When H-E-B launched their line of Joe V’s Smart Shop in 2010, retailers across the industry were curious to see how the value-first store would perform. Aside from initial criticism by Trader Joe’s on account of the name, the first store received a highly positive response from shoppers in the Greater Houston Area.
The barn-like entrance of the store differentiated it from other discounters, and once inside, customers were met with great values. The chain’s motto is “Low Prices, Quality Groceries,” a phrase that rings true today based on a price analysis conducted by Engage3. The ninth Joe V’s Smart Shop opened at the end of 2018 in Pasadena, Texas, showing that H-E-B’s investment in a discount banner continues to draw in new customers year after year. We visited a Houston-area Joe V’s to compare it to H-E-B’s main stores.
To begin, Joe V’s Smart Shop has a very distinctive entrance. The recessed sign is eye-catching and separates it from other stores in the area. The carts were standard supermarket size, and there were no flatbed carts like those available at warehouse retailers like Sam’s Club and Costco.
When we entered the store, items marked as “special buys” lined the sides and advertised especially good deals. From here, it was easy to guess that the majority of the products in the store would be bulk-packaged.
These deals continued into the main aisle, with prices marked on large yellow signs leading all the way into the produce section. Products were stacked in pallets three levels high and were priced lower than an average grocery store, but they were also in their original bulk packaging.
Produce and Fresh Food
When we reached the end of this aisle, the store opened up to the produce section and the other areas inside. Fruits and vegetables were piled high, allowing customers to move between the different produce items, a big change from the carefully curated displays in a normal H-E-B store. The focus here was on the value and volume Joe V’s offers.
Alongside the produce section was a Sushiya booth, a staple of H-E-B markets. This is where sushi is prepared and sold. From here, we had the option of going into the warehouse-style portion of Joe V’s or continue in grocery. We stopped by the meat section, seeing a sign advertising freshly-butchered meat. The selection was not as expansive as a traditional H-E-B location. This trend continued in the bakery, where there was a large sign boasting eight bread rolls for a dollar.
Once we left the fresh food areas, Joe V’s resembled a warehouse retailer much more closely. Bulk items, pallets, and spacious aisles made the store feel entirely different from a supermarket. Here lies Joe V’s biggest strength – the prices that consumers typically find at warehouse retailers without the membership fees. The store’s true character came out in these aisles, making the store seem inviting despite the bulk packaging and bright yellow signs.
General merchandise like cookware were also scattered throughout the store, but it was never overwhelming or unexpected. Joe V’s mainly sells groceries, and these items were stocked to complement the rest of the store’s inventory. The store’s weekly ad, available on the Joe V’s website, only lists food items and related products like paper towels.
A Hybrid Checkout
When we were ready to leave the store, we had a checkout experience we have never seen before. At first, it resembled a typical grocery store setup. There was a long conveyor belt, a cashier, and a bagging area. The difference was how the customers were paying for their goods.
The cashiers do not handle money. No cash, no coins, and no cards ever cross their hands. Instead, they were focused on ringing up the items and bagging them as quickly as possible to keep the lines down. The cashiers were friendly and had animated conversations with shoppers as they loaded up the carts. Customers either used the card payment system or inserted their bills and coins into a device that looked like an ATM.
The hybrid system created an experience similar to a self-checkout machine without having shoppers bag and scan their own purchases. It looked like this unassisted payment system was quicker and let customers still interact with a human cashier.
Warehouse Prices – Is it Sustainable?
Though Joe V’s Smart Shop shares many characteristics with other stores like warehouse retailers, it gave us a unique shopping experience. It provided value comparable to a membership warehouse, but without the membership fees.
Joe V’s checkout system is notable in an industry adopting tech innovations. Pure self-checkout kiosks face criticism from customers who are looking for a human connection while shopping. With Joe V’s checkout method, shoppers get human interaction, and cashiers are freed up to scan and bag quickly.
Overall, we think that the store delivers on its promise — “Low Prices, Quality Groceries.” The combination of an efficient labor model (cashier-less payment and the use of vendor boxes for display), bulk-size offerings, less assortment, and the use of H-E-B’s low-tier private label — all add up to a unique strategy that might prove to be a winning idea.
This is Part 2 of a video series. Part 1: Bill Bishop Talks to Ken Ouimet About Price Image and Personalization is here.
Ken Ouimet, CEO and Founder of Engage3, met with Bill Bishop, Chief Architect at Brick Meets Click, at the National Grocers Association (NGA) Show in San Diego. They discussed recent studies on the gut microbiome that will deliver the ultimate 1:1 consumer personalization, the importance of developing a master data management for product attributes, and how retailers should start planning for a future where consumers use product attributes instead of brands to make purchase decisions.
Below is the transcript of their conversation.
Ken: So Bill, when you think about personalization, what does a retailer need – what infrastructure do they need to have in place to be able to do that?
Bill: Probably the key thing a retailer needs to have in place to do the personalization is a rich set of product attributes. Now back in the day, product attributes were limited to color and flavor and a few items like that, but today many products have literally hundreds of attributes. It could be an ingredient attribute, it could be a claim attribute, it could be a health attribute. So there are entire businesses being built today to assemble rich attribution that allows a consumer to be able to make a judgment about a product and decide whether it really fits their need or not.
Ken: Most retailers that we work with, we see that they’re struggling just to maintain the product description.You know you’re talking about hundreds, thousands of attributes. How do you see a retailer managing those?
Bill: Well, the management of the attributes is tricky, and you’re absolutely right. Retailers struggle keeping track of data at a fairly basic level in many cases. But what I think the answer is, is that there will be third-parties who actually will assemble that data and transport it to you in a fashion, as a retailer, where you can put it to good use.
Ken: Yeah, it’s fascinating. Another interesting research that they’re doing at Davis–do you know Bruce German over there?
Bill: I’ve met him, yes.
Ken: Yeah, he’s doing some fascinating work on the gut microbiome. And they’ve just figured out how to sequence the polysaccharides in the sugars, and where that’s going is that they’ll be able to recommend diets specific to certain bacteria cultures. I think that could really transform–to be able to give consumers the information on what foods to eat to affect their gut bacteria cultures.
Bill: To me, the microbiome is a perfect example of personalization right down to the one-to-one level, because the analysis that can be done today will say exactly what your condition in your gut is and mine, and the recommendations would be highly personalized to your need. A retailer who delivers that kind of recommendation, and we feel the effect–which we’re likely to do with the microbiome–I mean, that’s pretty sticky stuff.
Ken: And there’s a lot of innovation going on with the dried foods right now. And then, what’s important is that you’ve got nutrients, like how much nutrients are stored in there. So giving that consumer that kind of information, I imagine, would be really powerful too, to direct them. Do they want frozen or canned, where are their nutrients going to be best?
Bill: The amount of nutrition is really something more and more people are interested in. So how a particular product is processed, whether it be frozen, canned, or dried. I mean if the retailer and the producer can explain which has the best vitamin and mineral components to it, that’s going to be very important to a growing number of people. And I think retailers can merchandise that very effectively, and maybe draw people back to center store.
Bill: I’m concerned that with all the good things that having product attributes available can do, that companies aren’t moving faster. Why do you think that is?
Ken: It’s a hard problem. First of all we have a huge change in marketing from mass marketing to personalized marketing. Then we need to tie the attributes to something–it has to be meaningful. The way we look at it is using them to create a consideration set of what each consumer will consider when they’re buying a product. Retailers struggle with just managing their product descriptions, and now you drill that down to a hundred attributes for each product–that’s a lot of work to manage. You look at some vendors like Amazon, they push it out to their vendors to manage, but if you’ve got 10,000 vendors that’s a lot to bring on-board to manage those. The other thing we see is master data management for the attributes. Each category is different, and will have a different set of attributes. And we’ll see that each consumer is different in what attributes they value.
Bill: So with the work you’re doing at Engage3 with consideration sets, is that going to help people move forward faster and realizing the full value of these product attributes?
Ken: Yeah, absolutely. The consideration sets are really magical. They allow us to make sure we serve up relevant products, but also they can allow us to use trade funds more effectively.
Bill: How do you develop a consideration set?
Ken: We look at the attributes of the products that the consumer is buying, and that’s a behavioral modeling point. So we use machine learning to cluster those sets of attributes and know what they’re looking for. And then there’s another way we manage it, is through what objectives does the consumer have, and that’s more of a top-down [approach]. Behavior will look at the history of when they set their objectives or maybe they’ve gone to the doctor and they see they’re gluten-free, you don’t want to wait for the history of the product purchases. You can start recommending right away.
Bill: Gotcha, so you’re able to help your clients more quickly implement and get to the value of these attributes, even though it’s a great big complicated job.
Ken: We’re moving in that direction. Today, we’re helping retailers manage their attributes to compare products with their competitors, so the store brands is a real challenge, especially with retailers like Aldi coming in with 90% store brands. How do you compare? You can’t just scan the UPC and know the product. So that’s a really important problem we’re helping them with. So that’s a smaller set of attributes, but where we see this going is to a broader set of attributes.
Bill: Developing this kind of expertise and developing consideration sets I think is going to really set Engage3 apart. I don’t know anyone else that’s doing that kind of work. I’m really pleased to hear you’re doing it.
Ken: Yeah we’ve been very innovative on that front. And we’ve got two patents issued, 20 in the pipeline, because we see those as being key to how retail is going to function in the future.
Bill: One of the things that I believe having good product attributes helps people do is when they know the attributes of products and they see several items with the same attributes growing. It’s an indication of a fundamental factor that’s attractive to consumers in both those products and probably indicative of a broader appeal. Do you see a role that Engage3 can eventually play in helping people sort see where the puck is headed in terms of some of the changing preferences?
Ken: Yeah, we’ve been starting to look at the categories on an attribute-basis, and that’s really fascinating. And so you start to think about understanding trends by attributes across a store. Things like gluten-free or organic or non-GMO, you start to see where there’s trends, and where you’re not allocating enough. When you start comparing to your competitors on those products, you might see that you’re short in some area or too heavy in some other areas.
Bill: So there’s really a number of different reasons why understanding the trends with respect to attribute beyond product sale is competitively valuable for retailers?
Ken: Yeah, absolutely. So they’re starting to look at their assortments on an attribute-basis, I think that’s a really interesting area. The other thing where we see that going is to understand the price–break down the price by attribute so we know, that way we can compare products better. To competitors or even products within the category, what should that gap be in price?
Bill: It’s interesting that you would say something like you just have in terms of gaps and attributes. We try to eat low-sodium products at our household, and the gaps between comparable items and the amount of sodium per consumption is huge. And we’d happily pay a premium, and we certainly like to have our attention drawn to the low-sodium items because that’s what we want. Right now we have to work hard to figure that out on our own. Is there going to be a way in which eventually you think people present their or curate their assortment so that things like low-sodium pop up more quickly and easily for folks like us?
Ken: Yeah, I’m starting to see retailers put signage up identifying the gluten-free products or the low-sodium products, but as you said earlier there can a hundred or thousand attributes for a product. I think it’s perfect of an area for a digital environment or to have a digital assistant that’s just guiding you by what you want, but reading through those labels is a lot of work and it’s too much work for most consumers.
Bill: Private label. Do you think these trends support more focus on private label? Will private label be more attractive as a result the emphasis on attributes and things like that?
Ken: It absolutely is. There’s an article recently in the Harvard Business Review where they were talking about consumers buy bundles of attributes as opposed to a brand. If you look at online, we’re seeing consumers search more by attributes. And probably the more that attributes–that data’s available and clean, we’ll see more of a focus on attributes than brands.
Bill: Love the idea that consumers are buying bundles of attributes. Now if I was in the brand business I think I’d get a little self-conscious.
Ken: I suspect where that’s going is it’s going to be competing on attributes much more than price. So I think we’re going to see attributes come up to the level of price in being a lever to move the sale. And the key is going to be knowing what attributes resonate with what consumer.
Bill: To reinforce your point, I will pay a pretty good price for dark chocolate to take advantage of the flavonoid effect and improve blood circulation. I’m not asking for, you know, a discount on that, I want the benefit.
Ken: I think we’re going to see more and more of that behavior, and that’s the exciting part about personalization. And it allows a manufacturer to capture more value when the consumer values hit, and they have the flexibility to price low to get people to try the product.
Ken: Well Bill, it’s been great talking to you and I always enjoy, over the last 25 years, getting together with you and your passion for pricing and your curiosity, and you’re always learning.
Bill: Well right back at you, you’ve had some amazing accomplishments and you’re clearly on the edge some additional major steps forward. You’ve got to be proud of that and your current company.
Ken: Well thanks, Bill, I look forward to seeing you again soon.
Bill: It’ll be my pleasure to get together with you whenever we can.
== End of Video
This is Part 2 of a video series. Part 1: Bill Bishop Talks to Ken Ouimet About Price Image and Personalization is here. For more videos like this, subscribe to the Engage3 newsletter, Pricing Trends. Subscribe here.
A private label, also called a store brand, is an assortment of products offered by a retailer that matches national brand items. Some private label examples include Target’s Up&Up, Costco’s Kirkland Signature, Whole Foods’ 365 Everyday Value, and Kroger’s Simple Truth.
Lasting Shopping Trends
During an economic downturn and the years following, customers are especially sensitive to grocery retail prices. This is a time when consumers are willing to exchange their name-brand loyalties for savings, and a time when private labels can create significant opportunities for retailers. Nielsen details this effect in their global report on private labels, emphasizing how a recession influences consumer habits:
“When an economy recovers from recession, changed shopper behavior often remains, and this sentiment is favorable when it comes to continued private-label growth. When coming out of economic downturns, consumers will maintain a more cautious approach with regard to household expenses, having developed a habit of seeking and expecting value for their money.”
Nielsen- The Rise and Fall of Private Label
Customers expect a retailer to have a large selection of products for relatively low prices. Meeting customer expectations on assortment and price builds trust and keeps shoppers buying from their chosen grocer.
One way to build trust and loyalty without sacrificing margin is to expand private label offerings. In recent years, we’ve seen retailers like Amazon and Target introduce products under multiple new private label lines. Ranging from electronics and housewares to lingerie, these products offer compelling value to customers at higher margins. “Carrying non-standard categories besides groceries can also maximize price image,” Tim Ouimet, Co-Founder of Engage3, said. One example of this is Aldi’s experience in cookware and home goods.
“Carrying non-standard categories besides groceries can also maximize price image.”
Tim Ouimet, Engage3 Co-Founder
Aldi Addresses a Need
For years, Aldi has sold enameled cast iron cookware for a bargain. A dutch oven, used for many roasts and holiday dishes, can cost upwards of $300 from the leading brand. Other branded competitors like Cuisinart and Lodge offer more cost-effective options, but customers frequently doubt the quality of the products. This is because even the leading brand can get chips in the enamel and scratches over time.
Aldi saw this gap in the market, and began selling a private label dutch oven under the name “Crofton.” For $29.99, customers could have a functional piece of cookware for a tenth of the cost of the leading brand. If the pot chipped or broke in some way, the consumer did not face a significant loss. The Crofton dutch oven has surged in popularity, gaining a large number of fans in the past three years due to its compelling value and favorable reviews.
Reviews on Chowhound, a home cooking forum, show that the Aldi Crofton pot is well-liked. One reviewer said, “My husband drove all over the city to 3 different Aldi stores to get me a complete set of Crofton enameled cast iron for Christmas 3 years ago… The braising pan works perfectly from stove to oven; my braised chicken never turned out so beautifully before I got this set.”
In response to Aldi, Amazon followed with an AmazonBasics dutch oven (priced at $44.99), which currently has a 4.5-star rating and over 700 customer reviews. These reviews mirror those of the Aldi Crofton cookware (priced at $29.99).
Added Benefits of Private Labels
Because of the lower cost of manufacturing private label items (minimal R&D and marketing expenses involved), they can be easily priced competitively against national brands like Heinz, Kraft, or General Mills.
Private labels not only allow higher margins, they also improve the customers’ perception of the store by keeping the store’s average prices lower than if they just carried more higher-priced national brands. “For most products, the price difference between two retailers’ private label products isn’t as important as the gap between the private label and the national brand from the perspective of the consumer, ” Ouimet added.
“For most products, the price difference between two retailers’ private label products isn’t as important as the gap between the private label and the national brand from the perspective of the consumer.”
Tim Ouimet, Engage3 Co-Founder
Private labels also allow a retailer to price defensively, because it is much more difficult to detect and match pricing on private label products. In this way, retailers can undercut their competition without drawing attention.
For example, a private label natural pasta sauce at Retailer A measures 24 oz and costs $2.96 ($0.12 per ounce) while a comparable pasta sauce at Retailer B measures 25 oz and costs $2.30 ($.09 per ounce). Because of Retailer B’s various private label tiers, this item brings a lot of value to consumers while Retailer A is unable to identify and compete with its similar item.
Non-standard Private Labels
Carrying non-standard categories like apparel can also maximize price image. Dick’s Sporting Goods recently announced that they were expanding their private label assortment to reduce their reliance on large vendors. In his article for Digiday, Suman Battacharrya writes, “As larger brands like Nike switch gears to sell directly to consumers, retailers like Dick’s, Target and Walmart are beefing up their own brand selection to stay competitive. With private-label products, retailers see higher margins on products that customers can’t buy elsewhere.”
By focusing efforts on their store brand assortments, retailers can adapt to an industry that has aggressive retailers like Amazon and Aldi in new and unique ways.
A robust private label assortment places retailers at a significant advantage over their competition. To get more information on Engage3’s quarterly reports on pricing for national brands, private labels, and fresh categories, you can click here. View Nielsen’s report on global private label trends here, or read how Walmart stores adjust locally to hard discounters in our “Aldi Effect” report here.
Top 5 Things to Look for in a Competitive Pricing Platform
Managing the pricing data collected during competitive shops is no easy task. With private labels, rapidly changing online prices, and multiple sources of in-store audits, retail data has become increasingly difficult to translate into market visibility. A competitive pricing platform helps to automate the data collection, apply advanced analytics, and garner insights and value.
The right platform can free up time and resources to invest in other areas and substantially improve market visibility. Here are the top 5 features to look for in a pricing solution:
1. Correlating Online and In-store Pricing
In today’s world of e-commerce, more and more retailers are taking an omni-channel approach to selling. A technology-enabled competitive pricing platform needs to take advantage of advanced web crawling algorithms to acquire this competitive data and correlate it against the data captured by auditors in physical store checks. This enables a more efficient and cost-effective approach to acquiring competitive pricing data.
These web crawls can gather data from dozens of popular online stores to compile the most accurate pricing data. With the right platform, a retailer’s online and in-store pricing data are easy to access and work together to inform their omni-channel strategy.
2. Customized KVI Lists Based on Statistical Analysis
Historically, cost and timeliness have made it difficult to acquire quality competitive data. Given the dynamic nature of the retail environment, static KVI lists are not responsive enough to the realities of where to focus competitive pricing efforts across various geographies and store-specific categories. The retailer needs a pricing platform that allows them to shift from static KVI lists to ones that are easily customized by banner or even by specific store. Rather than taking a blanket approach, the critical decisions of where, what and when to comp shop should be based on strategic statistical analysis.
By monitoring how often products change prices at a competitor, a retailer can adjust their price check frequency to areas that require more visibility. For example, if a retailer is doing weekly checks on a KVI and then find that their competitors’ prices only change every few months, they can adapt their competitive shop in response. The resources spent monitoring a slow-moving item like hot sauce at six competitors every week can be allocated to a more price-sensitive area like eggs or dairy products.
3. Product Attributes
With the rise of private labels, competitive pricing platforms must be able to compare product attributes. In traditional competitive shop programs, as many as 40% of items go unaccounted for because there is no UPC match. To solve this problem, competitive pricing platforms must be able to utilize visual data capture technology and advanced character recognition to compare product attributes. This allows product linking to occur not just by UPC, but also by key attributes and statement of ingredient similarities, for example, gluten-free and organic. This creates a more accurate picture of a competitor’s private label pricing strategy and their total value proposition.
A recent article by Digiday shows that retailers are rapidly expanding their private label selections. Some retailers now offer dozens of different private labels, and manually matching these products takes considerable time and effort. Automation and product attributes allow retailers quickly get relevant pricing data on competing items.
4. Quality Assurance Workflow
A competitive pricing platform must also have a strong quality assurance workflow. With today’s mobile app-enabled technology, automated processes can greatly reduce manual errors and ensure that only quality data is being captured at shelf edge. Additionally, such apps can compare shelf data against historical records, flagging any SKU pricing that seems historically unreasonable.
Reducing the time between data collection and pricing decisions is critical to getting the full value of the competitive shop. When QA takes too long, the data that is collected becomes stale and often inaccurate. Reducing errors makes pricing data more useful, especially when a retailer is competing against e-commerce sites that can make price changes instantly.
5. Precise and Accurate Data
A competitive pricing platform must have the ability to collect precise and accurate pricing data. This allows retailers to target competitive shops, optimize frequency, and specify which items to focus on within regions or individual stores.
Rather than casting a wide net to see what useful data gets brought in, retailers must be able to get a global look at the actions of their competitors while also drilling down to store-specific opportunities. When they have both views, they can see clearly where they are winning and losing.
A competitive pricing platform makes it simple to manage data collected through web crawls and in-store audits. By having prices and advanced analytics connected in a central system, retailers have the ability to review their competitors’ strategies and adjust their own. To learn more about the science driving our analytics, you can request our White Paper here.
Engage3 publishes regular market pricing reports to help retailers and brands enhance their pricing performance through data science and analytics. Register to get more detailed information about this report, or to automatically receive updates on pricing reports in the future here.
Engage3 collected pricing data during the last quarter of 2018 (October 1, 2018 to December 31, 2018) from 46 grocers at 198 store locations. This report shows how a select group of 11 grocers fared in their private label, national brands, and fresh offerings.
In this analysis, the lowest price across regular, promotional or loyalty pricing for each price point was used, and outliers were excluded. The grocers’ average pricing in each category were divided over the market average (and subtracted one). Numbers greater than zero indicate a banner with above-average pricing, while negative numbers indicate a grocer with pricing below the market average. Note: Walmart data was not a part of this data sample.
Engage3’s analysis showed that Lidl, Aldi and H-E-B led in private label, coming in at -32, -26%, and -13% respectively, below the market average in this category for the last quarter ended in 2018.
Kroger led in the national brand category, followed by H-E-B and Target, where the mostly-private-label grocers Lidl, Aldi, and Trader Joe’s were excluded in the analysis.
Mostly-private-label grocers Lidl, Aldi, and Trader Joe’s took the top 3 spots in the Fresh category.
Aldi and Lidl displayed consistent strategy across their assortment, coming in below the market average and occupying one of the top 3 slots in the private and fresh categories.
H-E-B stayed in the top 4 in all 3 lists of private, national, and fresh categories.
Lidl led in lower prices at -32% for its private labels, beating Aldi, H-E-B and Kroger, who came in at -26%, -13% and -8% lower prices, respectively. At the other end of the spectrum, Vons trailed everyone else with the highest price index of +13% for private labels, followed by Publix at +10%.
Kroger and H-E-B Shine in National Brands
Because Trader Joe’s, Lidl, and Aldi carry a very small number of national brands in their stores, they were excluded from the national brands analysis. Kroger led with national brand pricing of -20%, followed by H-E-B and Target. Sprouts came in at +5% for national brands, followed by The Fresh Market at +2%.
Aldi Led the Way in Fresh Pricing
Aldi took home the top spot in lower pricing for Fresh items at -29% for Q4 2018, followed by Trader Joe’s at -22% and Lidl at -21%. Vons ranked fifth at -14%. Safeway and Publix charged the most in the last quarter of 2018, on average for the items in this study, with a +11% and +6% price index, respectively.
Register to get more detailed information about this report and full-resolution images, or to automatically receive updates on pricing reports in the future here.
Ken Ouimet, CEO and Founder of Engage3, sat down with Bill Bishop, Chief Architect at Brick Meets Click, at the National Grocers Association (NGA) Show in San Diego to discuss how retailers can compete with hard discounters like Aldi and Lidl. They exchanged views on the critical role of a store’s price image and offer insights about how personalized offers will replace mass market promotions. From custom e-mails to bots and electronic shelf tags, find out how Ken and Bill are envisioning personalization will look like in retail in the next 5-10 years.
Below is the transcript of their conversation.
Ken: A lot of retailers that I talk to, they’re really struggling with competing with Aldi and other hardline retailers. How can a high-low retailer compete on price image with these aggressive discounters?
Bill: Well, I think the first thing to recognize is that price image occurs in the mind of each individual shopper. So a retailer’s got to start thinking about how to change the impression of their prices a shopper at a time. The one way we’ve seen that work so far, and I’m sure there are others, is to take a look at what items are in the ad, identify the items in the ad that are purchased by a particular household, and to call attention to that. When you do that, you’re likely to have a set of prices that are quite a bit lower than what the discounter’s doing with their everyday low prices.
Ken: That’s smart, that’s a smart approach.
Bill: It’s one that’s proven to work and I know that it depends on having really good quality data to be able to know what prices are moving, which prices are important in a market, and to be able to make the assessment and build up to that kind of household by household change in attitude.
Ken: How do the retailers communicate those kinds of offers to the consumer?
Bill: The way that I’ve seen it work the best right now is knowing very few people get a paper today, and those that do, even fewer read it. So what they’ll do today is to take six to ten to twelve advertised items, put them in an email, and use those as the vehicle to communicate the items the consumer should be looking for when they go to the store and of course those prices are superior. So at the same time that they’re advertising item and price, they ought to be saying, “And check out these prices compared to any other place in town.”
Ken: I’m surprised, I didn’t know that email marketing would become that powerful over the newspaper.
Bill: Email marketing is an opt-in strategy that once a consumer trusts and becomes interested in the email, they’re actually running figuratively to the mailbox to open it and see what’s there this week. A lot of fun to watch.
Ken: Do you see the next step in that kind of strategy is to start moving away from mass-market offers and have personalized offers?
Bill: I think you’re going to see fewer and fewer mass market offers because frankly they’re expensive, they appeal under the best of circumstances to maybe 15% of the population or less–any individual mass market offer. And so there’ll probably be fewer of them and more and more will be done individually and as a consequence under the radar, which has some real advantages too.
Ken: Yeah that’d be huge in terms of managing your competitive position. What percentage of consumers with mass market offers, what percentage of consumers do you think change their behavior from the offer, and what percentage did you just give money away to?
Bill: That’s really the $64 question. When you offer a special price, are you changing people’s behavior or are you rewarding the customers? My own feeling is that both are very worthwhile because when you reward your best customers with a good price it’s a retention strategy that’s worth quite a bit to you as well. So I don’t worry nearly as much about it when we’re making those rewards because I think it brings the customers closer to you.
Ken: But what about when the customer doesn’t even see it, aren’t aware that they got a good price? I think of times when I’m in a hurry and I go to the store and I’m buying stuff, and the cashier tells me I just got 25% off something. I wasn’t even aware unless they told me.
Bill: Well, there’s a good opportunity for when the service side of the business comes in. And so if you’re in a hurry, you just pick up the items, and then when you check out the cashier says, “Thank you very much, sir. You saved $2.25 based on the special prices.” At least she’s reinforced the savings going on right there. You may not care even at that point, but the retailer’s taking a shot using the best resource they have to make the point on price reputation.
Ken: When I think of personalization, my belief is that in five to ten years, everything you buy is going to have a personalized offer. And I was just curious what you thought, where do you think personalization is going?
Bill: Personalization, I think, is going to be the big trend that affects grocery retailing over the next five or ten years. Our stores can’t support the mass market proposition, we’ve got out-of-stocks, and we’ve got not enough variety to satisfy customers. So personalized offers, targeted, but we know what people want to buy and we have that product both available and priced appropriately is the way the world is going to go. Now that’ll change the experience of a store, because you probably don’t have to go to the store to take advantage of that, but you’ll need other reasons to go to the store, and there will be other reasons–experience-based.
Ken: What challenges do you see for retailers over the next five years as they move into personalization? What are their biggest challenges?
Bill: Well, the biggest challenge is being able to find a good vehicle for personalization, for delivering that message. I mentioned e-commerce a little while ago, or email as a way to communicate, but one of the things–and I believe we’ve talked about this in the past–there’s probably some degree of discussion between the seller and the buyer as to what’s important and how important it is. I think bots will eventually be a basis for that kind of discussion leading to personalization, [and] they’re not there yet. So the introduction of bots to facilitate will be one thing. I also see that personalization will potentially be delivered right in the aisle on these new digital shelf strips. I mean, they’re going to be amazing, and if we can figure out who you are standing in front of the aisle, we can deliver a personalized price right to you in front of the cookie section or the soft drink section. So, we’re just on the edge and the nice thing about this show is it’s really exposed us to some incredible technology for delivering personalization.
Ken: Do you envision that different consumers will have different prices or it’ll be different discounts with the same shelf price?
Bill: Well, I think what we’re going to see is, today there’s a need to differentiate between the shelf price and the promoted price. And the reason is, the shelf price is on the shelf and the promoted price is when it’s on sale. When we get into a highly personalized world, the shelf isn’t going to be as relevant. So I think it’s going to be a combination of discounts or lower prices. I mean at the end of the day, the retailer wants to price–[to] change your behavior or hold your behavior without spending any more markdown dollars than they need to. And so whether that’s a discount or whether it’s a lower price, I’m not sure.
==End of Video
Part 2 of this video will be posted in the next issue of the Engage3 newsletter, Pricing Trends. Subscribe here.
Retail data science requires a high level of expertise and collaboration on complex projects. In the first round of a year-long project with Engage3, six students from the UC Davis Graduate School of Management experienced a taste of what retail technology has to offer.
The Master of Science in Business Analytics program gives students the opportunity to work with a company on a long-term project. One description drew the interest of Abhinav Chatterji and his five teammates, intrigued by Engage3’s mission statement for the partnership: to help revolutionize the $22 trillion retail sales industry.
After the initial online meetings, the team prepared to work with Engage3’s data scientists on developing their 12 month project in the downtown Davis headquarters. From there, Chatterji describes, “We went on a four-day, rigorous sprint.”
The team met the employees at the Davis office, including CEO Ken Ouimet and other executives. Though surprised at first, the group quickly adapted to the company culture and felt welcomed. They then started their project with data scientist Sahar Pirmordian, working to build the foundation for their year-long partnership.
In the four day period, the team tinkered with thousands of lines of code to accomplish their pilot study. With the help of the Engage3 data scientists, the MSBA students funneled large amounts of data through their models and presented to the results to the Davis office.
The six students passed their first checkpoint in a long but rewarding project, and got a sense of the scale of the retail industry and its data potential. “We felt transformed into consultant or employees capable of delivering on deadline, under pressure,” writes Chatterji.
In the months since it has opened, Raley’s organic-focused concept store in downtown Sacramento has settled into the neighborhood. Its closeness to office buildings makes it a convenient stop for customers on their way to or from work, and there are very few competitors in the area. Engage3 visited the small-format store to take a closer look at its selection, and what is contributing to its popularity.
The parking lot is spacious, and allows for customers to park their cars without worry (there’s a 90 minute time limit, but Sacramento is notoriously difficult to park in to begin with). In front of the store is an ample amount of bike parking, as well as lockboxes for cautious bikers. There were a few electric-assisted bicycles to rent, the kind that are popular in downtown Sacramento and other cities. Market 5-ONE-5 is reasonable biking distance for customers working downtown or at the state Capitol.
I walked up to the entrance, noting the various signs boasting local coffee roasters and breweries. Next to a small garden section was a sign that read: “Beer tasting this Friday at 5:00 pm. Brews by: Fort Point Beer Co.”
Inside the Store
Once inside, I noted the size of the store immediately. Though it resembled a Whole Foods or a local food co-operative, the store was scaled down to fit a wide selection of products.
As I walked through the aisles, I looked up to find that there were no signs indicating the products in each aisle. Instead, there were a great number of employees roaming in the miniature grocery store. When I asked a floor employee where I could find a certain product, he led me directly over to the aisle and gave a few short product recommendations. It seemed that Market 5-ONE-5 was focused on knowledgeable and friendly employees to enhance the shopping experience, an approach that was unique to a small-format store with an organic-only selection.
Still, there something missing while I browsed through the aisles, and it took me a while to think of the answer. I kept seeing organic cookies and soups and soaps, but I found that there were no private label products. With Raley’s private label brand being so easy to identify, it came as a shock that they would pass on the opportunity to advertise it.
This may be the result of having very little competition nearby, as well as a slight boost to margins from both convenience pricing and organic-only products. Whatever the reason, it seemed that Raley’s was relying primarily on word-of-mouth marketing and customer loyalty to succeed with Market 5-ONE-5.
I became more convinced of this when I made my way to the food bar section of the store. In addition to a salad bar and hot food bar, the store offered fresh deli meals like soups and sandwiches. According to Yelp reviews of the store, this section was the crowd favorite, and several reviewers preferred it over the Whole Foods hot bar. Next to this was also a small coffee counter proudly displaying signs for a local coffee roaster.
A bit of background: since the city officially changed its title from the “City of Trees” to the “Farm-to-Fork Capital,” Sacramento and its residents have taken great pride in promoting local businesses and the food supply chain. When giving the option, shoppers who frequent grocery stores like Market 5-ONE-5 will typically buy local goods. The product selection in the store matched this sentiment.
After ordering my coffee (which was from a place called Temple Coffee, several signs told me) I sat down in the cafe area of the store to observe for a short while. Market 5-ONE-5 is currently partnered with Instacart, and a small sign near the food bar gave instructions for customers wanting their groceries delivered in the future. The store location makes it easy for Instacart to pick up groceries and deliver them to office buildings throughout downtown, from what I could tell.
I got up and explored more of the store, stopping by the meat department and refrigerated sections. Though there was a wide selection of fresh meat and seafood lining back end of the store, and it was all ethically sourced (with the price tag to match). The refrigerated sectioned fared better in terms of price, fitting into the range of a typical organic grocer or food co-operative.
The wine aisle was reasonably large but not overwhelming, and featured many bottles in the $10 to $20 range that I had never seen before coming to this store. About one quarter of the wine came from local wineries in the Sacramento and Lodi, California area.
As I made my way to the checkout counter, I also had a closer look at the fresh produce section. Consistent with store policy, every item was organic. The selection was limited to what was currently in-season with some exceptions for popular fruits and vegetables. Though the area was small, the produce displays were meticulously arranged to make up for it.
I finally checked out at a counter that looked like it belonged in a clothing store. There were no conveyor belts, magazines, or candy displays–just a cashier waiting to scan and bag your purchases. Though the experience was odd at first, I found that the transaction was more personal. I had no fear of holding up the next person in line or taking too long to finish my purchase.
I left Market 5-ONE-5 impressed by the range of products they offered in such a compact space. The lack of private labels items also was a significant surprise, and Raley’s seems to be fostering store loyalty rather than chain loyalty with this location. There were no in-store or online markers that suggested this was a Raley’s venture, focusing instead on the product selection and appealing to the downtown Sacramento crowd.
The store’s slogan is “Organics – Nutrition – Education,” fitting with the larger goal of providing ethical and sustainable goods to downtown residents. Based on the signage throughout, Market 5-ONE-5 aims to be a community space promoting local businesses. This idea was cemented in my mind when I walked out and saw a delivery van from the featured coffee roaster.
In response to a recent investigative report about Target offering prices on its mobile app that differed depending on whether the customers were inside or outside the retailer’s physical locations, Suman Bhattacharyya of Digiday digs deeper into how the industry’s biggest retailers are experimenting with pricing.
In the article, Ken Ouimet, CEO of Engage3, discussed the evolution of retail pricing and the challenges involved. Everyday Low Price retailers like Walmart and Target are under pressure by Amazon’s pricing algorithms, which can make price changes millions of times per day. As a result, some retailers have resorted to applying similar algorithms to their online and in-app pricing. Although these pricing algorithms work well on an online platform, brick-and-mortar stores are having more trouble implementing it.
“In the 1970s, most retailers had national pricing,“ said Ouimet. “Today, pricing is much more localized; dynamic pricing lets you segment with time, and it’s not only about dynamic pricing but personalized pricing – the price will be different for every buyer, and the discounts will be different.”
Engage3’s mission is to create a retail ecosystem where consumers, retailers and manufacturers all win. They use data science so Consumers are only offered products they want, when they want it, and at a compelling price; Retailers maximize profits by targeting only high-intent consumers; and Manufacturers only invest in discount coupons that have ROI.
Competitive shop programs, also known as competitive price checks, are a retailer’s main method of gaining visibility into their competitors’ pricing. An increase in hard-to-match private labels and the entry of digital e-commerce pricing have introduced higher rates of errors and reduced their effectiveness.
With the right best practices, competitive shop programs can change from being a source of frustration to a source of strategic advantage.
Here are some tips on how to help optimize your competitive shops:
Tip 1: Match your KVI list to your competitors’ products.
More often than not, the data that comes back from a competitive price shop has significant errors. You can’t make good decisions based on bad data, and scenarios like this only puts merchandising and pricing departments at odds with each other. In order to get the right pricing data, you need the right product list.
By matching your KVI list to your competitors’ products first, you save time and effort for both online and in-store data collection. When collection auditors are free to collect prices, they can spend less time looking for products that are unavailable at the competing store. This has two benefits: decreasing the labor costs of the shop and increasing the quality of data.
Tip 2: Do full-books sparingly.
Full books are expensive. The top 10% of products sold typically represent 50% of the total sales dollars. Therefore, full book programs that invest as much in competitive shopping slow-moving items as in fast-moving products are not cost-effective. The problem with full-book shops is that they assign the same value to slow-moving goods and fast-moving goods. As a result, goods that only need to be price-checked yearly are lumped in with goods that change prices weekly–at a premium cost.
On average, we recommend that full-book competitive shops be done between two to four times a year. This can be supplemented by precisely targeted competitive shops.
Tip 3: Match your private labels.
When price-checking a retailer of similar size, it’s advantageous to match your private label products to theirs prior to the competitive shop. By matching private label products and finding equivalents, the collected data becomes much more accurate.
For example, if two stores offer private label free-range eggs but one carries a dozen-egg carton and the other an 18-egg carton, it takes more time for an auditor to make this connection and collect the data. By linking the products beforehand, the auditing process is streamlined, and more accurate data comes back to you.
Without product matching, visibility into your competitors is compromised. Private label products offer a greater picture of a retailer’s pricing strategies, and serve as important markers for category trends.
Combined with other pricing solutions, these tips can stack to make the most out of your competitive shop programs. To learn more about how Engage3 uses artificial intelligence and machine learning for retail solutions, you can register to receive our White Paper here. Frank Scorpiniti, CEO of Earth Fare, also sat down with Engage3 founder Ken Ouimet to discuss the latest industry trends and technology at GroceryShop 2018 — watch the video here.