Dive Brief:

• A new report on shopper loyalty from the Food Marketing Institute showed most grocery shoppers believe they are loyal but do not behave in a loyal way because their needs are not being met by their primary grocery store. Only 9% of consumers shop at only one store and about 7% spend more than 90% of their budget at their primary grocery store. 
• The findings show consumers don’t believe loyalty is just a card, program or initiative, but rather the effort to satisfy their needs better than the competition. If retailers can satisfy those needs, shoppers will consistently allocate more of their food budget and time to the retailer. 
• FMI’s research indicates that retailers can earn or lose loyal shoppers across all areas of their offerings — merchandising, experience elements and food departments. Critical among these attributes are good prices, quality products, good promotions, clean stores, positive customer service and short checkout lines. 

Dive Insight:

There is a big incentive for grocers to harness loyal customers. The report shows a $2 billion retailer with a gross margin of 25% can generate $70 million in incremental sales annually with a next-generation loyalty platform. 

An effective loyalty strategy can yield far more benefits for brick-and-mortar stores than just added sales. As customer preferences change and e-commerce players pull in more market share, providing shoppers with everything they need, including a memorable experience (which can’t as easily be translated via an online purchase,) will give these retailers a competitive advantage. In other words, loyalty is perhaps the most effective way to compete and grow in an intensely competitive environment. 

There is a lot of work to do to get there. Just 9% of shoppers said they shop at only one store, while 50% of all shoppers spend up to half of their weekly budget at a store other than their primary store. To generate the most effective loyalty, grocers have to go beyond the card and take a more holistic approach.

A study from KPMG found H-E-B, Publix and Wegmans stood out because of the customer service and amenities they offered. 

A 2018 International Loyalty Study found that despite their popularity with retailers, just 5% of customers said they would switch stores if their favorite grocer ended their loyalty program. FMI noted the combination of store cleanliness, friendly cashiers and a variety of high-quality fresh produce means more to customers than cumulative fuel points, a common reward given to customers using loyalty cards.

It’s also critical that retailers know their audiences. Younger generations, for example, are more demanding, informed, digitally connected, time-starved and price sensitive. They’re more likely to experiment with new options first and shop across multiple retailers. Ironically, millennials are more interested in shopping at a single store. They don’t simply because their expectations are higher.

To meet those expectations, grocers have to commit to loyalty across the company, not just in a designated loyalty department. The strategy should touch everything from maintenance to front line employees to the supply, operations and IT departments. As the report notes, “if a retailer is lumping all of the costs associated with the loyalty strategy/approach onto the loyalty department’s budget and then measuring the upside of those efforts only in terms of the benefits accruing from the loyalty program, then the broader benefits of the loyalty approach are being under-counted.” 

This ties into the broadened incentives for customers to have such loyalty — it’s no longer just based on price. They’re also in search of better and more produce, higher quality products and a breadth of assortment. Some stores like Shop Rite allow kids to get a free piece of fruit, and The Fresh Market, like some other grocery stores, hosts food sampling events to inspire at-home chefs and create a personal connection with customers in hopes of bringing them back.

There is a bit of a disconnect between retailers and consumers on what should merit priority. In general, shoppers rated quality, prices and cleanliness as “more important” than e-commerce, mobile and digital initiatives. Shoppers want and expect the shiny new technology, but it has yet to trump grocery fundamentals of inventory and in-store experience. 

There also is room for improvement when it comes to personalization. Retailers believe they’re doing well with personalized offers. Shoppers seem to disagree. If the goal is to meet all of the needs of today’s shoppers, personalization is perhaps the most highly effective approach. This is where investment in analytical tools should be prioritized. The report notes that most loyalty programs were measured through customer satisfaction surveys, but a more consistent, robust and data-driven approach would provide insights into shoppers’ personalized behaviors and yield loyalty as a result. 

The need to convert customers into loyal customers in today’s landscape is more critical than ever, as there are more options for them to chose from. If customers don't feel appreciated, they’re simply going to go elsewhere.