there for minimizing grocery shopping time. So retailers who trumpet time savings in brick-and-mortar locations or bank on innovations here for competitive advantage may be met with an unenthusiastic consumer response (just walk out, smart carts and biometric scanning at checkout are examples of brick and mortar innovations that may fail to generate a big consumer response).

Met, Less Universal Needs

There are also needs from certain subsegments of the market that are adequately met – digital channels and enhancements to the shopping experience, a high-touch staff experience, an upscale store look and feel. As far as over met niche needs, we see overabundance of variety appear again, this time in the form of new product variety and natural/organic variety. The grocery market is one of an abundance of product choice.

Under met, Less Universal Needs

Local product variety and loyalty/rewards benefits are relatively under met, less universal needs, but shoppers do feel like there is competitive differentiation out there. So, as with low base prices, shoppers feel like there are some who execute well on local and loyalty/rewards. These solutions do exist for shoppers; they just want more retailers to do this right.

Retailers supporting sustainability is another under met niche need that stands out. Perceived competitive differentiation is moderate here, so shoppers recognize there are a few (but not many) solutions out there.

Wrap-Up

In sum, how do customers view the market, through the lens of their needs? For the majority of customers, the grocery market is one of overabundant, high quality and convenient choices, with many equally good options for saving them time in brick-and-mortar stores. However, saving money is a pain point – through either low base prices or personalized, relevant promotions and rewards. For a segment of customers, the market also lacks enough local and sustainable options. Not having a product in stock isn’t so much a pain point as it is an accepted annoyance to grocery shopping, one to be expected.

This is important context for understanding which retailers are winning and why in the U.S. grocery market in general, which we uncover with the results of our Grocery RPI model and ranking.

To make sense of how customer perceptions of the market translate into better or worse performance for retailers, we turn to the five drivers of the grocery retailer value proposition.

While all drivers factor into a strong value proposition, we know which drivers are most important for driving long-term results. Given limited retailer resources, this is critical knowledge, since it helps us understand where retailers need to focus to provide the best return-on-investment.

Price, Promotions, and Rewards are the most important priorities for the most customers, followed by Quality and Digital. Since we’ve run our RPI model for seven years now, we know how customer needs have shifted from pre-pandemic to today, and we can determine how the pandemic and record inflation has impacted customer needs, their importance and how they evaluate their competitive options.

The big story in customer need changes this year is the non-story. With inflation from 2022 spilling into early 2023, heightened interest rates, and regional wars all contributing to economic uncertainty, the importance of saving customers money remained at its elevated high from 2022. This means that retailers for whom saving customers money is a competitive advantage are more likely than ever to drive stronger growth, larger share of customer wallet, and nurture lasting emotional connections with customers.

Interestingly, while changes in importance to customer needs held relatively steady this year, changes in overall RPI rankings from 2022 to 2023 remained historically volatile. This is because changes in overall RPI rankings are driven by two things: changes to what needs are important to customers over the long-term and changes in how customers perceive different retailers are meeting these needs. We know the first thing, importance in needs for the long-term, didn’t change that much. That means that there was record volatility in how customers perceive different retailers are meeting their needs.

The relative consistency of the macro climate from 2022 to 2023 partly explains this. While customers remained strained, they have had a breather from change, after a tumultuous journey from 2019 to 2022. They are no longer on their back foot and can take a more offensive stance, allowing them to scrutinize their retailer options more closely and how well those retailers truly align to their needs. On top of this, there has been intense competitive focus on improving price perception over the past two years, due to higher inflation and economic uncertainty. Heightened competitive intensity, retailer responses and consumer attention to differences in retailer value propositions is a perfect storm contributing to changes in rankings in customer perceptions of retailer performance.

Looking back, we see something unexpected in 2020, a year when macro grocery context experienced perhaps the greatest shock it ever has. This was actually the least volatile year on record for retailer brand equity with consumers. How could this be? Well, retailer brand equity is something that is built up over time. Our RPI score -- our measure of brand equity -- is therefore a measure of how well-aligned a retailer’s value proposition is with customer needs, for the long term. 2020, while a shock, produced short-term changes in retailer’s fortunes. Trends in market share declines and gains were reversed, but we have largely seen those trends resume. 2020 was a year when customers changed their shopping patterns between retailers because they had to, not because they wanted to or because they suddenly believed one retailer to be better suited to their needs for the long-term.

Not to mention, the more existential problems worrying people in 2020 most likely left little mental capacity to adjust their ingrained opinions about individual retailers. However, in 2021, after a year of changed circumstances, enough time passed that customers could reflect on their year and a half of new experiences, and changes to customer perceptions and an adjustment of their needs for the longer-term began.

Changes in how well customers feel retailers are meeting their needs have only accelerated, as customers have become more concerned with their most relevant, under met need: saving money.