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A Case Study in Differentiation – US Supermarket Offerings

Jo Somerville

Jo Somerville

Jo is an Account Director at Evolve. Jo is passionate about actionable insights and working with clients to answer business questions.

The ubiquity of American culture – from our TV screens to our shopping choices – can make it seem like the Australian and US cultures are interchangeable. An interesting example of where the landscape is more different than it first appears is in the world of grocery shopping. Casting a broad glance over the US market, it appears that the US supermarket culture is very different from that of Australia, for a few critical reasons.

Why is this? And how do these differences affect how customers shop and how stores win market share? Taking a closer look at the retail landscape in the US sheds some light on the major factors at play – and reveals useful information for those of us in the Australian market. 

Variety and Differentiation

US customers have more options – while the majority of Australian consumers choose between Coles and Woolworths (which account for nearly 70% of the market), US shoppers almost always have more choices. The nature of the US means there are many different markets and few truly ‘national’ grocery retailers but in most markets customers have a lot of choice. For example, across parts of North and South Carolina, more than 10 grocery retailers attract at least 10% of grocery shoppers each month.

Beyond the largest grocery chains there are also many smaller options that compete with a niche customer proposition. For example, Trader Joe’s (474 stores, small format, private label products), The Fresh Market (159 stores, delivering premium products), Lucky’s Market (69 stores, well priced natural and organic food) and Sedano’s (30 stores, catering to Hispanic communities), to name just a few. Each of these stores give customers greater choice of where to spend their grocery dollars.

Then there are the non-traditional retailers competing with supermarkets for a share of the nation’s grocery wallet. For example, Dollar General (15,000 stores across the US), with discounted prices and convenience attracts a large number of shoppers and captures many ‘things I ran out of’ shopping missions. Pharmacy chains such as CVS and Walgreens are also stealing ‘milk and bread’ trips from supermarkets by offering highly competitive prices on everyday items like milk. These chains offer customers a ‘one-stop shop’ for their convenience and personal needs.

Service Propositions

The Australian supermarket duopoly can sometimes mean the offerings of Coles and Woolworths are quite similar. In the US, the diversity of offerings means that supermarkets can differentiate on their offers to customers. Even at the mass market end Walmart is known primarily for value, compared to Publix, which is a known for both high levels of customer service and quality, while stores such as Winn-Dixie and BI-LO are ‘everyday stores’ running aggressive promotions to underpin a high low pricing strategy.

Stores that are able to distinguish themselves from the ‘middle’ of the market with a unique offer are often the most successful, capturing a distinct chunk of market share.

Customer Choice

The US market can be seen as a buyer’s market – different offers from stores and a density of competition make it easy for a shopper to be discerning about their purchases and shop around. Weekly circulars (or catalogues) play a large role for many consumers in deciding their weekly shopping patterns. Value conscious customers shop around for the best deals on the products they want and will write their shopping lists based on what’s on special and where.

The use of coupons is also an important feature of shopping choice for US customers and shapes store choice in a way we are not familiar with in Australia. A welcoming coupon policy can build loyalty to a brand or store, while an unsuccessful or rejected coupon experience can be enough to tarnish a customer’s experience of a brand.

Take Home Message

So how is this information useful for us in Australia? For one, it offers an interesting snapshot as to some of the challenges and opportunities that arise in a crowded marketplace. The importance of differentiation – of carving out a niche in a crowded marketplace – is clear when there is a wide variety of service offerings.

Currently, large Australian supermarkets are able to cater to different markets, such as gluten free, international or organic ranges – without necessarily sacrificing their ‘bread and butter’. The next 10 years will show whether large companies continue to hold market share in Australia, or whether disrupting factors such as technology move consumers towards more speciality stores or other ways of buying groceries.

The factors of price and convenience will likely still determine consumer choice – along with brand loyalty and other, perhaps not yet known, variables such as environmental impact or brand reputation.

What do you think the next 50 years holds for grocery retail in Australia? Please feel free to leave your comments below.

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