The massive changes related to the outbreak of the coronavirus delivered millions of new customers to grocery stores and millions more of them online for the first time, accelerating rapid changes underway in how grocery stores communicate with shoppers.
The idea of tailoring offers and communications on a one-to-one basis based on purchase data has long been a goal for “consumer-centric” retailers seeking a profitable and powerful way to go to market—and an answer to advancing expectations of shoppers brought along by Amazon—but they’ve never had quite the opportunity to go after it the way they can today. This opening is dovetailing with widening availability of sophisticated software promising new capabilities, including predictive analysis. It also comes at a time when traditional consumer marketing vehicles like mass-marketed print ads lick wounds from the pullback in promotions that also came along with the pandemic and, in some cases, suffer while the print newspapers that traditionally accompanied them have also gone digital.
Along the way, the concept of personalization will take on new meanings and expressions in the post-COVID era, sources say. While personalization in retail grocery has traditionally referred to the targeted delivery of marketing dollars, the data insight giving rise to those capabilities are pouring into every area of grocery retail, from private label development to customer acquisition to internet strategies. Personalization can also help retailers as they repair or replace shopping customs worn away by COVID behavioral changes and ride new trends into a post-pandemic world, sources say.
“Retail competition has shifted to the individual customer,” says Gary Hawkins, founder and CEO of the Center for Advancing Retail & Technology (CART), “and knowing who your customers are along with their purchases and other information is no longer optional.”
This shift from mass marketing to personalization will be a critical element of a “new operating system” demanded of food retailers in the post-COVID era, according to Sajal Kohli of McKinsey & Co., speaking earlier this year as part of FMI’s Midwinter Executive Conference.
“Digital marketing investment has hit a tipping point with a true shift in internal capability, investment and movement of marketing dollars,” Kohli said.
“We know that at scale, personalization has proven its potential beyond revenue,” he added. “It’s a marketing efficiency play. It’s a critical enabler of customer engagement, and it’s a driver of new customer acquisition.”
The sidelining of the food-at-home channel in 2020 and the explosion of internet shopping, in the meantime, have given retailers lots of opportunities and much better data to begin assembling personalized orders for them—and among some, kicking off what Kohli called an “arms race” to build better personalization engines to serve them.
“Historically, digital marketing represented a meager 5% to 10% of a marketing budget. Yet many grocers are budgeting close to 50% for 2021 and 2022,” Kohli said. “With that shift comes an arms race to build a better marketing tech stack and operating model to drive rapid campaign deployment with a test-and-learn engine underpinning the approach.”
NO TWO ARE ALIKE
By its very definition, personalization is the delivery of unique offers to unique shoppers, and in the same sense, can provide a point of difference in food retail that’s arguably more difficult for competitors to replicate than a widely distributed print ad, clean floors or a well-merchandised produce section, not to say getting those things right aren’t also difficult or important on their own.
The Kroger Co., recognized as one of the leaders in the movement toward personalized marketing and customer-driven strategies dating back to its association with dunnhumby in the 1990s (since succeeded with in-house data firm called 84.51), sees personalization as one of the key levers supporting its same-store sales growth. Emphasizing leadership in fresh foods, private brands and its omnichannel expansion—all of which have “personal” elements—are the others.
Even before the pandemic struck, Kroger was amping up its personalization efforts, including experiments with a variety of membership programs. The reason is simple: Personalization drives loyalty, and loyal customers drive the business. As of last year, about 30% of the 11 million households that shop with Kroger were considered loyal, and represent about 70% of the chain’s sales. As a group, they are eight times more valuable than non-loyal shoppers and visit stores four times more frequently, Kroger executives say. That’s helping to win a greater share of their shoppers’ overall spend, and providing more precision and a greater return on marketing.
“Loyal households engage in higher numbers with our total value proposition of good prices, exciting promotions and relevant rewards,” Joe Grieshaber, Kroger’s chief marketing officer, said in a presentation. “For loyal households, the value they receive is enhanced significantly from personalized rewards, and this reduces the price they pay.”
Kroger last year saw as many new households as the company gained in the previous three to four years combined, according to CEO Rodney McMullen. This surge in new shoppers—and the potential that a reopening economy may at any moment lure them back away—has prompted the retailer to get busy trying to convert them to loyal households sooner than they might have under different circumstances.
“In the past, a new customer had to be with us a period of time before we started engaging with them on a personalized basis,” McMullen said in a recent conference call. “Now we engage with them immediately. And we keep improving that personalization to be more and more directed to just that household as we learn more about them. And then, hopefully, they are understanding that by being part of our ecosystem, [they see] the overall value we provide.”
Albertsons Cos., with a long heritage as an aggressive high-low promoter, is getting more personal even as the declining volume of traditional promotions has triggered a reduction in the number of pages in its weekly print ads, CEO Vivek Sankaran says.
“What I’m excited about, is that we are certainly going more digital. We have more technology to manage the promotions,” Sankaran said in a March presentation for investors. “So it’s not about quantity, but quality of promotions. That's what we're emphasizing. So unlike the past years, I think you’re going to find we are going to be much more targeted in our promotions, more personalized and focusing on quality, not quantity.”
In Sankaran’s view, this isn’t a deviation from Albertsons’ traditional marketing strategy but rather, high-low with new precision and efficiency. Wasteful and often underrealized promotion dollars are deployed instead where they have a better chance to succeed. “So you may see a deep promotion for an individual. It's not deviating away from high-low, but just being more surgical with high-low,” he said.
Sankaran said close to 1 million of the 6 million new customers that came through Albertsons properties in its fiscal third quarter signed on to Just 4 U, its proprietary loyalty and rewards program. In a general sense, shoppers are more receptive to loyalty programs because the pandemic has them spending more in the channel, and the rewards for shoppers and benefits for retailers increase together. Albertsons’ most loyal customers can spend $20,000 a year with them, Sankaran noted. “Customers, because they’re shopping more in a store, spending more on grocery, just see more value in those rewards,” Sankaran says. “So that part of it is working. And when they engage, they start spending a lot more.”
Not to be outflanked by supermarket rivals whose frequent-shopper data provides a base for personalization, even “card-less” retailers like Walmart are getting into the personalization space in a big way, helped along primarily by the explosion in its online grocery pickup and delivery business that has led its omnichannel charge and underpinned the creation of a paid loyalty tier. Store purchases associated with the credit card consumers store on the Walmart app are also now being used to target shoppers. “This gives the retailer powerful insight into household purchase patterns that until now could be only inferred,” the Brick Meets Click consultancy pointed out in a recent post.
Smaller retailers, many of whom may find the cost of an arms race a barrier to entry, are pairing up with startups to bring data science application to their shoppers.
Alan Alexander, founder and chief strategy officer of I.Me.Mine, a Tempe, Ariz.-based software company, has worked for several years with Arizona regional grocer Bashas’, bringing its “Thank You” rewards program to digital life through creation of what it calls its Personal Circular, but the idea to do so dates back to turn of the century, when his advertising work with General Mills turned him onto that company’s belief that a still embryonic digital shopping had already begun to write an obituary for the weekly sales circular that, even in its heyday, was viewed as an effective but imperfect medium.
“One of the problems with the print circular is that 5% to 10% of the items might be relevant to you, but then 90% is irrelevant,” Alexander said. And when considering the entire store, any given shopper may find 1% of the assortment relevant—“but that 1% is different for every shopper.”
Harps Foods Stores, the supermarket retailer that shares a Northwest Arkansas base with Walmart, partnered with software company Birdzi to build personalized marketing communications with shoppers and a newly launched rewards program. One issue plaguing Harps? The daily newspaper in its home county went digital, taking away the traditional delivery device for its printed circulars, its VP of Marketing David Ganoung said in a recent podcast.
At Birdzi, based in Iselin, N.J., an AI-powered personalization engine grew from initial work nearly a decade ago as a store traffic and mapping application. It is now helping several regional grocers sharpen their marketing precision, including Coborns, Foodtown and Weis Markets.
MARKETING WITH A SPEAR
One of the fascinating upshots of the pandemic and the behavioral changes it brought about is how abruptly it rendered so many time-worn customs of the grocery shopping trip away. Getting them back—perhaps in some altered form—will require marketing that uses the kind of sophisticated technologies behind emerging personalization engines.
“If you’re doing click-and-collect, the idea of endcap promotions really doesn’t mean anything because the customer isn’t walking the store anymore. The idea of a sales flyer really doesn’t mean anything because the customer isn’t shopping with a flyer. And the idea of impulse items is not really working anymore because the customer isn’t walking up and down the aisles like they were—in fact, in some environments there’s more personal shoppers for click-and-collect than there are shoppers in the store,” says Kevin Sterneckert, chief marketing officer of Symphony Retail AI, a platform bringing consumer-centric solutions to CPG companies and retailers.
“So how do you then reach the consumer and encourage those behaviors? That’s what personalized promotions and marketing is all about. It’s not marketing with a net, it’s marketing with a spear,” he adds.
Sterneckert described impressive results from grocery retailers deploying the company’s software (he said partnership agreements prevented him from revealing them). Coupon redemption from CPG companies improved by 58%, retail sales improved by 8%, and the discount rates on coupons were down by 25%. That helps promotions be more profitable for all parties. “Those are massive numbers,” he says.
“The real winner will be the consumer,” Sterneckert predicts. “So for example, if I go to buy from a retailer, the website or the mobile device is personalized to preferences that I have, things that are interesting to me. And the product, the inventory quantities, the regular price, the promoted price—all of those things—can be tuned.”
One of the advantages that emerging AI technologies bring to the consumer marketing space is the ability to process data far beyond the abilities that humans can, turning yesteryear’s work of customer segmentation—that is, breaking consumers into age groups or lifestyles—with enough granularity to achieve true one-to-one relevancy some are calling “hyperpersonalized” marketing.
“Segmentation is a broad brush. It’s the demographic, maybe the geographic—‘I’m 50 and I’m female’—but that is not hyperpersonalized,” says Kathleen Kimple, chief retail officer of FitForCommerce, a boutique consultancy specializing in digital retail. “AI can bring that to bear.”
The move from segmentation to personalization is still in its early stages industrywide, some feel, in part because retailers have more to learn about the science of motivating behavior—including prices and recommendations—and even good data has blind spots, because most retailers only get a deep look at a fraction of what their customers spend overall.
“It’s easy to give a relevant offer,” says Edris Bemanian, CEO of Davis, Calif.-based pricing science firm Engage3. “That’s super-easy to do. Choosing an offer that’s relevant and profitable is the challenge.”
Deeper research into product attributes as they relate to driving purchase decisions is one area that can unlock a consumer’s “authenticity curve” and give shoppers offers they value, Bemanian says. At the same time, personalization has to support a retailer’s price image, optimizing offers that meet customers’ needs and budget together, and drive returns for them and the partnering brands.
“It’s a multi-objective optimization where we want to optimize across the consumer because of their budget needs and their own health objectives. We want to optimize to the retailer who has to make sure that they’re hitting their gross margin targets and build loyalty in the long run. And the brands are tired of throwing a hundred billion dollars a year at the street promotions problem and looking for a better way,” Bemanian says.
Keeping those long-term goals in mind is important, he notes, while acknowledging there is “low-hanging fruit” in the personalization space. “The Krogers and Safeway/Albertsons that have been in this space have absolutely had a head start,” he says. “But whether you’re a small grocer or a $10 billion-plus player I think you all can create significant engagement and loyalty, and you can build on that. It’s not a binary, all-or-nothing thing. It should really be, ‘What’s our roadmap to personalization?’ What do my customers actually care about? What would align with them and resonate with them to drive more value?”
Effective personalization not only encompasses richer data, says Kimple of FitForCommerce, but also contemplates things like how and when to reach out to shoppers in the manner that shoppers want. A simple “preference center” on a website or app where shoppers can manage this can go a long way toward this goal.
“We also hear from our clients that it’s [important to be] using AI to how you serve that up to me—in an email, or an SMS text, or geo-targeting me when I’m in the store. That says, ‘I know what you buy.’ That’s going to continue to dramatically change the face of grocery shopping,” she adds.
Kimple says she sees the growth in e-commerce grocery last year—in which penetration jumped from estimates of about 3% of industry sales prior to the pandemic to more than 10%—as a spark toward personalization because it also delivered loads new customers and new kinds of data.
“Grocery had been upping their game on digital and doing more to transact online—but then comes along the pandemic, which changed shopping behavior,” she says. “And we learned that customers really embraced the ease and the convenience of click-and-collect. Now, God willing, the pandemic is starting to feel a little bit in the rear-view mirror, and there’s some stickiness there. It looks very, very likely that click-and-collect and buying online is going to continue. So it’s new customers to their loyalty programs, new customers using click-and-collect, new points of customer data.”
POST-COVID IS PERSONAL
As retailers and their customers settle into post-COVID habits, personalization will be a part of the “new normal,” says Brian Ross, president of Precima, the customer-marketing software group that is now a part of NielsenIQ.
“In many ways, personalization will take on increasing importance through COVID and in a post-COVID scenario—and importantly, in the stages in between,” Ross says. “The primary reason for this is that personalization is all about being relevant to consumers and changing needs and habits of the consumer. It’s also about delivering the most relevant engagement to each and every customer, one customer at a time.”
After experiencing shopper stock-up and store visit reductions associated with the pandemic, Ross recommends that retailers should expect consumer behavior to continue to change, demonstrating the need to first understand how consumers are changing and continuously refine personalization to be most relevant.
One COVID change expected to take root in grocery retail is a reduction in SKUs, and “personalization can be a key enabler for that change,” Ross adds.
“For example, if a retailer decides to discontinue a specific item as a result of diminishing sales, it’s critical to understand which customers were buying and were brand-loyal to those items,” he says. “This will help the retailer manage the transition to the new assortment. Specifically, as retailers rationalize their assortment, they need to identify core consumers of those discontinued items and proactively suggest alternatives and relevant substitutes of those items to these customers, and to ensure to help manage this change while still meeting the needs of customers, even with a reduced assortment.”