A Degree of Distinction
It's no surprise that deciding where to purchase groceries and household goods can seem a bit daunting, especially with the array of options most consumers have. Many of them start with price. But when faced with multiple discount retailers, and all prices being low and relatively equal, just what, exactly, will make a consumer pick one store over another?
In the U.S., Aldi stores often are the first to jump to mind. They've captured consumers in recent years with small-format stores that stock what consumers want at the lowest prices possible. What's more, they've steadily been upgrading their product line. In 2014, for example, the retailer launched its "SimplyNature" line of natural and organic products, to better reach those shoppers who want it all—low cost and healthy food.
Additionally, Aldi has added gluten-free products to its premium line, says Neil Stern, senior partner at McMillanDoolittle. Organics and gluten-free may not be the first thought of the traditional discount grocers, but offering these premium products is exactly how they're gaining traction in the market.
These premium products, Stern says, can certainly have a place in a discount retailer as long as they are consistent with the overall strategy. "The key is that they are still the lowest price, not necessarily in the category, but against similar brands or products," he says.
That's not to say that other stores aren't holding their own against the discount giant when it comes to similar brands or products. Beloved by many, Trader Joe's had built a name for itself among grocery consumers as being both affordable and stocking core items at lower prices than competitors, and inventive in what it stocks. The latter especially has helped distinguish the retailer in a sea of discounters, with products like Charles Shaw ("Two Buck Chuck") wine.
"Folks wanted to begin experimenting with new food flavors and cuisines, and they could do so affordably at Trader Joe's."
"Trader Joe's has built a relatively small-format store based around unique and differentiated products that all have a different reason why a consumer might want to buy them," says Michael Brown, partner and retail expert at Chicago-based A.T. Kearney. The products might be organic or have an interesting geographic origin. Trader Joe's bolsters these offerings by supplying interesting bits of product information in its Fearless Flyer magazine. "They've really created a whole story around the brand and the products that they sell that drive a loyal customer base," Brown says.
It's not uncommon for consumers to equate discount retailers with shelves six-deep with boxed foods, or towering pallets of canned goods. That generic, old-school image is getting a makeover these days, however, as discounters compete for shopping dollars not only with each other, but with full-price retailers. And that means opening up square footage to expand into areas that previously made up the smaller sections of the stores.
"When looking at Aldi, or even Dollar General, they are ramping up their fresh offerings," explains Brian Numainville, principal, The Retail Feedback Group. "Many shoppers have a dual store strategy, where they buy center-store items in one store and perishables in another. By offering perishables, discounters are able to pick up at least some of that fresh meat and produce dollar."
BEYOND THE SHELF
Storytelling, low prices, expanded product offerings with increased cachet—these are all things that will push a consumer in one direction over another. But similarities among discount retailers still abound.
Trader Joe's and Aldi "have reinvented the art of pantry stocking and help America's consumers save a significant amount of money where they operate," says Laurie Demeritt, CEO of the Hartman Group. "Their primary shopper base looks virtually identical to Walmart's. These stores are positioned to those consumers who are OK with processed, packaged foods, and simply want to save on familiar product experiences introduced by name brands over the years. Low price and value are still at the core of their business models."
So if a consumer isn't picking a retailer because of specific products, then retailers have to go beyond the shelf to stand out. Aldi, for example, is exploring the idea of accepting credit cards, instead of the cash-only policy its held since inception. The retailer is also now employing dietitians to help establish healthier products.
Dollar stores, for their part, often win with consumers based solely on the fact that they're conveniently located. "They're carving out their niche just through convenience factor," says A.T. Kearney's Brown. "It's not about differentiation of the product space, but giving the consumer real value and convenience for their dollar."
"There are always meaningful ways to differentiate, whether it is pricing, promotions, communications, merchandising or customer experience."
The actual in-store experience can be a game-changer for many consumers. Retail Feedback's Numainville notes that the 2015 Supermarket Experience Study found several factors that cause shopper irritation, including dirty store conditions, unsanitary shopping carts and discourteous employees.
"If a shopper feels like a welcome guest, then their satisfaction with the store will be much higher versus a regular shopping trip where nothing special happened."
"We also know from our study that if a shopper feels like a welcome guest, then their satisfaction with the store will be much higher versus a regular shopping trip where nothing special happened," Numainville says. These areas are something that stores of any format can address, he adds. Certainly discount retailers can differentiate themselves from other stores by addressing the basics and really making shoppers feel welcome, both of which can be a challenge for them.
The Hartman Group's Demeritt notes that Trader Joe's, with its "legendary shopping vibe," has mastered the art of balancing products and experience.
"Whether by happenstance or luck or design, Trader Joe's seemed to stumble upon this spirit when it began marketing low-cost specialty and ethnic foods to Californians in the 1980s via employees dressed like Jimmy Buffet fans," she says. "Folks wanted to begin experimenting with new food flavors and cuisines, and they could do so affordably at Trader Joe's. To this day, legions of very loyal consumers find great difficulty in describing what Trader Joe's actually is and, instead, defer to descriptors such as 'cool vibe' or 'a cool place that seems to get it.'" These terms are much more in line with a certain kind of spirit than with more traditional taxonomic understandings of what constitutes a grocery store, Demeritt explains.
Communication also plays a role in differentiating retailers. Joe V's Smart Shop, part of San Antonio-based H-E-B, has great communication and powerful displays, notes McMillanDoolittle's Stern. WinCo Foods, he adds, touts its status as an employee-owned supermarket.
OUT THE DOOR, INTO THE STORE
"There are always meaningful ways to differentiate, whether it is pricing, promotions, communications, merchandising or customer experience," Stern says. "Just because a concept is discount doesn't mean it has to be generic."
And these days, discount retailers are setting themselves apart so well they're almost becoming specialty stores rather than traditional groceries, albeit at much lower prices.
When deciding on a discount grocer, the bottom line for consumers starts with the literal bottom line.
The key is value, says A.T. Kearney's Brown: "Am I getting a discernable quality difference, or am I getting a similar quality experience I might be getting at a higher-priced store, and I'm satisfied serving these products to my family and I'm not embarrassed to serve them to friends."
"It's not about a differentiation of the product space, but giving the consumer real value and convenience for their dollar."
—MICHAEL BROWN, A.T.
Brown notes that proximity of the store to the consumer, as well as breadth of assortment to make the trip worthwhile, are also factors consumers heavily weigh when shopping. As a consumer, "I don't want to stop at my discounter and only get half of what I need and still have to go to a full-price store to get the rest of it," he says.
As the discount format continues to grow—perhaps not in square footage, but certainly in attractiveness to consumers—those that can speak to what their consumers want both in the store and beyond will prove most successful. Defining a distinct and memorable shopping experience, says Retail Feedback's Numainville, will bring that success.
But those "who are still locked in the store format and offerings of yesterday and really don't stand for much of anything special today" will get lost compared to those that have found their niche, whether that is quality, service, variety positions, or, more likely, a combination of it all.