// . //  Insights //  Value Matters More Than Ever For Grocery Customers

Value in the grocery industry matters more than ever before. According to Oliver Wyman’s annual Customer Perception Mapping (CPM) research, grocery customers are now considering prices more than they have in the last 10 to 15 years. The results of our survey, which asked more than 7,000 North American consumers about their retailers of choice and their thoughts on grocery retail in general, reflected several important post-pandemic trends and recent economic uncertainty.

One core insight of the CPM is the “Fair-Trade-Factor” (FTF), a benchmark measuring the relative importance of value (such as prices) and offer (such as choice, service, and quality). In our years of conducting this research, the offer has always been the more important factor. That continued to be the case in the latest survey, conducted at the end of 2022. However, the relative importance of value has increased significantly, with the FTF more skewed toward value than at any point in the last decade!

Exhibit 1: 2-Factor Fair Trade Line Slope: 2009-2022
XY line slope, selected years
Source: Oliver Wyman analysis, Oliver Wyman CPM surveys from 2009, 2010, 2011, 2012 ,2014, 2016, 2017, 2018, 2019, 2021, and 2022

Before unpacking the results, it is important to understand that the survey reflects customer perception, not necessarily retailers’ desired images. The core of the survey has respondents rate their main grocery store head-to-head against another one they had visited in the past. Aggregating the results into offer and value factors, a given retailer can land in one of four quadrants. Great offers and value scores characterize retailers that are providing a proposition above and beyond what consumers would expect. Retailers linked to poor offer and value scores tend to disappoint. The other two mixed quadrants contain retailers that are seen as focusing more on a single factor (and depending on whether they land above or below the FTF line, more or less successfully).

Exhibit 2: 2-Factor CPM Ranking: Retailer Categories
Value vs Offer, 2022

When plotting all the retailers reflected in the survey on this map, interesting patterns emerge in which each retailer category tends to cluster in a specific quadrant. The majority of fresh/premium providers compete for spots above the line in the great offer/poor value section, while limited assortment retailers compete in the opposite quadrant.

Apart from assessing the status quo, more than a decade of survey information also allows for plotting the historical movements of retailers. We have consistently found that grocers performing above the fair trade line tend to gain market share, while those below the line tend to lose it. This methodology also allows us to assess a grocer’s ability to win with the more value-focused consumer of today. The rest of the article will detail who that consumer is, how they behave, and what retailers can do to prepare themselves to meet new expectations and deliver on the dimensions that matter most.

The newest data on consumer shopping habits

The initial phase of the pandemic in 2020-2021 caused sudden changes in grocery shopping habits, shifted consumer preferences, and created a stronger omnichannel focus for most retailers. Since 2022, however, a lot of consumers readjusted their shopping preferences once again, in part due to changes in economic conditions. Based on the survey results, a few conclusions emerge.

1. Pure-play e-commerce players stole share

One of the early pandemic trends was the rise of e-commerce as a channel in grocery retail. Market share shifted to those who were pure e-com players or had well-established e-com capabilities, while others had to adjust and catch up. Looking at the players that survey participants listed as their main retailers, the share of e-commerce retailers more than doubled from 2019 to 2021 (2.9% to 8.1%). While that share declined in 2022 (5.2%), e-commerce emerges as a net winner during the pandemic.

Over the same period, there were net declines among retailers in the fresh/premium segment (3.2% to 1.9%) and traditional segment (55.1% to 53.7%). The net changes on an individual retailer level are more significant. Some retailers in the e-commerce space saw a two to five times increase in being cited as consumers’ main grocery provider, while others in the traditional and fresh/premium space experienced declines of 60-90%.

2. Trading down is common practice

Faced with increased grocery prices across almost all categories — sometimes even double-digit percent year-over-year growth in 2022 — consumers have come up with several strategies to limit budget pressure. Among all survey participants, 83% have adjusted their shopping behavior due to economic conditions, with female consumers (86%) being slightly more active than men (77%). Overall, 44% are preparing shopping lists in advance to structure upcoming grocery purchases. About a third of consumers have shifted more spending toward private label products, cutting down on often more expensive national brands. A similar share of respondents has started to use rebate or coupon apps to stay informed about discounts or special deals. Customers of e-commerce and ethnic stores have adjusted their behavior more frequently, shifting to private label or hard discounters, while customers of limited assortment providers have adjusted their behavior less (given the lower price points).

3. Not all types of retailers can create strong customer connections

When asked for their thoughts on momentum, connection, and progress (the metrics behind Lippincott’s Brand Aperture), shoppers differentiate between the different categories of retailers. Assessing whether their retailers of choice have their best days ahead of them, customers assign the limited assortment, e-commerce, and club players positive momentum (49%, 46%, and 44% Net Satisfaction Score (NSS), respectively). Traditional and fresh/premium retailers’ future potential is perceived less optimistically (14% and 16% NSS, respectively).

Similarly, when rating the connection they feel with their retailers (“I love this retailer”), consumers favor clubs and limited assortment retailers (58% positive feedback each) much more than fresh/premium and traditional providers (32% each). Finally, in terms of enabling progress (“This retailer helps me do things I could never do before”), e-commerce retailers are leading the industry (44% positive feedback), while traditional and fresh/premium providers impress consumers less (18% and 21%, respectively).

4. Primary and secondary retailers are both winning

Most grocery customers have one main retailer and several other secondary ones. The former is used for the bulk of the purchases, while the others serve needs the main one cannot or are strategically used to take advantage of special offers. Analyzing customer behavior about the main retailer shows an upward shift in basket size. In 2019, about 70% of consumers visited once a week and spent either between $20 and $50 (28%) or $50 and $100 (36%). While the shopping frequency stayed constant throughout the pandemic, in the most recent survey the share of people spending more than $100 on an average trip increased to 41% from 30%. At the same time, the group of secondary retailers has also seen a rise in average basket size per trip. While the share of consumers spending more than $50 on a typical secondary store visit was only 39% in 2019, it is now 49%.

New strategies for grocery retailers

Given all these changes in shopping behavior, value, and offer perception, as well as economic conditions, how should retailers react and position themselves to provide a competitive offering that is attractive for consumers but also financially sustainable?

1. Focus on the key drivers of satisfaction

While the survey shows a general shift toward value there are many ways to implement it. Mapping the individual components of value to customers’ overall satisfaction with retailers, for instance, shows that the overall value for money matters most, followed by prices for fresh items. When focusing on offer, the quality of products and staff still matter a lot, so those should remain important elements of retailers’ propositions going forward.

2. Personalize efforts where possible

Combining the shift toward e-commerce, digitization, and the recent importance of value, communicating promotional offers in a personalized way is crucial to avoid over-rotating. Two-thirds of consumers regularly review grocery store flyers to find potential deals. Common pain points relate to not being able to find deals on the right products (32% of complaints), the flyer being hard to read (26%), and deals not being good in general (24%). When asked for ways to improve the experience, the same three dimensions emerge. While the level of satisfaction with existing flyers differs by the retailer, the request for simpler and more helpful solutions seems common.

3. Engage in brand-building that makes you stand out

While some of the grocery retailers in the sample are stronger than others in their brand profile, almost all of them fare poorly compared with the broader cross-industry scores in the most recent Brand Aperture® survey (including more than 500 brands across retail, travel, service, etc.). The median results for both progress and connection in that broader group of brands are better than those for about 90% of the retail sample. To stand out from a large, seemingly homogeneous group of competitors, grocery retailers should think of disruptive strategies. One of the quickest tactics to achieve that goal is the elevation of the retailer’s brands (which also ties to the stronger interest in value). Other medium-term options include creating a stronger in-store experience and finding ways to elevate fresh products without charging premiums.

4. Compete for secondary grocery budget

Becoming (and staying) a consumer’s main retailer is something worth fighting for. However, to ensure the value proposition remains financially sustainable, there are opportunities for retailers that serve edge case needs, such as offering items others do not or attracting consumers with special (but carefully chosen) deals now and then. With an increase in the share of wallets, being a secondary retailer to those consumers that do their main shopping elsewhere is an attractive opportunity for incremental value.

Before deciding on a tactical response, retailers must first understand their specific status quo. While the appetite for value is common across the consumer landscape, customers of limited assortment providers expect a different proposition than those relying mostly on e-commerce providers — and even within those groups, nuances exist between individual players.

For a custom summary of the CPM results for your company, contact Bobby Gibbs, Partner, Retail and Consumer Goods, Randall Sargent, Partner, Retail and Consumer Goods, and Hunter Williams, Partner, Retail and Consumer Goods.