DISCOUNT SHOPPING: THEATRICS OF THRIFT OR THRILL OF THE TREASURE HUNT?
During our "Great Recession" (circa 2008), a good deal of discussion centered on how Americans were going to rapidly "trade down," and big things were predicted for bargain-driven retail formats that sold groceries as shoppers theoretically flocked to discounters like Walmart and Dollar General. Instead, consumers seemed to enjoy including yet more discount options in their ever-broadening food shopping habits and, rather than embrace any one "kind" of retailer, chose to shop all types of food retailers, ranging from discount to fresh-format premium — and everything in between.
That shoppers didn't make huge migratory shifts to hard-discount retailers alone might reflect the fact that bargain hunting itself as a shopping style isn't anything new. Our cultural ties to deal-driven bargain hunting, often tied to some combination of treasure hunt, necessity and a focus on thrift and savings, are deep and historic and often intersect with food. While mostly forgotten, some may still remember iconic "five-and-dime" Woolworth's lunch counters or the ice cream parlors of corner pharmacies. Groceries and packaged foods and beverages also have a long history at discounters. The early DNA of Kmart, once a juggernaut of discount retailing, included delicatessens, luncheonettes and full-scale grocery operations in the company's previous S.S. Kresge stores, which were popular in the 1950s.
Post-Recession, virtually all of today's leading discount retailers have taken the food-laden history lessons of iconic discount merchandisers and embraced them in their own operations, specifically as a key tool for driving traffic to their stores. This is particularly true as the battle for shoppers intensifies with the rise of Internet-oriented deal buying for groceries (for example, a sample online grocery shopper can choose between Amazon.com or Walmart.com or Safeway.com or ThriveMarket.com). At the same time, treasure hunting (for now at least) still seems closely linked to physical shopping experiences and at its best is often steeped in the jumbled "variety stores" of the past — an experience dollar stores tend to excel at.
Here’s an overview of discount retailing today:
Private label specialists. ALDI, Lidl and Trader Joe’s — all three of these discounters offer some variation on the theme of quality and value, much of it inspired by either decades of growth in food-forward European locations (ALDI and Lidl) or a very shrewd understanding of retail experience and food culture (Trader Joe’s).
Mass market discounters. Walmart, Target, Kmart — while Kmart is on oxygen support, Walmart and Target both have an intense focus on groceries. A shift toward smaller stores, a focus on digital experience and attempts to offer a greater variety and depth of store brands — ranging from fresh and organic to local and premium — is true of both Walmart and Target.
Dollar stores. In this retail channel, Dollar General and Dollar Tree excel. While they didn't quite become the backbone of food shopping as predicted in the late 2000s, depending on their location (urban vs. suburban or rural), shoppers we've spoken to use dollar stores as a combination of treasure hunt, variety store and last-minute grocery store. While shoppers enjoy unexpected bargains, they often report that food and beverage quality is lacking in dollar stores.
Grocery hard discounters. The names most often associated with “hard-discount retailers” include Save-A-Lot, WinCo Foods, Ruler Foods and Food 4 Less. Many of these stores provide warehouse-like experiences, offering foods and beverages displayed in their cardboard shipping boxes and relatively utilitarian shopping experiences. An exception would be WinCo Foods, which shoppers often report offers a compelling combination of fresh selection, shopping experience and perceived value.
Closeouts, overstocks, grocery salvage. In this bargain category of retailers, Big Lots, Grocery Outlet and Ocean State Job Lot tend to be the major players. Shoppers frequent these stores looking for deep grocery discounts and often understand they have to "watch" for sell-by dates and product quality issues (such as country of origin). Retailers like Ocean State Job Lot resemble an emerging channel for product tests and surplus food and beverage SKUs — many of which are imported, ethnic or have cues to premium like natural or organic.
Warehouse club stores. Long-established as the bargain/value channel, Costco, Sam’s Club and BJ's Club dominate. While largely responsible for having established the definition of the "warehouse store," Costco continues to redefine the typical utilitarian warehouse shopping experience by providing shoppers with a compelling treasure hunt and value experience. We find that Costco shoppers often intersect with shopping Trader Joe's, underscoring the success both retailers have created in providing a combination of value, discovery and quality for shoppers.
Online discount. Though still in its infancy compared to brick-and-mortar retailing, online "bargain" grocery shopping continues to evolve, with "discount buying" appearing to take a back seat to a general focus on convenience and issues with distribution. Key players in this channel include several of the dominant retailers in the physical world: Amazon, Walmart and Target as well as the online startup Thrive Market. Thrive Market is a new entrant to the online grocery space, hoping to capture a price-driven share of shopper money in healthy, natural and organic premium food and beverage categories.
The Bottom Line
Whether shoppers are seeking a treasure hunt or just "savings," as many in the grocery business know all too well, discount retailing is big business and has been the centerpiece of business strategy for the likes of Target, Walmart and Dollar General, while deep discounters like Big Lots and Grocery Outlet focus on closeouts, surplus and overstocks. Regional closeout retailers like Ocean State Job Lot in New England are also growing and offer a kaleidoscopic array of general merchandise as well as groceries, beer and wine with a focus on gourmet, natural, organic and ethnic products.
The opportunity for food retailers trapped in the middle between hard-discounters and upscale grocery retailers, as alternatives to a low-price-driven shopper, lies in meeting shoppers’ needs for fresher, higher-quality food and beverage products and experiences (something most discounters struggle with) as well as providing solutions for consumers’ diverse and evolving daily eating occasions (e.g., eating alone, snacking, crafting a meal from components).
At its roots, discount shopping provides shoppers with the fun and thrill of finding unexpected and often inexpensive “treasures.” While some retailers are authentically delivering on these attributes within food and beverage (Trader Joe’s, Costco, Winco Foods, Ocean State Job Lot), other discounters have attempted to fabricate it. Products and experiences (both physical and digital) that cue authentic fun, unexpected finds, fresh, less processed and/or higher-quality products and experiences will continue to separate best-in-class food discounters from the status quo in the days ahead.