Actionable Insights From APT's Retail Practice

Analytics & Research: Turning Unknowns into Knowns

September 21st, 2010 | Posted by Dan Schreff in Retail - (Comments Off on Analytics & Research: Turning Unknowns into Knowns)

At APT, we spend a lot of time thinking about analytics and the process Consumer Goods companies use to turn “Unknowns” into “Knowns”.  A certain former Defense Secretary was famously quoted on this topic of information and uncertainty, but the fundamental insight is universal.  An organization must take a rigorous approach to qualifying and quantifying what it knows and what it doesn’t, and aggressively pursue the objective of reducing uncertainty and thereby enable it to act with confidence and authority. (more…)

Generally, we write about large-scale strategic decisions.  But, as we keep pointing out, strategic initiatives are built up from a multitude of individual actions.

With that in mind, I recently visited a store near my office to buy a pack of AAA batteries needed for a new remote control.  On a wall lined with batteries, I chose the cheapest option, a 4-pack of private label alkaline batteries for $4.99 (the national brand was $6.99) and walked to the register … however, next to the register was a stack of 40-pack AAA batteries priced at $9.99.  Although I only needed 2 batteries, how could I pass up the “obvious” bargain of 10x the batteries for 2x the price?

On my way back to the office, I came to the startlingly conclusion that this specific promotion may have been a “lose-lose-lose”: (more…)

Can Wal-Mart Measure That?

September 10th, 2010 | Posted by Varun Kishore in Retail | Uncategorized - (Comments Off on Can Wal-Mart Measure That?)

Wal-Mart admitted that it has faltered in recent months, blaming lack-luster sales on a variety of initiatives, including an attempt to streamline merchandise (an initiative that removed 300+ items that “weren’t selling”).   Though well-intended, this strategy back-fired as some customers went elsewhere for their favorite products and brands.

We’re not the first to talk about this.  Augie Ray of Forrester research writes “Wal-Mart had the ability to measure the sales of Glad bags, but they could not know the impact Glad bags had on the sales of other unrelated products until consumers started going elsewhere for Glad bags.”

Augie Ray … that’s just not true.  (more…)

Estée Lauder Juggles Testing

September 7th, 2010 | Posted by Guru Raj in Retail | Uncategorized - (Comments Off on Estée Lauder Juggles Testing)

Retailers complain from time to time about the logistical complexities of in-market tests.  But, compared to consumer goods companies, they have it easy.

A recent WSJ article discusses how Estée Lauder is employing testing to reinvent staid department store beauty counters.  In addition to the “normal” complexities of testing “new counter designs that allow shoppers to browse on their own, new promotions and express lanes for busy shoppers,” Estée Lauder also needs to coordinate with more than a dozen different department store chains, and potentially tens of thousands of recalcitrant sales staff.

Complexity aside, Estée Lauder’s tests are timely.  With continued pressure from upstarts like Sephora and Ulta, and increasing pressure from drug and discount chains, department store counters must refine their value proposition to stay relevant and keep share.

The Future of the Weekly Ad: Target Moves Online

August 28th, 2010 | Posted by Marek Polonski in Retail - (Comments Off on The Future of the Weekly Ad: Target Moves Online)

Washington D.C. – For decades, grocers have relied on a weekly ad to attract shoppers to their stores and build long-term customer loyalty. Yet in today’s digital world, many believe that weekly ads are gradually becoming irrelevant. Case in point: newspaper advertising rose steadily for three hundred years until 2001, when spend in the US peaked at $48 billion. Since then, it has begun to decline. Now that decline is accelerating, growing from 9.4% in 2001 to 17.7% in 2008. As web advertising is expanding and more newspapers are closing, this trend is expected to continue. As a result, several prominent grocers have reduced or eliminated physical distribution of their weekly ads.

While the world has raced forward, the weekly / monthly flyer that most grocers place in their stores and distribute to the customers in store’s trade area, has not changed much over the last 50 years. Analyzing two sample ads, one from the 1960s and the other a modern one, there are some clear differences: we can now digitize product images and print in color, most retailers place their ads online and some retailers are even allowing weekly ad customization (for example, Target has recently introduced the My TargetWeekly customizable ad online) and of course prices are higher due to inflation. But many things stayed the same: today’s ad still tries to highlight “hot deals,” it is crammed with products, and the goal is still to attract customers to come to the store in hope that shoppers will buy other things, in the process offsetting margin loss on promoted products.

Weekly Ad: 50 years of (non)evolution
Grocery ad circa 1960 Grocery ad circa 2010

The lack of evolution over the last several decades is in large part due to the fact that marketing executives lacked tools to quantify the effectiveness of their ads. Paradoxically, one of the most important marketing vehicles got very little attention because grocers were content with the status quo. However, recent advances in gathering and processing large volumes of POS data, evolution of powerful analytical tools and ability to run in-market tests are all allowing grocers to answer business questions that lead to actionable ways to improve the good old weekly ads.

Ways to improve

There are several categories of questions marketers and merchandisers responsible for the weekly / monthly ad should be able to answer if they want their ad dollars to drive immediate sales lift and long-term customer loyalty.

#1: Quantify the impact

How much sales lift does your circular drive? Is sales lift mostly driven by incremental customers coming into the store because they saw the ad or is sales lift being driven by increased basket size of the shoppers who come in? What is the margin erosion caused by the special deals you are advertising in the flyer? These questions seem simple and straightforward, yet most grocery executives do not have clear answers to these questions.

John Wanamaker, the father of modern advertising, once acknowledged this by famously proclaiming Half the money I spend on advertising is wasted; the trouble is I don’t know which half. Today, 100 years later, retailers have several advantages over John Wanamaker. The two very important ones:

  1. vast amounts of data coupled with modern computational power, and
  2. ability to run in-market tests.

Data and processing power allow companies to track and measure changes in performance across a variety of metrics such as sales, customer count, basket size, gross margin, etc. Ability to run in-market tests means that retailers can actually measure the true, incremental impact of the print ads by holding out groups of stores / markets, and using them as control (akin to the medical trial) to correct for seasonality, economic conditions, weather, competitive actions, etc.

Quantifying the impact allows to understand how much do you get for every $1 you spend on developing, printing and delivering the weekly ads. Marketers can begin to benchmark the performance of the weekly ad against other media vehicles.

#2: Target by store / market

Quantifying the incremental impact of the weekly ads is only the first step. To maximize ROI, companies should be deploying weekly ads more aggressively to stores / markets where they drive higher lift, and reduce or even eliminate promotions where circulars do not drive sales lift (to save on printing and distribution costs) or sales lift is not large enough to offset the margin loss. Segmentation on store-level drivers should span a broad set of store / market characteristics, including:

  • demographics (e.g. are weekly ads more effective in lower or higher income areas?, are weekly ads more effective in more rural or more urban areas?)
  • competition (e.g. are weekly ads more affective in areas with less or more competition?)
  • market penetration
  • etc.

In today’s retail world, marketers that lack proper analytical tools to dive beyond averages and understand drivers of performance, often resort to a familiar excuse: we would like to support all our stores uniformly and prefer to have a consistent corporate message. This is a poor excuse because it negatively affects company’s profitability and reduces marketing ROI. Yet, companies resort to it over and over again, neglecting to tailor their marketing by store / market.

#3: Figure out the right products

Retailers use promotions to achieve different objectives, and increasing the number and size of baskets is an important one for many. Weekly ad is no different. When choosing which product to promote in the weekly ad, one factor is how the product’s own sales will respond to being on promotion. However, an even more important factor is how promoting that product increases the sales and profit coming from other products (e.g. by driving more or larger baskets). Without this additional information the merchant could promote the “wrong” item and miss an opportunity to increase sales and profits. When creating promotions designed to lead to more and larger baskets, retailers require the ability to answer two key questions:

  1. What is the impact on total basket sales when an item is promoted?
  2. What is the impact on total number of baskets when an item is promoted?

The complexity of basket-level analysis has long prevented retailers from fully utilizing it to evaluate and optimize their weekly ads. But as technology develops, new solutions are enabling retailers to analyze large volumes of transaction- and customer-level sales data both rapidly and accurately, ultimately putting basket-level insights at the fingertips of decision-makers.

#4: Choose the best distribution vehicle

While the Internet is by far the cheapest distribution vehicle (no printing costs and negligible distribution costs), grocers continue to distribute the ads by mail. There are multiple traditional vehicles used for ad distribution: marriage mail (usually the cheapest, but it has a disadvantage of including your ad with ads from other companies, so potential shoppers frequently just toss the entire packet away), newspaper insert (somewhat limited because it cannot be targeted), solo mail (usually the most expensive option, which on the flip side allows for best targeting). The question remains which is the most effective way to drive the best bang-for-the-buck for your company. Many retailers do not know the answer to this question. They employ rules of thumb (“we use marriage mail because it is the cheapest”), and risk missing great returns by not measuring the differential lift / cost trade-offs that different vehicles offer.

#5: Optimize frequency and distribution depth

How often should we run the circular so as to stay relevant in the minds of the customers and drive them to the store? How many circulars should we mail to the customers in the store’s trade area?

The right answers to these questions can make or break your weekly ad’s profitability. Mail too often, and you are risking giving away more deals than necessary, in the process diluting your margins, and spending marketing budget on printing and distribution without getting much in return. Mail too little, and you are risking losing the customer to a competitor.

Similarly, mailing to only a few customers means that achieved lift is smaller than potential, while mailing too many customers who are too far away from your store wastes printing and distributions costs.

In conclusion

Grocers have multiple levers they can pull to optimize their weekly ads. To win with circulars, marketers should be utilizing the power of data and employing the right analytical tools to analyze it in order to learn what is working, what is not working, and what could work if tweaked. Targeting stores / markets and products is crucial to tailor the right amount of advertising to the right situations. Choosing the best distribution vehicle, optimizing mailing frequency and distribution can further improve marketing ROI. If your company is not able to confidently answer these basic questions about the weekly ads you are running, it is time to roll up your sleeves and potentially seek outside help.

If retailers can do a better job with their weekly ads and get a better ROI out of their marketing investments in this media vehicle, perhaps the decline of print advertising can slow down?

Learn more

Learn how APT’s Test & LearnTM software platform helps grocers optimize their weekly ads and circulars, and promotional strategies more generally, by reading our white paper on the topic.

Flu Shots at Drugstores

August 18th, 2010 | Posted by Marek Polonski in Retail - (Comments Off on Flu Shots at Drugstores)

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

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

  1. Attract traffic to their stores (additional trips)
  2. Increase basket size for customers who get the flu shot
  3. 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)
  4. 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…)

How Publix is Outperforming Kroger & Wal-Mart One Market At A Time

August 16th, 2010 | Posted by Marek Polonski in Retail - (Comments Off on How Publix is Outperforming Kroger & Wal-Mart One Market At A Time)
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:

  1. Publix: 27%
  2. Kroger: 25.5%
  3. Walmart: 23%

How has Publix done it? In our opinion, Publix outperforms competitors on several dimensions: (more…)

Top U.S. Food Retailers: Productivity Rankings

August 14th, 2010 | Posted by Marek Polonski in Retail - (Comments Off on Top U.S. Food Retailers: Productivity Rankings)

SuperMarket News publishes the ranking of top food distributors based on total annual revenue. We wanted to use this list to understand how productive different U.S. food retailers (grocers, convenience stores, dollar stores and warehouses) are based on their respective store counts and revenue. It is very informative to understand how much revenue a company generates per square foot of retail space.  Given the resources a retailer has at its disposal, how productive it is lets us understand how well the company functions.

According to Food Marketing Institute fact sheet, the average weekly sales per square foot of selling area in 2008 (the last year for which data is available) was $11.39. But if you want to know how different food retailers stack up against each other, the information is harder to get. Companies often do not make the process of getting this information easy. While public companies are required to publish revenue and store count information in their annual reports, they often make understanding productivity — a key measure of their performance — hard by not revealing much about their selling space. Getting any information for private companies is even harder.

The chart below is based on our research of publicly available annual reports, deductions based on private company estimates available from Hoovers and some educated guesses (especially with respect to retail space, which in most cases was gross retail space, not selling retail space).


Sources:  Company annual reports for public companies and Hoovers (subscription required) for private companies: 7-Eleven.A&PBJ’s Wholesale ClubCostco Wholesale.Delhaize AmericaDollar GeneralFamily Dollar StoresGiant EagleH.E. Butt GroceryKrogerMeijerPublix Super MarketsSafewaySupervaluTrader Joe’s MarketWhole Foods MarketWinn-Dixie StoresWalmart Stores. Where applicable and possible to deduce, we excluded fuel and convenience sales, used data for U.S. stores only, and made educated guesses about certain facts. Timeframe: 2009-2010. Excludes Ahold USA.


While these are only estimates that have several limitations (e.g. sales in annual reports are reported for all stores, but some stores were open in the prior year, so the true sales per square foot are likely higher when these new stores contribute a full year of sales) there are several interesting things about this chart:

  • The difference between different classes of retailers (grocers, ) in sales per square foot is actually very narrow. Because most operating costs (e.g. labor costs, staffing levels, rent, utilities) are largely fixed, low levels of sales productivity negatively impact profitability. While some of that can be mitigated by large scale operations, sales per square foot offers  a good benchmark to distinguish winners from the rest of the pack.
  • Grocers vs. c-stores vs. big box concepts

Testing at Kraft Foods

August 10th, 2010 | Posted by Marek Polonski in Retail - (Comments Off on Testing at Kraft Foods)

Washington D.C. – In case you missed it, Shopper 360 blog has a great commentary regarding the In-Market Testing for Growth (IMTG) team at Kraft Foods.  Kudos to Autumn and the Kraft IMTG team!

WilcoHess + Dunkin’ Donuts, or Does 1 + 1 = 3?

August 10th, 2010 | Posted by Marek Polonski in Retail - (Comments Off on WilcoHess + Dunkin’ Donuts, or Does 1 + 1 = 3?)

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…)