In their ongoing battle with Wal-Mart Stores, supermarkets have always had at least one advantage: Wal-Mart offers no loyalty card and therefore doesn't know what individual shoppers are buying. Supermarkets with loyalty programs can gather data on shoppers' purchases and leverage that data in their marketing efforts.
But that advantage may soon fade away. Though it still lacks a loyalty program, recent announcements by Wal-Mart's new chief marketing officer, John Fleming, suggest a new emphasis on customer intelligence. Fleming plans to expand his marketing team by 30% and create three new departments: brand management, a category marketing group, and an insight and customer strategy group.
This development should certainly serve as a wake-up call for food retailers to get the most value out of their customer loyalty data. Supermarket companies are famous for compiling huge consumer databases of unused purchasing data, but they may no longer be able to indulge that practice.
One retailer that has made a strong commitment to capitalizing on its loyalty data is Kroger. As detailed in a feature article on its IT programs beginning on Page 30, the Cincinnati-based retail giant has partnered with the British marketing firm Dunnhumby to create a customer data strategy that may be the most aggressive in the industry. Importantly, Kroger is also tapping outside sources of consumer data to round out its picture of its shoppers' buying habits.
Kroger is trying to follow in the footsteps of Dunnhumby's other major client, Tesco, which became the United Kingdom's leading food retailer on the strength of its loyalty marketing programs. The strategy appears to be paying dividends for Kroger, which attributes its recent same-store sales growth in part to its use of consumer data.
Central to these efforts is using shopping history to tailor direct mailing campaigns that speak to their shoppers' individual needs, especially their most profitable shoppers. But Kroger is also using the data for many other purposes that range beyond marketing, including store design, merchandise allocation, pricing and category management.
Kroger still has work to do in making its targeted marketing campaigns as valuable to the manufacturers that support them as they are to Kroger, according to Chris Hoyt, president of Hoyt & Co., Scottsdale, Ariz, a marketing consulting firm.
Other large food retailers are also trying to do more with consumer data. Safeway's new emphasis on branding includes a commitment to understanding consumers. Food Lion has been testing a customer segmentation effort that targets shopper groups with banners, products and direct mail offers. And there are many smaller operators who have distinguished themselves through their loyalty programs, notably Green Hills, a one-store independent in Syracuse, N.Y., and Paw Paw Shopping Center, a one-store operator in Paw Paw, Mich.
While some retailers eschew loyalty programs - and customer privacy issues remain a concern - consumer data is increasingly becoming a basic requirement in the battle for competitive survival. And after accumulating the data, it's vital to know what to do with it - a lesson Kroger appears to be learning.
