There are still unexpected items in the bagging area
Why Australia’s supermarkets must move on the new rules of customer experience now
Customer expectations are evolving faster than ever before, and Australians expect that the best experiences in one category will be available in all others. It is well documented that Uber and Airbnb enjoyed phenomenal growth by addressing unmet consumer needs in their categories and unlocked new meaningful and different ways to meet them – and in turn, shifted whole of category expectations. And while market share and brand reputation statistics allude to relative stability in Australia’s supermarket sector; it is, in fact, extremely vulnerable to and ripe for disruption.
Customer frustrations voiced today have been apparent for a long time – now amplified as the rising cost of living hits household budgets harder than ever. As such, supermarket brands are at risk of losing a large proportion of their customers and/or margin if this dynamic is not changed. And the rules of customer experience (CX) are absolutely critical to success.
Australian supermarket brands overwhelmingly have sub-optimal UX and delivery experiences
Australia’s supermarket category has long lacked innovation with sub-standard customer experiences, particularly around delivery and the supply chain. The in-store environment is dated and not aligned with expectations of today’s customers, let alone tomorrow’s. In a March 2023 survey of Australian supermarket shoppers conducted with our partner Qualtrics, Australians described supermarkets as confusing, cramped, crowded and dated – and not a space that is easy to navigate, overly enjoyable to be in, or evolving with the times. Some are better than others, but overall, shoppers said they require improvement and future vision. Yes, those ‘unexpected item in the bagging area’ memes continue.
While experience creates attachment to brands, at the same time it can erode perceptions of quality and customer centricity. Today, habit, promotions and convenience are driving shopper behaviour, but if a brand can get the experience right, they could take a large chunk out of the market. Kantar BrandZ data shows that brands with a strong customer experience grow their brand value at a much higher rate than those with a low customer experience. Quite simply, brands delivering a strong customer experience are more valuable.
Brand growth during the pandemic in 2020 was 4.5 times higher than the prior 15 years
Brand growth is a challenge in an ordinary year, with Kantar BrandZ global data revealing that on average, just 6 per cent of businesses achieve it. But what differentiated winners during that first year of Covid-19 was not the market or the sector, but the company’s ability to do the right things by consumers. Wherever you play, growth is always available – it is just never evenly distributed.
We know that brands that work on their relationships with consumers grow 45 per cent faster than those focusing on penetration alone [1]. Brands that had a clear equity advantage before the pandemic grew the most, largely because they had solid existing customer relationships. They are perceived to offer a meaningful difference far in excess of their salience.
But Australian supermarket brands have unwittingly trained their customers to not be loyal
Australians largely shop a category not a brand when doing their groceries – and this is now habitual. We are driven by product availability, brands competing on complementary promotional cycles, and exclusive product range strategies (certain SKUs locked to specific brands). The outcome is that Australians are choosing multiple supermarket brands to meet their immediate needs. In fact, three in four of us shopped at more than one supermarket brand in the past month and two in five with three or more (and yes, I am part of the growing proportion of people shopping with all four major supermarket brands in the past month). Why? To meet our needs on price (72 per cent) and stock availability, variety and quality (38 per cent).
The short-term focus on pricing and promotion is constricting margins and bottom lines. Kantar BrandZ again reveals that brands cannot promote their way out of trouble. Starting a price war erodes margins faster, re-educates consumers about where the price point should be in a category, and immediately destroys value. In supermarkets, it is also causing a lack of clearly differentiated brand positioning, meaning that there is no real permanent attachment or connection beyond the promotional and convenience cycle.
Between 57 and 88 per cent of shoppers (depending on the brand) are at risk of switching [2]
There is a clear opportunity for your competition or new market entrants to attract a sizeable proportion of customers away from you. This means that a significant proportion of your customers – for even the largest supermarket brands in Australia – may spend their cash elsewhere. Why? Because customers are developing relationships with all brands and are not emotionally or behaviourally loyal to any single one.
To protect and drive growth, supermarket brands must break the cycle of behaviour built with shoppers through promotions and pricing. They must foster shopper connection through authentic meaning and brand differentiation and bring this to life through meaningfully different customer centricity. It is not just about aligning and optimising touchpoints. This is a category requiring transformational change in the way brands show up in both digital and physical channels, and the way they both build relationships with customers and demonstrate value (beyond pricing strategies). And this is critical change needed now – before digital marketplaces and/or new entrants start leveraging this category vulnerability to tap into unmet consumer needs by being truly meaningfully different and offering superior customer experiences.
CX can be a vital buffer in challenging times, set your brand apart and help justify pricing
Ultimately, CX must transcend everything your brand does. It is integral to building and understanding your customer profiles, identifying growth segments, and tailoring specific strategies to increase cart size and win more purchasing occasions. But CX success requires you to:
- have a clear CX purpose and strategy
- have a customer-centric culture embedded throughout your entire organisation
- have real-time listening and feedback mechanisms to enable agile ‘test, learn and execution’ strategies.
- drive action at all levels of your business
- keep a close eye on the broader consumer landscape, evolving needs and expectations beyond your category.
Supermarket CX success must be much more than a metric or by-product of your brand’s operations and the build-up to the moment of purchase. Every encounter a shopper has with your brand – seeing an ad, trying a product, grappling with instructions, struggling with packaging, making a return, or chatting to staff – contributes to the feeling that comes to mind when they later consider buying (in my case, waiting for a delivery three hours after my booked window only to receive products with a next day expiry date and lemons instead of limes – not good for a G&T). This is amplified across retail where the customer experience has 1.5 times the impact on brand strength than paid advertising. In fact, almost half of brand equity and connection is formed from direct experiences with the brand.[3] Digital solutions that accelerated during and post-pandemic are becoming more popular but are not yet optimised.
Remember, paid media typically contributes 25 per cent to building a brand. The remaining three-quarters is all about CX – touchpoints, product, service and word-of-mouth. Can your brand afford to miss out on leveraging this 75 per cent for future success? People are willing to pay more for excellent experiences, even during economic downturns, so focus on ways your brand can deliver joy (or at the very least, minimise stress or annoyance) at every step from shopping list to checkout and ensure that those extra items in the bagging area are meant to be there.
Maree Taylor – Head of Customer Experience, Kantar Australia
