How Some Grocers Thrive in the Era of Great Reinvention

Unsurprisingly in the second year of the pandemic taking charge, Amazon again took the top spot in the fifth annual dunnhumby Retailer Preference Index (RPI), a nationwide study of the $1-trillion U.S. grocery market.  Amazon cemented its leadership position strictly on the basis of its online presence; the brick-and-mortar Amazon Fresh format appears farther down in the rankings. 

Two regional operators, H-E-B and Market Basket, follow in second and third place, with Market Basket leapfrogging three retailers to take the third spot away from Trader Joe’s. Wegmans held onto the fourth spot for a second year in a row. 

In its first year in the RPI, Amazon Fresh vaulted past 55 other retailers to land in the fifth spot. The 10 additional retailers with the highest overall customer preference index scores are: 6) Aldi, 7) Trader Joe’s, 8) Sam’s Club, 9) Costco, 10) Walmart Neighborhood Market, 11) Target, 12) Publix, 13) Walmart, 14) BJs Wholesale and 15) Fareway Stores. 

For owners and investors, grocery-anchored centers are seen as one of the safest bets in retail real estate. That doesn’t mean all grocers are equally viable, though. “The pandemic has massively accelerated changes in how customers buy their groceries, and their behaviors are continuing to evolve,” said Grant Steadman, president of North America for dunnhumby.  

“2021 was the year that grocery retail became truly omnichannel,” Steadman said. “Retailers who delivered on their customers’ evolving needs in-store and online performed best. This was mostly the larger players, who used their advantages to consolidate their positions.  

“The challenges for most other retailers are significant, but a number of mid-size grocers gained momentum by understanding their customers better and differentiating their offering accordingly,” he continued. “The report aims to provide some direction on why and how retailers can best position themselves to win with customers, in this era of the Great Reinvention.” 

The overall RPI rankings are the result of a statistical model that predicts how retailer execution on various customer needs – preference drivers – affects both lasting emotional bonds formed with customers and  retailers’ near-term and long-term financial performance.  

Each preference driver score and emotional connection score is measured with data gathered from a customized, online survey of 10,000 U.S. households per year. The seven drivers of customer preference are: price, quality, digital, operations, convenience, discounts, rewards & information and speed. 

Among the key findings in this year’s study are the following: 

• Price and quality are no longer head and shoulders above all other customer preference drivers in securing superior, long-term sales growth and emotional connection with shoppers. Price now sits alone at the top in importance, with digital and quality tied for second. For the fifth consecutive year, Aldi’s laser focus secured the discount retailer with the highest ranking on price. 
• Retailers in the first quartile have long-term sales growth that is nine times higher than retailers in the fourth quartile, two times higher than retailers in the third quartile, and one and a half times higher than retailers in the second quartile. Second-Quartile grocers have opportunities to also rise rapidly in the rankings by reinventing their relationships with their customers. Brookshires, Hy-Vee, Food Lion, the Giant Company and former second-quartile retailer BJs Wholesale made the biggest move up the rankings in 2021. 
• Digital leads in driving momentum, as Amazon has demonstrated over the past two years by being ranked as the top U.S. grocery retailer. Amazon is also the top digital grocer, followed by 2) Amazon Fresh, 3) Target, 4) Walmart and 5) Sam’s Club.  
• Grocery retail is now truly omnichannel, as digital’s share of total grocery sales more than doubled during the pandemic, from 5% to 10% of sales. However, half of the U.S. grocery shopping population doesn’t buy online and doesn’t plan to. Nearly all online shoppers still buy in brick and mortar, where roughly 90% of all customer dollars are currently spent. 
• Retailers who use their own e-commerce platform, as opposed to Instacart or other third-party platforms, have better customer perception of both the e-commerce shopping and delivery phases. They also performed better financially.