It’s been a few weeks, but supermarket operators are still reeling from the simultaneous announcements in late June that Amazon.com would acquire 466 Whole Foods Markets and European discount grocery giant Lidl had opened its first four of 100 or more stores planned in North America.
Price competition may never be the same.
On first analysis, the two news events may seem very different. Lidl, after all, is a few-frills discounter with a mostly private label selection oriented toward value-for-money.
Whole Foods Markets is on the other end of the spectrum: An upscale grocer known for high-quality products and perishables, personal service and premium prices. With the benefit of Amazon’s unlimited resources, tech-powered home deliveries seem to be around the corner. They could cut prices too, but they might focus more on experiences that sustain higher margins.
As disruptive as they seem, those two innovators still represent only a small fraction of the grocery business on this continent. While “legacy” or mainstream supermarket operators may worry about being pinched between Amazon’s “Big River” tech and Lidl’s discounts and low operating costs, there are practical steps they can and should take to preserve their competitive advantages before the balance of power changes.
Yes, I did say, “advantages.”
As an industry, supermarkets have had an enviable history of resilience over the years in the face of disruptive competitive threats. Think Walmart, club stores, dollar stores. Even under duress, the self-service grocery concept has retained relevancy by adapting its methods, formats, product offerings and service promises to serve a diversity of customers across a variety of shopping missions.
For surviving retailers, a key factor has always been their attention to both understanding and serving a varied customer base. Years of active listening to shopper behaviors and responses have demonstrated the value of customer-centric business methods. The best retailers put disciplines in place to offer the right prices and experiences to the right shoppers at the right moments, keeping them enthusiastically coming back.
Whole Foods may have already begun heading down this path before the Amazon deal was announced. Earlier this year it launched a pilot Whole Foods Markets Rewards card program, now operating in a couple dozen stores in Dallas and Philadelphia. Its new owners don’t possess a wealth of store experience today, but Amazon can sure afford to experiment. We may expect it to try to transfer relevant knowhow from its online exploits - analytic methods used to understand digital shopper behavior - and demand may prove useful in the physical realm.
Lidl has tested frequent shopper cards in parts of Europe for at least two years and its new U.S. website includes a prominent link to join its myLidl program to obtain “instant coupons, custom recipes and more.” With a base of more than 10,000 stores across Europe and $62 billion in annual revenues, Lidl can afford to test and learn too.
Winning the battle on both fronts
While their methods will likely be very different, it’s quite clear that the arrival of Lidl and an Amazon-powered Whole Foods will bring new pressures on retailers to offer relevant pricing, offers and experiences in order to retain customers. Here’s where those “advantages” can truly shine, even in the face of new and vigorous competition.
Now more than ever, it is important to sustain a customer-centric strategy to win in the increasingly competitive grocery industry. Retailers with active and ongoing frequent shopper programs and who have customer, marketing and merchandising analytics in place have an important head start on new arrivals, no matter how deep-pocketed they may be.
If card-carrying, or app-wielding shoppers are already visiting your stores and you are tracking their behavioral responses, you really do have an edge. Customer analytics can deliver the insights you need to optimize their experiences and show them they never need to shop anywhere else – for their physical or digital trips. Marketing analytics can deliver truly personalized marketing offers. Merchandising analytics can deliver price, promotion and assortment recommendations that are customer-centric.
Great retailers use the insights derived from analytics to keep a firm grasp on how to consistently understand and satisfy shopper needs across the entire store rather than just taking a category by category approach that falls short. Serving the whole customer means understanding their interactions across the whole store – not taking category-centric price, promotion and assortment decisions in isolation from one another.
What purchases drive sales of other items on the same trips? When you discount prices in a high-visibility category, will any resulting increase in traffic translate into increased sales in other categories and departments or will you simply be cherry-picked and give away value to non-loyal shoppers? Are in-store promotions motivating to high-value shoppers, or do they respond better to personalized offers or other perks?
No doubt the bar keeps rising for what makes a fantastic engagement in retail. In grocery, the stepped-up battle now embroils Amazon and Lidl with their most powerful rivals like Walmart, Kroger and Aldi. There will certainly be temptations to make grand statements on price, especially in high visibility categories. When price is wielded as a blunt tool, only a few giants are left standing.
Retailers who continually advance their analytics to make smarter and sharper pricing, promotion, assortment and personalization decisions are well positioned to survive – even thrive – in the face of these new threats. Success in a fast-changing market means putting your customers at the center of every decision, not the category.
Position your organization for the shopper of today and the future
Lidl and Amazon may seem like very different animals, but their simultaneous arrival in the brick and mortar landscape highlights a common challenge for food retailers of all stripes.
Sure, Amazon-Whole Foods may be dominating the headlines these days. Let others be distracted by the hype and uncertainty. We think optimizing merchandising and marketing across the whole store is the winning strategy for long-term shopper engagement and delivering on the full promise of customer-centricity.