Kroger Knows Your Shopping Patterns Better Than You Do

Kroger, the Cincinnati-based grocery store chain, calls the 11 million pieces of direct mail it sends to customers each quarter “snowflakes”  — because if any two are the same, it is a fluke. The redemption rate is over 70 percent within six weeks of the mailing.

Kroger is the nation’s largest traditional grocery chain with more than 2,400 stores and $80.8 billion in sales last year, second only to Wal-Mart in grocery sales. It was named “Retailer of the Year” by Progressive Grocer magazine. “They have made significant investments in a best-in-class loyalty program, strong private label, and reinvested in their stores and technology,” Neil Stern at McMillanDoolittle said of the award, as reported by Progressive Grocer.

Working with dunnhumby, the customer data specialist which so impressed the UK’s Tesco that the grocer bought the firm, Kroger tracks each customer as an individual.

Those quarterly mailers contain 12 coupons specific to an individual household and are carefully designed. The upper left may offer a slightly esoteric product like a special cheese, while Tide may be lower on the flyer and the last two coupons might be experiments, such as adjacent products — a purchaser of baby food who doesn’t buy diapers might see an offer for diapers, for example. Eighty percent of dunnhumby’s effort is focused on what it knows about a customer and 20 percent is focused on discovery.

“It’s a massive problem for the industry,” said Stuart Aitken, CEO of dunnhumby USA, “not having exposure you are never going to know if customers might be interested.” The variety of coupons is part of dunnbumby’s discovery effort.

“We see in the next six weeks [after a mailing] 71 percent of households will redeem at least one coupon in the store, Nishat Mehta, executive vice president of global partnerships for dunnhumby, said. The coupons have generated $10 billion in revenue for Kroger.

Aitken said much of Kroger’s revenue growth came from understanding individual customers and not relying on demographics.

Speaking at the Money2020 conference in Las Vegas, Aitken said “Demographics tell you nothing, yet too many companies are focused on them. Just because I am the same age as you, live next door and have 2.2 children doesn’t mean we have the same preferences.”

So dunnhumby creates a DNA on each customer, rather than cramming customers into segments, to see what drives their behavior — do they have kids, do they skew toward healthy or fun, do they like organic or convenience, and where are they price sensitive — across all products or only on some.

“We tell our retailing customers there is no silver bullet. Take data from customers and look at the decisions the business is making and look at their impact on the consumer.” The company will work with only one company in any category and Kroger is the only US grocery chain using its data. dunnhumby also works with Macy’s and Dick’s Sporting Goods.

Every single shopping experience is different, Aitken added. Understand how the customer travels across the store and see how to make the experience frictionless, convenient and emotional.

Milk, for example. dunnhumby tells its grocery store clients to organize it for customer convenience by fat content and size of package, so all the one percent half gallons are together and customers can buy on price or easily move to a different brands if their favorite is out of stock.

“It is more expensive for the retailer,” said Mehta, “but you can’t just let the manufacturer stock it the way they want. This helps a customer find the product or find an adjacent product.” That style of stocking carries throughout the store where one product can easily substitute for another.

Understanding loyalty is key to making good decisions for customers. Mehta says if a grocery  store doesn’t have his flavor of Chobani Greek yogurt it is apt to lose his total sale. Kosher butter may be a low revenue producer, but for some customers, its absence means they will take their business to another store.

Kroger uses the coupon dispenser company, Catalina, for point-of-sale coupons, but with a twist dunnhumby insists on — unlike other grocery stores which will offer a Pepsi coupon to a Coke buyer, dunnhumby doesn’t try to convert customers. It may offer an adjacent products, but both in the store and in its mailers, if offers coupons for  product the customers already likes.

Another difference is that typical Catalina generates its offers based on the shopping basket at that moment.

“We make decisions not based on what you bought today but what you have bought over the last two years,” Mehta said. “We can recommend a product you buy every four months. You don’t have to know, but we know.” Ninety-seven percent of Kroger transactions use loyalty cards. This gives the chain an edge over Wal-mart which stresses everyday low pricing and doesn’t offer a loyalty cards which can favor one customer over another.

“If Pepsi sends coupons to Coke households, the redemption rate is very low,” said Mehta. “We have struggled over this with manufacturers (who pay for the coupons). They ask why they should send coupons to households that already buy their products. That has forced us to be very data-heavy and analytical, so we tracked 100,000 households we sent coupons to and looked at their purchases over the next 16 and 26 weeks.” It showed a sales lift among shoppers loyal to a brand when they had an offer from the brand.

Switcher campaigns are always the worst performing he added, and contrary to conventional wisdom, households will buy more of their favorites, such as Coke products, or a new Coke product, if offered an incentive.

“We regularly find there is headroom in every household.”

Both Tesco and Kroger offer financial products and dunnhumby is active in building loyalty and tracking customer preferences in their finance operations as well.

In the UK, it uses Tesco shopping data to target Tesco banking customers.

“Grocery spend informs us on a customer’s propensity to spend and on the customer’s affluence. If you buy brand name rather than private label, or like fancy cheeses, we have a pretty good sense you are a good target for high end banking products.” For now the offers are kept separate but the company is looking at ways to offer grocery incentives for banking customers.

dunnhumby is also active with ISIS  the mobile payment alliance of AT&T, Verizon and T-Mobile that is running trials in Salt Lake City and Austen. Both Kroger and Macy’s are participating, he said. “These mobile phones won’t just be replacements for credit cards, but they will be a communication mechanism. You will understand how a customer chooses to spend money and you can deliver coupons to the mobile app.”