Among the keys to Kroger Co.'s success has been its expertise at data analytics.
The company formed a joint venture with British data-analysis firm Dunnhumby in 2003, called Dunnhumby USA, which uses Kroger's loyalty-card data to help Kroger segment its stores to meet the needs of various customer groups, assists the company in making pricing decisions and helps it evaluate its marketing efforts.
“Dunnhumby provides a way for us to take the household customer into account,” said David Dillon, chairman and chief executive officer, Kroger, in an interview with SN.
Deborah Weinswig, an analyst with Citigroup Global Markets, New York, said that with 40% of all U.S. households owning a Kroger loyalty card, the supermarket operator has “one of the largest retail consumer databases in America.”
“Kroger's partnership with Dunnhumby USA gives it valuable insight into its customers' shopping habits,” she wrote in a recent report. “Through this insight, Kroger is able to use customer loyalty data to benefit its customers and increase their engagement in the stores.”
Another Citigroup report issued earlier this year from the firm's London office offered more insight into the working of Dunnhumby.
The report described an algorithm that is central to Dunnhumby's analytics called the “rolling ball.” The algorithm assigns scores to individual products based on 40 different dimensions, such as “price-sensitive,” “calorie-counters” and “convenience,” based on their association with other purchases.
“When every product has been assigned a value on each of the 40 dimensions, the computer then looks for patterns in the basket bundles of consumers — using this to sort customers into various lifestyle and life-stage categories based on the products they buy,” the report explained.
At Kroger, the analysis of shoppers enabled the company to begin sending targeted mailers offering discounts based on customer lifestyles. The redemption rate of Kroger's first such mailing was 20 times the industry average, according to Citigroup.
Dunnhumby's analysis has also helped Kroger trim the number of brands in some categories without reducing sales, the report said. In fact, Kroger's sales per square foot have improved by about 20% since the partnership with Dunnhumby began, to nearly $500, Citigroup said.
In addition, Dunnhumby also has designed a 24-store test market for Kroger — with demographics that are representative of the supermarket operator's total customer base — where manufacturers can test products before rolling them out chainwide, according to the report.