Shoppers no longer stock their pantry with one weekly trip to the local supermarket. There's more than one way to feed their families, and more alternatives for choice or value.
Not that they'd call this an improvement.
"We know women shop about five venues on average for their consumables, but no one ever asked them if they like it," says Scott Mushkin, managing director at New York-based Wolfe Research. "So we did, and they didn't. When we survey women, one of the No. 1 things women want is to go to a store where they can find everything they need. They wish they could find everything in one place."
Consumers might prefer a single trip, but more of them show no loyalty to a single store. As recently as 2011, the Food Marketing Institute's surveys recorded a zero share in the category "No Primary Store." In 2012, 2 percent said they had no primary store. By 2014, according to the most recent "U.S. Grocery Shopper Trends: 2005-2015," the number had grown to 9 percent.
"Shoppers really think more in terms of banners—you know, Target versus Walmart versus some other banner," says Jim Hertel, managing director of consultancy Willard Bishop. "Based on their strategies and what they offer and at what prices, those retailers become known for a particular segment of the shopping trip or the basket. So consumers will move around for what they consider to be the best value equation in a given area, which is a combination of price, assortment and quality."
It's known as "channel hopping," and a continuing perception that budgets are tight should keep this behavior in play for the foreseeable future.
A global consumer survey conducted by McKinsey & Co. last September found consumers making cautious financial decisions. In North America, 23 percent of survey respondents said it's gotten harder in a year's time to make ends meet, 27 percent live paycheck to paycheck, and 35 percent worry about job loss in the next year. One-third say they delay purchases and cut back on spending.
McKinsey's survey lists "five truths" about today's consumers: They search for savings, are brand-loyal as long as the price is right, may not go back if they trade down from a name brand to a store brand), will splurge selectively and shop cross channels.
"The recession changed a bunch of behavior," Hertel says. "And I think it's really an instructive case study. There were a lot of middle- and upper-income consumers who were concerned about their financial security in 2008 and 2009 as things were seemingly headed off the cliff. They ended up trying products and retailers that maybe they hadn't contemplated before, just based on the financial pressures they were under."
Trading down didn't mean giving up quality. "A lot of folks found, you know, this stuff is actually pretty good," Hertel says. "It is an Aldi or a store brand, but the quality is really outstanding. So now even though people are feeling more secure, the question is, ‘If I liked it and I thought it was equal to or maybe, in some cases, better than what I used to buy, why would I spend 35 percent more to shop at a different place?'"
Mushkin agrees that value retailers were beneficiaries of the economic downturn.
"We just did a focus group of women in Chicago," he says. "I happened to ask women where they shop for food; it was a small group of 24 people, but two of them actually shop Aldi, which surprised me," he said. "I asked them, ‘Why?' and they said, ‘Well, it's cheaper than Walmart; it's in our neighborhood; and it's very convenient. It doesn't necessarily have the selection, but they make up for it with the convenience and the price.'"
But Mushkin sees shoppers consider value as much as or more than just low price. "Budgets are tight," he continues. "While the economy has been growing awhile, if you look at the wage data, taxes are up, fees are up, health care expenses are up and housing expenses are up quite a bit. So women today are almost cutthroat. If you are not offering me value, you're being replaced. They are a tough crowd, in a good way. If you're not providing value, they're not buying."
Dollar stores have new customers. "Dollar Store Strategies for National Brands," a 2012 Deloitte report, found dollar stores were the preferred channel for 1 percent of 2008 shoppers but 1.8 percent by 2012. Dollar-store shoppers spent 31 percent less at the top 10 grocery retailers than non-dollar-store shoppers.
Dollar stores are making improvements to gain market share, Hertel says. Stores are neater, cleaner and brighter, with wider aisles, and they've added fresh foods.
"The biggest thing they've done, and they've taken a page out of the mass-merchant, large-format discounters, is to increase the range, the assortment they have in food products and specifically in fresh food," Hertel says. "It's a combination of refrigerated and a produce assortment that's fresh. The challenge is to make sure they have enough traffic and they're moving enough of the fresh product through so that it truly is fresh, as the customer sees it all the time and on every trip."
How can supermarkets avoid losing more customers to other store operators? Identify competitive advantages and deliver them better than anyone else, Hertel advises.
"You can think about those aspects that are really important to your shoppers, and you want to be no worse than at parity with the competition," Hertel says. "On the most important ones, you want to have a competitive advantage. So in traditional supermarkets they'll focus on meat and they'll focus on produce. Those fresh departments are really important to shoppers, and there is a quality perception that's based on freshness and service and a lot of dimensions. In the meat department, they can capitalize a destination part of the store. Somebody will drive past Retailer A to get to Retailer B because that quality perception is so important."
At the same time, retailers can't afford to neglect online channels. Mainland China leads a consumer migration online: In McKinsey's global survey, Chinese consumers said they shifted 62 percent of their spending to online pure plays and 55 percent to online grocers.
"We actually think that e-commerce is going to be a meaningful channel for food and consumables," Hertel says. "Let's say it's going to be 10 percent within a handful of years. It has implications especially for supermarkets, a business that in two or three decades has gone from as high as a 90 percent share of food and consumable products to now less than half. You can't give up another 10 percent in our view. So ignore this at your peril."
"We know women shop about five venues on average for their consumables, but no one ever asked them if they like it. So we did, and they didn't."
Mushkin says shopping is getting more common in higher income brackets. "We just ran a survey not too long ago on 2,000 women," he says. "For everyday essentials like toilet paper and laundry detergent, especially if you're over $50,000 in income, women are moving those purchases online at a pretty quick clip right now."
That shift changes the brick-and-mortar roadmap, but does not leave online consumer packaged goods a clear path. "It's kind of like chaos," Mushkin says. "There are lots of new business models out there besides Amazon." Factor 75 delivers prepared meals, while Blue Apron provides recipes and ingredients. Thrive Market discounts dry organic goods.
"Consumers are experimenting a lot more with different ways to receive services, particularly at the high end," Mushkin adds. "So it's a pretty big threat to the Whole Foods of the world. And it's very difficult to understand five to six years from now exactly where we're going to be. Hey, I'm old enough to remember when Borders was a growth company."
One emerging U.S. model is in-store pickup. BJ's Wholesale Club rolls out its buy online, pick-up-in-store service in May to 213 locations in 15 states, including the entire Eastern seaboard, Ohio and Pennsylvania.
"The Winner-Take-All Digital World for CPG," published in March by the Grocery Manufacturers Association and the Boston Consulting Group, noted Kroger's plans to open 1,200 click-and-collect facilities. Walmart, Target and Whole Foods are adding in-store pickup. Even Amazon is experimenting with the approach.
According to a 2015 National Retail Federation report, 86 percent of online shoppers find free shipping important, while 66 percent want the option of picking up their purchase at a store.
Mushkin predicts click-and-collect can work only as a fee-based service. "A lot of consumers are going to say, ‘At 3:30, I'm going to show up in your parking lot and you put it all in my trunk and I drive away, and it was all done for the same price as if I shopped myself. That sounds like a pretty good deal.' In fact, it's too good of a deal."
"Shoppers really think more in terms of banners—you know, Target versus Walmart versus some other banner."
Kroger's click-and-collect test is a paid service. "Walmart has been free, modeled after what they did in the UK, and it was a disaster," Mushkin says. "The margins came right down. No one will get a competitive advantage on that."
Tech-savvy millennials offer stores a new opportunity. "A segment of the population is going to be food-preparation challenged and income constrained," Hertel says. "Somebody is going to solve that, and I think the answer is going to be a value-oriented prepared or semi-prepared food offering to help them through the challenges of meal preparation.
He recounts when a retailer once told him, "We were the McDonald's generation. A big treat for us was when mom and dad said, ‘Let's go out and get a hamburger at McDonald's.' Our kids are the Panera generation. We taught them how to eat, but we never taught them how to cook."