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What makes a winner: Insights from the 2020 grocery retailer preference index_dunnhumby

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What makes a winner: Insights from the 2020 grocery retailer preference index_dunnhumby

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What makes a winner: Insights from the 2020 grocery retailer preference index_dunnhumby

  1. 1. What Makes a Winner: Insights from the 2020 dunnhumby Retailer Preference Index for Grocery Jose Gomes, President of North America This session is developed, produced and sponsored by E X H I B I T O R B I G I D E A S # N R F 2 0 2 0
  2. 2. This Exhibitor Big Ideas session is developed, produced and sponsored by © 2020 Copyright dunnhumby / All rights reserved
  3. 3. What Makes a Winner: Insights from the 2020 dunnhumby Retailer Preference Index for Grocery © 2020 Copyright dunnhumby / All rights reserved Jose Gomes, President of North America
  4. 4. © 2019 dunnhumby / All rights reserved / Confidential4 dunnhumby clients
  5. 5. 5 © 2020 dunnhumby / All rights reserved / Confidential But what does that mean?
  6. 6. © 2020 dunnhumby / All rights reserved / Confidential Recreating personal relationships at scale
  7. 7. © 2020 dunnhumby / All rights reserved / Confidential Experts continue to puzzle over the economy and the longest expansion in history 7 Wall Street is obsessing over the chances of a nasty U.S. recession within the next year Last Year’s Headlines This Year’s Headlines
  8. 8. © 2020 dunnhumby / All rights reserved / Confidential Meanwhile, Customers remain fiscally conservative, keeping debt low and demanding lower prices, despite rising incomes and historically low unemployment 8 Grocery Gross Margin % 24.0 25.0 26.0 27.0 28.0 29.0 30.0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Pre-Great Recession Post-Great Recession Great Recession Customers have driven down gross margins by seeking the most competitive prices US Household Debt to GDP Ratio Pre-Great Recession Post-Great Recession Great Recession Consumer debt levels have plummeted since the Great Recession, despite the expansion
  9. 9. © 2020 dunnhumby / All rights reserved / Confidential There are signs Customers have reached a stable point in their demand for Price versus Quality 9 Quality better worse Priceworse better Grocery Retail Landscape 2019: Value Core Perception Balanced-Value Retailers 5 YR CAGR = 4.7% Price-First Retailers 5 YR CAGR = 4.9% Quality-First Retailers 5 YR CAGR = 2.4% Balanced but Weak Value Core 5 YR CAGR = 1.0% 94 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Grocery Gross Margin % Stable margins 24.0 25.0 26.0 27.0 28.0 29.0 30.0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Retailers strong on Price and Quality are growing as fast as Price-First retailers Gross margins have stabilized the past few years
  10. 10. © 2020 dunnhumby / All rights reserved / Confidential10 However, non-traditional competitors continue to disrupt traditional grocers Leading Non-Traditionals are especially strong Balanced-Value Price-First • Since 2012, grocery stores market share has eroded by 13p.p. from its 2000 high of 68% • Of the 55%, an estimated 7p.p. has been lost to natural & organic retailers and hard discounters • Since 2000, mass merchants doubled from 17% to 30% driven by Walmart’s 1,000 bps growth Most food retail growth comes from Non-Traditional Channels
  11. 11. © 2020 dunnhumby / All rights reserved / Confidential How did this all play out in 2019? Key take-aways from the Retailer Preference Index 11 The Value Core still rules: Ensure your Quality / Price equation is right for your customer base before prioritizing investment in the Amplifiers eCommerce has been a rising tide for Customers, but not without inflicting pain: While ease of eComm use is the biggest improvement market-wide, Operations have suffered Traditional Retailers are fighting back against non-traditionals – and winning – by focusing on Assortment Relevance, at a time when Customer trends favor it Don’t just assume you know your target Customer – even most households making $100k or more a year value Price over Quality The Retail Basics still matter: Managing out-of-stocks, keeping stores clean and having excellent store associates are still key elements of a traditional, regional retailer’s success Even if you can’t win on Base Price and Private Brand, you can’t afford to wave the white flag. Also, efforts to improve Price Perception must be sustained in order to change minds
  12. 12. © 2020 dunnhumby / All rights reserved / Confidential© 2019 Copyright dunnhumby / All rights reserved Retailer Preference Index: How putting Customers First drives performance
  13. 13. © 2020 dunnhumby / All rights reserved / Confidential The Retailer Preference Index connects what matters most to 7,000 U.S. Customers nationally with retailer financial performance 13
  14. 14. © 2020 dunnhumby / All rights reserved / Confidential Value Core = Customer’s perception of the quality of products & experience they receive versus the price they pay 14 As perceived quality increases, value perceptions increase As perceived price increases, value perceptions fall Quality Price Retailer’s Actions Value Perception Customer Preference & Financial Performance
  15. 15. © 2020 dunnhumby / All rights reserved / Confidential Retailers that delivered both outperformed those that delivered none by 9X 5yr total sales CAGR: 7.2% PriceWorse Better Average 3rd Quartile Retailer 5 YR Sales CAGR: 1.8% Quality Better Worse 15 Average 4th Quartile Retailer 5 YR Sales CAGR: 0.8% Average 2nd Quartile Retailer 5 YR Sales CAGR: 3.5% Average 1st Quartile Retailer 5 YR Sales CAGR: 7.2%
  16. 16. © 2020 dunnhumby / All rights reserved / Confidential The top grocery retailers in 2019 delivered on both 16 Value Perception drives both Financials… First Quartile Second Quartile Third Quartile Fourth Quartile Value PerceptionWorse Better Value PerceptionWorse Better WorseBetter Financial Performance Better Emotional Connection Worse & Emotional Connection
  17. 17. © 2020 dunnhumby / All rights reserved / Confidential Better value perception has clear implications for your brand 17 Brand Shortcuts: Top Quartile Brand Shortcuts: Bottom Quartile Expensive Good Close Sales Cheaper Great Fresh Produce Value Healthy Fun Quality
  18. 18. © 2020 dunnhumby / All rights reserved / Confidential Quality Price Base Prices Personalized Offers Promotions Assortment Private Brands Communications Store Experience 2 7 6 1 53 4 Value perception is influenced by many factors
  19. 19. © 2020 dunnhumby / All rights reserved / Confidential How can your improve your value perception? 19 2 Develop a Customer strategy: Diagnose your key value perception issues, focusing first on the value core - Price, Assortment & Store Experience 3 Take a long-term view: executing Customer strategy is not a quick fix, it requires discipline, consistent execution & a willingness to say "no" 1 Start & end with Customer data about what they feel, think & do: Understand & measure how your actions drive value perceptions for your Customers - you can’t change what you don’t measure
  20. 20. © 2019 Copyright dunnhumby / All rights reserved Key Insight: Convenience is playing a bigger and bigger role for Customers Traditional, regional grocers are benefitting
  21. 21. © 2020 dunnhumby / All rights reserved / Confidential Retailers that are winning are putting their Customers First 21 1 2 3 4 5 6 7 8 9 10 12 13 1411 15
  22. 22. © 2020 dunnhumby / All rights reserved / Confidential Excelling at Price and Quality is required to win. Speed and Convenience have increased the most in importance over the past 3 years 22 Discounts, Rewards, Info Speed Convenience Operations Digital Quality Price Pillar Importance 2017 2018 2019
  23. 23. © 2020 dunnhumby / All rights reserved / Confidential Rising trends in Customer preferences are enabling traditional retailers to make a resurgence 23 change in ranking of average traditional grocer in the top two quartiles change in ranking of average non-traditional grocer in the top two quartiles +2 -31 Took over first place from Trader Joe’s Made biggest improvement in Top Quartile In Top Quartile for first time In Top Quartile for first time Notable gains for traditional, regionals in the Top Quartile These moves aren’t the product of big improvements in their Value Proposition – rather, they are the result of shifting Customer needs 2 The top Overall Gainers are all traditional, regional retailers These moves are the product of relatively big improvements in the retailers’ Value Proposition 3
  24. 24. © 2020 dunnhumby / All rights reserved / Confidential24 What does this mean for you? 2 But Convenience and Speed are trending up: Customers are smarter with their savings and spending, leaving more room in the budget to seek easier solutions. Prioritize these after your Value Core is solid 3 This is a competitive advantage for some Traditional, Regional retailers: Their footprints usually have a more dense store base than the competition and are speedier to get in and out of than larger format competitors 1 The Value Core still rules: Ensure your Quality / Price equation is right for your Customer base before prioritizing investment in the Amplifiers
  25. 25. © 2019 Copyright dunnhumby / All rights reserved Regional Grocer Formula for Success: Win on Assortment Relevance and Retail Basics, minimize gaps on Private Brand and Base Price
  26. 26. © 2020 dunnhumby / All rights reserved / Confidential The best Regional, Traditional grocers separate themselves from the bottom with a strong Value Core, supported by Assortment Relevance and a focus on the basics of managing out-of-stocks, staff and store cleanliness 26 -3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 (Doesn't) Sometimes run out of items I buy regularly Staff make me feel valued My store is clean and up-to-date I love their private/store brands Already low prices w/o coupons/discounts Offers the highest quality products New and different products Has right product variety to meet my needs How are the Top Quartile Traditional, Regional Grocers Most Different than the Bottom Quartile? -3 -2 -1 0 1 2 3
  27. 27. © 2020 dunnhumby / All rights reserved / Confidential Against the leading non-Traditionals, many of these are competitive advantages, especially Assortment Relevance. Base Price and Private Brand, are critical gaps that are just being minimized 27 -3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 (Doesn't) Sometimes run out of items I buy regularly Staff make me feel valued My store is clean and up-to-date I love their private/store brands Already low prices w/o coupons/discounts Offers the highest quality products New and different products Has right product variety to meet my needs Top 4 in Assortment Relevance Avg 5 YR Sales CAGR: 4.7% How are the Top Quartile Traditional, Regional Grocers Competing Against Leading Non-Traditional Grocers? -3 -2 -1 0 1 2 3
  28. 28. © 2020 dunnhumby / All rights reserved / Confidential There is a strong correlation between having Private Brands that are good enough & sustained sales growth 28 Key Learnings: 1. Private Label is a Sales Driver Outside of WinCo, banners with lower private label scores grow much slower 2. Good Enough versus Great There’s a point when additional Private Brand improvements have minimal impact on sales growth [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRA NGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE][CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] Trader Joe’s [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] -5.0 -3.0 -1.0 1.0 3.0 5.0 7.0 9.0 11.0 3.5 3.7 3.9 4.1 4.3 5YRSalesGrowth “I love their private/store brands” Point of diminishing returns11 9 7 5 3 1 -1 -3 -5
  29. 29. © 2020 dunnhumby / All rights reserved / Confidential The best Regional, Traditional grocers aren’t any better than the bottom at Promotions, Rewards, Digital, Speed or Location convenience 29 -3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 The retailer rewards me for shopping with them Sends me useful information This stores phone app makes shopping easier It’s easy to get in and out quickly Has discounts/coupons on items I buy regularly This retailer has easy ways to shop online Discounts/coupons here are easy to use Has convenient locations How are the Top Quartile Traditional, Regional Grocers Most Similar to the Bottom Quartile? -3 -2 -1 0 1 2 3
  30. 30. © 2020 dunnhumby / All rights reserved / Confidential30 What does this mean for you? 2 Retail Basics matter: While Personalization and eCommerce grab headlines, managing out-of-stocks, keeping stores clean and having excellent store associates are still key elements of a Traditional, Regional retailer’s success 3 Even if you can’t win on Base Price and Private Brand, you can’t afford to wave the white flag: These separate the best Traditional, Regional retailers from the worst 1 Assortment Relevance is the most important Value Amplifier for Traditional, Regional Retailers: Assortment Relevance is an element of Convenience. Get this right to keep up with non-traditional leaders
  31. 31. © 2019 Copyright dunnhumby / All rights reserved Key Insight: The digital rising tide has lifted all boats, for the Customer… but at the expense of the retail basics
  32. 32. © 2020 dunnhumby / All rights reserved / Confidential Customer perceptions of retailers’ digital offerings, transparency, rewards and private brand have improved more than all other levers, the past three years 32 This retailer has easy ways to shop online Sends me useful information The retailer rewards me for shopping with them I love their private/store brands ImprovedDeclined Changes in Customer Perception of US Grocery Market, since 2017 Biggest Improvements
  33. 33. © 2020 dunnhumby / All rights reserved / Confidential Operations (Price consistency and Out-of-stocks) perception have declined, while speed and RTE experiences the weakest improvements, market-wide 33 It’s easy to get in and out quickly Offers appetizing prepared and ready to eat foods Doesn't change prices too often Doesn't run out of products I regularly use ImprovedDeclined Changes in Customer Perception of US Grocery Market, since 2017 Smallest Improvements
  34. 34. © 2020 dunnhumby / All rights reserved / Confidential Not only is the market offering of Operations declining, Customers are also seeing the most changes in competitive position here – it is not a sinking tide lowering all boats; some retailers are faring better than others 34 (Doesn't) Sometimes run out of items I buy regularly (Doesn't) Change their prices too often Offers fair prices on natural/organics Sends me useful information Has right product variety to meet my needs I love their private/store brands Biggest Changes in Retailer Competitive Position in US Grocery Market, since 2017
  35. 35. © 2020 dunnhumby / All rights reserved / Confidential35 Retailers focusing on Digital open themselves up to damaging their Operations perceptions better worse Digitalworse better The Relationship Between Digital and Operations negative correlation Digital negative correlation Operations The Relationship Between Digital and Operations
  36. 36. © 2020 dunnhumby / All rights reserved / Confidential36 What does this mean for you? 1 eCommerce has been a rising tide for Customers, but not without inflicting pain: While ease of eComm use is the biggest improvement market- wide, Operations have suffered. Don’t take your eye off the retail basics 2 Overall, it is the Customer who is winning: Most levers have improved, market-wide. Retailers must seek continuous improvement, in areas that matter most to their customers
  37. 37. © 2019 Copyright dunnhumby / All rights reserved Key Insight: Differentiation through Assortment is more achievable than Differentiation through Price
  38. 38. © 2020 dunnhumby / All rights reserved / Confidential Operations, Transparency, Assortment Relevance and Private Brand has seen the biggest shake-ups in competitive position the past three years 38 (Doesn't) Sometimes run out of items I buy regularly (Doesn't) Change their prices too often Offers fair prices on natural/organics Sends me useful information Has right product variety to meet my needs I love their private/store brands Biggest Changes in Retailer Competitive Position in US Grocery Market, since 2017
  39. 39. © 2020 dunnhumby / All rights reserved / Confidential Offers the highest quality products Offers a wide variety of natural/organics Has discounts/coupons on items I buy regularly The retailer rewards me for shopping with them Discounts/coupons here are easy to use Prices are lower than other retailers Changing competitive position has been hardest for retailers in: Lower Prices, Promo/Rewards, Product Quality and Natural/Organic variety 39 Smallest Changes in Retailer Competitive Position in US Grocery Market, since 2017
  40. 40. © 2020 dunnhumby / All rights reserved / Confidential40 What does this mean for you? 1 Differentiation is harder in some areas than others: Differentiate with Assortment Relevance, Transparency and Private Brand 2 Changing minds is harder in some areas than others: Pricing and promotion will require a sustained effort to change competitive position
  41. 41. © 2019 Copyright dunnhumby / All rights reserved Key Takeaways: Four Rules For Thriving In The Retail Revolution
  42. 42. © 2020 dunnhumby / All rights reserved / Confidential What we hear from retailers… Even as many retailers’ value propositions erode, there is a hesitancy to deviate from outdated, internally-focused planning processes We spend little time on strategy. We simply don’t have the time or people. [For] our strategy and planning efforts … we spend minimal time focusing on consumer and competitive trends. Our strategy … often lacks the evidence, reasoning, and actions to achieve [our] goals. Our strategic plan is a long to do list that lacks priorities. Our current planning process … is driven largely by our budgeting process. 42
  43. 43. © 2020 dunnhumby / All rights reserved / Confidential A Customer First approach delivers a differentiated & competitive Customer Strategy DEFINE YOUR TARGET CUSTOMER SEGMENT VALUE PROPOSITION DEVELOPMENT MARKETING & MERCHANDISING LEVERS CONSULTING, SOFTWARE & TECHNOLOGY CUSTOMER STRATEGY HEALTH CHECK STRATEGY Diagnosis and development of coherent Customer Strategy ASSESSMENT Collaborative review of current Customer Strategy TACTICS Granular functional strategies EXECUTION Various enablers CUSTOMER INVESTMENT 43
  44. 44. © 2020 dunnhumby / All rights reserved / Confidential44 The 4 things retailers are doing today to weather the storm: 2 Make Trade-offs: Diagnose your key gaps and focus your finite resources on those areas that drive value perceptions and divest in those activities that do not 3 Invest with precision: Not all Customers, stores, categories or products are created equal. Use Customer science to determine how & in whom to invest 1 Put Customers First: Understand your target Customers’ needs and tailor your organization to meet those needs better than the competition 4 Measure, measure, measure: “you can’t manage what you don’t measure”, include Customer KPIs in your bonuses & remember indices ≠ perception
  45. 45. Visit us at booth #4673

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