For the third time in the last four years, Texas-based H-E-B is America’s top grocer, according to dunnhumby, a global consulting firm that ranks grocers at the beginning of the year in a report called the Retailer Preference Index (RPI). But if you live outside Texas and Mexico, it’s likely you’ve never even heard of them. Dunnhumby’s methodology for ranking grocers involves creating a composite score based on customer perception and financial performance. This enables the grocery industry—which perennially struggles with razor-thin margins—to understand what’s working and what isn’t across the U.S. and across different store categories (e.g., supermarkets, hypermarkets, discounters, specialty stores, convenience stores). (Disclosure: I have consulted for dunnhumby in the past).
What Do Customers Want?
The report shows that grocers meeting customers’ specific expectations generally fare better financially. Seems obvious, but knowing what customers actually want is a challenge. Surveying more than 11,000 U.S. shoppers across 72 American grocery stores, this year’s survey identified five things that American shoppers care about. In order of importance, those things—the “drivers” of success, in dunnhumby parlance—are price, promotions, and rewards; quality; digital; operations; and speed and convenience.
The importance of these drivers has changed each year since the RPI launched eight years ago. Taking a longitudinal view, the drivers reflect what was happening in the U.S. before, during, and after the pandemic, an event that greatly reshaped the global grocery market. Attributes such as speed and convenience were more important during the pandemic. But since then, price perception has become a key concern.
“Since releasing the first U.S. Grocery RPI eight years ago, retailers and shoppers have weathered COVID, supply chain disruptions, agricultural shortages due to climate impacts, and a prolonged period of high food inflation that have reshaped shopping behavior and how Americans perceive the grocery retail environment,” said Matt O’Grady, dunnhumby’s President of the Americas, in a press release. “Clients across the grocery retail sector understand that market success is dependent upon saving shoppers money and implementing innovative pricing technologies to maintain their customer base.”
A unique value proposition
So, what’s the key to H-E-B’s success? Not just low prices. Each of the top five grocers (H-E-B, Market Basket, Costco, WinCo, and Aldi) differentiate on price. The magic of H-E-B is a unique value proposition based on other things that matter to customers. The report highlights quotes from anonymous shoppers, rich with the detail on what sets that the grocer apart. Cleanliness, helpful staff, local produce, imaginative freebies (like fresh tortillas, catering to the Tex Mex population they serve). In fact, being a regional brand has its benefits; it enables the brand to trade on its deep knowledge of regional culture and preferences. Unsurprisingly, global brands did well this year. Of the top five brands in this year’s RPI, three are regional .
But to truly know and understand the H-E-B experience is to visit one. When I told a Texas friend about this article, he complained how hard it was to convince his friends just how great H-E-B is. “Maybe I can send them your article, and they’ll finally believe me.”
For Love and Money
Perhaps they will believe him. After all, everyone loves a winner, and H-E-B’s place in dunnhumby lore has created a lot of publicity worthy of a cult—not just a store. (In addition to winning the top spot three times in the past four years, H.E.B. placed #1 in the first RPI).
But the financial metrics that align with H-E-B and others in the top five illustrate the business value of customer sentiment. Early in the report, dunnhumby asserts that the RPI is a prediction of long-term success. The report attempts to quantify that growth; it finds that retailers with higher RPI rankings experienced growth rates up to 2.5 times faster over five years compared to those with lower rankings. Conversely, the report finds the fourth quartile of grocers leave $1 billion on the table compared to retailers higher on the rankings.
Moral of the story: it truly pays to know your customer, and to look at the broader economic picture, which tells a related story about the long-term trend of what dunnhumby calls “fiscal conservatism,” where all shoppers, affluent and not, are looking for the right price.
But just as important is paying attention to the other attributes that matter to your shoppers, which a grocer can uncover by understanding what their customers think and feel. It’s the promise of customer data science, which provides both the mindset and technology that allows a grocer to compete even if they’re not a household name.
