Kroger puts data to work

By analyzing data from its loyalty cards, Kroger knows what products to stock and how many of them. The data also allow the grocer to send customers coupons for items they regularly buy. The result? Higher sales

CINCINNATI -- Lisa Williams has never liked sorting through coupons, and she no longer has to at Kroger grocery stores.

Every few weeks, coupons arrive in Williams' Elizabethtown, Ky., mailbox for items she usually loads into her cart: Capri Sun drinks, Reynolds Wrap foil, Hellmann's mayonnaise. While Kroger is building loyalty -- with 95 percent of a recent mailing tailored to specific households -- Williams is saving money without searching through pages of coupons.

"I'm not that big a coupon-clipper," she said. "It seems like a lot of coupons you see are [for] things that you never use."

Although the recession has revived penny-pinching, Americans are still redeeming only 1 percent to 3 percent of paper coupons. In contrast, the nation's largest traditional grocery chain says that as many as half the coupons it sends regular customers do get used. Kroger's part ownership of a data mining firm allows it to put the reams of information its shopper cards collect to use in more ways than other retailers do. One way is to give shoppers coupons mainly for products they regularly buy.

Simon Hay, CEO of dunnhumbyUSA, the data-mining and marketing operation Kroger co-owns with a London company, said targeting promotions becomes even more important in a recession.

"In a growing economy, you might get lucky because there is more money around," he said. "But if there is less money around, the question is how can you be absolutely certain that you've got the right offers in the right places?"

Many retailers have loyalty cards, and some offer "instant coupons" at checkout based on buyers' habits. But dunnhumby -- named for founders Clive Humby and Edwina Dunn, who are married -- is about more than coupons. Kroger uses dunnhumby's consumer analyses, which the data firm augments with customer interviews, to guide strategies for promotions, pricing, placement and even stocking variations from store to store.

"You know you're going to sell milk, but not all stores sell milk in the same ratio," Kroger President Don McGeorge said. "Tide detergent sells everywhere, but not evenly everywhere. In some areas, Gain sells more."

DunnhumbyUSA has signed up such other big clients as beverage maker Coca-Cola Co., home improvement chain The Home Depot, consumer products maker Procter & Gamble, department store chain Macy's, and food makers General Mills and Kraft Foods.

A Big Brother feel

Kroger says individual treatment builds loyalty by making customers feel appreciated, but there can be a Big Brother feel to the targeting.

Kroger shopper Joyce Grosshenrich of Cobden, Ill., recalled deducing from her mailings that her buying habits were being tracked. She decided the discounts were worth the trade-off.

"If it was anything else, it might be different," she said. "But it's groceries, so what the heck, who cares who knows what I eat?"

The value that Kroger gains from that knowledge has been noted. Scott Mushkin, a Jefferies & Co. analyst, cited Kroger's "superior customer knowledge" in October, saying stocking and promoting the right products creates loyalty and drives profitable sales.

"This level of personalization is a direct link to our customers no other U.S. grocery retailer can replicate," David B. Dillon, Kroger's chief executive, told investors Dec. 9. Kroger reported then that sales rose 9 percent in its third quarter. It expects sales to slow as the recession lengthens.

Kroger invested in dunnhumby five years ago when it resolved to make better use of its shopper loyalty cards, now in the hands of 55 million people.

"Our problem was that we didn't have the expertise to turn that data into insight," McGeorge said.

In London, supermarket chain Tesco -- dunnhumby's majority owner -- was already using Dunn and Humby to do just that. Now, for manufacturers such as Coke and Kraft, Hay said, dunnhumbyUSA analyzes sales activity to track customer response to new items and even to advertising and promotions such as in-store taste tests.