Service, quality and price: Is it a matter of picking only two?

Research from investment bank UBS last week reinforced the success at one of the two opposing ends of grocery retailing around the world.

At the high unit price, small basket convenience end, companies like Oxxo in Mexico and 7-Eleven in Australia continue to thrive. They are doing so by helping time poor shoppers pick up life’s daily necessities either close to, or on the journey to and from, home.

UBS’s report was focused at the discount end. Whether it is Aldi or Lidl in Europe or Trader Joe’s and Costco or Sam’s Club in the US, the growth of small-range, low-price retail-own brand grocery continues apace.

So much so that in the UK the traditionally dominant mainstream grocery supermarket brands like Tesco and Sainsbury’s are losing shoppers and profits to Aldi and Lidl every month. So bad are the losses now that it has triggered a major price war in the UK.

However, a grocery store selling 20,000 items, with more than 70% being national brands from Nestle or Pepsi, can never compete on price with small footprint, low-service stores selling only 2000 retail-own brand items.

So what are the major grocers going to do to compete with the discounters, and how are the small footprint discounters going to accelerate their growth?

Well, the second one is easier to answer than the first.

In the US, Trader Joe’s – an Aldi sub-brand – has embraced in-store technology, (electronic shelf edge labelling), fresh produce (supported by in-store events), high staff engagement (as staff have time to talk to shoppers) and fun branding (bright, floral and tropical feel staff uniforms) to truly raise the shopper experience in these stores versus the traditional Aldi stores. It works well, as every shopper who visits a Trader Joe’s will testify to.

This is in marked contrast to many an Aldi shopper’s experience in Australia, with UBS’s research tracking the shopping habits of more than 600 individual Aldi shoppers. It very pointedly highlighted Aldi’s need in its shoppers’ minds to shorten the lengthy checkout queues, improve out of stock of key items and the quality of its fresh food. 

At the full service grocery end it’s a tougher call, as price has led shopper decisions for the past five years as unemployment rates have grown or remained stubbornly high in many countries. However, a focus on fresh produce, personalisation of the shopper experience and significant and ongoing adoption of every kind of retail technology innovation is crucial. Big shopper data, online and integrated omni-channel, high impact in-store events,  and significant investment in high quality, new and refurbished stores is working in the UK, US, Canada and Australia.

Over the coming three years expect to see prices continue to drop in mainstream grocers and service and range improve in the discounters.