The dunnhumby Quarterly: September 2022
Welcome to the second edition of The dunnhumby Quarterly
Every few months, we help grocery retailers understand who’s winning in the market – and why – by uniting insights from economic trends, customer needs, and competitive positioning of the 60 to 70 largest retailers in the U.S. grocery market. We also capture the perspectives of our battle tested grocery industry consultants. Each edition dives deep into a different theme. This quarter, the theme uniting all our content is “Inflation.” And, for the first time, we will be rolling out the content on a weekly cadence.
A Letter from the Editorial Team
2022 is the latest year in a three-year period of prolonged uncertainty for shoppers and retailers. Inflation is stubbornly high, consumer confidence is at all time lows, and the federal reserve is hiking rates aggressively and likely will have to continue to for the foreseeable future. Especially because of that last point, things just might get worse before they get better…
For consumers, we’re seeing their behaviors adjust as you might expect. As in times of economic uncertainty past, shoppers are trading down for lower priced products, lower priced channels, looking more for promotions, spreading their spend out across smaller baskets, avoiding unplanned and impulse purchases to keep from stretching their spending. This is why we’re seeing real grocery sales, adjusted for inflation, turning negative in 2022.
While this period of economic uncertainty resembles times past through the lens of customer behavior, it is novel in how raw shopper emotions are, coming out of a two-year period of Covid-driven uncertainty. Inflation is a more familiar foe than Covid for shoppers, but it is yet another foe, and two years of uncertainty has now become three, which will turn into four in 2023. The 18,000 shoppers we talked to during this time of inflation painted a colorful portrait of their feelings, expressing their frustration, stress and fear.
If 2022 is an adversary for shoppers, discounters are their hero. No channel has positioned itself better to save customers money, in the way they want to save it during these inflationary times. Places like Aldi, Dollar General, Grocery Outlet, Market Basket make it easy to: get in and out fast, find great prices and promotions on their focused list, while keeping their overall basket price down. These retailers and retailers like these are best positioned to grow this year and to build an even stronger emotional connection with their shoppers for the future.
This doesn’t mean anyone who is not a base price market leader should hunker down and wait for the storm of inflation to be over. There are multiple ways to demonstrate to customers that you save them money – from offering great base prices on a focused set of the most relevant items, to highlighting a private brand offering, to personalization of promotions… and on. Regardless of a retailer’s position, they need to lean in hard to at least one or more of these tactics. This will demonstrate to customers that they understand their pain and, just as customers need to make changes, retailers are willing to make changes to help. At a time when emotions are raw, the ROI on showing empathy with shoppers is especially high.
The reporting in this issue of The dunnhumby Quarterly, to be published in a series of articles over the next two weeks, will help retailers navigate this time. The Inflation Retailer Preference Index, published first, will look at who’s winning during inflation and why. The following week, we’ll publish deeper insights into the consumer and the economy, including our projection of how long this period of economic uncertainty may last. Lastly and perhaps most importantly, we’ll publish some of our best practice thinking on how you can save customers money right now, as well as how you can better prepare to counter the discounter threat as it evolves from what it is today to what it will become in the future.
Thanks for reading!
START HERE: WHO IS WINNING AND WHY
Retailer Preference Index: Special Inflation Edition
Introducing a special edition of dunnhumby’s Retailer Preference Index (RPI), adapted for inflationary times. This comprehensive, nationwide study examines the $1 trillion U.S. grocery market and identifies retailers best positioned to gain share during times of economic uncertainty and – perhaps more importantly – build emotional connection with shoppers now and in the future. Inspired by the dunnhumby Retailer Preference Index for U.S. Grocery — the industry’s first annual ranking of retailers based on both financial performance and Customer sentiment — our goal is to help grocers understand what they should be doing to best position themselves to win today and tomorrow.
WHAT CONSUMER TRENDS TO KEEP AN EYE ON
Consumer Trends Tracker
In the latest wave of our ongoing Consumer Trends Tracker (CTT), we review the results of a survey on consumer perception regarding inflation and corresponding behavior. As the data shows, inflation is not uniform in its impact. Depending on demographics, geography, and product category, shopping behavior has varied significantly.
WHAT ECONOMIC FACTORS ARE AT PLAY
Report: Inflation Adjusted Grocery Sales
While grocery sales will likely be up 6-8% YoY, inflation-adjusted sales will actually be in negative territory. At the same time, disposable income – a significant component to stimulus-related spending – is softening. This contraction in inflation-adjusted sales is likely mostly due to shoppers shifting behaviors to lower priced products, lower priced channels, and fewer non essentials, as inflation for food-at-home prices continue to climb and will likely persist at these historic levels into 2023. In this report, we do a deeper dive into consumer behavior data and share what the numbers mean for grocers.
HOW ARE CERTAIN RETAILERS RESPONDING
Retailer Spotlight: Dollar General
Given what we’ve shared over the first few weeks of The dunnhumby Quarterly, what can grocers do now to win with customers? With a spotlight on Dollar General, we look at things from a different angle, offering grocers aspiring to more effectively compete with Dollar General a close analysis of why DG is winning and what makes it vulnerable.
HOW SHOULD YOU RESPOND
dhVoice – A Roundtable Discussion with dunnhumby Thought Leaders
With regard to inflation, what should grocers be thinking about in late 2022? We’ve gathered a panel of experts at dunnhumby to break it down for us. What should grocery retailers prioritize? What should they understand about the competition? How can grocers level the playing field by adopting the Customer data science that can support both short term and long term growth?