Grocery shopping is a universal necessity. Love it or hate it, we all need to do it. However, how we choose to food shop is a highly personal experience. 

Perhaps this explains the market’s keen interest in new technological innovations in this space. Cashier-free checkouts, biometric payments, and startups claiming to revolutionize shopping for the ‘modern’ grocery consumer now dominate market headlines. Yet, despite these tech-focused disruptors, there was an overall increase in loyalty towards traditional retail grocers last year. It seems conventional grocery shopping is here to stay, so retailers both high and low-end need to get even better at winning over and retaining customers.

Grocery article

High versus low-end

It’s hard to ignore the rise of the big discounters over the past 5 years. In particular, hallmark German discounters Aldi and Lidl are beginning to make a splash across the pond. Aldi is now the United States’ fastest-growing grocery chain and third-largest national grocer by store count. On the other end of the cost spectrum, high-end retail grocers Wegmans and Erewhon are taking regional footholds, growing at rapid pace, and competing with established competitors like Whole Foods. Erewhon’s financial success is so staggering they reportedly earn an average of over $2,500 per square foot — four times that of most grocery stores. This growth at both ends of the spectrum is likely here to stay – just look at the recent Kroger-Albertson merger (proving discount retailers’ stronghold in the market), and the continued success of established high-end grocers like Sprouts and Giant Eagle. 

The market is polarized: two drastically different models, most essentially bifurcated by price, are showing strong growth. So, what are they doing right? Winning over the consumer. And how are they doing it? With surprisingly similar strategies. Let’s dig in. 

Value-driven & community-centric

It may seem counterintuitive that one of Aldi’s first customer touchpoints requires shoppers make a 25-cent deposit for use of a shopping cart. After all, asking customers to immediately give up money appears in direct contrast to the values conventionally associated with discount shoppers (i.e., low-prices, sales and freebies). However, the Aldi shopping community doesn’t mind. This is because Aldi provides customers a clear and simple explanation. Firstly, shoppers will be refunded a quarter when their shopping cart is returned. Secondly, the deposit helps to keep food prices down because Aldi doesn’t have to spend extra money on hiring staff to collect carts. 

Aldi’s shopping cart model is successfully designed to engage their customers’ sense of purpose. By shopping at Aldi, customers are helping themselves, and others, secure and maintain discount food options. This value-driven, community-centric approach, also emulated through Aldi fan pages, working mom Facebook groups, and digital campaigns is one way community-centered values can help drive business growth.

On the opposite side of the pricing spectrum, high-end grocers must tailor towards a customer base with strong purchasing power, high optionality and luxury-minded expectations. Unlike discount grocers, those at the high end cannot use pricing to galvanize their customer base. And yet, both Wegmans and Erewhon have successfully created business models that have community-centric values. For instance, both have taken efforts to enhance their customer’s in-store experience by building out large dining and seating areas. Taking advantage of in-person retail space, high-end grocers use communal dining areas to help build their credibility as a community asset. 

Certainly, community-centric models and in-store experiences that fit their customers’ economic and values-based needs are used by both high- and low-end grocers to drive business growth. 

Future-proofing omnichannel strategies

Omnichannel shopping, once a source of differentiation, has now become a necessity. Maintaining market relevance and resilience requires retailers learn how to integrate their customer’s key values across the omnichannel platform. One way to increase omnichannel shopping is through mobile apps. Wegmans has opted for an in-house approach, developing their popular Market2Go app. Part of Wegman’s omnichannel success is their strategic integration of digital platforms and in-store experiences. For example, when pandemic lockdowns eased, Wegman’s incorporated their trademark in-person ‘Market Café’ offerings into the Market2Go app with an order-ahead feature. This also shows consideration for their high-end consumer’s preference for quality service delivered quickly. 

Aldi took a different omnichannel approach, opting to partner with Instacart for their at-home-delivery service. Despite market concerns that discount retailers would struggle with a ‘luxury service’-like grocery delivery, Aldi continues to meet their customer’s low-cost needs. One key factor is Aldi’s integration of Supplemental Nutrition Assistance Program (SNAP) payments, which are designed to help low-socioeconomic individuals purchase healthy food. By joining Instacart’s pilot SNAP payments program, Aldi has become one of the leading grocery retailers to integrate SNAP payment options across multiple omnichannel platforms. Aldi’s omnichannel strategy is forward thinking – SNAP heavily contributes to Aldi’s annual grocery revenue and purchases increase in economic downturns. 

At both ends of the spectrum, discount and high-end grocers show how agile and future-proofing omnichannel integration is essential. 

Private labeling 

Private labeling comes with a bad reputation for being ‘second-tier’ substitutes. Yet today, both discount and high-end grocers are proving the very opposite. Take Aldi for example – the third largest grocer by store count that is leading the private-label retail volume with over 77% of share spend in private brands. Or Whole Foods’ private 365 Everyday Value label, Amazon’s high-end retailer, which quickly became one of Amazon’s leading private-label brands. 

Reputational trust is key to both Aldi and Whole Food’s private-label success. For high-end retailers like Whole Foods this requires delivering high product quality by focusing on organic ingredients. Whole Foods also must deliver novel products that excite customers, which is why 365 Everyday Value includes both commodity staples and a range of cuisine options from around the world. Aldi have adopted similar stances on private-label ingredients and quality, announcing in 2017 that all synthetic coloring, MSG and trans fats would be removed from their products. In addition to achieving product novelty, Aldi’s private-label strategy includes creating exclusive product offerings, such as their liveGfree General Tso’s Gluten Free Crispy Chicken, which help engage and retain customer loyalty. 

Although lower-cost options interest all demographics, these top private-label grocers know that quality, novelty and exclusivity are really what sell private-label brands. 

Time to checkout

  1. The idea that pricing is the defining difference between high-end and discount consumers is outdated, so how else can you keep your existing customers loyal and attract new ones?  Consider how your customers interact with physical retail space. What customer story is being told?
  2. Develop omnichannel strategies to better address your customer’s core values and needs. 
  3. Look at opportunities to increase your customer base through discounted and/or private-label products and branding.

The most successful retail strategies, both for discount and high-end grocers, drive growth by leaning into what’s important to the customer beyond just prices. Loyalty is built by reinforcing brand identity and prioritizing customer values, not by simply adopting new technologies to reinvent the wheel.