Channels / Grocery
Guest Commentary

One-Stop Shopping Takes a New Turn

November 27, 2012
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The introduction of big supermarkets back in the 1960s meant that shoppers could buy canned items, meat, dairy, baked goods, produce and the like all under one roof; as opposed to shopping at several different small stores for each kind of product.

This convenience of one-stop-shopping fit with more active lifestyles and the emergence of the dual-working household.

Now, the supermarket’s reign as king of grocery sales is being threatened by the expansion of alternative channels that are adding grocery items to their product mix, as many retailers have learned that food is an important traffic driver.

According to UBS Investment Research, traditional supermarkets now account for only 51 percent of grocery sales, down from 66 percent in 2000. It’s no wonder, as grocery items can be found everywhere from big box stores to local drug stores.

Wal-Mart’s share of groceries has gone from 41 percent of its total sales to 55 percent in the past four years; and Dollar General is opening Dollar General Market stores to grab a share of the grocery business.

And the gate is swinging both ways, as some major grocery chains are expanding their offerings to include more types of household items and apparel. Kroger recently launched a one-store test in Mansfield, Ohio, with a clothing section that includes apparel, shoes, jewelry and undergarments.

At PRS, we’ve been tracking these shopping trends, and just released the results from our second annual shopper survey focused on grocery buying. Our results indicate that although most shoppers (91%) purchased groceries in supermarkets in the past three months (in line with last year’s 92%), mass merchandisers are a large competitive threat – although declining somewhat (73% purchase groceries there, down from 76% in 2011).

Not surprisingly in these troubling economic times, dollar stores are gaining momentum as the percentage of shoppers who buy groceries at dollar stores has increased, from 32 percent in 2011 to 35 percent in 2012. Alternatively, levels at drug and convenience are steady relative to last year (46%/47% and 23%/24% respectively).

It is worth noting that drug stores have introduced new products, special signage, and innovative health and wellness efforts to keep shoppers in their stores longer. CVS Caremark designed Selma Hayek’s health and wellness products to broaden their appeal, and Duane Reade dramatically expanded its private label offerings in the grocery and snack aisles, which places them in competition with convenience stores and grocery stores for these items.

As grocery offerings become available in different venues, will shoppers shift channels? Or will they continue to maintain allegiances to certain stores out of choice or habit?

• For now, it appears that shoppers associate different channels with different primary benefits:
• Supermarkets offer superior selection
• Mass merchandisers and dollar stores offer the best pricing
• Drug and convenience stores offer the most convenience

And although it might appear that mass merchandisers are vulnerable to the aggressive pricing of dollar stores, additional category-specific considerations enter the equation. Specifically, while we found that dollar stores are making inroads versus both mass merchandisers and supermarkets with cleaning supplies and personal care products, they are at a disadvantage on many food items, such as fresh foods, meats and produce, frozen foods, desserts, and baby care items.

It might be that the lower pricing is actually leading to lowers quality impressions in these categories.

Our survey also explored shopping habits tied to grocery spending, and in 2012, more shoppers than ever reported using sales/coupons (83%) and quantity/size control (70%) to save money.

Notably, nearly two-thirds (61%) of shoppers claimed to switch brands to curb costs – up significantly from last year’s level of half saying they did. Importantly, this trend was driven by senior citizens – perhaps adjusting to new circumstances – and 18-24-year-olds, who are just starting to develop their shopping habits.

That suggests a huge risk to national brand manufacturers, who count on estalishing brand preference early, and leveraging it for a lifetime of shopping.

Given shoppers’ willingness to change brands to save money, switching to a new venue – such as dollar stores – might be more acceptable than it had been in the past. But time will tell whether dollar stores simply are to remain a category-focused supplement to other venues (for cleaning and personal products), or a replacement (including a destination for groceries).

The bigger question is whether shoppers will appreciate the consolidation of offerings so they can buy so many different kinds of items in each and every channel, or whether this blurring of retail environments will lead to shopper indifference, such that they default to whichever store happens to be closest to their home or workplace?

This possibility suggests that even as retailers increase their product scope, they continue to focus on their particular points-of-difference that drive store traffic. Whether it is superior product assortment, a pleasant environment, helpful staff, community events, or unique private label products, in a world of blurring retail channels, it is more critical than ever to provide something distinctive to attract shoppers to a particular store.

If you are interested in a complimentary copy of the report please contact PRS at info@prsresearch.com.

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