Actionable Insights From APT's Retail Practice

New Grocery Players and How to React

April 18th, 2017 | Posted by APT in Retail

News that limited-assortment grocery chain Lidl plans to open its first U.S. locations this summer has likely already catalyzed grocers’ efforts to refine their strategies in preparation for the competitive incursion. Recent reports show that even fellow European grocer ALDI – which has already established a presence in the U.S. – is also reacting, embarking on a remodel initiative across markets, including those where Lidl is expected to open its first stores.

European discount grocers are not the only disruptors grocery retailers are facing. As other grocers successfully innovate in response to increased competition from online, convenience, and big box players, all grocery chains must evolve to keep pace.

In a recent Chain Store Age article, Jeff Campbell, VP at APT, discusses how many grocers are already actively taking steps to change what they sell and how they sell it, in response to shifting consumer preferences and mounting industry competition.

“The key to keeping pace as the industry evolves will be innovation,” Campbell writes. “If grocery chains aren’t already considering new pricing, promotional, and store enhancement programs, they should be.”

While grocers must continuously innovate to remain competitive, it is difficult to determine which new ideas will actually drive growth and stave off share erosion. With any new program comes accompanying tradeoffs, and key questions that organizations must answer to optimize their investments.

For example, a grocer may want to shift its pricing strategy on certain items in the face of new industry disruptors, but how can they determine which price adjustments will actually drive increased spend? Offering a lower price on items like “ugly produce” – blemished fruit that’s still good to eat – could drive traffic to the store. However, since many people likely go to the grocery store to buy produce regardless, it is possible that they may trade down from full-price to ugly produce, since the difference between the two is negligible. In that case, the pricing shift would cannibalize existing sales, rather than generate net new sales. By testing risky changes on a smaller scale before investing in broader implementation, grocers can quickly pinpoint how to refine their new programs for maximum impact.

Another example, returning to the ALDI story, is related to remodels. Important considerations for remodel programs may include: Which type of enhancements – signage, lighting, seating, or other elements – will be most profitable? Do remodeled locations in the proximity of new Lidl stores perform better than other ALDI locations near new Lidl stores that do not receive the remodel program? This is another case where test vs. control analytics can help organizations to unlock key insights and inform future rollout to boost their bottom lines.

As Campbell writes in Chain Store Age, “Strategically implementing new ideas is the key to success, and grocery retailers must carefully evaluate each potential program to determine which are most profitable before investing in widespread deployment.”

To learn more about how grocers can innovate to compete, read Campbell’s full article, “Implications for Grocery Retailers as Lidl Launches Stateside.”

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