In a year when a global pandemic underscored the importance of supermarkets, Amazon bested H-E-B and Trader Joe’s as the top U.S. grocery retailer in the fourth annual dunnhumby Retailer Preference Index (RPI).
Dunnhumby’s 2021 RPI, released Monday, surveyed 10,000 U.S. households and evaluated the 56 largest retailers in the approximately $1 trillion U.S. grocery market to determine which have the strongest blend of consumer emotional sentiment and financial performance.
Amazon came in at No. 1 on this year’s list, edging out last year’s leader H-E-B at No. 2 and Trader Joe’s at No. 3. The top finisher in the first two RPI studies, Trader Joe’s held second place last year.
Movement in the ranking
Deep discount grocer Aldi moved up two spots to crack the top five this year, taking over the No. 5 position from Market Basket, which finished at No. 6. New among dunnhumby’s top 14 “first-quartile” grocery retailers in the RPI is Target, which climbed six spots to grab 10th place.
“This marks the first year that Amazon claims the top spot in our study, jumping from third place to overtake last year’s winner, H-E-B. Trader Joe’s slides from second to third place, rounding out our top three,” dunnhumby said in the 2021 RPI report. “Target, due to strong COVID-driven momentum, second only to Amazon, is a newcomer to the first quartile.”
Other high-ranked retailers moving up this year were Wegmans (to No. 4 from No. 5), Sam’s Club (to No. 7 from No. 8), Publix Super Markets (to No. 9 from No. 10), Fresh Thyme Market (to No. 11 from No. 12) and ShopRite (to No. 12 from No. 14). Sprouts Farmers Market held firm at No. 13.
WinCo Foods, last year’s No. 11 finisher, fell out of the top 14 in the 2021 RPI. Aside from H-E-B, Trader Joe’s and Market Basket, other retailers slipping in the rankings this year were Costco Wholesale (to No. 8 from No. 6) and Walmart (to No. 14 from No. 9).
Of all retailers examined by dunnhumby, Food Lion posted the largest year-over-year rise in the ranking, up seven slots to No. 35. Other notable gainers included Target (up six spots to No. 10), Kroger (up five spots to No. 20) and BJ’s Wholesale Club (up five spots to No. 32).
For the RPI, dunnhumby focuses on seven “preference drivers” — price; quality; digital; operations; convenience; discounts, rewards and information; and speed — that shape consumers’ emotional connection to a grocery retailer and that company’s financial performance. Along with the survey of U.S. households, the index’s statistical model reflects retailer financial measures such as size (grocery market share), efficiency (grocery sales per square foot) and sales growth (five-year compound annual growth rate).
Grocery retailers achieving superior value perception — an attractive mix of price and quality — tend to have the strongest emotional bond with consumers and the most financial success, the customer data science specialist said.
The COVID effect
Grant Steadman, president of Chicago-based dunnhumby North America, noted the impact of the coronavirus crisis in the 2021 RPI ranking. That led to this year’s inclusion of the COVID Momentum Metric, a statistical measure of how retailer execution on the RPI preference drivers affected short-term financial success, specifically market share gains or losses in 2020 versus 2019.
“COVID has led to record highs and lows in economic metrics, along with huge shifts in where and how consumers shop food retail, changing the competitive trajectories of retailers who were winning and those who were struggling before the pandemic. As a result, we viewed 2020 through a different lens than we’ve viewed the grocery industry in previous years,” Steadman explained.
As in the overall RPI ranking, Amazon finished first according to the COVID Momentum Metric, followed at No. 2 by Target. Also making the first quartile on the COVID metric were five Kroger Co. banners; Fry’s Food Stores (No. 3), Kroger (No. 5), Smith’s (No. 8), Harris Teeter (No. 11) and Ralphs (No. 12).
Rounding out the top 14 in COVID momentum were BJ’s Wholesale Club (No. 4), Fareway Stores (No. 7), Publix (No. 9), Lidl (No. 10), Raley’s (No. 13) and Brookshire’s Grocery (No. 14).
With safety measures slowing down the in-store grocery shopping experience, speed proved to be the biggest factor among retailers with a high COVID Momentum Metric, dunnhumby found, as customers equated “speed to shop” with “safer to shop.” Factors affecting speed to shop included not just online grocery services, but also smaller stores, less foot traffic — as most retailers have seen during the pandemic — and conveniences such as contactless payment at checkout.
“Amazon accelerated past every other retailer on our COVID Momentum Metric and customer safety ratings, due to its speed to shop and virtual store format,” Steadman said.
In terms of perception as a safe place to shop, Amazon again led all retailers in the RPI. But smaller operators also performed well on this front, with Food City (No. 2), Lowes Foods (No. 3), Brookshire’s (No. 4) and The Fresh Market (No. 5) rounding out the top five. Also making the first quartile of retailers for COVID safety were Publix (No. 6), Raley’s (No. 7), Fareway (No. 8), Fresh Thyme (No. 9), Family Fare (No. 10), Trader Joe’s (No. 11), Giant Food (No. 12), Schnuck Markets (No. 13) and Wegmans (No. 14).
According to the RPI report, “COVID created a perfect storm that played right into the unique strengths of Amazon’s customer value proposition.”
By the numbers
Pandemic-driven factors translated into distinct financial gains in the RPI. First-quartile retailers in the COVID Momentum Metric saw a 1.45% collective market-share increase ($11.5 billion), compared with share losses of -0.1% (-$800 million) for the second, -0.23% (-$1.8 billion) for the third and -1.02% (-$8.1 billion) for the fourth quartiles, dunnhumby reported.
“Reaching the top quartile in our COVID Momentum Metric meant that you were a part of a group of retailers that saw $11.5 billion in grocery retail sales swing in your favor,” the study said. “If you were in the bottom quartile. you were part of a group that saw $8.1 billion in potential sales go unearned, compared to if those retailers held market share steady.”
By U.S. grocery sales, retailers in the first COVID Momentum quartile exhibited a compound annual growth rate of 13.1% (+5.3 points over five-year CAGR) versus 8.5% for those in the second quartile (+2.7 points over five-year CAGR), 6.5% for the third (+3.0 points over five-year CAGR) and 5.1% for the fourth (+1.5 points over five-year CAGR).
“Retailers who ranked higher on the COVID Momentum Metric also saw the prior trajectories of their sales growth change more, meaning not only did they grow the fastest during 2020, but they also experienced the most lift in their year-over-year sales growth compared to how fast they’d been growing the past five years,” dunnhumby stated.
First-quartile COVID Momentum grocery retailers, too, tallied more growth in visits versus the pre-pandemic period, posting a 1.95% gain, compared with upticks of 0.51% for the second and 0.44% for the third quartiles and a -2.8% decreased for the fourth quartile.
“Viewed on the scale of 8.4 billion visits, this means that retailers in our top quartile COVID Momentum Metric won 164 million recorded visits during COVID, while the bottom-quartile retailers lost at least 235 million potential visits, compared to if they had held visit share steady during COVID,” according to dunnhumby, which cross-validated visit information with data from geo-tracking specialist Placer.ai.
In the overall 2021 RPI, a variety of chains showed their mettle in the study’s preference drivers, which lean toward the “value core” of quality and price for retailers that finished high in the rankings.
Here were the leaders in each of the seven preferences drivers, ranked from No. 1 to No. 5:
Price: Aldi, Market Basket, WinCo, Lidl and Food4Less.
Quality: Wegmans, Trader Joe’s, Fresh Thyme, The Fresh Market and Sprouts.
Digital: Amazon, Target, Walmart, Sam’s Club and Lowes Foods.
Operations: Costco, Market Basket, BJ’s, WinCo and Food4Less.
Convenience: Walmart, Market Basket, Publix, Fry’s and Jewel-Osco.
Speed: Fareway, Amazon, Aldi, Fresh Thyme and Publix.
Discounts, Rewards and Information: Fry’s, Kroger, Price Chopper, King Soopers and Winn-Dixie.
Everyday-low-price (EDLP) grocery retailers are more likely to be well-positioned for long-term success versus hi-lo operators, though the latter saw momentum swing in their favor, the study revealed.
“Price volatility and relatively dramatic price increases brought on by supply chain disruptions and increased demand made ‘everyday low prices’ a less reliable claim for customers, who perceived grocery prices to be 12% higher in 2020 versus 2019,” dunnhumby said.
Interestingly, digital became less important during the pandemic in reinforcing long-term emotional bonds with shoppers, even though grocery e-commerce sales tripled in 2020, the 2021 RPI indicated. “For some customers it may have been purely transactional and not something they wanted to do or enjoyed doing,” dunnhumby posited. “Only retailers delivering a positive digital experience will retain them post-COVID.”
Price and quality still carry the heaviest weight for long-term sales growth, the research showed. Grocery retailers with above-average quality and price have a five-year CAGR of 6.9%, compared with a 2.3% five-year CAGR for retailers below average on both quality and price.
“As we begin to emerge from the pandemic,” Steadman said, “we should expect value perception to come back strongly. Beyond COVID, retailers with customer-first strategies will best adapt to changing behaviors and deliver what matters most to their customers.”