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H-E-B, Costco best navigate pandemic grocery market upheaval, bumping Amazon from top

H-E-B, Costco and Amazon are the three retailers with customer value propositions best built for long-term success, according to Dunnhumby’s 6th annual Retailer Preference Index for U.S. Grocery.
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H-E-B, Costco, and Amazon are the three retailers with customer value propositions best built for long-term success, according to Dunnhumby’s 6th annual Retailer Preference Index for U.S. Grocery, which also noted that most of the rest of the top 15 retailers are non-traditional formats, while spots 17 to 63 in the rankings are mostly regional supermarket chains.

The Index reports that customers emerged from 2020 to 2022 placing more importance than ever on finding the right balance of savings and quality while placing less importance on saving time.

The pandemic surge in retailer digital capabilities and consumer digital adoption led to the greater importance of personalized pricing, promotions and rewards. National and regional retailers are quickly closing the digital gap that Amazon had opened, the Index found.

At the same time, omnichannel wholesalers accelerated their long-term momentum more than any other formats during this period. So, while national and regional grocery stores may have closed the digital gap with Amazon, omnichannel wholesalers such as Costco (No. 2 in the rankings), Sam’s Club (No. 5), and BJ’s Wholesale (No. 10) will remain fierce competitors.

[Read more: In the coming years more retail pharmacy brands will adopt technology to gain a competitive edge]

From 2018 through 2022, grocery retailers have lived an entire lifetime in just five years, with all its ups and downs: a period of business as usual, a once-in-a-generation-sized shock to consumer behavior that led to record sales, followed by a once-in-a-generation-sized shock of inflation. While this period has been challenging, it also has provided the perfect laboratory for understanding which grocers’ customer value propositions are most resilient and built best for the long haul. This year’s RPI report is different from previous RPI reports since it allows us to predict which retailers will last for decades to come.

The period of upheaval from 2020 to 2022 increased the importance of saving customers money, specifically through leveraging digital capabilities to deliver more personalized pricing, promotions and rewards. Currently, above-the-line pricing levers, like base prices and advertising, are similar in importance to pre-pandemic. That said, the history of grocery retail shows that price has always been the main concern among consumers, even among the affluent. That trend is likely to persist, with technology continuing to create pricing pressure on all retailers.

According to the report, Personalization’s increase in importance opens the door for regional supermarkets to stall or even reverse the decades-long market share decline their format has experienced as supercenter, club, limited SKU and digital formats have grown.

Non-traditional formats and national chains tended to display a superior ability to pivot with shifting customer needs from 2020 to 2022, driving the biggest increases in personalization, rewards and online shopping capabilities. This serves as notice to personalization-led regional supermarket chains that they cannot rest on their past or even current capabilities and must instead continue to drive improvements in digital and personalization if they want to gain a share against non-traditional formats. Another threat from clubs: reducing the basket size of regionals, as shoppers continue spreading their spending across a mix of preferred stores.

Over the past 100 years in grocery, customers have gravitated toward grocery innovations that have saved them money, even as real disposable incomes have steadily risen and food’s burden on the household budget has decreased. This speaks to the staying power of saving customers money as a dominant need to fulfill, while other mega-trends in grocery — like values-based consumption, health and wellness, and digital transformation — will remain a secondary consideration in the decades to come.

Given the staying power of seamlessness as a customer need, the increased need for personalization has staying power as well. It is worth repeating though that if you are a retailer trying to appeal to the majority of your customers, your base prices have to be competitive or the ROI of any promotions — personalized or otherwise — will be stunted. Over the past 100 years in grocery, customers have gravitated toward grocery innovations that have saved them money, even as real disposable incomes have steadily risen and food’s burden on the household budget has decreased. This speaks to the staying power of saving customers money as a dominant need to fulfill, while other mega-trends in grocery — like values-based consumption, health and wellness and digital transformation — will remain a secondary consideration in the decades to come.

The Grocery Retailer Royalty: H-E-B, Costco, Amazon, Wegmans. All are beloved by their shoppers. All achieving superior grocery industry financial results in one form or another. Imagine a grocery future 30 years from now, and they are the most likely to still be standing tall. On the other hand, some regional supermarkets may eventually need to sell themselves and put the fate of their name in the hands of another, the report states. 

[Read more: 2022 DSN Industry Issues Summit panel weighs in on why shoppers need pharmacy more than ever]

From 2018 through 2022, grocery retailers lived an entire lifetime, with all its ups and downs: a period of business as usual, a once-in-a-generation-sized shock to consumer behavior that led to record sales, followed by a once-in-a-generation-sized shock of inflation. The years 2018-2019 represented relative business as usual. It had been almost 10 years since the Great Recession ended, and customers were settled into their well-worn grocery habits. In the background, retailers were more seriously weighing how grocery eCommerce fit into their priorities, due to Amazon’s entrance into omnichannel grocery, but this had negligible impact on overall consumer demand for grocery eCommerce.

However, the ensuing two years (2020 to 2021) provided a shock to consumer behavior. Fear of Covid, sheltering in place, lights suddenly shut off for much of food-away-from-home, and grocery retailer Covid safety measures dramatically changed shopping behavior. Anything that made people feel safer took priority. Buying online became a more legitimate channel for half of Americans, and speed, location, and one-stop shopability gained ground against price and product quality. 2022 kept consumers and retailers unsteady, as the market lurched from the pandemic to record inflation, and customers’ need to save money surged back to prominence.

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