By Brian Kilcourse, Managing Partner
1/27/2009
When it comes to recent retailer performance, the word “dismal” seems to come up a lot. Like everyone, we at RSR have been thinking a lot about it. As RSR’s own Paula Rosenblum rhetorically asked, “How Do You Talk About Winners When Almost No One Is?” (Retail Paradox Weekly 1/6/2009).
Winners have a knack for finding ways to get ahead and stay ahead, and they have some things to show us all. One such company, UK retailer Sainsbury, is fighting in a crowded market (with Tesco, William Morrison, Marks & Spencer, and Waitrose/John Lewis) for consumer mindshare in that most basic of categories: food. Some, but not all, UK grocers are doing quite well “thank you very much.” The Times of London reported on January 24 that retail sales in the UK increased 1.6 per cent in December, driven largely by heavy discounting. But for grocery, it’s a different story: the Times also reported that Sainsbury’s achieved a 4.5% increase in like-for-like (same store) sales for the 6 weeks ending January 4, compared to an estimated 6% for ASDA (a division of Wal-Mart) , and 2.5% for retail juggernaut Tesco. Morrison achieved a stellar 8.2%, reportedly at the expense of rivals Marks & Spencer and Waitrose, both whom the Times indicates suffered dismal (there’s that word again!) performance during the holiday season.
As recently as 2004, Sainsbury seemed to have lost its mojo while Tesco and Morrison gained momentum, but the company began its road to recovery with the hiring of Chief Executive Justin King. Beginning in 2006, the company started seeing the positive results of the recovery program that King introduced. Part of the company’s ability to get out of the hole it was in can be attributed to how the grocer is leveraging its loyalty program, and so RSR wanted to find out if and how Sainsbury’s is building its share of the consumer’s grocery spend. To that end, we spoke with Peter Gleason, the managing director of LMG Insight & Communication, a division of Groupe Aeroplan Inc. LMG (www.loyalty.co.uk) provides market intelligence to Sainsbury’s to help the company plan assortments and promotions as well as to measure promotion effectiveness. Gleason is a veteran of the extended retail ecosystem, having worked at Catalina Marketing, Kimberly Clark, and Mars Confectionary. Immediately before joining LMG, Peter was Managing Director of Retail Media for dunnhumby, the consumer marketing consultancy.
Dunnhumby Mach2
Both Tesco and U.S. grocer Kroger have touted the innovative market insight methodologies developed by dunnhumby (www.dunnhumby.com). According to Gleason, LMG Insights advances the concepts that dunnhumby and Tesco have used, enabling multi-channel targeted communications based on market insights that are driven by very granular and very current consumer demand data. Where LMG diverges from its predecessor is in the fact that LMG uses faster and more robust (as in, “newer”) technologies. Because of the speed with which huge data sets can be interrogated, questions that took hours can now be answered in minutes, and that allows for deeper analysis. Additionally, LMG has a staff of seasoned marketing professionals (from companies such as dunnhumby, IRI, Nielsen, and CPG companies and retailers) who work with Sainsbury’s internal staff to get the most out of the data. LMG currently has 12 staff full-time at Sainsbury’s headquarters.
Says Gleason, “I think that every retailer, if they want to be a customer-led retailer that’s working on really offering a better shopping experience for the customer, has to invest (in market intelligence capabilities). There are a lot of retailers, in the UK and around the world – and there’s a huge amount in the U.S. - that have the broad tools like a loyalty card, but they’re like Sainsbury’s was two or three years ago, scratching the surface, using customer data to do some clever targeted marketing and communication work, and trying to do some segmentations. But they really haven’t invested in the tools to help them make these decisions. A huge number of retailers only have to make a small investment to really harness the power of household data. And it really is small, because a lot of it can be paid for by the CPG manufacturers. The CPG’s want the information to make better decisions as well. The power of the data, as Sainsbury’s, Tesco, and Kroger have seen, is a major advantage. But not many people are doing it.”
What it Means to Sainsbury: Next-Day Insight
Sainsbury’s participates in a loyalty card program called Nectar (www.nectar.com). They started with the program in 2002, but one of the first things that King did after joining Sainsbury was to renegotiate the company’s continued involvement in the program. Ironically, in 2007 the program could only give the grocer basket level information; Sainsbury really wanted to understand the relationships between SKU’s within a basket. Nectar decided to create a new division to provide that level of market intelligence, with Sainsbury’s full support. Says Gleason, “Sainsbury would describe it as putting the customer at the heart of the decisions that they make, be it about assortments or promotions, by segmenting customers to a level that they’ve never been able to do before.”
Of course the question arises, just how granular and timely of an insight does a grocer really need to have? This is always the problem when talking to retailers about “customer centricity”; someone selling toilet paper doesn’t need a thorough understanding of customer psychographic profiles, but someone selling high-end jewelry had better have a clear understanding of who the best customers are, and what they like and don’t like. In Sainsbury’s case, the truth is between the two extremes just discussed. For example, in the wine category, the grocer wants to understand “how” people are buying the wine category. “Using customer data, we can help them understand that, to make better merchandising decisions,” says Gleason. “For example, for red wines, shoppers now buy by country first, then grape variety, and then they get to price. Whereas with white wines, they go to variety first before they go to country. It really helps Sainsbury to understand how people are shopping the category, and the kind of products they’re buying.” Very importantly in these times, Sainsbury’s wine buyers are looking at what people are buying and where they are looking to save, which helps the retailer to launch new products that fit consumers’ needs. According to Peter, “at Sainsbury’s it’s all around making shopping easier.”
How valuable is it? At a recent conference, King was quoted as saying that Sainsbury now knows more about its customers even than Tesco- and given that Tesco’s executives have said that “flying without a club card would be like flying blind,” that’s a lot. Whereas Tesco’s traders have to wait about 10 days to analyze demand data, Sainsbury can begin analyzing the data “next day.” Sainsbury clearly views the speed and granularity of market intelligence as a key competitive weapon.
Sound Familiar?
All of this may sound a bit familiar. As RSR has been saying from our inception in ‘07, the retail ecosystem is driven not by what manufacturers and retailers want to sell, but by what consumers want to buy. And it’s not for want of trying that retailers have struggled to develop more demand-driven strategies. The most basic inhibitor is the sheer mountain of data that has to be turned into intelligence. “It takes a dunnhumby or an LMG to bring the true value out of that customer data,” says Gleason. “To put it into context, every day in the afternoon, we get through the previous day’s data from Sainsbury’s up to last midnight, and every day Sainsbury’s passes us 21 million rows of data. That’s everything from every transaction from every retail point whether it’s got a loyalty card attached to it or not. We keep that data for over two years, so we’ve got over 20 billion rows of data that is then accessible for CPG’ers or retailers to access 24-by-7, to ask business questions like ‘what’s the right promotion to run’ or ‘what’s the right assortment’ or ‘what did people who bought this buy in the same basket’. Literally within two minutes, those 20+ billion rows are interrogated, and the actionable insight is drawn out of it. We invested $20 million to create this kind of tool. It’s not the retailer’s role to make the investments to create these kids of tools. We’re able to do this, and therefore companies like Sainsbury’s and CPG’s have a major advantage.”
LMG’s hope is clearly that other retailers will work with them to have the same advantages that Sainsbury’s is enjoying.
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