This week, Raley’s Supermarkets announced from their Sacramento, CA headquarters that they are now offering their shoppers a loyalty program, called appropriately enough, “Something Extra”. This program struck me as interesting for a couple of reasons.
First, new loyalty programs in the retail grocery channel are very rare. While digital, load to account, coupons have moved some of the most avid chains without loyalty programs to create some iteration of a customer identification process, most have opted to keep it very low key and not make it the center piece of their marketing strategy. Quite the contrary, Raley’s is “shouting” about Something Extra and is appears to be the headline of their value proposition.
The second most notable element of Something Extra is the offering to participants a customized shopping on-line pre-shop experience with a continuity element. While being driven by digital, load to account offers, Something Extra also includes a point system that enables shoppers to build and track their account on-line by purchasing various items that are linked to points within the store. Again, point systems are not new and in and of itself, not remarkable, other than to note that Raley’s is not relying just on digitally loaded coupons to drive shopper loyalty and is making a commitment to allocating “markdown” expense to a points program.
But the really BIG news about Something Extra is hidden behind the scenes for Raley’s shoppers. It is in fact the targeting engine that Raley’s has chosen to drive the customized content to their participants is a tool called “dunnhumby”. For those of you familiar with the supermarket sector, you know that dunnhumby is a well established tool, first used in the UK to drive Tesco’s success and used exclusively to this point in the U.S. by Kroger banners to segment and target shoppers based upon their previous shopping behavior. Suffice it to say the “dunnhumby” might be regarded as the”secret sauce” of Something Extra, given its proven ability to facilitate customer relationship communications.
As with all loyalty programs, Raley’s commitment to the program vis-a-vis the amount of content and value they direct to the program will be critical to its success. However, adding dunnhumby to the mix, and building a intuitive and interactive website for points tracking and customized shopper communication with Raley’s tells me that they are in this for the long haul.
The trend is clear. The growth in the U.S. grocery sector today is not found in traditional supermarket formats but rather with specialty stores like Trader Joe’s, Whole Foods, and Fresh Market. There are further signs of life on the other end of the spectrum as there is also growth opportunities for smartly located “price” oriented stores, especially the smaller, quick in and out formats like Aldi’s and Sav-a-lot.
But it has been a proverbial month of sundays (aka, a very long time) since the days of traditional supermarket chains planning dozens of new stores in their capital expenditure plans. Today, after another tough year of “comp sales” their press releases focus more on updating existing facilities, consolidating, and the ever-euphemistic “right sizing” of the number traditional grocery stores.
I see three prevailing reasons for this dearth of growth.
- First, the sluggish economy has slowed residential growth and consequently the opportunity for new shopping centers and emerging business locations that have traditionally been fertile ground for supermarket expansion. (BTW- If you are counting on the leadership from Washington D.C. any time soon to finally get fiscal policy right and end this malaise, don’t hold your breath)
- Secondly, competition and complacency are killing traditional stores. In medical terms, the autopsy of the traditional supermarket will read something like this; “death due to over-exposure, and multiple lacerations from savvy competitors over an extended period of time”. I mentioned these competitive culprits in the opening paragraph. They are at good at what they do and they have figured out how to profitably propagate their formats and brands nationally.
- Thirdly, traditional supermarkets are closing in on the end of their product life cycle. For more than sixty years, this format has carried the load for grocery selling in the U.S. Current trends indicate that there is little doubt that the traditional supermarket needs a radical reformation, or they go the way of the drive-in theater, the eight-track tape player, and vinyl records. It should be no surprise to anyone. Incredibly, these stores are designed for a shoppers that no longer represent critical mass. The whole concept of grabbing a cart and a shopping list and spending 45 minutes to an hour shopping for food is already a rare and dwindling behavior. None the less, traditional supermarkets are built for just that type of trip. (I could bury you with facts and figures to support this contention, but I constantly strive for pithiness).
Game, set and match.
Before you ask me to check my medication, I do realize that traditional supermarkets will continue to sell groceries for many years to come. There are over 35,000 of these things out there to be amortized and the accountants alone will prolong the death of this mighty beast until the last drop of EBITDA is extracted from its veins. But the trend is clear. So the next time you see a flyer for a grand opening of a brand new supermarket, consider attending and save the balloons. Its something you can share with your grandkids someday.