• Louis Van Zeller •
The pandemic has sent shockwaves through the retail sector. Ripping apart reliable customer behaviour and establishing new practices overnight. As consumer needs reset, reliable customer loyalties built up through the years have been upended. According to the consultancy McKinsey & Company, since the pandemic, 61% of UK shoppers have “changed their stores, brands or the way they shop''.
With more cooking at home, the grocery sector has experienced growth through the pandemic. Essential spending remains robust. Market research group Kantar reported a boost in grocery sales since entering the most recent lockdown. Shoppers spent £1 billion more on supermarket food and drink this January compared with 2020. Everyone still needs to eat.
Consumers continue to buy, but their loyalties may have shifted. So, what are the motivations that have turned customers away from their usual retailers?
The restrictions & safety concerns of the pandemic have meant that consumers are forced to shop at the most appropriate retailer, rather than their given choice. The safest way to shop has been online. Retailers with the most effective online shopping models have converted customers. Massive supply chain disruptions and delivery demand has affected grocery shopping in store and online. Grocers that meet the consumer's expectations were able to retain them. For customers shopping explicitly in-store, safety measures & locality are priorities.
The uncertainty of the pandemic and the economic downturn means many consumers have an increased focus on value for money. Millions have had their finances negatively impacted by covid. Customers around the world are more prepared to switch brands in order to get the best price.
The pandemic, as with most crises, has put an emphasis on social responsibility. This has been a motivation for some to change brands, especially younger consumers. McKinsey’s survey illustrates a “strong intent to support local stores and brands that demonstrate care and concern for their staff and that use and promote sustainable solutions”. A view shared by many is that grocers are “providers of essential goods and services, and pillars of their communities”. Consumers want to spend with a brand that has a renewed commitment to social responsibility, in light of the pandemic.
These motivations, driven by the pandemic have forced customers to change their long established loyalties and habits. What’s more, early evidence suggests some of these new behaviours are here to stay.
The biggest swing has been the conversion to online grocery shopping. According to recent data from IBM’s Retail Index, the pandemic has accelerated the shift away from physical stores to digital shopping by roughly five years.
Data published by NielsenIQ reports a 121% increase year-on-year for online Grocery shopping. UK shoppers spent £1.4 billion on online groceries over January, £770 million of which was spent by first-time buyers. The cat is out of the bag. As millions try online grocery shopping for the first time, they are likely to continue moving forward in this direction.
Continued economic pressure & rising unemployment have led to more cautious consumer spending patterns. The consultancy firm Deloitte reported that “during the initial crisis period, consumers bought more private labels and entry-price products that have now become their go-to choices”. The forecast recession will ensure that value remains a focus for millions of shoppers. Online shopping lends itself to price comparison and gives the customer an ability to switch retailers without having to leave his/her seat. With more consumers moving online, now more than ever, price will be the battleground on which customer loyalty is fought.
The pandemic has given consumers a chance to rethink their spending. Concerns over hygiene and supply chain have led to a consumer focus on product provenance. This pattern has combined with a national effort to shop locally and support local business in tough times. The effect is a new found drive by the consumer to intentionally spend with independent local retailers. Deloitte forecasts this trend will “prevail”, with many committing further for its environmental benefits.
The grocery industry is innovating in order to adapt to new behaviours and needs of the post covid consumer.
Offering consumers a premium, personalised, digital product adds value to a brand and its customer experience. Digital content services, like Cafeyn’s offering, can benefit retailers in this way. In this case by superserving their customers with thousands of newspapers and magazines, updated daily. For housebound customers and those who do their shopping online, having a service accessible across any device can be incredibly convenient.
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Behavioural science explains that a habit is best formed when reinforced by routine and rewards. Paid loyalty schemes create new customer behaviours that keep consumers engaged. According to McKinsey “in this new paradigm, paid loyalty programs offer an attractive option for companies both to attract new customers and to shore up long-term customer value in the midst of a tectonic shift in consumer loyalty and preferences”. Paid loyalty programmes offer premium benefits to their subscribers, which enable retailers to compete outside of pricing. When competing against retailers selling comparable goods, these benefits can make the difference to winning customer loyalty.
Once a customer becomes a subscriber, having paid for a program they are 60% more likely to spend more on that brand, according to McKinsey. Paid loyalty schemes create an economic loyalty loop, which would be unfavourable to break. In addition, they “drive higher purchase frequency, basket size, and brand affinity compared with free loyalty programs". In order to encourage sign ups, the programme’s benefits must outweigh the cost. To retain customers, a paid loyalty programme must offer experiential benefits, aside from transactional perks, which foster a deeper connection. To drive engagement companies must update their benefits within the programme. If successful, loyalty programmes cultivate a loyal community which customers want to be a part of.
As grocers compete for online shoppers, improving their digital offering is essential for winning customer loyalty. The customer experience online will define success. To cope with the increase in online demand, comprehensive delivery capabilities and in-store pick up models are critical to staying competitive. Meeting customer needs is essential to survive, enriching the customer experience will allow grocers to thrive.
For an enriched customer experience, retailers must seek to trigger emotions in the consumer. The art of humanizing the purchase is especially pertinent to food, which holds a human value. Customers are looking for a shared set of values and beliefs from retailers. If these values are found, the consumer is converted to a community member. Those retailers who are able to strike a chord with shoppers will find their customers have a much greater loyalty and likelihood to promote their brand. As such, “soft” elements of the customer experience such as ethics, practices, rewards, personalisation and customer service will also be key in convincing consumers of a retailer’s online offering.
As customer needs change, reflecting a life lived at home, grocers should look to diversify their product to meet this shift. The pandemic has upscaled this already existing practice in the UK market. Grocers such as Sainsbury’s and Morrisons have expanded their home and leisure sections, widening this revenue stream. Partnerships may become necessary to pivot in this direction and would allow for exclusive products at competitive prices. These new products should be complementary for the pandemic and if sold digitally, would not take existing shelf space.
Grocers can expect customer loyalty in this new environment, if they are able to remain relevant & beneficial to the consumer.
If you are looking for a new tool to engage your customers online and reinforce your value proposition, contact us here.
Written by Louis Van Zeller. Design by Stéphane Gelpe.
OUR SOURCES
[1] McKinsey & Company. UK Customer sentiment during covid crisis.
How European shoppers will buy groceries in the next normal.
Coping with the big switch: How paid loyalty programs can help bring consumers back to your brand.
[2] Fortune. Brand loyalty is changing due to the pandemic.
[3] The Guardian. Boom in websites supporting local UK shops amid Covid lockdowns.
[4] IBM. Meet the 2020 consumers driving change.
[5] Deloitte. Understanding the impact of COVID-19 - Grocery & Food Retail.
[6] Retail Gazette. Grocers enjoy soaring sales from latest lockdowns.