Dorothy Lane Market: Killer IT Targets Loyal Shoppers

MICHAEL GARRY

While Dorothy Lane Market may be best known for its Killer Brownies and other freshly prepared bakery items, the three-store independent has also carved out a reputation in IT.

Perhaps it's not so surprising. The family-owned business, which started 56 years ago as a fruit stand in its home base of Dayton, Ohio, and did $60 million in sales last year, uses technology in the same way it markets foods — to please its customers. Thus, Dorothy Lane has become one of the more innovative practitioners of targeted marketing through the analysis of loyalty card data, something many chains have yet to achieve. The loyalty system ensures that its best customers are given the royal treatment.

"They changed their whole merchandising approach" with the technology, said Mike O'Connor, former president of the Super Market Institute, a forerunner of Food Marketing Institute and longtime supporter of Dorothy Lane.

Dorothy Lane's wholesaler, Supervalu, also admires its approach to technology. "They have developed many great systems internally," said Ron Riggsby, director of retail technology for Supervalu's central region, in nominating Dorothy Lane. "They are making great use of their WAN [wide area network] for data flow and new ASP applications."

In addition, Dorothy Lane, led by its Vice President and Chief Executive Officer Norman Mayne, has demonstrated an unusual willingness to help the food industry pilot new technology. Notably, when the Uniform Code Council needed a store to test its Reduced Space Symbology code for produce and meat a few years ago, Mayne offered one of his two Dayton stores for the project.

The store proved that the RSS bar codes could be scanned at the checkout with only slight modification in equipment. "They want to be on the forefront of technology," said Gregory Rowe, director of food and beverage for UCC, Lawrenceville, N.J.

That industry leadership and openness to innovation, coupled with sophisticated use of loyalty data and other systems (some internally developed), has made Dorothy Lane Market the winner of SN's 2004 Technology Excellence Award in the independent category.

Certainly, the centerpiece of Dorothy Lane's IT and marketing efforts over the past few years has been its loyalty system. The system is built around its Club DLM card (which accounts for 85% of volume) and a loyalty marketing system, MarketExpert, from VRMS, Shelton, Conn. MarketExpert allows Dorothy Lane to collect and analyze loyalty card purchase data and target loyalty card shoppers.

Dorothy Lane implemented the MarketExpert system in 1995, the year it decided to discontinue its weekly item/price circulars. In place of a weekly flier, the retailer mails to its top-tier customers a monthly newsletter that contains information on new items, special events and recipes, as well as discount offers. The offers are divided into three versions, based on spending level. "The newsletter is a way to continue communicating with our customers" in the absence of fliers, said Amy Brinkmoeller, who has run Dorothy Lane's IT operation with Patrick Arnold for about a decade. Another way is an e-mailed news bulletin sent to all loyalty card shoppers who accept it.

In addition to the newsletter, Dorothy Lane mails four to five postcards per month with more targeted offers. For example, in the event of a price war on milk in the Dayton market, Dorothy Lane will send top milk customers offers to buy milk for 99 cents per gallon — a better price than its competitors.

The basic philosophy, noted Brinkmoeller, is to "give offers to good customers, the right people," as opposed to shoppers who might just be bargain-hunters.

The focus is on retaining good shoppers, even if less desirable ones shop elsewhere. Some new shoppers are brought in by the prospect of becoming a valued customer.

While not all shoppers subscribe to its philosophy, "that's who we are and we're going to keep doing it," she said. "Most customers love the program."

The strategy has apparently worked, helping the retailer increase gross margins by three points, Brink-moeller confirmed.

Most of the promotions are created by Dorothy Lane rather than by its suppliers, who may contribute co-op dollars, Brinkmoeller said. "Instead of manufacturers pushing offers on us, we would rather pull offers from them," she said.

Dorothy Lane has come up with other ways to thank its best customers. In August, the retailer's top executives personally deliver a bouquet of flowers to the top five customers. Other shoppers get flowers delivered by store managers and associates. For its 50th anniversary, Dorothy Lane organized a concert featuring the 1950's pop singers Fabian, Frankie Avalon and Bobby Rydell — dubbed "The Golden Boys" — and gave away all 4,000 tickets to its top customers.

Dorothy Lane also offers online shopping and order pickup at its Washington Square store in Dayton. The retailer uses a Web ordering system provided by MyWebGrocer. It also sells signature products like the Killer Brownies nationally through its Web site.

Another packaged system Dorothy Lane employs, to make sure it produces the right number of bakery products like the Killer Brownies across its three stores, is a system from Cbord. "The scratch bakery makes extensive use of Cbord," said Arnold. "They can forecast how many loaves of bread to make on Saturday."

Dorothy Lane also develops its own systems. One example is a gift card program, which has generated $238,000 in sales since it was introduced last Thanksgiving. Another is a key fob used by employees to validate their employment at the checkout and qualify for a 10% discount. "We do quite a bit of internal development," said Arnold. "We try to be as self-sufficient as possible."

The retailer also developed an intranet through which managers can access POS sales data that is updated every 15 minutes, as well as promotional results. "Managers use it constantly," said Arnold. "The night manager can see sales are off and send people home." The system is also used to access accounting and HR forms that were previously paper-based.

Another important IT player at Dorothy Lane is Jack Gridley, now meat/ seafood director, who managed IT before Brink-moeller and Arnold took over. They credit him as the source of much IT innovation. "Amy and I take his ideas and run with them," said Arnold.