Podcast | The 2021 Retailer Preference Index: Who’s winning and why

David Ciancio (00:12): Welcome everyone to this dunnhumby podcast series, all about the importance of putting your customers first, whatever retail setting that you’re in. Remember we talked about customer first as putting the customer at the heart of retail decisions and actions, and how in doing this you’ll drive sustainable sales and profit growth.

My name is David Ciancio, and with my colleague, Dave Clements, we’re hosting a series of bite-size podcasts with experts from the retail and data world, exploring the importance of putting customers first. We have practical examples, techniques and lessons for retailers and brands.

Today, we’re talking with Erich Kahner. Erich is the associate director of customer strategy for dunnhumby. He’s one of the authors of a very important Retailer Preference Index. We also call it the RPI.

So Eric, thank you for joining us on the call. This is the third year as I recall for the RPI in North America, although we’ve done others around the world as we started in about 2018. But this year has brought some really extraordinary disruptions to retail and to grocery. So changes have been made to the methodology. Please set the scene for us and tell us about what’s different.

Erich Kahner (01:36): Sure, David, and thanks for having me. And really when we think back to 2020, the one thing that I think everybody will remember, the first thing that comes to mind is the word COVID. The coronavirus had a big impact on the context in which grocery retailers competed in 2020 and had a big impact on consumer behavior. But really, consumers we saw were motivated by fear of the virus. We saw foot traffic change even before the government put lockdown restrictions in place on the restaurant industry.

We saw foot traffic start to migrate away from places where people gathered publicly, migrate away from busier stores where crowds were, to less busy stores. So that context led us to conclude that our methodology needed to change a little bit as well. So in the past few years we’ve done the Retailer Preference Index study. We have chosen to model customer perceptions of grocery performance against longer term financial results and emotional connections with shoppers.

And this year we still took a long-term approach and brought that into our model and our ranking, but we also chose to explore ways to understand how grocery performance impacted short-term results just for 2020. So we looked at bringing in how grocery performance impacted market share gains and losses for 2020 specifically.

David Ciancio (03:18): Cool. Thank you. And you’re reminding me that for anyone who might want to read along or look along this RPI can be found at dunnhumby.com. Well, what were the top findings then from this year’s RPI?

What separates the winners from the losers in grocery retail?

Erich Kahner (03:41): Well, one of the top findings is consistent with our findings for previous years in that for long-term financial health and emotional connection with shoppers, what matters the most in distinguishing the winners from the losers in grocery retail, is their performance on the quality of their assortment and store experience and their performance on managing customer price perception. So those two things over the long-term are still going to separate the winners from the losers.

But in the short-term for 2020, what we saw that was driving momentum and or market share gains or losses was a retailer’s ability to be a speedier and safer place to shop. And the value and core, the quality and price combination, what we refer to as a value core actually became less important in the short-term or during 2020 than it has been for the long-term. But, we expect for the long term once COVID is over for the value core to again, re-emerge is more important. So that’s one big insight.

And as a result of what was important to shoppers in 2020 and the long-term, and as a result of looking at the long and short-term together, the retailer that was best positioned both for momentum in 2020, and the long-term due to their customer value proposition was Amazon. Amazon is one of the speedier to shop retailers. In the US, they were voted by far the safest to shop in 2020, head and shoulders above the rest on safety. And they also have really strong price perception. So they perform well at the price side of the value core. That helps set them up well for the long-term and their speed to shop and being a safer place to shop by virtue of just not having a store for shoppers to go to sets them up well for COVID. So that’s another big finding.

David Ciancio (05:43): So Amazon was a clear winner and it’s based on speed and safety. Who are some of the other clear winners and is it the same reasons? Is it speed and safety that’s creating the winning?

How Amazon became a pandemic giant

Erich Kahner (05:56): Yeah, for 2020 speed was a really powerful element for a lot of retailers and helped distinguish the winners from the losers. But another thing we saw for 2020 was that high-low retailers which are typically traditional regional grocers like your Kroger or Safeway or Albertsons, they tended to do better in 2020 than they’ve been positioned for the long-term. So we saw retailers who lean more on promotions and rewards programs do better than they’ve historically done. And that’s because retailers who traditionally use more of an EDLP approach and have stronger base prices, that is a competitive premise in 2020, lost a little bit of its edge due to all the price fluctuations that we saw on the market because of supply chain disruptions.

We really saw customers react strongly to those, and they just had trouble making heads or tails of what was a good base price. And I think that helped traditional regional grocers who lean more on promotions and rewards did a little bit better this year too. And those retailers too, tend to have smaller formats than EDLP players who tend to, for the most part, have larger formats like the top eight EDLP players. The US had the largest stores to shop, which means there were slower stores to shop, which means that customers perceived slower stores to shop as less safe places because they had to dwell longer there in crowds.

David Ciancio (07:40): Sure. Okay. So the traditionals who did a great job on promotions did a great job communicating value and a great job making it easy for customers. Who are some of the chains or formats that did not perform as well?

Safety still matters

Erich Kahner (07:55): Yeah. And when we think of not performing as well, it’s all relative. 2020 was a banner year for pretty much every grocery retailer out there due to one of its big competitive substitutes being shut down, restaurants. And, when they were open again, restaurants just being a less attractive place for consumers to go to because of fear of COVID. So the retailers that didn’t perform as well as the winners in our studies still had record years because grocery itself had a record year. But those retailers that were less positioned to gain market share, or retailers who actually lost a little market share this year, were retailers who tended to have larger formats or retailers that had a slower to shop store experience.

We talked about speed leading to winning while slow shopping leads to less market share for 2020. That’s because customers again, they’re afraid of COVID. They associated crowds and dwelling longer in public spaces outside of their home as places where they could potentially contract COVID. So making the shopping experience a quicker to shop experience was a big thing for 2020. And when you think of specific retailers, retailers like Walmart, they have a big store format. And as mentioned earlier, EDLP was a less reliable promise for this year.

So that’s why when you see reports of Visit Share, or estimated market share out there, you see Walmart being among one of the retailers to have actually lost the most share in 2020. However, when you think of Walmart and their value proposition, they’re still really well positioned for the long-term. They’re obviously one of the best in the country at price and price is one of the key components of the value core. They still have a really strong value core. So Walmart can expect to bounce back from any share losses in 2020, and still be really well positioned for the long-term.

Other retailers who might not have done as well as retailers that just didn’t do as good of a job at keeping their stores clean compared to other retailers, customers tended to associate safety as well with store cleanliness, or produce freshness, produce quality. So any of those cues that customers could take to view the store as a clean place, having really fresh fruit helped with the perception that it was a safer place to shop.

David Ciancio (10:26): Good. Okay. So really clear conclusion from customers that safety still matters and the advice would be to all retailers, don’t take your foot off the pedal in terms of providing a safe environment, protect your staff and show customers that you’re protecting customers as well.

So you’ve also highlighted a sense of what we’re calling the value core, and you’ve already talked about value being a really key driver in 2021. So where do you see the next steps really being around value? Who’s placed to do well here? You mentioned Walmart. How do you best compete if you are competing against Walmart and other value operators?

Getting the value perception balance right

Erich Kahner (11:11): Yeah. With Target, the first thing that comes to mind, they’re a mass merchandiser. They have a big store just like a Walmart. But when you look at how Target performed in 2020 versus how Walmart performed, they were very different. Walmart performed below average and their market share gains or losses. And Target was second only to Amazon.

And when we look at the data, we saw that even though Target’s not among the fastest to shop retailers, it is a competitive advantage for them against the market in general. There might be 10 or so retailers that got higher speed scores than Target, but Target was in the top quartile and speed. So that helps a lot during 2020 and their digital offering was rated only second to Amazon.

And e-commerce, I mentioned promotions and rewards and speed already is two big drivers of momentum during 2020, but e-commerce was there and a second tier rate below speed driving momentum during 2020 and Target executes really well there. And when you look at Target versus Walmart, Target leans more on promotions and rewards than Walmart, a big EDLP player. That helped Target as well in 2020.

David Ciancio (12:29): How did then, since we’re talking about some of the bigger boxes in Walmart and Target, how did the membership clubs do the Costcos and BJ’s of the world?

Erich Kahner (12:39): Yeah, well, Costco, they did okay. They were maybe a little bit below average on our Momentum Matrix Score. And that Momentum Matrix Score is what we use to understand how well positioned retailers were with their customer value proposition to gain or lose market share in 2020. And we saw Costco was about flat in their Visit Share, so share of visits that they received, whereas BJ’s was among the best in the market on share gains. And that was surprising to us. When we looked under the headers, the same story as we saw versus Target and Walmart.

BJ’s speedier to shop club wholesaler than Costco. Costco was one of the slower to shop retailers in the country. So that separated those two and BJ’s leans more on discounts and rewards than Costco does. More of an EDLP approach that Costco adopts was just less reliable for customers this year. And both BJ’s and Costco are strong, their ability to manage out of stocks. That helped both of them in this year. It was just a little bit inconsistent based on format. It really just boiled down to the execution within format that separated those two.

David Ciancio (14:05): So, okay. Again, some really clear messages I think. Safety as manifested in how quick and easy it is to shop, how much protection and ease, speed, right, matters for customers now and looking forward into 2021. And then you’ve just got to get the value, right? The value and quality balance that you’ve talked about. Well, this and so many other conclusions are shown in this Retailer Preference Index.

Well, Erich, I want to thank you for the summary that you’ve provided today. And the audience, I want to thank you for listening. I hope you found this a useful insight into being customer first.

So please do go look for more details at dunnhumby.com and join us for the next edition of our Customer First podcast. I look forward to seeing you then. Take care. Bye now. Thank you, Erich.

Erich Kahner (15:07): Thank you.