The Grocery Wars

Bigeye’s Senior Strategist, Dana Cassell, joins us to examine the current state of grocery shopping and the ways they are innovating to engage with shoppers.

IN CLEAR FOCUS this week: the $800 billion grocery wars. Amazon announced this week that it is opening its first full-size, cashierless grocery store. Bigeye’s Senior Strategist, Dana Cassell, joins us to examine the current state of grocery shopping and key challenges facing the industry. We look at the ways traditional grocery chains are employing technology to engage with shoppers, experimenting with new store formats, and testing delivery options.

Episode Transcript

Adrian Tennant: You’re listening to IN CLEAR FOCUS, a unique perspective on the business of advertising. Produced weekly by Bigeye. Hello, I’m your host Adrian Tennant, VP of Insights at Bigeye. An audience-focused, creative-driven, full-service advertising agency, we’re based in Orlando, Florida, but serve clients across the United States and beyond. Thank you for joining us. Today, we’re going to be talking about something we probably all have to do: grocery shopping. A five point 7 trillion dollar business globally, based on 2018 data from, the top grocery chain in the US is Walmart – and it’s way ahead – with $514.4 billion in sales. And the number two position is Kroger with $121.2 billion. In addition to its own name, Kroger operates under 16 store names including Harris Teeter, QFC, and Ralph’s. Coming in third is Albertsons with $62.2 billion. Florida-based Publix comes in fifth with $36.1 billion. The German-owned chain, Aldi, which also owns Trader Joe’s, comes in ninth with $16 billion, which is just ahead of Amazon, owner of Whole Foods; that’s in 10th spot with $15.8 billion in sales. A 2019 report from the Food Marketing Institute reported that 92% of shoppers have a favorite store where they do the bulk of their grocery shopping. This is a place they know by name and where they spend the majority of their grocery budget, most commonly a supermarket. Today, the vast majority of grocery shopping still takes place in traditional brick and mortar stores, but this pattern is beginning to change as more retailers offer grocery delivery options either via their own services or in partnership with companies like Instacart. The online grocery market generated sales of $28.7 billion in 2019 with sales forecast to reach $59.5 billion by 2023. The biggest players in this space are currently Walmart and Amazon. Of course, marketing plays a significant role in how supermarkets offline and online position themselves relative to competitors. The industry is also known for having razor-thin margins, so there is significant incentive to optimize every aspect of the marketing mix to maintain the most profitable formula. To talk about the current state of grocery shopping and some of the challenges facing the industry in 2020, I’m joined here in the studio today by Dana Cassell, Bigeye’s Senior Strategist. Welcome back to IN CLEAR FOCUS, Dana.

Dana Cassell: Thank you. Thanks for having me.

Adrian Tennant: So why are you interested in following grocery store marketing trends?

Dana Cassell: It’s really the combination of my personal and professional interests that make the Grocery Wars so interesting to me. There’s a lot in there about consumer behavior and experience. You mentioned the razor-thin margins in this vertical, so really experience and um, consumer behavior have to be optimized. So I just love that. Um, it’s a super competitive field and it combines food and local culture. So there’s always something regional about groceries and the way that regional grocers expand into new areas I find really fascinating. And then there’s also a fairly broad target as you mentioned in the intro. Everybody needs to grocery shop at some point. So I really am interested in the idea that it’s not a brand that can usually differentiate itself on its target. And then also just how much of our life grocery shopping takes up. An average household makes 1.6 trips to the grocery store every week, spending $113.50 every week. And then this part, this is what I get so excited about. The average household makes trips to 4.4 stores each month. So while someone might have their grocery of preference, they also probably have a place that they swing into that is more convenient, maybe a place where they buy produce or meat. And I just think that’s fascinating that really a mix of brands make up one category for a house. I just love it. This is an industry I really like to watch right.

Adrian Tennant: The buzz in Florida lately has been about the closing of many Lucky’s Market stores and also the news that Earth Fare, which is a health and wellness-focused supermarket chain, will be closing all of its stores. What’s the deal with these beloved brands going out of business?

Dana Cassell: So kind of two different stories actually for Lucky’s and Earth Fare, but we can talk through both of them. You might know that Lucky’s started in Boulder, Colorado in 2002 and their mission was to be organic for the masses. So they were trying to broaden access to organic food. And in 2012, they opened their second location in Colorado. And then there was a turning point for Lucky’s, which is that in 2016 it was invested in by Kroger. You mentioned earlier that Kroger has many stores under which it operates. Well, it invested heavily in Lucky’s in 2016. And at that point they had 17 stores in 13 States and Kroger started pushing Lucky’s to younger, more price-conscious shoppers. And then they made a strategic move into Florida. So in 2017, there were 11 Lucky’s in Florida. You can see how quickly the growth happened for this store. At the same time, though, we saw the growth of chains like Sprouts, Fresh Thyme and Earth Fare. And during that expansion, we also saw major brands like Walmart and Aldi start to double down on organic and natural foods. And even Kroger did. So the way they did it was with a private line in store, which is the way we see many major brands address natural and organic. So while Lucky’s was growing, the general market for organic was growing as well. And that message of organic food for the masses was not a point of difference any more because if Walmart has doubled down on organic, that’s a difficult place for Lucky’s to differentiate. So really, Lucky’s grew too quickly and then Kroger just decided to pull their funding. We know that Kroger is focusing on tech. It’s my assumption that the focus on tech leaves Kroger no option but to refine their strategy. So they’re really transitioning, transitioning to an omnichannel retailer, focused on store delivery, pickup and ship. And I think as this more strategic focus is happening, Lucky’s just is not a profitable element for the company. So I’m interested to see what happens with Lucky’s over time. I think the Kroger pulling out – obviously, it makes a major impact in this area of the country. And then Earth Fare is just a kind of a totally different story in and of itself. Earth Fare started in 1975 in Asheville, North Carolina. And their niche was organic natural foods and over time, as we just mentioned, that niche really disappeared. So grocers either have to compete on price or they have to compete on customer experience. Earth Fare was clearly too small to be able to gain the price advantage that larger retailers have. And while they invested heavily in local communities and had a really local feel for every store, the customer experience wasn’t enough to help the brand thrive. So their niche disappeared. Kind of two different stories for those two.

Adrian Tennant: Now, you mentioned Kroger pushing investment in technology. Is that a trend you expect to see across the industry?

Dana Cassell: Of course. You mentioned earlier about online grocery and the percent of sales that it’s taking. Absolutely. If a grocer wants to succeed, their online strategy has to be in place. I certainly expect to see that expand across the interest industry. I’m interested to see what Kroger does because of course their investment in technology impacts many of the stores that we all shop in, whether they’re named Kroger or not. But for sure we’ll see a technology push.

Adrian Tennant: And what other grocery trends are you looking towards in 2020?

Dana Cassell: Hmm, that’s a fun question. I see the trends break down into two different areas. They’re either experience or behavioral trends, or trends based on personal values. So the values trends that we’re looking toward in 2020 are things like plant-based foods and the availability of those in your average grocery store. The trend towards zero-waste cooking, and we’ll see that pop up in prepared foods as well. And then also this is one that we can be interested in as marketers: the story behind foods is a trend that we’re seeing – people really being interested in where their food comes from and how it’s grown and how it’s produced. My favorite current example of this is Vital Farms eggs. I also love that they’re a heavy podcast advertiser. So I love hearing about them just through my own media habits. But the way that they’re telling their story is they have the name of the farm where your eggs came from on the side of the carton. And you can go on their website, type the name of that farm, and they take you on a video tour of the farm. So you might have this image of dairy – of a beautiful farm, and a red barn, and sun shining on green grass. And that’s not true, as we know, in a lot of food production. And Vital Farms is not just dispelling that myth, but just saying, “Come take a look. Here’s the name of your farm, take a tour and see what it’s about.” So that storytelling behind foods I think will only be getting bigger. And then on the experience or behavioral side of trends, a few things that I’m interested in. Obviously, as technology grows and online ordering grows, grocers are able to have more access to habit tracking. So this is when you see, like in your grocery app, if you’re going to order for the week, you might see between when you finish your order and submit for payment, you might see a screen that says, “Did you forget your orange juice?” Because they notice that I’ve bought orange juice every week for the last three months and I didn’t this week. So that habit tracking is a way to optimize people’s experience. It’s also a way to optimize sales. We’ll also see a trend toward convenience foods. I think the first wave of this was really at home delivery and meal kits. And then groceries have gotten on board with this. So you can walk now into a Harris Teeter for example, and you’ll see meal kits prepared, ready to go home. So all of those herbs, chopped veggies, diced meat, prepared and you just need to go home, combine and cook. So we’ll see an increase in convenience store foods like that, but also things in more prepared foods like sandwiches over in the deli. You know, chicken ready to eat, to-go foods, those meal kits. We’ll see that growing this year. And then the delivery method is obviously an experience and trend that we’re looking toward and really living in right now. The different ways to get your groceries. If you’re going to come in store, we’re going to be focused on a speedy checkout process. You can order online, have it delivered home, or you can come drive up. We’re going to see groceries optimizing each one of those delivery methods.

Adrian Tennant: A couple of other tech innovations that I’ve been tracking: if you have a mobile phone app for the supermarket, it’s typically going to understand the layout of the store that you shop in most frequently and it can potentially guide you through the store to ensure that you get all of the items on your list in the most, time and footwear-efficient manner. But I’ve also seen things where, for example, freezer cabinets have got small cameras installed that look at the facial expressions of consumers as they approach the cabinet and might actually suggest products based on the emotion that’s being elicited by the facial characteristics of that moment. That’s a little Minority Report – but I know that Kroger is one of the supermarket chains that’s, I think, working with Microsoft on the idea that the shelf talker or the labeling along shelves can be personalized to the individual consumer. And even with the prospect of having personalized, dynamic pricing back to that loyalty scheme idea – so a lot happening in supermarkets, it seems, technology-wise.

Dana Cassell: It is interesting. On those digital tags. I also like the idea of the tags being able to talk to the phone. So as you pass by something being, you know, being reminded or if you have your list on your phone, the geo-locating in the store, I think it’s all really interesting. And as a consumer, I feel a couple of ways about it. You know, you just mentioned the Minority Report aspect, but also I’ve been in a store – I haven’t done this in grocery yet because I’m such an online order of grocery – but I was in Target recently and couldn’t figure out where something was in the store and went into the app and was able to find the aisle in the app. And I think that is super useful. So when you mentioned a phone being able to guide you through the store, especially if you’re new to an area or a new store is opened, you know, that you haven’t shopped in before. I think it’s gonna all optimize the consumer experience and at the same time deliver data to the brands that they can use to increase sales and you know, just make really the experience of shopping better.

Adrian Tennant: Now what are the lessons about consumer behavior marketers can learn from these Grocery Wars?

Dana Cassell: That’s really the question that gets into why I follow groceries in general because I just think that the trends that we see there can apply to a wide variety of brands. So the first is the digitally-demanding environment. Obviously we’re talking about this huge tech investment that grocers are leaning into right now and will continue to lean into. And the lesson that’s taught us is that stores have to have a promotional plan, a media plan, and an e-commerce plan in place, digitally. These are just the three baseline mandatories that we’re learning from grocery. A digitally-demanding environment means that you have to be up to speed. We also have in grocery the sea of sameness. You know, if you take a step back, they’re all selling food. They’re all in my neighborhood. So they have to figure out in this sea of sameness how to stay stand out. And I mentioned earlier two tactics that we see groceries use for that either price, competition or experience. And I’m really most interested as a marketer and the stores that choose the consumer experience as their point of difference. And we can learn a lot from that. I think, in general, there are four questions as a marketer that I would take away from the Grocery Wars and what we’re seeing here in early 2020 that I would encourage brands to ask themselves. And if we don’t have solid answers, you know it’s time to bring somebody else in the room that can help with these answers. So the first is, “what is our point of difference and how will we compete?” And then, “What technology do we need to invest in to meet our customer’s expectations?” I am so pleased that Kroger sees the need to do that rather than limp along with whatever technology they have. And we all know we’ve worked with brands day-in, day-out, that at this point have legacy technology infrastructure that has sort of been Frankensteined together to make things work. And sometimes there’s a moment where you have to pause and re-invest. So, “What technology do we need to invest in?” The next question is, “What’s the customer experience of doing business with our brand and is it exceptional at every touch point?” This is a hard one to answer if you are emotionally connected to your own brand. So I would encourage you to find somebody newer or less emotionally connected if it’s not exceptional at every touch point, what changes do you need to make? And then the last is, “Is our business model modern and evolved?” Meaning – is it values driven? We talked about people wanting to hear the story of their food. That question applies to all brands and that is not coming from one particular niche of consumers. As in the evolved business model, “Are we environmentally aware and do we have a customer-first mentality?” We’ve seen healthcare talk about a customer service mentality for over a decade. They’ll use the phrase, “Patient-first.” And I think we’re seeing grocer start to say, “Shopper-first mentality.” So these are kind of the lessons I think we can walk away with.

Adrian Tennant: Do you think we’re going to be looking at smaller footprints going forwards or do you think size still really kind of matters?

Dana Cassell: That’s really interesting. So we see Walmart’s Neighborhood Market being an answer to that. It’s a much smaller grocer that is only focusing on groceries. So all the things that you see at the Super Center are not there. And even Aldi, Lidl, Trader Joe’s, none of those are mega-footprint stores. I think you’re right. As online increases, I think the store experience is going to need to be optimized. And that does not necessarily mean a massive store that takes me an hour to get through. We saw that in the delivery trends for 2020, if we’re not doing drive up or delivery, speedy checkout is a big deal. And getting through the store quickly is too, so I expect that we’re not going to see an increase in mega-footprint grocery.

Adrian Tennant:

The average supermarket carries something like 36,000 to 40,000 SKUs compared to an Aldi or Trader Joe’s, which typically carries 3,000 to 4,000 max.

Dana Cassell: Right.

Adrian Tennant: Very different in terms of potentially being overwhelmed by the SKUs in a typical supermarket. But I believe most people probably only stick to 150 SKUs, habitually. So it seems like there’s a lot of choice out there. Do you think we need all of that choice, particularly with direct-to-consumer becoming a more viable option?

Dana Cassell: I think that’s interesting because I do think sometimes people find new brands to experiment with through their favorite grocery store. So I think it’s important that we continue to offer a variety. It’s a great place for trial. It’s obviously a wonderful channel for promotion as a marketer and the habit tracking. So the grocery delivers us a great experience as a marketer to say, people who like this, this, and this are typically buy this, this, and this tend to like our new product. So I really think that the in-grocery experience will continue to grow for trial brands, but certainly direct-to-consumer. I mean the world is our oyster with how we get our things. I also want to mention that the customer satisfaction score for Trader Joe’s in the latest survey, the 2018 one, it’s the number one highest grocery for customer satisfaction. So if a smaller grocer that has their own items, their own brands, it has is leading in customer satisfaction, I think that’s directional for where some of these larger grocers may be heading. Now obviously, two is Wegmans, three is Publix, and those are not smaller smaller footprints like Trader Joe’s. But that customer experience at Trader Joe’s just really turns the needle for them.

Adrian Tennant: Well it’s retail as theater, obviously and because they are their own branded products, there’s not really the ability to compare. And as you can probably tell, I’m a bit of a Trader Joe’s fan.

Dana Cassell: Right.

Adrian Tennant: And I’m not alone.

Dana Cassell: No!

Adrian Tennant: One of the top rated podcasts on Apple Podcasts is called, “Inside Trader Joe’s,” – it actually topped the charts a couple of times. So people are pretty passionate about their supermarkets.

Dana Cassell: No doubt.

Adrian Tennant: Great points. Dana, thank you so much for joining us today to discuss the Grocery Wars. It’s a fascinating topic for marketers.

Dana Cassell: Thank you for having me.

Adrian Tennant: My thanks to our guest this week, Dana Cassell, Senior Strategist at Bigeye. You can find links to resources we discussed today on the IN CLEAR FOCUS page at under “Insights.” Just click on the button marked, “Podcast.” Consider subscribing to the show on Apple Podcasts, Spotify, or your favorite podcast player. And please rate and review the show. And if you have an Amazon Echo device, you can use the IN CLEAR FOCUS skill to add the podcast to your Flash Briefing. Thank you for listening to IN CLEAR FOCUS, produced by Bigeye. I’ve been your host, Adrian Tennant. Until next week, goodbye.

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