The retail food industry has been experiencing major changes, suggesting a rethink of how loyalty should be viewed. The changes occurring are reminiscent of the 1980s when traditional retailers were weakened by attacks on two fronts by Discounters and Category Killers. Recall how Sears, one of the greatest US retailers of the 20th century with its broad offering of something for everyone, was attacked with lower prices by discounters such as K-Mart and Walmart and deeper assortments by category killers such as Best Buy and Toys R Us? The combined attacks along with other factors, contributed to the decline of this retail giant.
Supermarkets, the traditional food retailer of recent decades, have been and continue to be attacked on the same fronts: by lower prices from discounters such as Walmart, Winco, Costco and Aldi, and deeper (or unique) assortments from specialty stores such as Trader Joe's, Whole Foods, Total Wines and PetSmart. This pincer movement has left many traditional food retailers with higher price levels and fewer competitive departments. For example, paper products and diapers, once supermarket draws for family shopping, are now often lightweight offerings. They are no longer "core draws" of many supermarkets as customers move more actively towards splitting their shopping. The one-stop shopping concept of the supermarket era is visibly declining. Nudging the decline along even faster has been the rise of powerful, wide-range, low-price Amazon and other appealing web retailers.
Loyalty in an Age of Split Shopping
The age of split shopping is summarized in supermarket statistics. Customer data routinely show that more than 70% of customers spend an average of less than $25 per week (shopping, on average, once every three weeks). In short, the actual shopping behavior of the customer majority tells us they are split shoppers.
Given these dynamics, I suggest we consider a broader view of loyalty as we move towards a world of longitudinal loyalty and away from a world of latitudinal loyalty. Longitudinal loyalty reflects a marketplace where customers are comfortably splitting their shopping among a favored group of, possibly, five supermarket-item-based retailers, the split reflecting the respective core draw of each. In contrast, latitudinal loyalty describes the era of earlier supermarket days when one-stop-shopping was closer to the norm.
The challenge now for many food retailers is deciding how to hold and strengthen customer loyalty to their core draw (ie, vertical or longitudinal loyalty) versus the days of encouraging them to shop in every department as a one-store food shopper (ie, horizontal or latitudinal loyalty).
As a Retailer, Where Could You Start With This New Mindset?
Measuring Progress in a Longitudinal World
Taken from your regular customer quarterly data, three metrics are essential:
The Bottom Line
The supermarket industry began decades ago by bringing together the grocer, butcher, fishmonger, greengrocer, baker, and delicatessen specialist all under one roof. They are still there today, but fragmented specialization of their skills in more focused retail outlets is eating away at the sales of the one-stop-shopping supermarket. At the same time, extreme low-cost operators are enticing supermarket shoppers to split (or switch) their shopping to save money. Split shopping has created a group of competing retailers almost silo-like in nature, but focused on their differentiating strengths.
As a result, it seems time to start thinking differently about how we should view loyalty: longitudinally (or vertically) along with the silos or latitudinally (or horizontally) along with the old one-store-shopping ideal. It seems an appropriate time to heighten our focus on increasing our customer return rate rather than how to encourage a customer to shop in all departments. For if our customers aren't returning but shopping more elsewhere, wondering which departments they shop becomes moot.
The techniques and metrics Brian Woolf has developed have become guiding principles for those operating some of the world's most successful programs. He is the President of the Retail Strategy Center, and has consulted, and spoken at conferences, in the US, Europe, Japan, and Australasia.
Prior to his total commitment to loyalty marketing, his corporate roles included Deputy Managing Director of Progressive Enterprises, a major New Zealand retailer; and Chief Financial Officer of Food Lion, a leading US food retailer. He has an M.Com. (Economics) from the University of Auckland, New Zealand, and an MBA from the Harvard Business School.