Minding their business intelligence

By taking an integrated approach to managing corporate data, grocers are primed to make smarter business decisions. By Deena M. Amato-McCoy As grocers try to navigate the “new normal” of to­day’s economy, they are hard-pressed to understand consumers’ changing buying patterns and how they impact assortments and sales trends. Their need to dig deep into these trends has pushed business intelligence (BI)  technology into the spotlight. BI systems help chains manage operations such as SKU rationalization, explore new categories and even reduce shrink levels. A majority of retailers (76%) that successfully support an enterprise BI strategy report they are uncovering—and understanding—customer behaviors, a practice that helps them execute market strategies and build loyalty, according to preliminary results for the upcoming report, The Democratization of Business Intelligence: How Retailers ‘Sense and Respond’ Across the Enterprise, compiled by Miami-based Retail Systems Research. “When it comes to understanding the customer and what is selling, retailers only have their point-of-sale and customer loyalty data to count on,” explains Ed Dupee, vice president of retail for Dayton, Ohio-based enterprise analytics technology company Teradata. “The key is to have a centralized, enterprise-wide BI solution that integrates data across all business operations.” This was exactly what executives at New York-based Red Apple Group had in mind when they made the transition to a new integrated enterprise system comprised of a Teradata data warehouse integra­ted with Red­mond, Wash.-based Micr­o­­soft’s business in­telligence and workflow applications. The company will consolidate data from multiple sources across the organization into the centralized data warehouse. “This will accelerate enterprise in­telligence to our system users—and has already proven its power to increase performance for us,” according to Chris Mc­Crae, CIO of Red Apple. Besides econo­mic savings, near-real time access to actionable information, and smooth system scalability, “We’ve seen tough queries that once took much time and manual intervention now deliver responses in just seconds,” he says. Matter of trust Still, experts say that many retailers resist the move to business intelligence systems. The retailers argue that they have built their businesses by having personal relationships with shoppers and using their “gut instinct” to understand consumers’ needs. As their businesses, categories and shopper volume continues to grow, however, true one-on-one relationships enterprise-wide are hard to come by. The good news is an all-encompassing BI strategy can only augment the personal knowledge they have honed over the years. “BI is replacing extremely manual processes,” says Tom Kozenski, vice president of product strategy for productivity solutions provider Red Prairie, Waukesha, Wis. “Market basket analysis that reveals shoppers who buy hot dogs also always buy buns, or steak shoppers always purchase A-1 steak sauce cannot be un­covered manually. How­ever, detailed data analysis will make that connection.” More specifically, the move toward predictive analysis is taking the retail industry by storm. There is a move from mere reporting to predictive analysis that evaluates current and historical facts to forecast future events. “The concept is much more data- and decision-driven than traditional reporting and BI applications are clearly supporting the trend,” says Patrick O’Reilly, president and COO of Applied Predictive Technologies, an Arlington, Va.-based analysis software company. And the value goes far beyond understanding shoppers’ favorite brands—especially in a sluggish economy that is changing the way consumers are spending discretionary income. While shoppers continue to spend at their favorite grocer, what they are buying is changing. “If consumers are shying away from certain products, retailers need to allocate less space to these items,” says Dupee. As chains get a better handle on granular data through for transaction- and customer-level analysis, they can make better decisions. One of these decisions is what to focus on during SKU rationalization. “It is especially important to know exactly what your shoppers want before making any sudden moves,” says Diana McHenry, director of global retail product marketing for Cary, N.C.-based SAS. “Retailers must stay abreast of customer purchase behavior and market baskets to understand the value of favorite items, even slow sellers,” she says. “Forgetting to look at shopper profiles holistically, chains run the risk of eliminating item and alienating customers.” With a better understanding of shopper and sales details is also the foundation needed to compete better in the marketplace. Through the use of BI, grocers are learning that an area of opportunity and differentiation in the marketplace could be through their home meal replacement category. “The recession is forcing many more shoppers to trade in their restaurant visits for more meals eaten at home,” Tera­data’s Dupee says. However, consumers also continue to be time-starved and as a result, they are not always willing to cook a meal from scratch. As a result, home meal replacement solutions are growing in popularity and becoming an increasingly important category for grocers. “By knowing what meal solutions, flavors and types of prepared foods shoppers are purchasing or willing to buy, chains have a better chance of differentiating themselves,” he says. Tracking shrink The economy has also increased the rate of loss across the retail industry. By applying BI and analysis tools however, grocers are using a new level of defense to reduce shrink, especially among fresh categories. Waitrose, one of the U.K.’s best-known supermarket brands, is using SAS software to do just this. The chain’s 190 stores each carry more than 15,500 product lines—with 30% being product introductions—making it imperative for the chain to ensure it can accurately supply the right products to the right stores in a timely way. SAS’ solution, based on demand forecasting, focuses on historical data to improve normal forecasting; and observes sales and react to seasonality, and improve event forecasts. Across dry goods, stores reported higher direct-to-shelf hit rates. Order amendments across stores fell by 40%, and managers now had more time to spend focusing on customer service and satisfaction. It also has made significant gains across fresh departments. “We have reduced stockholding by at least 8% and wastage by 3% to 4%—we originally estimated a 2% drop in wastage, so this is far better than predicted,” according to Gail Richmond, Waitrose’s manager of branch ordering development. “We can look at past events and see if mistakes were made, at Christmas for example, and put them right next time,” she says. Weighing options With integration at the heart of enterprise BI configurations, retailers have more options to efficiently access internal data. By opting for more software-as-a-service (SaaS) partners, grocers are giving up their control of proprietary data, but these hosted services still keep information accessible and protected. “Larger retailers have substantial IT organizations and infrastructures, and have no problem owning and managing the software, data and network,” explains Red Prairie’s Kozenski. “Then we have other customers who say they want us to provide the computing power, administration, integration services and hosting services, as long as all data can be kept secure.” According to industry experts, SaaS keeps expenses down and supports scalability. In addition, retailers are eager to get their store managers out of the back office and onto the front lines where they can interact with shoppers as they browse store aisles. With the explosion of consumer mobile devices, such as iPhones and iPads, Blackberrys and other hand-held communications tools, this idea is moving beyond a mere pipedream. “BI is a new application that offers the intelligence managers need to make decisions on all store operations,” says Dupee. “And now these can be done on the fly, without being tied to the office and without taking their eye off their shoppers.”