February 2003
Last year’s Progressive Enterprises/Woolworths NZ merger created a big change in the grocery landscape. As the inevitable store make-overs, closures and rebrandings begin, researcher Jonathan Dodd explores some of the implications for suppliers and shoppers.
Officially, it’s all good news - retention of valued staff, streamlined distribution, limited redundancies and so forth. The new Progressive will clearly gain a bigger presence in the South Island and extra scale for rationalising and streamlining operations.
So far too, most of the commentary has focused on behind-the-scenes operational aspects and the hoped-for improvement on bottom-line results. But what of the average shopper in the street? Many are going to come face to face with some major shop makeovers, closures, and rebranding. Some may have already noticed the print ads and mailers with the family of brands at the bottom, rather than the single store they use.
Here at Research Solutions, we’ve watched this with a strong interest born from years of marketing, branding and customer commitment research. Over the years, we’ve studied a wide range of mergers in other industries - a rash of banking buyouts, shifting brands in the telecoms market - so this particular move piqued our interest. So much so that we did our own telephone survey of 240 statistically representative people across New Zealand about their supermarket choices and how attached they are to the ones they use. While some of the findings are too sensitive to publish, we can share some general insights about what customers actually think - and what this means as the rebranding jig (or should that be rejigged branding?) is performed across the country.
First the good news for most supermarket operators and managers: whatever head office decides to do with your store, chances are it won’tmake much difference in the short term. Our highly predictive measure of customer commitment, The Conversion Model (TM), has revealed that only 8% of shoppers are looking for a better supermarket. A good twothirds of the market is “committed” to their current supermarket - this means they’re unlikely to change in the foreseeable future, especially as the biggest drivers of commitment are stable factors such as location, lay-out, friendly staff and stock availability. This is not a volatile market!
Sure, people shop around - a loaf of bread here, a carton of milk there - but the real money, the genuine ‘grocery shopping’ trip, is generally confined to one store. A huge proportion of the shoppers in the store are casual, drop-in users and the real customers comprise no more than around 20% - but they’re the ones giving you major share of wallet. So is the market convenience- led? That’s nothing new - but we’ve found people seldom understand the implications. Each supermarket brand has a core group of real customers - the ones who ‘love’ you and your brand, who would shop with you all the time if they could - BUT who don’t because of convenience. They don’t feel they’re being disloyal when they shop elsewhere - they needed something, and your competitor was handy - but in the big shop, they’ll always come back to you. What if you could mark those people as they enter your store - and treat them extra well? Imagine how much stronger you could make their commitment, perhaps even to the point of encouraging a guilty twinge when they think of cheating on you by shopping elsewhere?
A key facet of the Conversion Model analysis is that we can also identify the non-customers with the most potential for a given brand. Again, it’s a sobering story: of the “big five” supermarket brands, the brand showing the most promise could only tempt 11% of its non-users at best. This is not a volatile market!
What does this mean if we start messing with the brand? First, reactions are likely to be slow. Committed customers are tolerant, willing to show understanding as their store is renamed or reconfigured or both. But that tolerance has its limits - because commitment is built on a feeling that this is “my kind of store”. The reality is that when the dust has cleared, those core customers will still expect the special feeling they get - mess with that at your peril! One can only wonder at how that small but select group of Woolworths Internet shoppers felt when they logged onto the WoolWorths website and found a Progressive site with a prominent Foodtown brand on it instead of the familiar green and smiling Woolworths lady. Is this the thin edge of the wedge? The Foodlands website already talks about the potential to rebrand Woolworths...
Though Progressive talks about more stores, it’s hardly likely with our small population that this is the ultimate answer for growth. Customer wins are going to come from encouraging people away from competitors. To do this, the issue may again come down to the power of the brand - an asset which becomes more important in a weakly-differentiated, convenience- driven market. The dilemma is whether to retain all brands (with the consequent costs of supporting and differentiating them from each other) or to kill off a brand that has a set of core customers who may vote with their feet in protest. For me, it’s all academic - I’ll just stick to my local supermarket: it’s handy, convenient, friendly and well-priced, and I’ll excuse them for splitting the toothpastes and soaps into a different aisle than the rest of the ‘personal hygiene” items. But then, I do shop at the supermarket with the highest level of customer commitment, so I guess the odds are I’ll stick with them for the foreseeable future and excuse them their foibles. Which brand is this exactly? Now that would be telling...