New markets present exciting opportunities for independent and regional grocery retailers, but a recent report by dunnhumby, a leader in customer data science, warns that expansion can be a double-edged sword.
The report, “Maximizing Brand Equity in New Markets,” reveals that grocers often leave tens or hundreds of millions a year on the table when entering new geographical areas.
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.
The report also takes a deep dive into Publix, one of the fastest growing retailers in the U.S., to examine how the retailer has fared with its expansion strategy.
“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.”
From 2018 to 2023, the top 20 U.S. grocery retailers added 7,516 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 study found that a retailer’s share of a customer’s grocery budget can drop by 20 percent on average when it expands into new markets. This “share gap” can persist for years, even for established brands like Publix. Known for its strong presence in Florida, Publix witnessed a decline in customer perception of local connection, private brand value and promotional relevance in its newer markets.
However, dunnhumby’s research suggests Publix’s biggest competitor in its expansion efforts might be itself. With a high concentration of Publix stores in some trade areas, customers are more likely to visit a different Publix location rather than explore competitors.
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Best practices
Retailers looking to increase their market share through expansion should follow these five best practices, according to dunnhumby:
- 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; and
- 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,” O’Grady said. “They 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.”
The report utilized data from various sources, including government demographics, geolocation information from Placer.ai and dunnhumby’s Retailer Preference Index (RPI) database, encompassing grocery consumer interviews conducted from 2017 to 2023. Sixty-nine of the largest U.S. grocery retailers in conventional, mass, club, specialty, discounter, drug, and dollar channels were included in the RPI.
About dunnhumby
dunnhumby is a global leader in customer data science, empowering businesses to leverage data for growth in the modern economy. Their mission is to help businesses prioritize customer needs and become customer champions. dunnhumby’s customer data science platform combines AI, data science, software and consulting services to help businesses deliver exceptional customer experiences across all channels.
