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What Can Retailers Learn From Coles & Woolworths Diminishing Public Perception?

What Can Retailers Learn From Coles & Woolworths Diminishing Public Perception?

Coles and Woolworths have hit the headlines recently, and not for the right reasons. 

With several parliamentary inquiries into price gouging and lack of market competition dominating the headlines, combined with the Woolworths CEO unexpectedly resigning after nine years at the helm–Australia’s two supermarket giants are firmly under the microscope.  

Both supermarkets also announced record $1bn half-year profits. This didn’t bode well for public perception, with the cost of living crisis impacting everyday Aussies and small businesses. 

With this in mind, we deep dive into why Coles and Woolworths are facing such scrutiny to understand the impact on their brands and what retailers can learn to strengthen their customer trust and perception. 

Turbulent times for Coles and Woolworths

Despite being voted Australia’s most trusted brand in 2023, it’s been a tough start to the year for Woolworths. Coles is also in the firing line–with both retailers facing unprecedented scrutiny from the government and consumers. 

A recent investigation by the Australian Council of Trade Unions, spearheaded by former ACCC chair Allan Fels, uncovered evidence of unfair pricing tactics by Coles and Woolworths. 

In addition to this, an ongoing Senate inquiry is examining the connection between food prices and inflation in the two stores, and the ACCC has launched a government-mandated investigation into potential anti-competitive conduct within Australia’s supermarket sector.

To draw further attention to these issues, both companies faced scrutiny on the ABC current affairs program Four Corners around price gouging and unfair competition practices. Just two days after the program aired, Woolworths CEO Brad Banducci announced his retirement from the supermarket.

Four reasons Coles and Woolworths are facing scrutiny

When faced with a cost of living crisis, what is usually perceived as normal is examined with a sceptical lens–and this is where Coles and Woolworths have come undone.

With staff, suppliers and farmers ringing alarm bells citing unfair practices, the issue is now permeating into the general public’s collective consciousness, and it’s beginning to impact customer trust and brand reputation.

From raising ‘locked prices’ to dark stores and pricing farmers out of the market, the big two have faced a raft of allegations that are starting to chip away at consumer trust.

Here, we examine four issues impacting consumer confidence in Coles and Woolies.

1) The Colesworth duopoly

Coles and Woolworths, often referred to as Colesworth, control almost two-thirds of the Australian grocery market. In real terms, for every $10 spent on groceries in Australia, $6.50 is spent at the big two. By comparison, the UK has nine major supermarket chains–making the grocery market much more competitive, which, ultimately, pushes down prices. 

Prime Minister Anthony Albanese has even backed calls for a new supermarket chain to challenge the dominant Colesworth duopoly, to increase competition and give more choice to consumers. 

“We have effectively a duopoly in large parts of Australia. In some places, IGA or Aldi or other supermarkets will play a role, but overwhelmingly, there is a concentration of power, which is why we have three inquiries at least going at the moment,” comments Albanese.

2) Land banking strategy

Land banking is an essential strategy used by both supermarkets to reduce competition by hoarding land.

The supermarkets purchase large, strategic areas of land throughout Australia, even if they don’t have plans or permission to build a supermarket there. If granted permission, they can start building, which often takes years to commence and finish. If they don’t get permission, they own land that can’t be bought by a potential competitor.

The ABC recently reported that in one growing community west of Brisbane, Woolworths has bought more than six hectares of land over 11 years, yet no supermarkets have been built.

3) Phantom brands controversy

Coles and Woolworths often use their market power to push their home-brand products without overtly labelling them as owned by Coles or Woolies. These are often referred to as ‘phantom brands’, as the majority of consumers don’t realise they’re owned by the supermarket, instead mistaking them for independent brands.

According to ABC’s Four Corners, about 260 home-brand wines are on the shelves in Coles-owned bottle shops like Vintage Cellars.

Their recent investigation spotlighted phantom brands by examining a wine bottle available at Coles’ Vintage Cellars. The bottle was labelled Two Churches Shiraz with a brand story recounting a tale of two priests from competing churches coming together over the excellence of the region’s (Barossa Valley) grapes. It was later revealed that the address on the label, printed in small font, was Hawthorn East in Melbourne — Coles’ corporate headquarters.

4) Every customer is a potential thief

Shoplifting is a pressing issue for many retailers, and several states, like Victoria and New South Wales, have reported an increase in retail crime. 

In response to increased shoplifting incidents, Coles and Woolworths introduced a raft of customer surveillance measures that treat every customer as a potential thief. While both supermarkets must take measures to tackle crime in their stores, customers may view their tactics as heavy-handed and infringing on people’s privacy. 

Ceiling cameras assign digital IDs to shoppers to track them through the store, mini cameras have been fitted to shelves, and staff often wear body cameras while working the shop floor. 

Smart exit gates have also been introduced in some stores. The gates remain closed until a purchase has been made. However, some customers report being ‘trapped’ inside the gates, despite paying–causing undue attention and embarrassment. 

What can independent grocers learn?

As the old saying goes, trust takes years to make, seconds to break, and forever to repair. 

While Coles and Woolworths are resilient brands, there’s no doubt that the current situation will dent consumer trust and confidence. This is an opportunity for independent grocers to double down on their efforts to build strong customer connections grounded in trust. 

Price vs trust: an ongoing battle

Unsurprisingly, when consumers are battling a cost of living crisis, price becomes an influential factor in their purchasing decisions, which is where Coles and Woolies have often had the upper hand against independents. 

However, diminished trust in both supermarkets means customers are more likely to shop around for an alternative.

With 86% of shoppers willing to pay more for a better shopping experience, independent grocers have a unique opportunity to grow their customer base. With more consumers looking to shop elsewhere, now is the time to invest in brand-building strategies to showcase how your business is the best option for local groceries and, above all, a trustworthy place to shop.

Three timely opportunities for local grocers 

When it’s challenging to compete with the big supermarkets on price, local grocers can lean into other tactics to build customer trust and brand confidence to entice customers through their doors and keep them coming back.

We studied the data from our Retail Insights & Shopper Sentiment for 2024 report to uncover how independent grocers can seize this opportunity. 

1. Personalisation

According to our report, 1 in 4 shoppers said personalised customer service was essential when shopping at a local store. This provides an ideal opportunity for local grocers who are perfectly placed, more so than the big-box retailers, to offer a personalised shopping experience for their customers.

From personalised product recommendations to loyalty programs, adding a personal touch and tailoring content so it resonates on an individual level enhances the shopping experience and fosters a sense of connection between brands and consumers. This is made easier with a significantly smaller time investment using tools like AI and advanced marketing platforms. 

2. Transparent pricing

Transparent pricing is paramount in building and retaining customer trust–particularly if you have both online and physical stores.

With the ongoing cost of living crisis, it’s understandable that pricing and promotions will be an influential factor in consumer purchasing decisions. Our report shows that price sensitivity is pivotal in building consumer trust, with 33% of shoppers expressing concern that in-store pricing may be higher than online shopping.

In addition to this, 38% of consumers also admit they are discouraged by the inability to search for cheaper deals in physical stores, compared to the ease of doing so online. 

To attract and retain this segment of customers, it’s essential to address these concerns by implementing transparent pricing strategies and, when feasible, offering price guarantees.  

3. Brand community

Building a loyal brand community is another key advantage local grocers have over the big chains. Having a strong community of customers is a crucial differentiator for grocers looking to enhance their consumer engagement and build trust.

Our data emphasises a strong consumer desire for brands to focus on community engagement and the importance of incorporating community-centric elements into a brand’s repertoire. 

24% of consumers value businesses that align with their beliefs and actively contribute to the local community. And 34% of shoppers said access to special deals for locals would encourage them to shop more with a brand.

Creating spaces (be that in-person events or through online communities) where customers can connect and engage with the brand will foster a sense of community, enhance the holistic shopping experience and drive loyalty and trust. This can also lead to customers becoming your brand advocates – one of the most impactful marketing strategies.

An era for independent grocers

The recent scrutiny facing Coles and Woolworths serves as a stark reminder of the fragility of customer trust in the retail landscape. As these retail giants navigate this turbulent period, independent grocers have interesting times ahead and an opportunity to position themselves as the preferred grocer for consumers seeking the trust that has been recently broken from household brands.

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More of this topic: Customer Experience