Savings Focused Retailers and Their Results
In the previous section, we introduced the 7 different Value Core segments and detailed the Quality Focused retailers.
Shifting now to the Savings focused retailers, we see that those who are more heavily Savings-First tend to be better positioned for growth than those who are merely Leaning Savings. However, we witness a trade-off: they also are less likely to pull in as many consumers from a given trade area than retailers who are Leaning Savings, and, when they do, they get a lower share of their average customer’s grocery budget.
Why? Nearly all of the Savings-First retailers tend to be small-format discounters (with the exception of Walmart and Food 4 Less/Foods Co). On the other hand, many of those Leaning Savings are larger format club stores or regional supermarkets (with the exception of Amazon). What this amounts to is that when we look at pure averages of retailers in each group, the average square footage of a store in the Leaning Savings group is ~70k square feet, while the average in the Savings-First group is ~40k square feet. Of course, many of the retailers in each group don’t hit exactly that average, but it illustrates the point. Greater square footage typically means a wider range of assortment, which means that more shopper needs are potentially met at these stores. Limited SKU discounters are more focused in their assortment strategies and the missions they are trying to win.
Again, though, what this means is a lower long-term market share ceiling for these retailers within any single geography, barring expansion of range or customer needs met to tap greater per customer share of wallet. However, unlike Quality-First Non-Conventionals, Savings-First retailers aren’t as limited in real estate options. In the average DMA, 73% of residents shop at least one Savings-First retailer, while only 18% shop at least one Quality-First Non-Conventional retailer. This is because Savings-First retailers have a mass appeal, for consumers up and down the income spectrum and therefore from many neighborhoods, while Quality-First Non-Conventionals are more limited in appeal and less relevant to as many people.
The Growing Appeal of the Poles of the Quality-Savings Spectrum
Over the past 5 years, Savings-First retailers have grown the most, showing relevance for various forms of uncertainty. In the past year, the market has become more barbell-shaped, with Quality-First Non-Conventionals and Savings-First retailers clearly growing faster than all groups in between.
Superior growth at the extreme ends of the Quality / Savings trade-off over the past year speaks to consumers’ growing appetite for clearly differentiated value propositions. This often gets characterized as the “bifurcating grocery market”, but this can lead to a misunderstanding of the grocery market if not further examined.
For instance, we see 63% of shoppers of the Quality-First Non-Conventional customers also shopping at Savings-First retailers. Yes, even the majority of Whole Foods shoppers (57%), for instance, will undertake a grocery mission to a Walmart or an Aldi-type retailer.
The grocery market isn’t splitting into two different groups of customers – those with higher incomes who shop Quality-First retailers and those with lower incomes who shop Savings-First retailers. Rather, the average consumer is more willing to shop both. There isn’t a bifurcation in retail, only smarter and smarter consumers who give their dollars to retailers who have a compelling, differentiated value proposition for specific missions. This helps retailers’ growth prospects at both ends of the spectrum, but clearly, one of the ends of the spectrum is far more relevant to more people. From the perspective of Savings-First and Leanings Savings retailers, 38% of their customers shop retailers with a Quality-First strategy. This is lower than the 85% of Quality-First retailer shoppers’ who cross-shop Savings focused retailers.
It appears that shifting consumer trends put more pressure on Quality-First or Quality-Leaning retailers to keep their shoppers from trading down. This is likely why the growth among retailers merely Leaning Quality lags more clearly than Quality-First retailers. Leaning Quality retailers lose out on price perception to Savings focused retailers and aren’t as sharply differentiated on Quality as other retailers. The value proposition sits more in the middle, fuzzy and unfocused, losing customers because of this relatively unfocused value proposition.