Retailers, and grocery retailers in particular, strive to build a large and loyal customer base. It’s what successful companies have long aimed to do – make it easier for customers to shop at their stores and less compelling to shop elsewhere. But what actions can retailers take now to enhance the loyalty of customers? And, given relatively new players like Amazon and the deep discounters, is customer loyalty even still important for retailers?
To find the answers to these important questions, we decided to take a fresh look at the topic of loyalty and recently issued a report titled Preparing for the Future of Grocery Shopping, which includes a survey of 3,000 consumers and 200 food retailers in North America. The key findings reveal three distinct trends that retailers need to prepare for.
Divided loyalty is the new normal. Shoppers believe they are loyal and have a desire to be loyal, but they don’t often behave in a loyal way because all their needs are not satisfied at their primary store. In our survey, 8 in 10 shoppers say they typically divide their grocery shopping between two or more retailers each week. If more than 80% of shoppers routinely split their purchases among multiple banners, how can they be defined as “loyal”?
In addition, “primary” does not equal “exclusive.” More than three-fourths of shoppers say they allocate more than half of their household grocery expenditures to a single store. Among these shoppers, however, only 3 in 10 allocate more than 70% of their spending to their primary store. Customers may be loyal to certain departments, or certain shopping trip types, but not necessarily to the store overall.
It’s not just about the deal. Shelf prices matter a lot, but shoppers also value product quality and great service performance nearly as much. Expectations have shifted in part due to online ordering experiences, personalization and rapid delivery. Higher service standards that may be experienced in any retail channel – even one that is not a direct competitor – are instantly expected everywhere.
Free delivery is a prime example of this phenomenon. It’s far more costly to pick and ship a temperature-controlled, bulky and heavy grocery order than a small electronics item or a few books. That doesn’t stop consumers from demanding free and near-immediate delivery – or prevent grocery retailers from searching for a business formula that will meet this desire, while still delivering a fair profit.
Loyalty has a different meaning for younger demographics. Younger demographic cohorts have different attitudes about loyalty than their parents and grandparents. Elements such as personalized offers, e-commerce and digital engagement can be more important to Millennials than the absolute lowest price. Earning shopper loyalty requires both retailer understanding and satisfying shopper needs better than the competition, but how much should a company adjust its approach to accommodate different shopper segments?
Millennials now are the largest cohort in history, with more than 80 million members in the U.S. Every retailer should lay the foundations to satisfy the needs of this outsized generation, one that will become the most important part of retails future customer base, while continuing to satisfy the needs of the currently critical Baby Boomers and Generation X segments.
Taken together, choice, competition and change add up to a provocative customer engagement story. For most shoppers, it is not solely possible for their primary (usually full-line) food store to earn their loyalty, but their loyalty can also be earned by the second or even the third retailers they patronize. This begs the question for retailers: what are the challenges associated with the value proposition of the primary food store that makes shoppers feel the need to visit other retailers to have their needs fully met? Perhaps more important is the question, how do retailers change their approach to take a more holistic view of earning customer loyalty in order to capture a greater share of the shopper’s wallet?
Our research points to four loyalty-building opportunities for retailers:
- Reconfigure stores to focus on the most important in-store categories
- Invest in e-commerce to avoid losing categories of sales and valuable segments of the shopper base
- Continue to develop prepared-meal and meal-kit offerings
- Arm merchandising and marketing decision-makers with the analytics, insights, and tools to make more shopper-driven assortment, price, promotion, space and personalized marketing decisions to conquer the new realities of food retailing
Maintaining a loyal shopper base is still the most effective way to compete and grow sustainably. Loyalty must be earned, consistently and repeatedly. It is gained and lost across any of the myriad touch points that shoppers have with retailers, so food retailers who consider shopper loyalty in every phase of the customer journey, are on the best path to survive and thrive in the new grocery landscape.