In today’s competitive omnichannel environment, many regional grocers are exploring growth opportunities by expanding into new cities and regions. A pertinent report from dunnhumby highlights that this geographical expansion could lead retailers to miss out on significant revenue. According to the report titled “Maximizing Brand Equity in New Markets,” grocers often experience a reduction in the share of grocery spending captured from shoppers in new markets. Specifically, retailers entering a new location may see their share of the shopper’s budget shrink by an average of around 20%.
For example, if a grocery chain typically secures a 25% share of a consumer’s grocery budget in a familiar market, this share can drop to approximately 20% in a new market. This decrease in captured consumer spending can endure well into the early years of operation in the new location. The implications of such reductions are substantial and cumulative, leading to potentially millions lost over time. Research indicates that a grocery retailer with 25 locations in a mid-sized city may face an opportunity cost as high as $800 million.
Consider this scenario: a retailer that opens five stores in a new market, attracting about 15,000 customers per month per store, would tally up to a total of 75,000 customers in that region. If we account for the predicted 20% reduction in the average share of wallet, the retailer could be leaving about $1.875 million in revenue on the table every month, translating to nearly $20 million a year. As the report suggests, if ambitions for growth exist, the opportunity cost becomes even more significant.
The report provides a close examination of food retailers venturing into new territories, using the expansion of Publix as a primary case study. Analysts noted that this rapidly growing chain tends to capture a lower share of wallet in emerging markets compared to more established ones.
To counteract the challenges tied to market expansion, the report underscores the importance of strategic planning and best practices. These practices include conducting comprehensive competitive analysis, designing enticing promotions, and implementing pricing strategies that resonate with local consumers.
Matt O’Grady, president of the Americas at dunnhumby, explained that as the population base within new markets tends to shrink and various store types compete for the same consumer dollars, finding ways to attract more customers becomes crucial for driving growth. For many grocers, one pathway to this new customer base is through the establishment of new stores. However, as O’Grady warns, without meticulous planning, such a strategy may jeopardize the overall bottom line.
Numerous examples of successful transitions into new markets show that retailers can overcome initial hurdles. For instance, consider Walmart’s aggressive expansion strategy, which included thorough market research and adept local marketing. The company tailored its product offerings based on specific regional preferences, ultimately enhancing customer satisfaction and loyalty.
In contrast, retailers who fail to adapt to local market dynamics risk enduring the same pitfalls identified in the dunnhumby report. A pertinent example includes a national grocery chain that attempted to replicate its successful format in a new city without modifying its inventory to meet local tastes, resulting in underperformance and eventually store closures.
To successfully penetrate new markets, retailers should prioritize localized strategies, focusing on understanding consumer behavior in these regions. This can involve gathering data on shopping habits, regional preferences, and competitive landscapes. Additionally, engaging in community-building efforts through local events or partnerships can further foster a sense of belonging among potential customers.
In summary, entering new markets can present both opportunities and obstacles. The potential for increased revenue is accompanied by the risk of initial underperformance due to reduced share of wallet. It’s essential for retailers to embrace calculated strategies rooted in thorough research and local engagement to mitigate these risks effectively. By understanding the terrain before making a leap and adapting accordingly, grocers can capitalize on new opportunities, drive sustainable growth, and ultimately thrive in the ever-competitive grocery landscape.
