Strengthening the Fundamentals: Critical Building Blocks on the Path to Grocery Success

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With Amazon’s recent purchase of Whole Foods, pundits are speculating what the reaction and next move should be among grocers struggling to survive. Grocers already face intense competition, not only from traditional supermarkets but from a wide-ranging array of other retail channels, including supercenters, warehouse, limited assortment, specialty, discount and convenience/drug stores.  Given the entry of Amazon, an e-commerce juggernaut with the resources to significantly alter the landscape, is it time to give up?  Should operators just throw in the towel?  Our answer to those operators willing to focus on the fundamentals is a resounding NO.

More than ever, grocery operators need to focus on the customer, food and store atmosphere.  Your store needs to be the place where customers can escape.  Shoppers want – in fact they DEMAND – a clean and friendly place where they’re greeted by displays of colorful fresh produce and flowers, can taste a sample of the latest imported cheese and enjoy the aromas of roasting coffee and freshly-baked bread.  And most importantly, today’s discerning, some would argue finnicky, shopper looks for welcoming smiles from helpful staff when they need it.  A website, no matter how sophisticated and efficient, can’t replicate the sensory experience and compete with a friendly smile.

Too many companies are focusing on factors out of their control and losing sight of some basic fundamentals that, with the proper levels of planning and executional consistency, can yield a positive impact for grocery operators in a relatively short timeframe.

Think about it:  losing a customer is easy, while customer acquisition is difficult and expensive.  Customers are fickle and generally have little or no loyalty especially given the number of options available. Key to enhancing the customer experience, which is critical to operational and ultimately financial performance improvement, is a focus on the core values and key elements important to today’s shoppers, which we refer to as “the 4P’s.

  • Physical attributes of the brick-and-mortar
  • Product offerings and selection
  • Price and value perception
  • Pleasing customer experience

Physical Attributes
Doesn’t Amazon’s biggest bet yet with the acquisition of Whole Foods mean that brick-and-mortar stores are still relevant?  Do your shoppers keep coming back or are they turned away by the unkempt appearance?  Do your displays make consumers want to buy more than what was on their original list?

  • Location and proximity: Consumers tend to choose stores closest to where they spend the bulk of their time, whether that be their home or office
  • Ease of entry and exit: People value time and convenience
  • Efficient pickup: Customers expect timely processing of orders and ease of pickup for online orders
  • Visual appeal: Exteriors and interiors of stores including bathrooms should be well-maintained
  • Cleanliness: Store cleanliness ranks high among customers especially when purchasing food

Product Offerings
How do you incentivize consumers to shop at your store?  Are your customers willing to drive a little farther or pay a premium?  Are your products of the highest quality to satisfy even the most discriminating shopper?

  • Selection: There is increasing demand for fresh, organic or gluten-free products
  • Specialty: Stores can differentiate themselves with a wide selection of specialty products such as imported cheese or olive oils
  • Prepared foods: American are increasingly turning to prepared foods to save time
  • Fresh produce: Produce can dictate whether a customer chooses to shop at your store
  • Quality products: Maintaining the highest quality products ensures that customers keep coming back

Price and Value Perception
Are you competitively priced?  Do your customers realize that your prices are lower than that of your competitors?  Are your customers’ basket size bigger than your competitors?

  • Promotions: Customers like to feel that they are getting a good deal
  • Price: Operators need to ensure that their investment in price reductions are being valued by their customers and not just furthering reducing margins
  • Private labels: Companies are continuing to expand on their offering of quality and reasonably priced alternatives to branded products
  • Signage: Customers like easy to understand pricing and signage which identifies weekly promotions
  • Inventory: Operators need to ensure that there are no empty shelves and out-of-stock inventory especially for promotional items

Pleasing Customer Experience
Are your staff friendly and helpful?  Are you making sure your customers’ shopping experience is quick and easy?  Do your customers look forward to coming back?

  • Checkout: Shoppers value their time so a quick and easy checkout is important especially during peak hours
  • Staffing: Stores need to have adequate staffing at the various counters such as deli and bakery to avoid long waits
  • Layout: Store layouts should be logical to allow for ease of finding products
  • Service: Finding friendly and helpful staff when you have a question can easily turn the customer experience from frustrating to pleasant

Summary
Investing in online and innovative strategies is great, but wasteful if you are losing customers due to dirty floors and bathrooms, having to wait in long lines at the deli counter or checkout, touting yourself as the provider of organic produce but displaying spoiled and bruised products and marketing promotional items to attract customers but having customers walk away because of empty shelves.

Loughlin Management Partners + Company (“LM+Co”) has a team of highly experienced financial, operational and analytical professionals that can partner with you to assess the situation, focus on the key issues and identify opportunities to enhance profit and cash flow.  Our retail specialists can:

  • Identify operational improvements in sourcing, supply chain and inventory management
  • Perform store profitability analyses and closure strategies
  • Assist with labor optimization to reduce costs and maximize staffing
  • Conduct review of customers and SKUs for profitability and rationalization and
  • Develop a turnaround plan or debt restructuring

We are available to help navigate the issues in this difficult and turbulent time for retailers and grocers.

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Wen Rittsteuer

Director
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