Transforming Defects to Dollars at Grocery Outlet

Product Background

Discount grocery stores are fascinating places - walking through the aisles you can attempt to figure out what about the products made them either unsellable to traditional consumers and/or why they might be desirable by the customer segments that shop at discount grocery stores. 

In California, my favorite place to do this is Grocery Outlet, which often has both ultra-premium health food/snacks that just didn’t cut it at Whole Foods and random CPG products that were limited edition runs that missed their original selling window. 

User Experience

There were two experiences that stuck out to me recently, the first being a great example of redefining value and the second a failure to understand your customer segments. 

The first is a Jelly Belly product ingeniously called “Belly Flops” that collects all of the irregular shaped Jelly Beans and packages them together for a very low price. The beans taste exactly the same as normal Jelly Beans and the only difference is how they are shaped. This is clever not only from a naming standpoint, but also from a waste minimization / revenue maximization standpoint. Every business wants to sell as much of its “finished” product as possible, and in any business that is manufacturing physical objects, there are guaranteed to be defects. While the ideal is to first minimize those defects, generating revenue from those defects is a very close second. Acknowledging a product is a “defect” also lowers the stakes for a consumer to try it and targets an entirely different consumer segment that doesn’t necessarily care about physical imperfections but purchases on price. In terms of pricing, the 2lb bag of defects at Grocery Outlet was $2.99 before tax, whereas on Jelly Belly’s website a 2lb bag of the same defects is $9.99 while an equivalent 2lb assortment of normal Jelly Beans is ~$19.99, or 2x the price of normal Jelly Beans at MSRP, and ~6.6x more expensive than Grocery Outlet (Prices as of April 2019)!

The second is variant of General Mill’s Fruit Gushers snack which adds a spicy twist to what is normally a simple, sugary snack. I, of course, had to try a box and they were indeed fairly spicy for what is normally a children’s snack! While I have no specific evidence that the product is performing poorly in normal supermarkets other than it’s presence at Grocery Outlet, one could assume that the creators of this product failed to understand their customer segments properly. I would argue that most of the consumers of this product will be children that are (a) not expecting something spicy and (b) do not, in general, like spicy foods. While the product could be a surprise hit, based simply on the customer segments that make up its market, it is likely going to be a tough sell. However, in the secondary market at Grocery Outlet where there are people like me wanting to try new products just for fun, it is a product worth paying for albeit at a discounted price. This is an interesting example of the value shift that can occur based on the selling context and customer segment of your product.