Don’t wallow in Kroger envy, mine data for better results

Articles
June 24, 2009

Don’t wallow in Kroger envy, mine data for better results

Chalk up one more reason the supermarket industry suffers from Kroger Envy. While many retailers struggle with curtailed spending by shoppers, Kroger has sailed through this past fiscal year with a 5% rise in same-store sales. Moreover, in the latest quarter, Kroger earnings jumped by 8% on a sales gain of less than 1%. What’s behind this performance, that puts it ahead of Giant Food-Landover (covered by Supermarket Guru B2B last week), Safeway, Supervalu and pretty much everyone else? The answer is two-fold: Technology. And a focus on its own shoppers. Dunnhumby, the team of loyalty meisters behind Tesco, has been a powerful augment to Kroger as well—helping the $76 billion (annual sales) operator to satisfy shoppers through data-driven insights about where, when and what they buy. Investing in such an alliance may be beyond the wallets of many chains, but chief executive Gary Hawkins at Greenhills Market also uses loyalty strategies for competitive advantage as an independent operator in Syracuse, NY. So SupermarketGuru.com believes there is vast opportunity for operators in the middle of this spectrum to apply intelligent loyalty principles that could differentiate their stores. Scaling investment to their size and potential benefit, chains could mine their own data and other research tools to mimic some of the smarter steps Kroger implemented to achieve its recent growth:

Chalk up one more reason the supermarket industry suffers from Kroger envy. While many retailers struggle with curtailed spending by shoppers, Kroger has sailed through this past fiscal year with a 5% rise in same-store sales. Moreover, in the latest quarter, Kroger earnings jumped by 8% on a sales gain of less than 1%.

What’s behind this performance, that puts it ahead of Giant Food-Landover (covered by Supermarket Guru B2B last week), Safeway, Supervalu and pretty much everyone else? The answer is two-fold: Technology. And a focus on its own shoppers.

Dunnhumby, the team of loyalty meisters behind Tesco, has been a powerful augment to Kroger as well—helping the $76 billion (annual sales) operator to satisfy shoppers through data-driven insights about where, when and what they buy. Investing in such an alliance may be beyond the wallets of many chains, but chief executive Gary Hawkins at Greenhills Market also uses loyalty strategies for competitive advantage as an independent operator in Syracuse, NY.

So SupermarketGuru.com believes there is vast opportunity for operators in the middle of this spectrum to apply intelligent loyalty principles that could differentiate their stores. Scaling investment to their size and potential benefit, chains could mine their own data and other research tools to mimic some of the smarter steps Kroger implemented to achieve its recent growth:

•    Monitor the frequency of a shopper’s store visits and what he or she buys
•    Customize promotions and specials to their particular preferences. Kroger, for instance, sent its best customers coupon books reflective of their shopping patterns, and redemption rates beat those of other coupons significantly, Kroger chief executive David B. Dillon told the Los Angeles Times in an interview.
•    Understand the shopping profiles within distinct store formats and markets, and assort and price accordingly. This will identify the products to mark down because of price-sensitivity, as well as brands and items that will continue to sell at or near full price, thereby protecting margin dollars. Kroger, for example, used data to divide most of its chains (24 marquee names, including Kroger, Fred Meyer, Food 4 Less, Ralphs, Dillons, King Soopers and more) into three tiers of stores with different assortment and pricing appeals.
•    Market private labels as if they are brands, not knock-offs. They save consumers money and deliver higher margin percentages. At Kroger, sales of the Private Selections line surpassed the $1 billion mark in 2008. Overall, private label accounted for a record 35% of grocery unit sales and 27% of grocery revenue at the 31-state retailer.