What is shopper loyalty? Over the years, supermarket retailers have made large investments in loyalty cards and other costly incentive programs to attract and retain shoppers but in today’s climate the effectiveness of these programs have been called into question. FMI recently tackled the topic of loyalty by surveying 3,000 U.S. consumers and 200 key retail decision makers. Not surprisingly, the study found that, despite consumers desire to be loyal, few shoppers spend the majority of their budget with one main retailer.
FMI reports that 8 in 10 shoppers say they typically divide their grocery shopping among two or more retailers each week. In addition, almost 3 out of every 5 shoppers (58%) would prefer to shop at one store if they could have all of their needs satisfied by that single store. The bottom line is that if more than 80% of shoppers routinely split their purchases among multiple grocery retailers, it’s getting more and more difficult to define who is truly loyal.
Despite retailers’ best efforts to build a base of loyal shoppers over the years, this can all be disrupted in an instant as shopper alternatives or their expectations shift (FMI).
We’ve seen this shift happen with deep discounters such as Aldi, Lidl and Trader Joe’s. With over 1,600 stores in the US, Aldi is on track to become the 3rd largest retailer in the US by 2022 and the company is spending nearly $2 billion to remodel existing stores.
Other shifts include meal kit subscriptions and online competitors such as Amazon offering the convenience of quick ordering combined with free delivery. As a HelloFresh subscriber for several years, the convenience of not having to plan meals is worth the cost and I spend much less than I used to at the grocery store. HelloFresh unveiled a 52% jump in sales this past March along with a deal that will allow it to enter the market for trendy Paleo and Keto diets as well as organic and gluten-free foods.
The FMI study noted that retailers can earn or lose the loyalty of shoppers across all elements of their offering and price is no longer the singular parameter that drives shopper loyalty. They caution that viewing loyalty as a card program, initiative or department can lead to a “distorted view of today’s reality.”
More importantly, all shoppers value the must-haves that include: good prices, promotions, quality products, clean stores, short check-out lines and good customer service. But elements such as personalized offers, ecommerce and digital engagement are more important to Millennials who are much more likely than older generations to shop at multiple stores and split their spend across multiple retailers.
The largest generation since the baby boomers (80 million strong), Millennials are poised this year to have more spending power than boomers, according to analysts at Bernstein. These digital natives eat the highest share of their meals in restaurants and are most likely to purchase prepared meals regardless of eating place. As a result, more grocery stores are working to improve their existing prepared meal options while at the same time more restaurants and fast-casual chains are on the move, offering delivery with more accessible to-go menus.
The study recommends that retailers broaden the description of loyalty programs to provide a differentiated and unique value proposition. In this fast-changing market place, retailers such as Walmart, Kroger, H-E-B and Target are investing heavily in new technologies in order to better serve the customer but the question remains on if they will be able to capture more shopper loyalty.
FMI defines loyalty today as not a card or a program or an initiative; loyalty has to be earned by satisfying the needs of shoppers better than the competition. This requires retailers to understand the generational needs and then consistently take actions to satisfy those needs across all aspects of their business.