Convenience trumps bargains for supermarket shoppers

ELI GREENBLAT

JULY 18, 2019

The majority of Australians will still choose which supermarket to visit based on the location of the store compared to where they live or work, and although it was thought low prices were also a key driver it now seems loyalty is growing in importance to trump bargains.

For all the hundreds of millions of dollars the supermarkets pour into marketing, store refurbishments and price promotions — such as the Coles ‘Little Shop’ campaign and Woolworths’ tie-up with Disney’s Lion King both launched this week — shoppers still overwhelmingly choose a store because of its convenience and location.

However, a new report on shopping behaviour from UBS argues that loyalty is now rising up the ranks of driving consumer choice and has actually overtaken price as now the second most important factor in choosing between the majors Woolworths, Coles, Aldi and independent chains.

UBS analyst Ben Gilbert said in a note to clients this morning that according to his latest survey consumers were actually experiencing promotional fatigue and wanted a more differentiated tailored offer to see loyalty now the No. 2 driver of spend versus No. 4 in February.

Mr Gilbert said it suggested Woolworths and Coles focus on more targeted promotions and offers is the right strategy in the current trading environment for the $90 billion grocery sector.

“UBS Evidence Lab’s proprietary algorithm identifying what actually drives trips (versus what consumers ‘think’ drive drips) showed a significant rise in the importance of loyalty programs — now the No. 2 driver. Customers saw a large improvement in Woolworths loyalty offer, now roughly equal to Coles.

“Price is important, but less of a driver.’’

Woolworths and Coles went head to head on loyalty programs this week when on Wednesday Coles launched its Little Shop 2 campaign and Woolworths unveiled its toys giveaway program to coincide with the release of Disney’s Lion King movie.

When Coles staged its first Little Shop collectables campaign in 2018 it helped propel quarterly store sales by more than 5 per cent to record its strongest sales lift in six years.

Mr Gilbert said the rising importance of these loyalty programs gave him comfort in retailer strategies of pulling back on inefficient price promotions and focusing on non-price attributes such as format and loyalty offers.

And while Coles might have had the lead on Woolworths from last year’s Little Shop campaign it looks like now in the minds of shoppers Woolworths has caught up.

“The percentage of shoppers associating positively with Woolworths’ loyalty program increased significantly, now roughly in line with Coles. Overall, customers view loyalty programs at Coles and WW as broadly similar.”

Meanwhile, the UBS survey found that German discounter Aldi was winning back market share in the wake of its program to refurbish their stores on the east coast where it has struck a chord with an improved fresh food offer which was traditionally a weakness for Aldi.

“New (Aldi) formats now appear to be resonating with customers with share down the east-coast and nationally in fresh rising. While yet to translate into higher share of main shops we will be watching this carefully as risk to Coles and Woolworths.’’

The UBS report said customers were less negative on Coles and it had stabilised its share in grocery but lost traction in fresh. Woolworths has extended its market share gains but independents under the IGA banner had lost market share across grocery and fresh.

The popularity of meal kits, such as those offered by Markey Spoon, were rising but was a more longer term threat to the supermarkets.

“More than one third of shoppers spend less at retailers if they subscribe to a meal-kit service. However, penetration is still low (less than 1 per cent of the market) and only 4 per cent of shoppers intend to subscribe.”