Straight from Kroger labs: customized ads, smart shelves,
sensors that deploy cashiers
By Heather Haddon
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (October 16, 2017).
Food retailers are racing to leverage one of the most important
weapons in their battle to keep people coming to grocery stores:
data.
"Data is the new battleground," says Stuart Aitken, chief
executive of 84.51˚, Kroger Co.'s data-analytics unit, whose name
derives from the longitude of the division's Cincinnati
headquarters and because its 750 employees do so-called
longitudinal studies, researching habits of customers over long
periods.
Working from a small host of research facilities beyond the
sleek downtown headquarters and a lab tucked away in a suburban
strip mall, Kroger's app developers and data scientists are mining
consumer information to devise the grocery store of the future.
They are testing apps for shoppers' mobile devices that will
highlight sales based on whether the customer eats meat or needs
help finding recipes for chicken, for example. Want to make fish
tacos tonight? Another app will populate a user's digital shopping
list with the necessary ingredients available at the store.
For store managers, meanwhile, a program is in the works to
allow them to literally see how products are selling in a given
aisle, using augmented-reality apps on their phones that show the
prices and sales figures for the products found there.
Whiteboard fever
"We play in a variety of spaces," says Matt Wiley, a developer
at 84.51˚, during a behind-the-scenes tour that wound continuously
through groups of employees brainstorming ideas on white boards.
The analytics unit also does consulting for such firms as Procter
& Gamble Co., General Mills Inc. and PepsiCo Inc.
Kroger, the nation's largest supermarket chain by revenue and
store count, competes with food-sellers such as Wal-Mart Stores
Inc. and a growing cohort of online food-shopping rivals, chief
among them Amazon.com Inc. The Seattle-based company is generally
upending retail business with its competitive prices, quick
deliveries and the data analytics it uses to target customers based
on their buying and shopping habits.
Food industry executives know they have to be smarter and faster
to compete. Kroger has invested billions over the past decade and a
half to hire engineers out of leading universities and away from
companies recruiting talent with the same kinds of specialized
skills -- including data analytics, logistics and app-development.
Recent innovations developed in Kroger's labs include infrared
sensors that monitor the number of customers in a store and
automatically deploy checkout clerks as the number grows. This tool
alone, Kroger says, has reduced wait times by several minutes
across its stores.
In-house equipment at most Kroger locations remotely monitors
the freshness of certain produce and notifies managers the second a
cooler blows out. Set to roll out at stores next year: shelves with
sensors designed to recognize and communicate with apps on the
mobile devices of certain customers. The apps contain data about
each customer's shopping habits, and the shelves, in response,
display banner ads customized for them, for such products as
gluten-free or nondairy products. Kroger also is rolling out a
wireless scanning device it calls Scan, Bag, Go at 400 stores next
year. Customers will use the device to ring up groceries as they
shop, then pay for their purchases through an app.
Other retailers are using similar devices and other technology
to woo customers. At Wal-Mart's Sam's Club stores, members can scan
goods on their mobile devices while they are still shopping and pay
through an app as they exit the store. Wal-Mart, the biggest U.S.
food seller by stores and sales, also has developed -- but not yet
deployed -- a patented facial-recognition technology that it says
could be used to detect dissatisfied customers and respond to their
needs.
"We're going to make shopping with us faster, easier and more
enjoyable, " Wal-Mart Chief Executive Doug McMillon told investors
and employees this summer.
Not all of the supermarket industry's tech-driven efforts are
about increasing sales. Costco Wholesale Corp., for example, uses
its ability to track every purchase to inform its customers of
food-safety recalls. And at Wal-Mart, stores are using
virtual-reality headsets to train employees to deal with situations
from holiday-shopping crowds to spills in the beverage aisle.
Supermarkets increasingly need to woo shoppers to their stores.
Only 47% of 2,145 grocery shoppers surveyed in February said they
shopped for most of their food at one primary supermarket, down
from 61% a decade earlier, according to Hartman Group Inc. research
for the Food Marketing Institute.Food shoppers increasingly split
their dollars between supermarkets, discounters, club stores,
specialty shops and online food retailers, Hartman's research
shows.
Mining customer data is increasingly seen as the key to
maintaining market share for supermarkets. Large regional chains,
such as Michigan-based Meijer Inc. and California's Raley's
Supermarkets, are hiring consultants to harvest data from their
customers.
Early start
But Kroger has a head start on many of its competitors.
Wal-Mart's advance into the grocery business in the late 1990s
prompted it to start a customer-loyalty program in part to keep
closer tabs on its shoppers. Today Kroger uses 850 algorithms to
personalize the coupons it mails to 12 million households. The
company can use purchase data to determine whether someone has gone
on a diet, had children or retired, and to market different
products to those customers accordingly. Some Kroger coupons have a
redemption rate of 65%, compared with a national average of about
5%, executives say.
"We know our customers better than anyone," Kroger Chief
Executive Rodney McMullen told investors last month.
Retail analysts say that Kroger and other grocery companies need
to do even more to make their discounts and stores appealing to
shoppers as Amazon ramps up its attempt to grab more of the $800
billion U.S. grocery market. The e-commerce powerhouse, whose
recent acquisition of the Whole Foods chain makes its ambitions in
the food-retailing space even more plain, spends 12% of its sales
on technology each year, compared with less than 3% at most
grocers, according to estimates from the U.K.-based
consumer-analytics firm Dunnhumby.
"Grocery companies need to think of themselves more like tech
companies, " says David Ciancio, senior customer strategist at
Dunnhumby.
Amazon declines to comment on its investments and grocery
strategy.
Risky investment
Selling groceries is a low-margin business, meaning that big
investments in technology can be risky. Sometimes companies invest
in new features their customers don't want to use, says Michael
Halula Jr., retail practice director for the Americas for Teradata,
a database analytics firm. "Too often it is the 'Field of Dreams'
scenario," Mr. Halula says.
Kroger's digital spending is weighing on profits, which is one
reason the company recently lowered its financial outlook this
year. The grocer's stock has lost more than a third of its value
this year.
But executives insist that technology is critical to keeping
Kroger competitive.
"This is the obsession," says Chris Hjelm, Kroger's chief
information officer; it is "the customer experience in our stores
and how technology can be a part of that."
Ms. Haddon is a reporter for The Wall Street Journal in Chicago.
Email her at: heather.haddon@wsj.com.
(END) Dow Jones Newswires
October 16, 2017 02:47 ET (06:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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