Article

Changing consumer mindsets call for new approaches

New trends in technology and social media allow grocers to create a differentiated shopping experience.

February 28, 2010

There is strong evidence that we’re finally seeing the light at the end of the tunnel of a dark recession, with the GDP increasing and the Dow rising. Still, consumer confidence remains low, due to high unemployment. This impacts their willingness to spend, and retail sales remain low. It is very likely that consumers will not return to their free spending ways in the near future.

Consumer behavior has changed in a significant way, creating a challenging environment for all retailers. Grocers have also seen a big impact to their sales and profits. They have had to reduce prices and increase promotions to get shoppers to their stores. This strategy will remain important in the short term, but retailers have to leverage alternative marketing techniques to increase customer traffic and spending. Fortunately, new trends in technology and social media allow retailers to create a differentiated shopping experience that will lead to long-term customer loyalty.

The average consumer is very sensitive to price in today’s environment. A shopper visits multiple stores to meet their grocery needs. Different store formats (supermarkets, supercenters, warehouse clubs, dollar stores, etc.) and promotions influence the shopper’s choice of store in a significant way. Convenience is not as important as it once was, and people are willing to drive a few extra miles to a discount retailer to get a better price. Value-conscious shoppers are also curtailing impulse purchases and are sticking to their shopping lists while in the store.

Grocers have understood this trend for a while now and have reduced prices and promotions to attract and retain customers. For example, discount retailer Safeway is even contemplating a change in its pricing strategy from promotional to EDLP (everyday low prices).

These strategies are important in the short term but will not create long-term profitability, as budget conscious consumers are not loyal. Grocers will lose these budget-conscious consumers very quickly unless they develop other techniques to build loyalty and a sustainable competitive advantage. It is important that grocers understand what drives consumer behavior, specifically what drives their decision making. It is important to leverage these behaviors to create value and an outstanding shopping experience in the minds of the shopper.

Aside from price differentiation, there is a distinct shift in the way consumers are looking at what they buy and eat. Health consciousness is on the rise. People are not only counting calories, but also looking at type of calories, fat and ingredients. "No trans fat" is not good enough any longer; shoppers are looking for low sodium, low sugar, no preservatives, high protein, low carbs and so on. Organic has also caught the attention of consumers.

This presents a valuable opportunity for grocers to create a differentiation in the minds of consumers by leveraging this trend. While food manufacturers have been forced to provide detailed nutritional information by FDA, some grocers are going above and beyond to help shoppers identify healthier alternatives in an easy and intuitive manner with the help of technology.

Hannaford's Guiding Stars program is a good example of providing an overall nutritional rating to help consumers select healthy alternatives. Every item is rated for nutritional value (one star – good; two stars – better; three stars – best) by nutritional experts, making it easier for shoppers to select healthier alternatives. Safeway's Food Flex program allows consumers to get a nutritional snapshot of their store card purchases along with healthy alternatives to their choices. Both of these programs allow shoppers an easy way to buy and eat healthy, thus creating differentiation on a dimension very important to the consumer.

There is also a significant growth in use of social media. Some grocers, like Brookshires, already have Facebook pages to develop online communities of consumers around common interests (health and wellness, gourmet cooking, recipes, diabetes, etc.). Grocers can then use this medium to have targeted promotions of interest to these communities. Such promotions will be much more effective and will have a much higher impact than the mass promotions run by retailers and food manufacturers.

There is also a shift in the way consumers want to access information through the Internet. With the popularity of 3G networks and smart phones, more and more consumers are using their mobile devices to access news and research everyday decisions. This trend is being leveraged by grocery chains like Kroger to offer digital coupons. It is convenient for the shopper – no more clipping coupons and carrying to the store to get a promotion; it is also cheaper to produce, distribute and process for the retailer. As this becomes more popular, all shoppers will demand this convenience. Grocers who are ahead of the curve can benefit by building a consumer base that is likely to remain more loyal compared to the shoppers who are only after low price.

There are key trends in consumer behavior beyond the economic drivers as a result of recession. Grocers who understand these trends and develop differentiated strategies leveraging technology and social media will be rewarded with a more loyal customer base. These will lead to higher sales and better margins over the long run.

Madhu Janardan is associate vice president and heads the Global Grocery Practice at Infosys. Madhu is also the executive sponsor for Infosys’ select strategic retail and CPG clients in North America. Rahul Bindlish is an Engagement Manager in the Retail practice of Infosys Technologies ltd.