Marketing as Science

MARK HAMSTRA

Long considered a price leader in the New York Metro area, ShopRite, a cooperative supplied by the Wakefern Food Group, is relentless in its sharp pricing message promising weekly savings, buoyed by one promotional feature after another.

But for Joe Sheridan, executive vice president of Wakefern and a longtime veteran of the cooperative, marketing is really a layer of two-way communication that goes beyond the basic message that ShopRite uses to drive its extraordinary store volumes.

“Price and variety alone cannot provide competitive advantage anymore. The best athletes will all run a price and variety strategy, whether it is everyday price, or promotional price,” he said in an interview at Wakefern's new headquarters in Keasbey, N.J. “What separates you from your competition are those nuances that are greater than price and variety.”

Joe Sheridan

Sheridan's success at elevating marketing to a new level at Wakefern has earned him SN's Marketer of the Year Award for 2009.

Sheridan started in Wakefern in 1976 as a selector in the nonfood warehouse, and later began working in inventory and accounting. He went through the company's management training program and became a buyer, working in procurement in the grocery division for much of the 1980s. In the early 1990s he took over Wakefern's general merchandise division.

He later became senior vice president of marketing, and in 1996 became executive vice president, with responsibility for the top and bottom lines at all of Wakefern's 28 operating divisions.

The cooperative wholesaler has increasingly used its own sales data to dig deep into the shopping patterns of its best customers, and crafted strategies that cater to the specific needs of individual locations — thus the rollout of ShopRite sections like the Kosher Experience and Live Right that target the needs of specific groups of customers.

With a strong focus on data mining, Wakefern can increasingly provide insights about product selection and promotional opportunities to its member operators that help them maximize their sales volume, Sheridan explained.

“While a customer may be under a cash-flow squeeze, they might still be a vegetarian, or they may still have a gluten-free need, or they might still have diabetic needs, or kosher needs,” he explained. “So having that insight when you are also running on price and variety I think gives a true competitive advantage.

“In price and variety, you can be all things to all people, but in marketing, the top third of your customers does 80% of your volume, so you have to see what the top third of your customer is by store or by store cluster is behaving like, and then you market against that.”

As a collection of family-owned businesses — Wakefern is comprised of 45 independent members, all of whom have agreed to operate under the ShopRite name — the company benefits from the entrepreneurial drive and local expertise of each operator, Sheridan explained.

“We are owned by these entrepreneurial families, and each of these families live and operate in their own communities and they are very much in touch with the people in those communities,” he said. “Everything we do — whether it's a promotion, a strategy, a product demo look or a culinary workshop — it's all embraced and executed by these member families.”

Wakefern, the largest cooperative wholesaler in the country with annual volume of $10.6 billion, was founded in 1946 by seven retailers who banded together in an effort to try to purchase groceries at a better price. In 1951, they all agreed to operate under the ShopRite banner to improve the effectiveness of their marketing, and it proved to be the first of many significant marketing decisions that have contributed to the chain's success.

Today, Wakefern includes some 213 supermarkets, including 62 corporately owned ShopRite and PriceRite locations, the latter a price-impact format.

ShopRite is a cooperative supplied by Wakefern.

ShopRite stores generate some of the highest volumes in the industry — about $900,000 per week, according to some estimates — and the company enjoys the No. 1 market-share position in New Jersey.

Observers said the company deftly blends the spirit and innovation of entrepreneurship with the buying leverage of operating a high-volume regional chain.

Marketing has in the last few years become much more sophisticated at Wakefern, with more than 5 million individual households in the company's database that have joined its frequent-shopper program, using the Price Plus card. The chain has embraced a much more scientific approach to the business of marketing, which Wakefern couples with its strong buying power and store-level insights to make ShopRite legendary for its competitive edge.

“This was a big leap for us,” Sheridan explained. “We made a decision not to use the classic form of market research, which could take 12 or 18 months, but in fact to use consumer purchase data since the late 1990s and early 2000s.”

Increasingly, Wakefern relies on a broad array of communications vehicles to obtain consumer insights, including email and calls to its 1-800 number.

However, Sheridan explained, consumers speak most loudly with their wallets, and that feedback is obtained with the highest level of precision from examining hard sales data.

“What people say when they answer a survey and what they buy are often two different things,” he said.

Through careful analysis of the Price Plus data, Wakefern has identified six to eight different categories of households based on behavioral tendencies. The categories include young families, growing families, seniors, kosher and Hispanic households, among others.

“We made a decision to divide our business into specific consumer groups, and then manage our share of those consumer groups across all of our members,” Sheridan said. “We found some members reacted to different segments better than others. One member may react to a Kosher Experience, another member may react to Hispanic marketing, and another may react to a health and wellness initiative.”

All of the different consumer groups are represented at every store to some degree, but certain groups index higher than others, which helps determine what types of marketing initiatives are required at the store level.

Individual ShopRite operators are willing to invest in supporting the company's initiatives, as long as Wakefern's marketing can drive sales growth, Sheridan explained.

“If you are successful in driving top-line volume, you have enough credibility that people will make investments in new ways of doing things,” he said. “Marketing would be a perfect example of a new way of doing things — it's different than a ‘stack it high and watch it fly’ sort of philosophy.

“It's about dealing with the consumers as the ultimate goal. In the '80s and '90s, a lot the talk was about category management, and the discussion points were opportunity gaps at the category level, but we were missing the opportunity gap at the consumer level.”

As a result, Wakefern formalized its marketing division in 2001.

But before that, the company had been working with some of its suppliers on marketing initiatives that went “beyond item and price,” Sheridan explained.

“We developed a roundtable of supplier advisors,” he said. “The suppliers would come in and work 12-18 months at Wakefern, and they would teach us their way of approaching the business. The contract was that we would teach them our way of approaching the business.

“We learned how they measured marketing, how they approached media, how they measured broadcast, how they determined the success of their brands,” he said. “So we were the students, and the students to a degree almost became the teachers, working cooperatively with the suppliers, to a point where we formalized our marketing structure.”

The effort has infused Wakefern with a healthy dose of CPG marketing expertise, something many observers have noted has long been lacking among food retailers.

It also continues to be one of the more highly collaborative retailers in terms of its work with vendors on crafting promotions. In 2008, for example, the company came out with a “Free Gas” promotion during the summer, when fuel prices were spiking, that allowed customers to earn discounts at the pump in exchange for spending a certain amount on products from Kraft, General Mills and Procter & Gamble.

Sheridan described the events of the past year as having unfolded rapidly, but Wakefern was able to respond quickly.

“It started as a rational year, but consider the events that occurred — you had a recession officially take place, you had a collapse in the real estate market, you had a collapse in the financial market, you had an exponential explosion in the cost of commodities, you had the destruction of interest rates, you had rising unemployment, you had $4 a gallon gas,” he said. “You had a lot of events that all occurred in a short time frame.

“So we made a commitment to our customers to make sure that they could still all feed their families with dignity and purpose at ShopRite,” he said, describing a “locked-in” savings program in many basic food items — from cans of soup to boxes of pasta — that were available for $1.

The company also launched what it called a “free food” promotion tied to the government stimulus checks that were issued last spring and summer. Customers could use their checks to purchase ShopRite gift cards in $300 increments, which were then boosted by 10% in value.

“People were very stressed out, and we tried to develop a pricing strategy that was there for them, and a marketing strategy that helped them find solutions,” Sheridan explained.

The company's marketing emphasized meal solutions for families at affordable prices, such as an ad that detailed a meal for a family of four for $10.

“I thought this ad was very responsive,” Mona Doyle, president of Consumer Research Network, Philadelphia, told SN when she saw the ad earlier this year. “You can't go out to eat with four people for $10, or even for $15.”

She noted in particular that the ad was effective in part because it acknowledged the rising costs of some products.

The weak economic environment has altered consumer shopping patterns, Sheridan explained.

“In this past year, price and value trumped everything. It trumped variety, it trumped theater, it trumped promotion,” he said.

“Before, where consumers were buying and throwing things out at home, now they were buying to perfection, and they weren't throwing anything out. Bringing your lunch to work is back in vogue. Leftovers are back in vogue. It's become a value-driven life, and people don't have time or money to waste, and we really are trying to help them.”