Kroger Succeeds By Keeping Track of Customers

Discussion
Jun 23, 2009
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By George
Anderson

Kroger is
keeping close tabs on its customers and that more than anything may explain
how the grocer has managed to achieve significantly higher same-store
gains than rivals Safeway and Supervalu.

David Dillon,
chief executive of Kroger, told the Los Angeles
Times
that
the company’s work with Dunnhumby has given it greater insights into
the shopping behavior of its customers.

“We send our
very best customers coupon books specifically targeted at what they actually
buy. The redemption rate of these coupons is significantly higher than
other coupons,” Mr. Dillon said.

Kroger uses
the data it receives on its customers to divide its stores into three
groups. A store serving an affluent consumer base, for example, would
have an expanded wine selection and no value-priced private label items.
At the opposite end, a so-called value store would “be much more focused
on price,” Mr. Dillon said.

One advantage
of the Dunnhumby system, according to the LA Times report, is
it allows Kroger to identify items that will continue to sell at higher
prices.

“Ten
years ago we paid too much attention — almost every day — looking at
what our competition was doing,” Mr. Dillon said. “We can’t ignore our
competitors, but we have to pay more attention to what our customers
want in our stores.”

Discussion
Questions: Has Kroger gotten better at understanding its customers
in your opinion? Is its work in this area above that of its competitors
in markets across the country?

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15 Comments on "Kroger Succeeds By Keeping Track of Customers"


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Dr. Stephen Needel
Guest
11 years 8 months ago

Keeping your current customers happy is always a good idea. But focusing only on those customers misses a large part of the picture. They should also focus on those who do not shop in Kroger, understanding what it is that keeps them away. If changes can be made to attract new customers while retaining the old, that is a huge win.

Max Goldberg
Guest
11 years 8 months ago

Kroger’s understanding of its customers has greatly improved. Rather than send out scattershot coupons, it targets specific consumers with specific offers. I’ve been waiting for years for a grocer in Southern California to do this. When our latest mailing from Ralph’s arrived, we used 60% of the coupons offered, a much higher average than our weekly FSI.

This is not rocket science. dunnhumby has been doing this with Tesco in the UK for years, with positive results.

Listening to consumers, watching their purchasing habits, and then offering value, works. Why did it take so long to come to one of the major US grocers?

Len Lewis
Guest
Len Lewis
11 years 8 months ago

Anyone can have access to all the data they want these days. It’s a matter of how you use it and turn it into actionable information. This is where Kroger excels.

David Zahn
Guest
11 years 8 months ago

Your question asked, “Has Kroger gotten better at understanding shoppers?” The answer is clearly it has. Is there more work to be done? Absolutely. As an example, assuming that stores in affluent neighborhoods should lead to no PL couponing for those shoppers and a heavier reliance on wine features may seem intuitively appropriate – but may not be the maximally effective solution. Perhaps those affluent shoppers would purchase PL products in an effort to save money where they can and they may choose to purchase wine at specialty stores…I do not know that to be true, I offer that only as an example.

Gene Hoffman
Guest
Gene Hoffman
11 years 8 months ago

While I confess to a favorable Kroger prejudice, what Kroger is doing so well in its marketing, in its merchandising, in its new store formats and in its targeted approach to its diverse customer base is resulting in increased same-store sales. It’s true, as Stephen Needel suggests, there are still further opportunities for non-Kroger shoppers, but Kroger is researching and executing better than other chains. Wish my other alma mater, Supervalu, was attaining the same beneficial results so it could become effervescent once again.

Rick Myers
Guest
Rick Myers
11 years 8 months ago

Kroger has listened to my suggestions and has made changes in our local store based on my comments. I have been truly impressed by their responsiveness.

Another thing I really appreciate is coupons targeted to what we buy in their store. I think there’s much less waste (paper, effort, money) and greater value for me, their customer. They put stuff on sale that you actually use. Their gas discount has saved us a lot of money too.

They have tried attaching coupons to your Kroger card, and I have never found those to work when I get to the register. So I guess that’s the only disappointing thing I have found.

Ben Sprecher
Guest
Ben Sprecher
11 years 8 months ago
Same-store sales numbers tell a dramatic story about how dunnhumby has improved Kroger’s insights into its own shoppers and stores: between 1993 and 2003 (when they formed their joint partnership), Kroger averaged identical store sales growth of just 1.1% (including fuel). Since the partnership began, (2004 – 2007) the average was 5.2% (2008 was 5.0%, *excluding* fuel). So, Kroger has its magic bullet in the dunnhumby system, but what about every grocer who *isn’t* Kroger? dunnhumby has invested untold millions in developing and proving out its offering with Tesco and Kroger; for most chains, that type of investment is simply out of the question. We believe that the industry needs a platform for creating, managing, and measuring targeted shopper promotions, and for sharing sales data and shopper insights with brands, just like Google has done in the web/search marketing space. And the brands who have tasted the better way of doing things with Kroger and dunnhumby should be demanding this type of openness and access from all chains. It’s a win for brands, a win… Read more »
Domenick Celentano
Guest
Domenick Celentano
11 years 8 months ago

What a great example of Customer Delight! Kroger is focused. I know some have mentioned that they are missing opportunities by focusing on existing customers vs. new customers. I don’t have the exact facts at hand but dollars spent on existing customers reap greater rewards and shorter paybacks than new ones.

I believe a company can’t do all things…so given resource constraints, Kroger is making the right choice. Remember, those “delighted” customers will be telling their friends, blogging, etc…thereby bringing in new customers as a result.

David Livingston
Guest
11 years 8 months ago
A lot of grocery retailers use their card data in similar ways that Kroger does, except they don’t brag about it in the press. One of my clients keeps tabs on the top 50 to 100 customers in each store. They not only send out coupons but make sure they also get a gift at Christmas. High-volume customers also get trips to Las Vegas, however, those are either very large families or the directors of communal housing. Store managers should know their top customers by name and know their face. A good manager will visit these customers in the hospital, attend their family funerals, and keep up with what’s going on in their lives. Card data is not necessary but it sure helps. Kroger and others use their card data to define each store’s trade area, monitor market share on a regular basis, and are able to determine exactly what percent of each store’s volume comes from its primary trade area. Store sales might be trending higher but perhaps in one or two neighborhoods, market… Read more »
Charles P. Walsh
Guest
Charles P. Walsh
11 years 8 months ago

Kroger seems to be succeeding where many other retailers have failed–targeting, precisely, what their customers want where they shop.

There are other notable retailers who have long placed an emphasis on “store of the community” but whose goal of identifying with the local customer base in product and services was largely unrealized.

Kroger’s approach is much less complicated and much more likely to succeed. Targeting customers through coupons based upon their historical propensity to purchase certain products is marketing money well spent. If, in addition, they are able to physically alter the store assortments (much, much more difficult to plan, purchase and operationally execute) then all the more successful.

In those stores where a dominant consumer trend exists (ethnic or income related) assortment changes can be made. However, these may represent a minority of their total store counts, therefore the consumer coupon targeted approach can drive increased sales in certain categories, driving increased turns and allowing for a natural increase in those products most desired in that particular store. Demand-driven assortment changes are always trump.

Ben Ball
Guest
11 years 8 months ago

The one thing I haven’t seen anyone pick up on yet in this discussion is–in my opinion–Dave Dillon’s most important and revealing comment.

“Ten years ago we paid too much attention–almost every day–looking at what our competition was doing,” Mr. Dillon said. “We can’t ignore our competitors, but we have to pay more attention to what our customers want in our stores.”

Retailers have been fixated on the price of Private Label gallon milk across the street for the last 20 years. It has cost them untold profit dollars as they have habitually vastly overestimated the number of “price sensitive items” in consumers’ mental data bases.

Kroger started to win the day it stopped watching Walmart and started watching Wally and Wanda Smith at 4402 Main Street, Everytown, USA.

Michael L. Howatt
Guest
Michael L. Howatt
11 years 8 months ago

Isn’t it funny how not one word has been mentioned in any of these discussions about the manufacturers? The most important thing Kroger has done is not only to ignore their competitors but also to dismiss the self-serving interests of those who make the products and want to sell them above all else.

John Boccuzzi, Jr.
Guest
John Boccuzzi, Jr.
11 years 8 months ago
Kroger using dunnhumby has clearly helped them better understand their customer and target programs that match specific demographic characteristics. Hopefully they can continue to focus on current customers and learn how to attract new customers using the data from their systems. No question keeping your customers happy and coming back week after week is critical, but you also need to focus on growing the overall client base or sales are at risk of stalling. Other retailers like Walmart, Target, 7-Eleven and CVS have been using data to better understand their customers for years and I still consider their methods to be some of the best. It is fair to say that Kroger has joined that list. Other retailers big and small should review options related to stronger use of data including their loyalty data. 10-15 years ago it was tough to justify the cost of data storage, hardware and software to create solutions to store, mine and analyze data. Those excuses are gone. Data analytics is here to stay and the retailers and manufacturers that… Read more »
Kai Clarke
Guest
11 years 8 months ago

Whether Kroger should be looking over their shoulder or focusing on customer needs, is not the question here. It is clear, from any successful company, that customer service always wins. Kroger, like any company, needs to adapt to their customers’ needs, and will only be able to successfully do this if they communicate and keep in-touch with their customers. Focusing on this allows them to adapt, rather than offering things their customers do not need or want.

Mark Price
Guest
Mark Price
11 years 8 months ago

The work that Kroger is doing with dunnhumby is pioneering for U.S. grocery retailers. Only Stop & Shop has appeared as a peer in the area of leveraging customer data to customize the experience for Best Customers. In the UK, of course, Tesco has set the high water mark for this type of effort.

By focusing on understanding Best Customers, Kroger is embarking on an effort that can significantly improve their margins as well as the long-term growth viability of their business. Personalized coupons are a good start–but they are not the destination.

The destination, if they can capitalize on the data, would be to use that information to alter product assortment as well as to create enhanced customer experiences for their Best Customers. To accomplish those goals will require a customer-centric organization.

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