The retail grocery game has never been for the faint of heart, what with its razor-thin margins, relentless competition, and fickle customers trained by decades of discounting to buy solely on price. Now, with deep discounters making inroads, consumer habits changing by the day, and Amazon’s entry into the market, the game has gotten even tougher. To find an edge in the ferocious battleground of grocery retail, grocers are turning to the one asset laden with unused potential: customer data.
By Rick Ferguson
The Wall Street Journal published recently a comprehensive roundup of grocers’ efforts to leverage the power of customer data. Central to the story is Kroger’s retail analytics division 84.51˚, once part of UK-based analytics firm Dunnhumby, which has become the central R&D lab for the grocer as it attempts to fend off competition ranging from Aldi to Walmart, with Amazon coming on strong through its Whole Foods acquisition. Kroger’s data scientists are exploring ways to leverage customer data throughout the customer lifecycle and at every stage of the customer journey. Money quote from the Journal:
“Working from a small host of research facilities beyond the sleek downtown headquarters and a lab tucked away in a suburban strip mall, Kroger’s app developers and data scientists are mining consumer information to devise the grocery store of the future. They are testing apps for shoppers’ mobile devices that will highlight sales based on whether the customer eats meat or needs help finding recipes for chicken, for example. Want to make fish tacos tonight? Another app will populate a user’s digital shopping list with the necessary ingredients available at the store. For store managers, meanwhile, a program is in the works to allow them to literally see how products are selling in a given aisle, using augmented-reality apps on their phones that show the prices and sales figures for the products found there.”
Experts agree that the old model of using customer data simply to better target coupons—a model pioneered by Dunnhumby in the United Kingdom and Kroger in the US—is now merely table stakes in the grocery game. Succeeding against Walmart’s scale and Amazon’s digital and delivery expertise will require grocers to orient their entire business model around customer insight. Consider this recommendation by a trio of PwC US contributors to Strategy-Business, which advocates moving away from Walmart’s push-model and Amazon’s pull-model of grocery distribution and sales to what they call the “digital-ply” model:
“A digital ply model gives consumers something they can’t get from a scale-based model: tailored offers based on historical in-store shopping patterns and micro-segmentation derived from big data. The family being targeted by a digital message is not just segmented, but analyzed for its needs and wants, almost down to an individual level. The supermarket no longer tries to compete with Amazon or Walmart by providing everything; instead, it provides what it perceives its customers will want and need most. Sometimes this will be fresh or precooked food; other times, just the right assortment of staple goods. Sometimes, the supermarket offers rare items that a few key customers have bought in the past, and that happen to be available now.”
Indeed, so important has data become to the grocery game that industry analysts predict that the successful grocers of the next decade will resemble Silicon Valley tech companies more than traditional grocers. The game won’t necessarily go to the upstarts and disruptors; long-storied and venerable grocery brands are reinventing themselves as digital leaders—such as loyalty marketing pioneer Tesco, where Dunnhumby first plied their trade twenty years ago. Money quote from Forbes:
“Applying cutting edge analytics and the most up-to-date data is the supermarket’s answer to dealing with obstacles ranging from evolving customer behavior, to facing up to newer competitors. Many of these (such as Amazon, which recently began delivering fresh groceries) are built from the ground up as digital and data-driven organizations. Much of the business’s innovation begins within the Tesco Labs division, which was founded to research new technologies which could benefit the supermarket and its customers. Tesco Labs has up to 50 projects on the go at any one time and experiments with VR and AR, connected home devices, near field communications and mobile applications. It also runs regular hackathon events where programmers compete to develop new solutions.”
This investment in analytical insight and digital delivery is designed to return grocers, at scale, to the mindset of the corner grocer of a century ago, who knew his customers so well that he could stock what they wanted and anticipate their needs before they came into his store. The investment will also, in theory, provide a competitive advantage that even Amazon can’t match: the ability to tailor shelves, communications, and the in-store experience with a truly local flavor that reflects and enhances the lives of the families that live in the store’s community. Winning the grocery game will never be easy—but grocers committed to this path will continue to win the hearts of their best customers.
Rick Ferguson is Editor in Chief of the Wise Marketer Group and a Certified Loyalty Marketing Professional (CLMP).