Grocers leave millions on the table in new markets
Several years after a retailer enters a new geography, they are still leaving tens or even hundreds of millions a year on the table, according to Dunnhumby's new report “Maximizing Brand Equity in New Markets.”
For retailers with approximately 25 locations in a mid-sized city, this number could be as high as $800 million a year in opportunity costs, in just that single market. This is because as grocery retailers expand into new markets, they do so with diluted brand equity and a reduced share of the grocery wallet, Dunnhumby said.
“With a decreasing population base to draw from and an abundance of store types battling it out for customers, retailers need to find more customers to accelerate growth,” said Matt O’Grady, president of the Americas for Dunnhumby. “For some grocers, one pathway to finding new customers is through building new stores and expanding into new markets. Unfortunately, without careful planning this pathway often results in jeopardizing the bottom line.”
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Dunhumby noted that from 2018 to 2023, the top 20 U.S. grocery retailers added 7516 new stores. Dollar General has added the most stores (4,500), followed by Dollar Tree (1,250), Aldi (510), Target (310) and Publix (120), according to Edge by Ascential.
The average share of grocery wallet captured from a shopper falls by 20% for a retailer when it pushes into new geography. For example, a retailer that gets 25% share of their customer’s grocery budget in an existing market, can expect the average share of grocery budget captured in the retailer’s new market to be 20%. Likely this share gap will remain even for years after entering the new market, Dunnhumby said.
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Dunnhumby advises retailers looking to increase their market share through expansion should follow these five best practices:
- Determine desired competitive positioning;
- After entering a new market, encourage trial and retrial through strong promotions;
- Remember it may take years for a retailer to reach the maturity phase of customer relations in expansion markets;
- Diligently adhere to optimizing the customer experience down to the individual level;
- Adhere to the retailer’s competitive strategy for pricing, assortment and store experience.
“Retailers need to be fully dialed in when going into a new market. The need to understand what their brand represents, understand what their customer responds to with personalized offers, and have a tight plan on how they will respond to competitive threats,” O’Grady said.