Product differentiation, enhanced services set retailers apart, influence stocked products

08-Oct-2019 - Last updated on 08-Oct-2019 at 13:35 GMT

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As food retail competition rises with the entrance of more nontraditional formats, omni-channel players, pure play eCommerce and stepped-up conventional supermarkets, some retailers are leveraging product differentiation and services to gain a competitive edge, according to recently released research from the Food Marketing Institute.

While competition among food retailers is nothing new, the Institute’s 2019 Food Retailing Industry Speaks survey of more than 100 retailers nationwide found that many food retailers’ concern about competition has gone up in the past year – showing that “just because you’ve been dealing with something for a long time doesn’t necessarily make it easier,” FMI President and CEO Leslie Sarasin said during a webinar last week hosted by the Institute.

“There is good reason for retailers feeling a sense of competition intensifying,” she said. “We know from our Grocery Shopper Trends research that consumer shopping continues to be fragmented across multiple channels with customers visiting an average of 4.4 different retail banners each month.”

In addition, she said, “consumers continue to demonstrate steady growth in online grocery purchasing each year,” which as illustrated in the Speaks survey brings both opportunities and challenges to food retailers, Sarasin said.

Product differentiation strategies

One way that food retailers are addressing increased competition is through product differentiation – an approach that has generated mixed results, Sarasin said.

“Ideally, the areas of biggest strategy usage would line up with top success, but that’s not always the case,” she said. “Unfortunately, where usage and success don’t line up, retailers clearly have the opportunity to make the necessary adjustments.”

For example, she said, product innovation, including new items, were a focus area for most retailers, but only 38% felt they successfully executed this strategy. Similarly, gluten-free assortments throughout the store are common, but only 19% of respondents saw them as successful.

The most successful strategies cited by respondents include a produce program, followed by fresh prepared and food service, local assortment, a meat program and increased organic assortment, Sarasin said.

“With this success, many expect to increase their space and SKU allocation to these areas in coming years,” she said. Specifically, she noted, of the survey respondents 84% said they would increase locally sourced produced, 78% said they would increase organic, 73% pointed to health and wellness, and 60% pointed to gluten-free and private brands.

Service differentiation strategies

Another way that food retailers are setting themselves apart from the competition is by providing a higher quality and upscale shopping experience that include experiences beyond stocking the pantry.

“The most utilized service differentiation strategies include community support, social media, special events and wireless Internet for shoppers,” Sarasin said.

Of these, the most successful is community support, and creating an upscale shopping experience with personalized customer services, Sarasin said.

She explained that FMI’s 2019 Grocery Shopper Trends research found that many consumers consider themselves responsible for personalizing their shopping trip, but they are looking for help from trusted retailers to execute their strategies.

As with product differentiation, some strategies for differentiating service and helping personalize shopping are more effective than others. For example, social media, special events and in-store WiFi are commonly used strategies that have not created the returns stores want, Sarasin said.

On the other hand, creating expanding product selection and creating displays that support personalized diets, such as paleo, ketogenic, gluten-free and others has proven a winning strategy, she said.

Other successful strategies include increasing grab-and-go selections, which 89% of retailers say they plan to do in the near future. Others plan to increase space allocation for fresh produce (63%), fresh prepared self-serve bars (56%) and many others will increase online fulfillment activities as demand increases, she said.

Finally, she noted, many retailers are investing in private label as a way to strengthen their own identity and branding, and provide them a platform for innovation that will set them apart from the competition.