Why grocery is a mix of art and science

Grocers that thrive and win will base their decisions on profound customer insights

BY JENNIFER LEE, Partner and Retail Consumer Analytics Leader at Deloitte Canada and SHAK PARRAN, Partner, Strategic Analytics and Modelling at Deloitte Canada

THE grocery category is rapidly under siege by conventional and unconventional competitors. In these uncertain times, grocers should look for ways to leverage their deep knowledge in the “art” of being a merchant with the “science” of data analytics.

The ever-changing customer path to purchase has grocers interested in analyzing purchase patterns and category and sub-category levels to understand product interactions. A grocer’s most valuable customers are those that provide them with insights that can be leveraged to hold on to their existing share of wallets and to begin building a significant data asset which becomes increasingly valuable as data sets get larger and more complex.

As a result, the art and science of retail has never been more important than in today’s world.

Customers decide what to buy based on all kinds of intangibles. These range from income through to social values and cultural influencers. Each customer touchpoint requires a different marketing tactic, whether the customer is online, in-store or on a mobile device comparing products. Then, there are other factors including the type of product that they’re buying, who they’re buying it for, what they happened to read on social media that day, and even variables that are as unpredictable as the weather. In fact, predicting customer behavior is a lot like forecasting the weather: It is an art as much as a science.

Blending art and science is a crucial skill for modern grocers who want to not only withstand market shocks, but also win. At one point in history, executives in this industry relied mostly on gut instinct about their customers. More recently, grocers were advised to rely entirely on the numbers. Taken in isolation, neither approach tells the whole story.

By marrying hard data with a nuanced understanding of their industry—by blending art and science—grocers can generate powerful insights that can put their business ahead of the competition. They can transform themselves into what Deloitte calls InsightDriven Organizations (IDOs).

Under pressure

Modern grocers need every edge that they can find. They operate in a highly competitive industry with tight margins, which makes it difficult to differentiate themselves. The market is growing slowly, at just 1.3 per cent in 2017, according to Statistics Canada. That’s far below the average 2.6 per cent growth for the entire food and beverage retail sector in Canada.

Faced with challenging business conditions, grocery stores can find new ways to increase sales by segmenting their customers in more detail. Understanding customer behavior can help improve cross-selling and upselling opportunities.

The mix of quantitative and qualitative insights that’s required to do this demands a new kind of analytics. This means blending customer and store data collected in real-time with external public data sets, ranging from weather to traffic information. Grocers can then apply new, powerful artificial intelligence (AI) technologies to expose previously unseen patterns.

Advanced analytics does more for grocers than highlight patterns in purchase data. It enables them to ask some critical questions. What should the price be for strawberries? How should we influence customers to buy them? Where should we display this cheese selection, and how much will it boost sales? What is the next big product for our stores, and in which locations should we try it?

Becoming an IDO

Leveraging data to drive insight isn’t a new concept to grocers. Where there is an opportunity is to blend the deep experience of the merchants and the operators with actionable insights from the data asset that they own. It is our view that Deloitte’s proprietary IDO framework provides a roadmap for executives to help charter and inspire the winds of change.

To become an IDO, grocers can combine AI and big data analysis with industry insight to gain a sophisticated understanding of their customers. This way, the analytics will expand from a mere reference tool for KPIs and sales trends to an oracle that helps guide decisions across all business functions. They also need to glean actionable intelligence from their analytics system and have it interpreted by grocery experts on a regular basis, plugging it into operations and producing measurable results. Grocers will benefit by making customer understanding a part of its business DNA.

USING A MIXTURE OF STRUCTURED AND UNSTRUCTURED DATA, AN IDO (INSIGHTS-DRIVEN ORGANIZATION) GROCER COULD SPOT AN ENTIRELY NEW PRODUCT EMERGING HALF A WORLD AWAY

Because advanced analytics is predictive, the results can be extraordinary, and they extend from the supply chain through to the store. They are also highly outcome-focused.

Advanced analytics can also provide grocers with a nuanced understanding of their entire value chain, helping them manage risk and identify new opportunities at all points along a product’s journey. By analyzing both structured data along with unstructured data from news reports and social media posts, grocers can gain market intelligence that gives them a competitive edge.

Analytics software that picks up news stories about a weather event in Ecuador or civil unrest in Guatemala could help identify a risk to banana supplies. That, in turn, could drive a grocer to adjust combinations of stock levels and pricing based on predicted demand—but it would do this based on detailed insights about customer buying patterns and price tolerance.

Using a mixture of structured and unstructured data, an IDO grocer could spot an entirely new product emerging half a world away. Customer segmentation and behavior information could inform the company as to which stores would be best candidates for a trial and give it more intelligence on likely pricing windows.