|Washington D.C. – The concept of market basket analysis, so simple yet so ingenious, has mesmerized merchants and marketers for at least the last two decades. Yet in its traditional form, known as affinity analysis, or what do customers buy when they also buy item X, it has also been largely useless. This is because affinity analysis attributes correlation, as opposed to causation, never delivering on its promise of getting inside the shopper’s mind.|
|Say goodbye to the past
Traditional market basket analysis tells us what is (i.e. correlation). To cite a classic, yet most likely an erroneous example, affinity analysis may find that on Thursdays and Fridays customers tend to buy diapers and beer together in a supermarket — i.e. young families stock up for the weekend. The main shortcoming of this information is that, beyond the conclusions that (a) the store should stock up on diapers and beer more heavily on certain days of the week and (b) both products should be placed close to each other in the store, there is little actionable information merchants and marketers can use to make smarter decisions. Affinity analysis tells us nothing about optimal pricing (e.g. should we discount diapers so that customers come in, buy discounted diapers but also grab a pack of beer with a healthy margin?), optimal promotional strategy (e.g. should we place diapers, beer or both in the ad?) or optimal merchandising tactics (e.g. which product should be placed on the endcap?).
Recent advances in the ability to collect and process transaction-level (TLog) data, coupled with exponential increases in computational power and much cheaper storage, all made it possible for grocers, c-stores and other retailers to build in-house or purchase market basket analytic software. Unfortunately, almost all of these solutions deliver non-actionable insights based on affinity analysis. (more…)
Washington D.C. - The Wall Street Journal is reporting that drugstores (CVS, Walgreens, Rite Aid) are getting an early start on the flu season by offering flu vaccines in their pharmacies. Not only that, you can even get a flu shot gift card at Walgreens (see image and link to the right).
The idea behind offering extended medical services in grocery and drugstores is certainly not a new one. By offering extended services like flu shots, retailers hope to
- Attract traffic to their stores (additional trips)
- Increase basket size for customers who get the flu shot
- Turn patients into customers (i.e. I would have never shop at drugstore X, but I came for a flu shot and really liked the store itself, so I will return to buy other things in the future)
- Increase customer satisfaction and loyalty
This comes at a cost of additional staffing, training expense, additional inventory positions, dedicated space that could have been used to sell something else and potential cannibalization of flu medication sales down the road. In essence, retailers are making a bet that flu shots will drive sales better than another product or service. (more…)
|Battle of the Atlanta supergrocers:||vs.||vs.|
Washington D.C. – The latest version of The Shelby report estimates that Publix (one of APT’s clients) has overtaken Kroger and Walmart as the No. 1 grocer in the Atlanta market. The Atlanta Journal-Constitution suggests that the competitors have the following approximate share of the market:
- Publix: 27%
- Kroger: 25.5%
- Walmart: 23%
How has Publix done it? In our opinion, Publix outperforms competitors on several dimensions: (more…)
Washington D.C. – An interesting story caught our attention: WilcoHess is bringing Dunkin’ Donuts to its stores. Steve Williams, president of WilcoHess, is quoted as saying that WilcoHess will effectively operate as a Dunkin’ franchisee. As we recently noted, convenience retailers are increasingly focused on delivering meal options to their customers, and in the process hoping to improve their own bottom lines.
We are encouraged to see that WilcoHess plans a gradual rollout of the Dunkin’ Donuts additions to its stores. Presumably they will use the data from the first wave of installations to evaluate the effectiveness of the initiative across key dimensions: (more…)
Washington D.C. - For business leaders interested in taking their companies to the next level, we recommend a Washington Post article by Steven Pearlstein. It highlights the ways companies as diverse as Capital One, Red Lobster, Family Dollar and Kraft utilize in-market testing to make smarter business decisions. Unlike focus groups, randomized customer surveys and industry studies – all valuable in their own right, in-market testing is the only sure way to know how a business idea will actually affect your business. Whether it is a restaurant remodel, a new radio ad or extended store hours, the in-market testing forces your customers (as opposed to a focus group that may or not include your actual customers) vote with their feet and/or wallet (as opposed to a focus group participating in a study because you will pay them). This seems obvious, but it is amazing that not all companies do in-market testing today. And the consequences are often disastrous. (more…)
Washington D.C. - The economic downturn has been very good to private label brands. According to the Private Label Manufacturers Association, consumers drove private brand sales to an all time high: in supermarkets, for example, private label sales accounted for over 23% of all units sold last year. With economic recovery stagnating, the cost-conscious consumer trend towards private brands appears all but certain to continue.
Private label brands are often perceived as a win-win offering as they offer great value to the consumer, and often an increased unit margin for retailers. Grocers such as Meijer and Kroger (registration required) have recently expanded their private label offerings looking provide increased assortments for the value-conscious consumer. Retailers such as Family Dollar and Dollar General, already benefiting from the consumers looking for cheaper grocery products during the recession, are quickly expanding their private brand offering as well.
As store shelf space is finite, many retailers struggle as to what degree to increase private label assortments at the expense of cutting name brand SKUs. The most advanced retailers are beginning to uncover that most profitably optimizing assortment mixes between national brands and private labels requires a nuanced understanding of basket behavior. (more…)
UPDATE: NPD reports that “nearly two-thirds of prepared foods purchased at retail are from traditional supermarkets.”
Washington D.C. – Accounting for more than 10% of industry profits, convenience store food service offerings have garnered a lot of attention lately. The Pantry and Quick Chek have recently announced plans to expand their prepared foods offering. Through a languishing economic recovery, consumers are looking for quick and convenient meal options at affordable prices without sacrificing quality. Is this a good opportunity for c-stores to increase both revenue and profit? (more…)
Washington D.C. - Following the lead of many grocery stores, a number of convenience chains have touted the installation of new DVD rental kiosks. As noted in a recent Wall Street Journal article Blockbuster Express kiosks are being installed in more than 300 Sheetz locations with Kwik Trip and Xtra Mart close behind. Rival and industry leader Redbox is expanding its network through partnerships with 7-Eleven and Kum & Go. Retailers have posited a number of theories of the potential value generated by these kiosks, including: (more…)