Food retailers build digital loyalty behind speed and service
As Richard Braddock sees it, customer loyalty is every bit as important on the Internet as it is in the real world — and is his case, a little more so.
Braddock, chairman and chief executive officer of FreshDirect, the New York-based Internet grocer, believes that the key to his company's improvement was a matter of not only getting logistics and product selection right, but overlaying that with a brand of customer service that works for the Internet as well.
According to Braddock, getting that last piece right took months of effort and required the company itself to adjust to what he called “the rhythm of the Internet” — an environment in which the relationship between merchant and shopper is an intimate, one-to-one exchange, and interactions between them occur in real time.
“It stems from the reality that your customer wants a much higher degree of control, service and influence over what he or she wants to buy and how she or he wants to shop,” Braddock explained in remarks at the Argyle Executive Forum in New York this month. “This includes ubiquitous access, the desire to be targeted to and be understood, and the utter transparency the customer expects. In return, your customer gives you deep knowledge of themselves so that you can be prepared to serve them more effectively on their terms.”
As an explosion in mobile phone usage and accompanying e-commerce applications takes the desktop computer into the store, these “Internet values” as discussed by Braddock are making their way into off-line transactions, industry observers noted. This will put even more emphasis on getting customer service tuned for the wired shopper.
“Customer service has always been extremely important. But more so than ever before — it's critical to be practically real-time while responding to consumers online,” said Robert Hemphill, president of Webstop, a Palm Harbor, Fla.-based grocery Web services provider whose clients include Price Chopper, Roundy's and Spartan Stores. “That's what they expect.”
FreshDirect recognized its first profit in more than six years last year, showing the successful results of an effort to train the company to run with the “rhythm of the Internet,” Braddock said. It was a period during which the company moved away from its prior focus on gathering new customers and instead concentrated on how best to serve its existing ones, with the ultimate goal of increasing loyalty.
“This reverses the normal marketing paradigm by focusing first on a loyal base of customers, and only then going out and acquiring customers,” Braddock noted.
“The financial story for us has little or nothing to do with generating trial, which we can do pretty easily,” he added. “It's all about generating loyal customers.”
FreshDirect's loyal shoppers spend between $3,000 and $10,000 with the company each year, Braddock said.
“We tried to improve the shopping experience from top to bottom — not just bringing food to your door, but centralizing the supply chain to reduce costs leading to higher margins and more investments for innovation,” he said. “Creating customer information, which is our true secret sauce, allows customers to shop more intelligently and to target them in real time as they become more loyal.”
Ultimately, it was learning to service its customers better that helped FreshDirect realize the competitive advantages inherent in an Internet-based shopping model, Braddock said, including turning a shorter supply chain into reduced waste and higher margins, generating more money to invest in the customer experience. This also is what separates FreshDirect from previous “pure-play” Internet grocers such as Webvan and HomeGrocer.
“They were simply lifting the grocery shopping experience onto the net without really re-architecturing the experience,” he said. “They didn't train their customers around loyalty; instead they had them trading around a tube of toothpaste.”
Central to FreshDirect's loyalty effort is the exchange of customer information for service. The company has built several custom shopping tools that use each customer's buying history to facilitate their experience, Braddock said. These include tools to remind shoppers of their most frequent purchases, their past searches, and their prior shopping lists.
“Thee three tools together now deliver 65% of our revenue,” Braddock said. And none of them can be effectively deployed in a store environment.”
FreshDirect bolsters these efforts with enhanced cross-selling features that will remind shoppers of what they bought the last time they purchased a particular item. The company also conducts periodic customer surveys that help the retailer get a handle on how its shoppers view everything from food trends to the economy.
Braddock said programs like this have also helped generate trust between FreshDirect and its shoppers. That trust is visible in features such as a daily rating system for produce. The program improved produce sales by 40%, Braddock said, as the retailer tackled one of the vexing problems of online perishable sales: The fact that customers can't see the actual fruits and vegetables they purchase.
FreshDirect has also endeavored to move itself at the speed of the Internet, Braddock noted, focusing the organization around the same “real-time” responsiveness it offers its customers.
“We've adapted these Internet values and made them a part of our management process everyday,” he said, describing morning meetings during which the previous day's performance is reviewed and the current day's plans discussed. Issues ranging from traffic problems creating delivery delays to the shipments arriving at the warehouse are addressed and if necessary, adjusted for in the current day's plan, he said.
“Establishing a day-to-day rhythm here has philosophical benefits too,” he contended. “It trains people to think about fixing things immediately, which is an absolute way to promote growth, change and innovation. It transcends the culture of annual plans which detracts from the intensity of the Internet environment.”
With these innovations in place and working effectively, FreshDirect early this year returned to a customer acquisition mode, expanding its service to communities in Westchester, N.Y., and southwestern Connecticut for the first time. The company is also on the lookout for additional investments to further expansion. Braddock, who said he was anticipating revenues to improve by 25% this year, believes that a model based on customer service and Internet speed will ultimately help the retailer succeed beyond its home base.
“The question I always get asked is, ‘How can FreshDirect exist outside of New York?’” Braddock said. “Customers buy food everywhere. And if you give them better tools and make them smarter and more effective, this is an obvious national business.”
FROM CLICKS TO TAPS
In the brick-and-mortar world, supermarkets are also getting up to speed with digital marketing. Hemphill of Webstop provided a recent example when an executive of a supermarket chain for whom Webstop provides Internet services informed the company of a date error on an online circular about to be effective. The call came in at around midnight on a Saturday night.
“Even though it's not a two-minute fix, we totally redid the ad so the items showed the right start and stop dates,” Hemphill said, noting the importance of 24/7 support. “It ensured a minimum of customer confusion, when they walk in the store with a printout or the iPhone saying ‘I want this product on sale for this price because I saw it online.’”
Therein lies a clue that today's grocery shopper has come to expect immediate gratification, and relies on the Web — and increasingly on mobile devices — to provide it for them.
Wired magazine's September issue proclaimed “The Web is Dead” — arguing that a proliferation of closed social sites such as Facebook, and especially, dedicated mobile applications, are the future of online activity as opposed to a decade of growth on the wide-open Web.
Hemphill estimates that only 1% of food retailers have a dedicated mobile application for their shoppers currently, although his company has plans to officially launch a mobile application for one of his clients any time now.
Webstop's app, he said, would encompass the most popular features of the corresponding Web application, along with a variety of features useful for the mobile consumer — easy and fast communication capabilities including a means of contacting store managers and the ability to make grocery lists and find specials easily.
“The powerful thing about mobile apps is that if a customer is in a situation like waiting at the doctor's office, they can bring up the on-line circular for a retailer, go directly to their store, and create a shopping list with a tap on any item,” Hemphill said. “They can find a recipe that looks tasty, go to it, tap the ingredients they want and add them to the shopping list. From there you can go to a mobile paperless coupon app, tap that and — bing, you've created a whole shopping list on your phone.”
That list can be synced to a home Web account, allowing, for example, a family member at home to add items to the list while the shopper is at the store, Hemphill added.
“That's sharing the same database and content in real time,” Hemphill noted. “That's a very useful extension of a digital presence for a retailer and a very nice enhancement to digital customer service.”