Old Supermarket, Meet New Test Model

June 29, 2017

Whether its e-commerce, brick and mortar, or a hybrid of the two, the competition isn’t coming – it’s here. Retailers need someone with brass knuckles to navigate the rough and tough world of market infiltrators, so our team did some digging to get the inside scoop on two major players: Lidl and Amazon Fresh Pickup. These giants are stomping into new territory and are bringing with them some lessons on where the modern grocery store stands and how they plan on nabbing the ever-elusive shopper.

Lidl, the German-based grocery chain, kicked things into high gear last month with the opening of its first U.S. stores. And Amazon debuted its AmazonFresh Pickup at the end of May, giving Prime members the option to order groceries online and pick them up in their cars. An even bigger surprise was Amazon’s recent acquisition of Whole Foods. With two very different takes on the future of grocery, these two retailers share some common themes on how to stave off the competition.

Product + Pricing
Where there are products, customers will want assortment, and both Lidl and Amazon offer that by including national brands, private brands, and gluten-free and organic items into their product lineup.

Lidl’s high concentration of private brands (90 percent) has resulted in a price point that averages 50 percent below national brand prices. Its mastery and variety of private brands has allowed Lidl to customize its offering to specific markets. Take wine for instance, Lidl offers premium wine at extremely low prices, which appeals to the Millennial demographic.

On the other hand, Amazon’s products weren’t as varied as we had expected. While our team could get 28 varieties of Ben & Jerry’s ice cream, only three flavors of Häagen-Dazs were offered. There’s a balance for any retailer between offering enough choices so shoppers have a curated assortment and overwhelming the shopper with too many options, which is inefficient anyway, since that prohibits you from having the leverage to drive the cost down. On the pricing front, Amazon was inconsistent and higher than some direct competitors when we compared similar items. Convenience has a price tag though, and when we tested it out, this service only came in a few dollars higher than a leading competitor. However, pricing could change soon as Amazon decides what to do with Whole Foods’ private brands and its reputation as a “whole paycheck” store.

Format + Purchasing Experience
Lidl utilizes identical store layouts to make the shopping experience easier and consistent, with only six aisles per store. To draw customers in, the store features a multi-sensory experience at the entrance with aromas emanating from the bakery and bright colors visible from the floral section. What’s more, the store features weekly promotions that speak to the price-conscious consumer. Some of the deals include:

  • Fresh 5: a platform for perishables with temporary price reductions
  • Lidl Surprises: a section for general merchandise at deep discounts
  • Theme weeks: an opportunity for global brands to be featured

The AmazonFresh Pickup is an entirely different experience that is akin to driving up to a Sonic parking station. The Uber-like service involves an attendant who confirms your name and then loads items into the car. Is it convenient? Yes. But unfortunately, with a one-way exit onto a busy street, we can see how this system could get hazardous with a high volume of shoppers or during peak traffic. Luckily for AmazonFresh Pickup shoppers, the act of purchasing items online is as intuitive as a typical Amazon purchase. For now, this service is not accessible to people outside of the Seattle area or to non-Prime members. With Whole Foods under Amazon’s wing, this could change because the company will have real estate in prime markets giving it access to more people in their local neighborhoods.

Conclusions
Like I said, there is a lot to learn from these new players, but ultimately what we need to narrow down on is what this means for the market.

Both Amazon and Lidl make shopping an intuitive experience for their customers, which is something that we must all strive for. In an age of instant gratification, retailers must set their sights on making in-store and online purchases easy, while offering an experience that will make customers want to come back.

A new era for private brands is on the horizon as competitors try more fiercely than ever to meet each other on price and product diversification. With that said, quality at a reasonable price will continue to be the standard for the informed shopper as they stray away from household brands and look for the best product regardless of label.

Have you checked out Lidl and/or AmazonFresh pickup? Let me know what you think at JimH@daymon.com.

 

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