Kroger Succeeds By Keeping Track of Customers

Kroger is
keeping close tabs on its customers and that more than anything may explain
how the grocer has managed to achieve significantly higher same-store
gains than rivals Safeway and Supervalu.
David Dillon,
chief executive of Kroger, told the Los Angeles
Times that
the company’s work with Dunnhumby has given it greater insights into
the shopping behavior of its customers.
“We send our
very best customers coupon books specifically targeted at what they actually
buy. The redemption rate of these coupons is significantly higher than
other coupons,” Mr. Dillon said.
Kroger uses
the data it receives on its customers to divide its stores into three
groups. A store serving an affluent consumer base, for example, would
have an expanded wine selection and no value-priced private label items.
At the opposite end, a so-called value store would “be much more focused
on price,” Mr. Dillon said.
One advantage
of the Dunnhumby system, according to the LA Times report, is
it allows Kroger to identify items that will continue to sell at higher
prices.
“Ten
years ago we paid too much attention — almost every day — looking at
what our competition was doing,” Mr. Dillon said. “We can’t ignore our
competitors, but we have to pay more attention to what our customers
want in our stores.”
Discussion
Questions: Has Kroger gotten better at understanding its customers
in your opinion? Is its work in this area above that of its competitors
in markets across the country?
Join the Discussion!
15 Comments on "Kroger Succeeds By Keeping Track of Customers"
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Keeping your current customers happy is always a good idea. But focusing only on those customers misses a large part of the picture. They should also focus on those who do not shop in Kroger, understanding what it is that keeps them away. If changes can be made to attract new customers while retaining the old, that is a huge win.
Kroger’s understanding of its customers has greatly improved. Rather than send out scattershot coupons, it targets specific consumers with specific offers. I’ve been waiting for years for a grocer in Southern California to do this. When our latest mailing from Ralph’s arrived, we used 60% of the coupons offered, a much higher average than our weekly FSI.
This is not rocket science. dunnhumby has been doing this with Tesco in the UK for years, with positive results.
Listening to consumers, watching their purchasing habits, and then offering value, works. Why did it take so long to come to one of the major US grocers?
Anyone can have access to all the data they want these days. It’s a matter of how you use it and turn it into actionable information. This is where Kroger excels.
Your question asked, “Has Kroger gotten better at understanding shoppers?” The answer is clearly it has. Is there more work to be done? Absolutely. As an example, assuming that stores in affluent neighborhoods should lead to no PL couponing for those shoppers and a heavier reliance on wine features may seem intuitively appropriate – but may not be the maximally effective solution. Perhaps those affluent shoppers would purchase PL products in an effort to save money where they can and they may choose to purchase wine at specialty stores…I do not know that to be true, I offer that only as an example.
While I confess to a favorable Kroger prejudice, what Kroger is doing so well in its marketing, in its merchandising, in its new store formats and in its targeted approach to its diverse customer base is resulting in increased same-store sales. It’s true, as Stephen Needel suggests, there are still further opportunities for non-Kroger shoppers, but Kroger is researching and executing better than other chains. Wish my other alma mater, Supervalu, was attaining the same beneficial results so it could become effervescent once again.
Kroger has listened to my suggestions and has made changes in our local store based on my comments. I have been truly impressed by their responsiveness.
Another thing I really appreciate is coupons targeted to what we buy in their store. I think there’s much less waste (paper, effort, money) and greater value for me, their customer. They put stuff on sale that you actually use. Their gas discount has saved us a lot of money too.
They have tried attaching coupons to your Kroger card, and I have never found those to work when I get to the register. So I guess that’s the only disappointing thing I have found.
What a great example of Customer Delight! Kroger is focused. I know some have mentioned that they are missing opportunities by focusing on existing customers vs. new customers. I don’t have the exact facts at hand but dollars spent on existing customers reap greater rewards and shorter paybacks than new ones.
I believe a company can’t do all things…so given resource constraints, Kroger is making the right choice. Remember, those “delighted” customers will be telling their friends, blogging, etc…thereby bringing in new customers as a result.
Kroger seems to be succeeding where many other retailers have failed–targeting, precisely, what their customers want where they shop.
There are other notable retailers who have long placed an emphasis on “store of the community” but whose goal of identifying with the local customer base in product and services was largely unrealized.
Kroger’s approach is much less complicated and much more likely to succeed. Targeting customers through coupons based upon their historical propensity to purchase certain products is marketing money well spent. If, in addition, they are able to physically alter the store assortments (much, much more difficult to plan, purchase and operationally execute) then all the more successful.
In those stores where a dominant consumer trend exists (ethnic or income related) assortment changes can be made. However, these may represent a minority of their total store counts, therefore the consumer coupon targeted approach can drive increased sales in certain categories, driving increased turns and allowing for a natural increase in those products most desired in that particular store. Demand-driven assortment changes are always trump.
The one thing I haven’t seen anyone pick up on yet in this discussion is–in my opinion–Dave Dillon’s most important and revealing comment.
“Ten years ago we paid too much attention–almost every day–looking at what our competition was doing,” Mr. Dillon said. “We can’t ignore our competitors, but we have to pay more attention to what our customers want in our stores.”
Retailers have been fixated on the price of Private Label gallon milk across the street for the last 20 years. It has cost them untold profit dollars as they have habitually vastly overestimated the number of “price sensitive items” in consumers’ mental data bases.
Kroger started to win the day it stopped watching Walmart and started watching Wally and Wanda Smith at 4402 Main Street, Everytown, USA.
Isn’t it funny how not one word has been mentioned in any of these discussions about the manufacturers? The most important thing Kroger has done is not only to ignore their competitors but also to dismiss the self-serving interests of those who make the products and want to sell them above all else.
Whether Kroger should be looking over their shoulder or focusing on customer needs, is not the question here. It is clear, from any successful company, that customer service always wins. Kroger, like any company, needs to adapt to their customers’ needs, and will only be able to successfully do this if they communicate and keep in-touch with their customers. Focusing on this allows them to adapt, rather than offering things their customers do not need or want.
The work that Kroger is doing with dunnhumby is pioneering for U.S. grocery retailers. Only Stop & Shop has appeared as a peer in the area of leveraging customer data to customize the experience for Best Customers. In the UK, of course, Tesco has set the high water mark for this type of effort.
By focusing on understanding Best Customers, Kroger is embarking on an effort that can significantly improve their margins as well as the long-term growth viability of their business. Personalized coupons are a good start–but they are not the destination.
The destination, if they can capitalize on the data, would be to use that information to alter product assortment as well as to create enhanced customer experiences for their Best Customers. To accomplish those goals will require a customer-centric organization.