Horses for Courses in a Changing Grocery Sector
August 7, 2008
For Ad News, by Norrelle Goldring, Director, Shopportunity.
The concentrated and restrictive grocery marketing environment in Australia is expected to loosen over the next few years, giving marketers more choices in how they get their brands to market and promote them instore.
Coupled with new best practice thinking and tracking tools around trip management and segmentation, and the growth of shopper insights, we are on the threshold of a new, smarter, but more complex grocery retailing era in Australia. One size will no longer fit all, so it’s not a question of which horse you back, but rather which selection of horses you run on which tracks. Here are some of the headlines coming out of the USA underscoring this trend.
Economic slowdown and the accelerated decline of the middle market
Upscale vs value retailing, and the polarisation of retail
Grocery retailing in the USA is segmented, with basic and budget grocery retailers such as Smart & Final and Vons at one end, as well as fresh grocery offers within WalMart and Target supercentres, and then upscale grocers and fresh markets such as Whole Foods and Bristol Farms at the other. (See diagram). Differentiated offers along the spectrum are often operated by the same retailer, such as Safeway, who have Pavilions at the upscale end, Ralphs in the middle, and Vons toward the value end.
In Australia, grocery is currently almost exclusively middle market, but there are signs of change. Woolworths is currently trialling a more upscale small footprint grocery store called Thomas Dux, but as yet there are no widely available upscale grocery chains with holistic meal and fresh offers. However, some top end providores such as Jones the Grocer are increasing their distribution into shopping centres. And Aldi, and the soon-to-arrive Costco, spell the arrival of budget buy-in-bulk grocers and warehouse clubs.
Trade up vs Trade Down
The economic slowdown and rising fuel prices in the USA is resulting in a polarisation of shopper behaviour, which we can expect to see mirrored here over time, albeit not quite as distinctly. Shoppers are consolidating their shopping trips to save on petrol and to get better bang for the buck in the shopping basket. This is resulting in a shift back to stock-up and one stop shopping for the basics, particularly in supercentres, with specialty and upscale retail reserved for ‘destination’ trips.
Shoppers are trading down on products and categories they don’t care about, and trading up in the ones where they do.
Marketers need to understand where on the trade up/trade down scale their products fit, and which types of retail channels they are therefore best suited to. You don’t have to be everywhere, just in the right places with the right product!
Differentiation, differentiation, differentiation
Different retailers, different strategies
Coles, Woolworths, IGA and Metcash all range a combination of well known brands and private label. Aldi is almost exclusively private label.
Costco is a different model again. A paid membership warehouse club, they only range 4000 skus (compared to an average Coles or Woolworths store with 30,000), 60% of which are general merchandise items (40% is traditional grocery and fresh). Two-thirds of products are job-lots on limited-release sale periods to create a feeling of ‘treasure hunt’ with shoppers … ‘I’d better get it today because it might not be here tomorrow’. Products range from high value items and luxury brands such as Tiffany jewellery and backyard swing sets, through to bulk 30-pack toilet paper.
We anticipate Costco will steal shopper share of wallet not only from the large grocery retailers, but also from department stores and mass merchandisers.
What all this means is that marketers will need different go to market strategies for each individual retail customer. This may mean a private label product for one customer and a branded one for another, or both within one retailer, and probably special packs and products specific to individual retailers.
Different trips, same shopper
It’s all about trip management – optimising the type of mission, or ‘trip’ the shopper is on. In the USA grocery retailers are beginning to execute against specific times of the day, for example with a huge range of ready-to-eat lunchbox style meals, and choose-your-own pick-and-mix salad and hot food bars, for immediate consumption at lunchtime.
Work has also commenced on mapping shopper traffic flows by trip type. These maps are then matched against basket data (analysis of the primary and most valuable items in an individual shopping basket) to create trip ‘clusters’ eg Dairy Demand, Mostly Meat, Constant Cravings, Fresh Fixation. Retailers are then co-locating products from different categories together according to the trip cluster.
Different shoppers, different store offer - Segmentation
Two major schools of thought are emerging here. The first is that there are overarching shopper archetypes per category. Ie, that each category only has 4 different kinds of shoppers, who might be things like Proactive Planners, Experimenters, Basics Only, or Comfort Seekers. These would change from category to category. This archetype thinking is similar to the work that Nielsen have been doing around shopper ‘modes’, or ways of thinking and behaving, in specific categories.
The second school of thought, and the slightly more mature one in terms of successful implementation in market (see the success of Food Lion’s segmentation strategy resulting in their Grocery Retailer of the Year award in 2007) is segmentation at a store level, based on who shoppers are and how they behave.
This type of segmentation can be cut in a number of ways, ranging from attitudinal, product affinity, behaviour/lifestyle, and demographic/socio economic, through to spend/value and promotional requirements. Ultimately the kind of segmentation employed should be based on your goal, and turned into meaningful clusters based on the way retailers would actually execute.
The point is that it is done from the market (consumers and shoppers) inward to the store, and THEN matched against store shopper and loyalty data, rather than using store data first and then pointing it outward and hoping it fits the shoppers.
Segmentation is a fast-evolving area of thought. The main message is that one size does not fit all, and that product ranging and go to market strategies including space, promotion, pricing and instore media, will change from store to store.
So the takeouts for marketers in this changing marketplace are that they need to review the retail channels they are in, what products they are there with, and how their go to market strategies should differ at a trip, shopper, store and retail customer level.
How many horses do you need, what should the jockeys’ colours be, and where will they all run?