Archive for Retail Technology

Amazon Fresh…Changing the Rules of Engagement


A news article posted by MorningNewsBeat speaks to RetailNetGroup’s recent analysis of the experiment in on-line grocery shopping that is Amazon Fresh.  I am always interested in those who are convinced that to-your-door groceries is coming into its own.  While Ahold’s Peapod, Fresh Express, MyWebGrocer, and others have carved out a sustainable yet small niche in the grocery industry, Amazon may just be the one to kick start the offering on its journey to a more pervasive service.

Unlike those other services, Amazon is seemingly prepared to expand this service without any sustainable profit in sight.  They likely mean it when they say Amazon Fresh is a strategic initiative, not a profitable tactical one.  Without the burdens of financial contribution, coupled with Amazon’s mastery of logistics, Amazon Fresh could conceivably be the service that finally breaks through to critical

If that is true, Walmart, and all leading traditional supermarkets will need to pick up the pace on refining and expanding the services.  It could also mean that delivery fees are lower, order size minimums are waived, and it certainly could mean that home delivery and in-store pick up will never pay out using traditional metrics and full allocated costs.  Amazon Fresh may dictate that all players in this space see it as strategic as Amazon purports.

Departments and offerings within the mix of the traditional supermarket that do not profitably stand on their on is not a new phenomena.  Just add on-line grocery shopping to the list and understand the indirect benefits of incremental shoppers and transaction size growth that these services can foster.  With Amazon moving in, and Walmart not about to be left out of the mix coupled with more time starved, tecno-savvy consumers, the stars are aligning for grocery e-commerce.  Let the games begin.


Supermarkets Doing Just Fine Says Kroger CFO | Retail & Financial content from Supermarket News

Supermarkets Doing Just Fine Says Kroger CFO | Retail & Financial content from Supermarket News.

Kroger’s CFO, Michael Schlotman reports that the traditional supermarket industry is “doing just fine” at yesterday’s investor conference in Orlando, FL.  I hope he is right.  Mr. Schlotman cites the viability of Wegmans, Hyvee, WinCo, HEB  and of course, Kroger as sterling examples of successful traditional supermarkets.  It is very difficult to argue with his logic or examples.

If we look deeper at his example retailers, they all share some very important business practices.  They are aggressive in capital investment, they have invested in human resources, they price competitively, they are deeply involved in local marketing, and consequently, they have all found a profitable niche in their respective marketplaces through innovation and differentiation.

One last comment about this elite group of retailers.  They all have taken the “long view” in terms of financial investments.  Not everything they do has to “ROI” immediately.  In fact, Kroger has taken “heat” from Wall Street for many of their investments in fuel programs and customer database marketing over the past few years.  Both of which are cited today as key elements of their on-going success.

I am still not convinced the traditional supermarkets as a group, are “doing just fine. Certainly those that take the long view and have a clear vision of what it takes to compete are positioned very well to continue to prosper.  However, dozens of other traditional chains continue to struggle, close stores, freeze wages, cut staff and continually retrench.  These chains would benefit from at least attempting to replicate the investments and practices of the successful few.  Easier said than done!


Is Your Digital Strategy “Active” or “Passive”?

All the hype, pomp and circumstance aside, digital marketing is mere blip on the radar screen for most retailers…especially those in the grocery channel.  I say this with all due respect to grocery retailers as I understand their need to hitch their wagons to those media and programs that represent critical mass.  Accordingly, digital engagement in the grocery channel, defined as communicating digital content and offers,  is far from grabbing the headlines away from traditional venues and promotions.

My assessment of as to why digital programs still live in the periphery of the retailer marketing options centers around whether digital programs are passively or actively promoted.  Pour another cup of coffee and let me explain.

Passive digital programs are those that are launched relatively quietly, typically exclusively on digital touch points.  For example, in the case of a grocery retailer offering load to card or load to account digital coupons, there is often little or no mention of these programs in the mass media such as weekly circular television, radio, or even direct mail.  Further and even stronger evidence of the passivity of promoting digital content, there is rarely any mention or reinforcement of the program in-store.  Please don’t bother asking a cashier or associate about the program in-store, you will only get a blank look and a shoulder shrug.

Another key component of a passive approach to digital is content itself.  Retailers who expect hundreds of meaningful, widely WinnDixe1purchased brands to drive the content bank of these digital programs, often find that unless the shopper is in the market for an obscure meat seasoning, or a new herbal toothpaste, the digital offers available have little relevance to their shopper’s needs. But yet retailers who take a passive approach launch programs with these offers and then wonder why engagement is so disappointing.

Here’s the first take-away for retailers.  Digital is not going away.  Shoppers want it.  Shoppers are hooked on the concept and other channels of trade and on-line retailers are setting the early shopper expectations in both content and technology. As Winn-Dixie aptly “tags” their new digital program, “The Future of Savings is Here”.  They have it right.

The second important point for retailers is that passively engaging digital and waiting for the content to arrive, is depriving them of a golden opportunity to become a committed leader and thus gain share of wallet from their current shoppers and actually be in position to lure shoppers from their competitors. But this can happen only if the retailer takes an “active” approach to digital.

Here are a few recommendations I offer to become an active retail digital marketer.

1.  Shout about the program in-store. Point of sale signage, bag stuffers should tell the story.  Associates should be aware of the program and endorse it at every opportunity.

2.  Drive the digital content with retailer-sourced offers.  Make the commitment to have some of your “skin in the game”.  Measure results and then “invite” your brand partners to contribute based upon your early positive results.

3.  Tie digital into the mainstream of your marketing program.  If you offer paper coupons in your circular or paper direct mail, convert them to load to card or account.  Also, think about layering digital bonus savings on front page items, end cap features, perhaps have a “Store Managers Digital Offer of the Week”.  Get inventive.

4.  Measure the results and use the resulting customer data to become iteratively smarter about which offers and content drive the best results among your shoppers.

5.  Don’t forget to include store brand offers.  Nothing will get your brand partners interested in participating faster than if they see their share of category sales diminishing due to the impact of your store brand digital offers and campaigns.

Active digital engagement is an opportunity to lead, differentiate and embrace the future.  Staying passive will keep you comfortably operating in the past or at least until you fade from the scene.  It’s your choice.








How Much are Your Customers Really Worth?

Much as been written about the monetary value of each customer.  What are they worth and how much should I invest in each one to retain them and grow their share of requirements are logical follow up questions to be answered.  Theories and white papers have chronicled some very compelling reasons to understand “customer value”.   But despite these revelations,  many retailers simply do not measure their business by individual shopper metrics, but rather the more traditional sales, customer count and aggregate profitability.   So when you ask one of these retailers how much their customers, and more specifically, their best customers are worth to their business, you get a blank stare.

I agree that ultimately customer value metrics must be linked to the more traditional metrics of accountants rely on to measure the business.  Wall Street is not going to change their yardsticks of success overnight.  But it is also no accident that retailer leaders like Dave Dillon of Kroger and Steven Burd of Safeway are quick to credit their customer relationship initiatives as the single most important driver of their financial success.  One must assume that leaders with their level of business acumen are not just guessing about the nexus between traditional metrics and customer-specific metrics.  What do they know that others do not?

  • First, they likely know what the value of each of the key shopper segments represents to their business.  With their massive databases loaded with customer shopping history, they know precisely what each key shopper segment brings to their enterprise and how important the retention of these shoppers is to a vibrate business.  There are a number of techniques to calculate the value of the shopper, but at its most rudimentary level, annualizing the amount of spending and resulting profit each shopper segment represents is a great start.
  • Secondly, because of their ability to understand the value of the shopper, it is not difficult to extrapolate this “monetization” to the capital assets necessary to deliver the necessary targeting and content needed to maintain or improve upon shopper value.  With this approach, capital investments can be made in the context of cogent ROI models, putting smiles on the faces of both marketers and accountants.
  • And finally, armed with shopper value data, these retailers can and have made intelligent decisions on the best and most efficient way to spend limited marketing dollars.  As retailers advance their shopper evaluation process we are beginning to see fewer dollars spent on mass communications such as weekly circulars, television and radio, and more dollars being focused on targeted media such as SMS texting, email programs, and periodic direct mail.
While there is nothing new or truly exciting about any of the aforementioned steps, other than it all begins with understanding the value of each customer that comes through the retailer’s door or logs on to the retailer’s website.  Despite good progress, still, far too few retailers are unable to answer the question, “How much are my customers worth?”





Picking Winners and Losers

Traditional supermarkets are currently losing business on both ends of their customer spectrum.  On the “price” end of the business, Walmart, Target, Aldi, Sav-a-lot, and Club Stores continue to chip away at center-store categories.  Conversely, fresh specialty chains like Whole Foods, Fresh Market, and Trader Joe’s are showing up with increasingly regularity as accepted additional options for traditional supermarket shoppers.

Harris Teeter Supports Local Growers

The resulting impact on many, (not all) traditional retailers are negative comp sales, lower margins, and poor overall financial performance.  Some, such as Food Lion, have tried to overhaul their image and offerings with new private label lines, lower prices and sharper promotions.  Others, like Raley’s in Northern California, have launch significant new loyalty programs.  Still others are remodeling their stores and adding new fresh and organic lines of perishables to stave off further attrition.

Two, retailers, however, have continued to produce positive comp sales and have grown their revenues through a variety of programs and initiatives.  The first is Kroger.  Much has been written and said about their dedication to investment in data, fuel programs, and overall pricing prowess.

The other is Harris Teeter, based in Matthews, NC.  Harris Teeter recently posted nearly 4% same store comps for the year, while increasing their shareholder dividend.  They have consistently innovated by offering in-store grocery pick-up, expanded their perishable offerings and services, and have cemented their leadership in their communities through giving and sponsorships.

One could also argue they understand who they are and are not.  They are competitively priced, but certainly not attempting to compete with Walmart and the other “price” players in their markets.  What they have done is expanded their value proposition on-line with digital coupons, and extra value for their e-Vic (electronic frequent shopper program) shoppers.

In essence, Harris Teeter exemplifies a retailer who follows the basic, but often times difficult formula for success. They understand their value proposition to their shoppers and continually re-inforce it.  They stay competitive in price with innovative promotions and embracing digital content.  They also are not shy about making some aggressive investments in their stores and programs to keep shoppers engaged and loyal.  All of this is executed with remarkable consistency.

Harris Teeter is a winner.  But winners are often targets for other winners to challenge.  To that end, Publix has recently announced a major move into the Charlotte, NC market, one where Harris Teeter has significant share.  So Harris Teeter will be tested once again to make adjustments to defend their turf.  But one thing they will likely not do to beat Publix is change the formula that has yielded so much success in such tough times. 





The Great Digital Disconnect

Like many things that come along in the world of retailing, digital content and especially digital coupons have been a disappointment to many with regards to their immediate impact to the business.  While shoppers are increasingly pre-shopping on-line, loading coupons and building shopping lists prior to their journey into the world of bricks and mortar, their activities still remain on the peripheral of most retailers mainstream focus.  This is particularly true in the grocery channel, where I have spent the majority of my career.

There are number of theories about why digital content has not become a more significant element of shopping.  Some of the barriers that are evident to me are;

  • Lack of Technology Integration In-store:  That translates to the inability for most retailers to allow the shopper to actually use their mobile device in-store to aid in the shopping experience.  Mobile payment capabilities, while catching on, is still not ubiquitous to the point of becoming mainstream for the shopper or the retailer.
  • Competing Value Propositions: Brand money and retailer focus always migrates to those elements that move cases, drive sales and can be measured.  While digital content is considered slick and most retailers believe it is the communication media of the future, paper coupons, weekly circulars, and other traditional promotions still bring drive the vast majority of sales and the quick return on investment that brands and retailers must have to run their business.
  • Dearth of Digital Content:  This is the biggest void.  Clearly many retailers and manufacturers are dipping the toes in the water, but digital offers and information continue to be an under-nourished entity, which is especially damning if the brand and retailer want to target this content so that it is meaningful to the shopper.  Hundreds of digital offers, covering some of the highest household penetration categories need to populate the offer bank, not a just few dozen, that mostly contain high margin, low penetration categories, that is the norm today.

Digital content has been wrongly positioned (in my humble opinion) as a series of stand alone events and content that often have no connection to the mainstream value proposition of the retailer.  To that point, there is an opportunity to gain acceptance and reach a degree of critical mass with digital content, if two things happen.

  1. The digital content is directly linked or layered to existing value elements of the retailer.  This means digital deals that are positioned as bonus savings on end cap items in the store, front page items in the circular, or even targeted offers that are in direct mail or email communications.
  2. There must be evidence of these digital offerings in-store.  Signs with QR codes to connect with content, references to how to load digital content to the shopper’s account while the shop in the store is rare.

When these conditions are met, shoppers will embrace the offers, engage with digital content programs at a much higher level.  Consequently, brands will be more likely to spend their trade or shopper marketing dollars with the retailer who can deliver a more holistic digital approach.  Then the fun begins.




The Most Important Retail Metric of All

In all my years in the retail industry, I never had the question posed to me, “What is the most important measurement for retailers to monitor”?  Despite no one every asking, it’s a fair question I think.  Given that most retailers appear to be driven by the metrics that interest the financial community,  the list of candidates likely starts with metrics like comparable store sales, revenue, and of course profit.

As important as all of these common metrics are, none really speak to the “potential” that a retailer has to improve on any given number.  To place performance in context, at least in my view, one needs to include spatial metrics that speak how efficient a retailer is producing profit with the allotment of retail selling space they have to work with.  Can you see where I’m headed here?

About twenty years ago, spatial measurements were emerging as space management tools such as Apollo and Spaceman came on the scene.  For the first time, supermarket retailers had the means to understand how the placement of products in the store and on the shelf impacted sales and profit.  As a result, epiphanies were common place as retailers began to adjust space allotments and placements to a variety of items and results could be projected.  I had the privilege of working with Dr. Brian Harris, the founder of Apollo Space Management as well as the ensuing scientific approach to category management back in the early 90’s.  One of the key learnings that emerged from his work then was that we could actually combined sales performance with space performance we then had a metric that could help us understand if our performance was being both profitable and efficient.

Enter GMROI.   GMROI, (Gross Margin Return on Inventory Invested), calculates profit generated by the dollars (measured in average inventory cost) on each item placed on the shelf.

GMROI=  Gross Margin/Average Inventory Costs

The formula is simple, but in order to calculate Average Inventory Costs, you need a space management tool that calculates days of supply, holding costs, etc that comprise Average Inventory Costs.

Armed with GMROI numbers retailers could make judgements category by category, item by item, store by store.  Below is a quick view report from the 1992 Marsh Super Study that uses GMROI as the defining index to measure category performance.  Any number over 1 denotes the category is returning positively over the investment, but beyond that, the metric provides a relative unit of measure to compare items and categories.



The above report depicts a variety of metrics related to spatial performance.  Anyone of them are of potential value to the retailer as a means to adjust and improve performance .  GMROI, which is depicted in the far right hand side column in the table above, begins to paint the picture that category managers can use to fine tune space allotment, sku rationalization, and other decisions.  But if the retailer is not privy to “advance” spatial metrics offered by space management tools, a simpler metric, Gross Margin/Retail Square Foot is still a very telling number, however, it is much more difficult to look at any level of meaningful granularity without the space management tools.

So, with the admission that we need a number of measurements to manage the business,  my vote for most important retail metric above all others is GMROI.  It provides the combination of profit that is earned by manageable business units with how smartly the unit being measure is positioned and allocated in the store.   GMROI averages can be the yardstick for departments, categories,and even items, allowing  comparisons and categorizations so that retailers can make adjustments in pricing, space allotment, stocking and handling practices, and even positioning within the layout of the store.  I know of some retailers with well-seasoned space management departments are using this metric successfully.  Others should try it!


Why Bad Things Sometimes Happen to Good Retailers

There is almost no margin for error these days when it comes to service or operational excellence.  The competition is unforgiving and for the most part, so is the customer.  Loyalty is often allusive and depending upon your definition of the term, is becoming even more so if  you believe much of the research about the next large demographic group of influence, the Millennials.  Earning their repeated business will be tantamount to herding cats.

Someone believable once said that “you are only as good as your weakest part”.  That adage certainly holds true to larger retailers who have great programs and intentions, but somehow do not get them communicated or executed in all stores, everyday.  To complicate matters, I often find that many retailers are in denial about the existence of their “weakest parts” such as inconsistent customer service, poor store conditions, and even execution of chain-wide promotions and marketing programs.

In fact, some of the best retailers I have either shopped, consulted with, worked for, or visited have been subject to bad things happening, despite great plans and intentions.  It happens to the very best.  There are a variety of reasons for these often brand-damaging inconsistencies.  Among them are;

  • The newest, best and brightest stores get the attention of a new born baby, but older, often smaller stores are often off the  radar screen when it comes to both operational and merchandising attention.
  • Tangential to bullet number is the unavoidable limitations that smaller, older stores struggle with vis-a-vis their larger, newer sister stores.
  • With constant cost-cutting becoming the new reality for retailers, there are fewer district or field managers, fewer merchandising specialist, and clearly fewer folks in the stores to support corporate mandated standards.
  • Despite new technology pervading the retail landscape, some retailers are still not very good about communicating to the stores in a manner that is effective and clear.
  • Finally, accountability relating to store execution, (or poor execution from HQ) is often poor.  When things do not happen the way they should, there are not quick-read metrics or reports available for review and remediation.

Most of the operational and communications short-comings are fixable.  Some require investments and still others may invovle tough decisions to close older stores, but others are more about priority alignments.  When bad things happen, good retailers have the following options;

  1. Before branding campaigns are developed, think through how the least of your stores might support it.  If the bottom dwellers do not fit the image and the essence of the campaign, consider adjusting the campaign to have relevance in these smaller stores, or longer term, consider re-bannering them so they do not negatively impact the consistency of delivery.
  2. There are a myriad of new communication technologies out there.  Many can offer hand-held or tablet communications so that store and department managers have access to plans and imperatives directly from HQ. If you are not good at communicating, there are tools to help you get better!
  3. When sales are down and pressure mounts, resist severely cutting labor (at store level) to the point that the “blocking and tackling” execution of customer service and operations are at risk.  All of the great communications and plans are moot if there are not folks on the front lines in position to energetically and accurately execute the plan.
  4. And finally, and most importantly, have the right measurements and reporting in place to understand when poor execution occurs.  Consequently, if you are providing the tools and resources to execute plans, and they are not handled properly, hold folks accountable.  It is the right thing to do.




The Forgotten Category Metric…”Location”

I could very quickly list about a dozen metrics that category managers use with some regularity to evaluate  category performance.  Dollars per linear foot, percentage of total sales (distribution), days of supply, and inventory holding costs are just a few of those.   As a matter of fact, the savvy category manager more often complains of having too much data and too many metrics than not enough.

But yet among the plethora of information there is an almost “mystical” absence of any information about how the placement of categories and departments effects performance.

Let me explain.  Many of us have seen thermal maps that depict where shoppers go (and don’t go) when they shop the store.  Simply put, there are aisles, alcoves, and even perimeter locations that are dying from under exposure.  Shoppers just don’t go there.

The thermal map here depicts a supermarket all the various areas of the store that are well populated with shoppers (green-yellow-red) and those areas that are less frequently traversed, (blue-deep blue).  Notice there’s more blue than any other color?

The reason for these “vast wastelands of retail” are two fold.  One is rather intuitive.   The products that are merchandised there have little or no appeal to the shopper.  They are either redundant with other similar products that shopper has already purchased, or they are just very uncommonly purchased items, with very low household penetration numbers.

The second dynamic in play is less intuitive and almost completely off the retailer’s radar screen.  It is that there are overt reasons why shoppers shop the way the do, where they tend to go, and how they tend to get there.  These tendencies are so common and  have been proved to be so universal they are principles in my mind.  Without getting  into detail the individual principles here, (I would recommend you read some of the great work my mentor and ex-boss, and fellow RetailWire contributor,  Herb Sorensen has published on this topic), I will list several of the key principles for context.

1.  Shoppers like to shop counter-clockwise (right to left).  (Right handed stores are good Left handed stores, not so much)

2.  Shoppers are much more productive spenders early in their trip and spending diminishes as they progress through the store.  (There are diminishing returns on long trips)

3.  Shoppers spend only about 25% of their time “shopping” and about 75% “going” from spot to spot in the store to shop. (Improving “shopping time” can be very fruitful for the retailer)

4.  Shoppers migrate to open spaces, they don’t like aisles and cubbies, they also like open sight lines.  (Store design and layout implications are abundant.)

5.  When shoppers do visit aisles, they frequent the polar ends of the aisles much more so than the center of the aisle. (Be careful what you merchandise in the middle of the aisle, it may die of loneliness.)

Ok, I could go on and on with dozens of additional scientifically proved principals.  But I think you get the drift that with the aforementioned dynamics in play, it does matter where in the heck you put things in the store.  Here’s one example:

Looking at two nearly identical stores with similar square footage and layouts, the Household Cleaner Category in the left side diagram is place earlier in the shopper’s trip cycle when they are spending faster and in more volume and where 25% of all the shoppers are exposed to the category.

On the right side, we see the same category placement later in the shopper’s trip and in a aisle where only 12% of shoppers visit.  The end result is 6% of the shoppers make a purchase in the category in when the category is in a superior location….3X over the sales it generates in an inferior location.  This might be really important to know, if you find your Household Cleaner Category being commandeered by the big box stores.

I understand fully that not all categories can be placed in the stores “hot spots”.  But the point is that categories will perform radically differently depending up where they are placed in the store.  The good news is, there is a process that can rank and prioritize categories and match those categories to the where the shoppers are going in the store.  The results can be unbelievably lucrative for not only the category, but the overall store in terms of basket size, profitability and even shopper satisfaction….it works, I’ve seen it!!







Why Great Technology Fails

Great” technology is a relevant thing.  Fifteen years ago, we marveled at the clarity and utility of laser disks.  But by today’s standards LD technology would be tantamount to racing a 57′ Chevy at the Indy 500.  But as technology makes strides in both cost and efficiencies, we are still presented with the same dilemma as we were 15 years ago when retailers are lured to try the latest and greatest techno-masterpiece that promises to deliver us from evil and separate us from the pack. Important questions must be answered, such as…   “What’s the business model?” “How does anyone make money on this new innovative way to digitally captivate our shoppers?” and of course, “Where are the dollars going to come from to make everyone millionaires”?

While the technology is now better, faster, and cheaper, we still must find reasonable answers to those aforementioned questions or else witness more great technology finding its way into the retail techno-dumpster.

But to play in the field of retail supermarkets, even a more specific question must be answered….. “How can the technology solution’s business model find a home in the very tightly controlled flow of dollars between CPG brands, their retail customers, and ultimately the retailer’s customers”? 

Sounds profoundly simple, doesn’t it?   Well if it that were true, the failure rate of business technology innovations in retail would be dramatically less.  As it is, those that succeed typically make it VERY BIG.  The majority that do not, crash and burn,  leaving their angel investors with one more frustrating loss in their portfolio.  Despite this hideous track record of success, the supermarket industry remains very alluring for innovation.  It’s a $600 Billion playground, (although Walmart owns about a fourth of the pie).  Couple that with the false sense of everyone understanding the dynamics of the supermarket business.  After all, we all shop in one from time to time or know someone who does!!

There is a good news, bad news ending to this story.  

First with the bad news.  The failure rate of new technology solutions in supermarket retailing will remain very high, no matter how much smarter we get about what can work and what will not.  There is only so much money in the system to monetarily support the content, the hardware, the software, the marketing, et al, necessary to drive a new digital touch point to a position of “critical mass”.  Only the very best technology with the most cogent business model will win, all others will end up in the same graveyard with video on shopping carts, electronic shelf tags, and in-store television networks, all of which were great technology.

The good news, as I see it, lies in the fact that there is sufficient learning over the past fifteen years that can give the best technology the best chance to build a business model that provides retailers, brands and the consumer the necessary ingredients for success.  With the proliferation of mobile, hand held devices, (mostly cell phones), which now creates a new conduit to the mass marketplace, we have a new touch point unforeseen, even just a few years ago. 

In my next blog on this topic,  I will identify the steps and elements that are vital for new technology companies to consider before they make the first big presentation to a retailer or brand.  It may surprise you what I have found to be the most critical predictors of success.