A completely new store format provides the consumer proposition strength to enable the company to profitably grow into new markets for the first time in over a decade.
A leading grocery retailer was seeing growth stagnate or decline at most outlets. Growth from new-store openings was unlikely because of the company's saturated network, and its core value proposition was not strong enough for it to profitably enter new geographies. The grocer was also facing pressure from aggressive new entrants, which threatened its market position.
Executives at the company asked McKinsey to help establish a clearer consumer value proposition to help restore performance.
To explore potential options, the McKinsey team worked closely with the client on comprehensive research and insight generation. The work focused on three topics—craft, art, and science—drawn from McKinsey's strategic brand-management approach:
- Craft: Analysis of potential limiting factors, including the client's real estate, in-house skills, overall cost structure, local competitive environment, and the specific strengths and weaknesses of the client's key competitors.
- Art: Qualitative shopper research to grasp the grocer's true brand image, including consumer focus groups, employee interviews, and shop-along sessions at both client and competitor outlets to observe shopper behavior.
- Science: Cluster analysis to identify promising consumer target segments and shopping occasions, backed up by an economic evaluation of potential new formats, including capex needs, gross margins, and operating cost.
Building on the opportunities this work uncovered, the team helped the client define new store formats with clear, targeted customer value propositions. The work included redesigning the grocer's commercial offer and adapting relevant outlet features, such as store design, service levels, network configuration, and space allocation.
The client successfully piloted the new store concepts. The new formats, created by converting existing stores, showed sales increases of up to 20 to 40 percent. Thanks to the commitment of client executives, the organization quickly assumed ownership of the new concepts and their defining elements.