By Rob Andrews with italicized content from Bridget Goldschmidt’s Progressive Grocer article January 31, 2023
The purpose of this piece is to provide feedstock for dialogue surrounding transformative leadership. In essence, the supermarket industry is a story of the evolution of global business. I have studied the top-performing supermarket retailers since 1970, when the most loved chains included Safeway, A&P, Wegmans, Hy-Vee, Dorothy Lane Market, Stew Leonard’s, Dominick’s, Genuardi’s, Gooding’s, Publix, Weingarten’s, Kroger, Buttrey, Farmer Jack, Fazio’s, Kohl’s, Marsh, and Schwegmann Brothers. All but six are now defunct, and dozens more have risen and fallen since 1970. Among those still standing, H-E-B, Wegman’s, and Costco are my personal choices when identifying top supermarket chains competing for most loved food retailer.
Amazon has ceded first place to H-E-B in the sixth annual dunnhumby Retailer Preference Index (RPI), a comprehensive nationwide study probing the approximately $1 trillion U.S. grocery market. Three years into the pandemic, H-E-B has wrested back its leadership position from Amazon, with Costco following closely behind in second place. Amazon dropped to third, while Wegmans took the fourth spot for the third consecutive year.
The 11 additional retailers with the highest overall customer preference index scores were 5) Sam’s Club, 6) Market Basket, 7) Amazon Fresh, 8) Trader Joe’s, 9) Winco, 10) BJ’s Wholesale, 11) Target, 12) Aldi, 13) ShopRite, 14) Walmart Neighborhood Market and 15) Walmart.
“In 2017, we set out on a journey to understand how customers’ preferences and retailers’ financial results predicted which retailers would last,” said Matt O’Grady, president of the Americas for Chicago-based customer data science firm dunnhumby. “But little did we know that in the ensuing six years, consumers and retailers would have a lifetime of difficulties, including a pandemic that shook consumer behavior and the global economy, a prolonged period of supply change struggles, and a once-in-a-generation inflation crisis. We believe this report can serve as a blueprint to help grocers improve their competitive positions while providing key findings for marketing and consumer preferences.”
The dunnhumby RPI includes the largest 63 retailers in the industry that sell everyday food and nonfood household items. The financial data used in the dunnhumby model comes from Edge by Ascential, and the customer perception data is sourced from dunnhumby’s annual survey of 10,000 U.S. grocery shoppers. Based on dunnhumby’s analysis of 30,000 consumers surveyed between October 2021 and November 2022, there are five drivers of the value proposition: price, promotions, and rewards; speed and convenience; quality; digital; and operations.
Key findings from the study include:
- Fierce battle at the top between U.S. grocers: Over the history of the RPI, there has been heated conflict among the top retailers. In 2020 and 2021, the pandemic helped propel and then solidify Amazon as the No. 1 grocery retailer over H-E-B, Trader Joe’s, and Wegmans, since Amazon’s value proposition saves customers time and provides a seamless e-commerce experience. In 2022, however, H-E-B returned to the top spot due to its ability to deliver a combination of better savings and a better-quality experience/assortment.
- Digital has staying power, but it’s no longer as crucial to driving short-term retailer momentum as it was in 2020-21: The pandemic grew the percentage of Americans shopping online for groceries from 39% to 50% of the country — an 11-point increase — and, despite record inflation, more than half of those people remained online grocery shoppers in 2022. As a result, there are 9.4 million more omnichannel households today than there were in 2019, with a combined grocery budget of $4.9 billion.
- Retailers in the top quartile outperform the rest of the market in providing superior customer benefits, savings, or both: Top-quartile retailers have an average compounded average growth rate (CAGR) of 7.3%, versus third quartile retailers, with a 3.2% CAGR. Further, 59% of customers of first-quartile retailers have a strong emotional connection with retailers, compared with 45% of customers of third-quartile retailers.
- Amazon is still tops in online shopping, but all other online retailers are closing in: In fact, 52% of customers of first-quartile retailers said that they have an easy online shopping experience, a 13% increase from 2019. The top six retailers for digital were 1) Amazon, 2) Amazon Fresh, 3) Target, 4) Sam’s Club, 5) Walmart and 6) Walmart Neighborhood Market.
- Club stores are gaining momentum, with three of the top 10 spots in the first quartile now occupied by club stores: Costco (2), Sam’s Club (5), and BJ’s Wholesale (10) reached their high ranks through a combination of top-notch dependability and saving customers money while delivering a seamless experience. In dunnhumby’s 2019 RPI, no club store ranked higher than seventh.
- BJ’s Wholesale was the biggest mover in the RPI over the past three years, climbing from 27th place to 10th place in 2022, a 17-point leap: Schnucks climbed 16 spots and is currently in the second quartile overall. Other big movers not in the first quartile overall but improving were Food Lion (14 spots up), Food4Less/FoodsCo (12 spots up), Weis (10 spots up) and Food City (nine spots up). These five retailers have two things most in common: They showed superior ability to address supply chain issues by improving their ranking in the operations pillar, which measures out-of-stock perceptions among other things, and they have existing strengths or made significant advances in their competitive position on saving shoppers money.
Here are four complementary observations for you to consider. H-E-B, Wegman’s, Costco, BJ’s, and Schnucks have well above average momentum, which, in each case, can be attributed to all or most of the following:
- Continuity of Customer Experience – Today’s customer demands continuity. Simply put, future winners in the war for share of stomach will deliver a consistent look and feel and an exceptional level of omnichannel service. Brick and mortar, e-commerce home delivery, phone-in and pick-up, and every other form of shopping must reflect the retailer’s purpose, mission, vision, and values. Inconsistency causes loss of customer trust, loyalty, and revenue.
- High Performance Mindset – Everyone and their birddog wants their piece of the food dollar: traditional food retailers, restaurants, boutique e-commerce sellers, drug stores, you name it. Tomorrow’s winners are learning to think without limitation and set big goals they are not yet sure how to accomplish. The reason H-E-B sits atop this year’s rankings is that Charles Butt made two commitments 35 years ago: match Walmart pricing and deliver an exceptional customer experience. Conventional thinking, including that of Harvard Business School’s Michael Porter who wrote the landmark text Competitive Advantage, suggested that those two strategies could not be executed simultaneously.
- Total Value Proposition – Gone are the days when customers tolerate high prices. The steady decline (and subsequent sale to Amazon) of Whole Foods, was largely driven by its lack of synergies, cost leadership, and supply chain management. While Whole Foods was unique in its promise to sell the highest quality natural and organic foods, they also touted their decentralized autonomous divisions and decision making. As often happens, when their primary differentiator became mainstream, their ability to compete was severely diminished.
- Choreographed Customer Experience – Delivering an exceptional customer experience requires choreography. After the store has pumped as much volume in one day as some food retailers do in a week, an H-E-B or Wegman’s customer can shop their respective store at 9 p.m. on a Saturday night and still experience a nice clean store with faced shelves and clean floors. Shopping at these retailers is an event. They boast cooking kiosks, sampling stations, lively music, and friendly employees who smile and make eye contact while looking for customers who need help. The consistency is remarkable.
Readers, I hope this piece has been enlightening. Give us a call, and let’s talk about your organization’s rise to the top of its sector.