Today’s grocery shoppers want it all: low prices, quality products and a pleasant shopping experience. It’s difficult for grocery retailers to do all three well, Boston Consulting Group concludes in a recent white paper.
“To win greater market share, they need to differentiate themselves on at least one of these fronts—and preferably more,” the report notes.
Among the factors causing shifts in consumer behavior when it comes to buying food are:
A Flight to Value. Post-COVID inflationary effects have stretched the budgets of price-conscious U.S, consumers. The resulting search for savings means that price-competitive retailers such as mass, club, and discount stores are winning share over national grocery chains and smaller regionals. According to findings from market researcher Mintel:
- 31% of consumers say that rising prices have made them switch to a lower-cost or discount grocer.
- 46% of consumers are purchasing more store brands than in the past to save money.
A Desire for Fresh. Many consumers are looking to improve their health through better fresh food offerings, including seafood, prepared foods and produce. Fresh items have delivered double-digit topline CAGR in the mass, club, and discount channels over the past four years, according to NielsenIQ xAOC. Shoppers have become more comfortable with the quality of purchases made outside of the traditional supermarket channel.
Industry Consolidation. In a bid to retain share, national grocers and other large players are consolidating and expanding. Discount supermarket chain Aldi, for one, has announced plans to open an additional 800 stores by the end of 2028, half through store conversions from its Southeastern Grocers acquisition and half in new locations. As of 2023, the top 10 grocers in the U.S. generated 50% of the industry’s $1.8 trillion in sales. This is up from 40% in 2009, according to BCG analysis of public filings and Flywheel data.
These trends, in turn, have had a variety of impacts on the sector’s various players:
The Club Channel. Some consumers who might have made a faster stop at a traditional grocer are now spending more time in larger store formats such as club to gain cost savings, Boston Consulting’s research finds. Club stores have also been strengthening their position in fresh categories. As a result, the channel has emerged as a clear share winner over the past five years.
The Discount Channel. The flight to value has proven powerful for discount players, such as Aldi and Save A Lot, which have seen steady gains in share. Discount is the only channel (with the exception of mass retailer Walmart) that consumers associate with “affordability” in our research. It is also winning customers with increasing fresh food selections and by over-indexing on convenience compared to other channels.
The Mass Retail Channel. Mass retailers such as Walmart are well positioned in the grocery industry, having capitalized on the consumer flight to value. Scale and omnichannel sales give Walmart, in particular, an edge.
The National Grocery Channel. While consumers see national grocery store chains as convenient, reliable and able to deliver the necessities, they do not perceive them as strongly differentiated from other retail channels on value or quality. This channel has lost share over the past five years.
The Regional Grocery Channel. Traditional regional grocers struggle to provide strong value, likely due to their lack of scale vis-à-vis mass, discount, and national chains. Nonetheless, many consumers still choose regionals for their community orientation, organic and local offerings, and meal solutions. The top-three regional chains, Ahold, Publix, and H-E-B, have differentiated themselves in these areas and have gained share in recent years.
As for what’s next, “in a highly competitive landscape, grocery retailers must explicitly choose what they stand for if they are to stand out.”
Click here for advice from Boston Consulting Group on how to accomplish that goal.