Dunnhumby seen enhancing Whole Foods merchandising, loyalty

Whole Foods Market’s new partnership with Dunnhumby could add significant clout to the company’s nascent loyalty program while also optimizing its store-level product assortments, observers said.

As the Austin, Texas-based natural-and-organic retailer explained in its first-quarter earnings call last week, Whole Foods is seeking to leverage Dunnhumby’s data-analysis skills to drive both the accelerated rollout of its loyalty program and the implementation of category management.

Dunnhumby not only has expertise analyzing customer behavior and spending data, but it also has a deep understanding of product sales data from the manufacturer’s perspective that will assist in the category management initiative, said Mark Johnson, CEO and CMO of Cincinnati-based Loyalty 360, in an interview with SN.

“Dunnhumby manages both sides very well,” he said. “They understand that it may not be best for [a CPG company] to pay $1 million in slotting fees if their product is not going to sell.

“They can bring some unique enhancements to everyone involved.”

Dunnhumby’s rich data analysis will assist Whole Foods in optimizing product assortments at the store level, Johnson explained, while at the same time bringing an understanding of the various triggers — price, promotion, selection, etc. — that drive increased purchases for each individual customer.

Whole Foods began testing a points-based rewards program about two years ago in the Philadelphia market, but is phasing that program out this month in favor of a more straightforward loyalty plan it began testing in the Dallas Market last year that is linked with its digital coupon distribution.

In a conference call discussing first-quarter results, Whole Foods said it was “very pleased” with the program in Dallas, saying that its rewards-program members spend significantly more than other shoppers.

“We're seeing very healthy baskets over two times what we see for non-members, and we're increasing the percentage of sales,” said Jason Buechel, EVP and CIO, Whole Foods.

In a call last November, he said more than 50,000 customers had signed up in the Dallas market.

Buechel said connecting the loyalty program to the chain’s new category management efforts “is a really important step.”

Whole Foods had begun testing category management on a limited basis, but sees the effort as a key element of its plans to drive sales growth.

John Mackey, Whole Foods’ CEO and co-founder, said the partnership with Dunnhumby will help transform the way it works with suppliers.

“Evolving our purchasing operating model while developing data-rich, customer-centric category management capabilities are critical steps — steps that are integral to our go-forward merchandising, pricing, marketing and affinity strategies, particularly with regard to supplier support,” he said in the first-quarter call.

Dunnhumby, which had a joint venture with Cincinnati-based Kroger Co. for more than a decade, helped that chain develop its acclaimed loyalty program. Customers using the Kroger Plus Shopper’s Card receive customized offers based on their purchasing history and other factors that were fed through Dunnhunby’s sophisticated algorithms. (Dunnhumby split off from Kroger in 2015 as an independent company.)

Bill Kirk, an analyst with RBC Capital Markets, noted that Kroger’s loyalty program was also “in its infancy” when it first joined forced with Dunnhumby in 2003.

“To a degree, Dunnhumby may be what kicks [Whole Foods’] program into full gear,” he said.

Johnson of Loyalty 360 said Whole Foods’ lack of an existing loyalty program should not be an impediment to its ability to work with Dunnhumby to analyze customer data. Whole Foods likely has reams of information from such sources as transaction data, customer surveys, online shopping and purchasing behavior and other sources.

“Most companies don’t have a challenge with regard to lack of data,” said Johnson. “The biggest challenges they have are measurement, listening to the customers and operationalizing that data.”

Dunnhumby’s data analysis capabilities will help bring more science to Whole Foods’ marketing, he said.

“They know exactly when to send an offer,” said Johnson. “They understand the emotional and rational behavioral triggers, and they help drive them.

“I think this will be a great opportunity for Whole Foods to get alignment around who their customers are, what their expectations are, and listen to them in a very unique way, and drive positive outcomes.”