REINVENTING CPG SUMMIT 2006-03-13

LUCIA MOSES

SAN FRANCISCO - Food Lion is testing a customer segmentation effort with the goal of growing business by targeting shopper groups with banners, products and direct-mail offers that are tailored to their buying behavior and lifestyles.

The Salisbury, N.C.-based retailer first tested the program at eight stores in 2005 and is expanding it to other groups of stores after seeing sales lifts that met expectations, said Charles Davis, director of pricing there. He declined to provide specifics about test results, citing the competitive nature of the work.

Davis led a group that was responsible for segmenting Food Lion's loyalty card database while serving as director of business strategy and analytics. He described the work during a session at Information Resources Inc.'s Reinventing CPG & Retail Summit 2006, which took place here recently.

By analyzing 6.8 million households, the project resembles in scope the loyalty marketing work by Kroger, which has analyzed 6.5 million households in what observers have described as the most in-depth and committed project of its kind by a U.S. food retailer.

Food Lion saw segmentation as a way to differentiate its stores from competitors. Until that point, the retailer had focused on improving its value to customers through attributes like longer hours, clean stores and having products in stock. But other retailers were doing the same things, Davis said.

"For us and many grocers, for that matter, Food Lion has long had an average-customer focus," he said.

By improving customer loyalty, segmentation allowed Food Lion to shift from offering a good customer experience to a great one, he said.

Card data was the cornerstone of the program. Food Lion used the information to analyze what the 6.8 million card-holding households bought. It divided them into segments based on demographic and lifestyle characteristics.

Food Lion used Personicx, a system that places U.S. households into one of 70 distinctive segments based on consumer behavior and demographic characteristics. Personicx is a product of Acxiom Corp., a customer and information management systems provider. Little Rock, Ark.-based Acxiom also provided the statistical analysis that enabled Food Lion to group the segments into clusters.

Using shopper panel data from IRI, the retailer also was able to see what people were buying in competing stores and identify opportunities to capture those sales. That meant adding or deleting a few hundred SKUs depending on their importance to key shopper groups so that, Davis said, "When the customer walks in, they go, 'Wow, these folks thought of me.'"

Food Lion plans to measure the initiative's return in terms of sales and profit growth.

Longer term, the retailer hopes to apply segmentation to deciding which banner is most suited to a given market as it remodels stores. Food Lion, a division of Delhaize America, operates more than 1,200 stores in the Southeast and mid-Atlantic.

Davis acknowledged that moving to a segmentation approach requires a change in culture from inside the company and among vendors. In the latter case, they may find that as a result of segmentation, their products that were once carried in all of a retailer's stores are determined to be suited only to a portion of them.

"The fact that we've traditionally been a low-cost provider where we execute uniformly against 1,200 stores, that's been a big barrier," he said. "The upside is in getting customer-centric. Executing against 1,200 stores is supply-centric."