The Ripple Effect

The announcement of Amazon’s acquisition of Whole Foods has caused a ripple effect through the retail grocery industry. While most analyses focus on the market strength and reach of both brands, a look under the hood reveals some trends and direction that will continue to affect the way business—all business—will be done as we continue to hurtle into the future. 

Our industry exists in a sleepy corner of the universe where the laws of physics seem to be etched in granite. Perform well in a few basic areas and you can carve out a comfortable living, grow you firm, then select one of a few exit options when you’re ready to retire or move on. The problem is, right next door there are businesses that are bending those finite laws to their own will, in effect changing the entire fabric of business.

Like it or not, we are now playing a different game.

So, what’s happening in the grocery sector, and why is it so important? To truly understand, you have to dive deeper into how major retailers work. The retail industry and especially the grocery industry run off of a tremendous amount of data. In fact, from a data perspective the larger retailers are some of the most technically astute companies around. From a customer experience perspective, this might not be readily apparent. When we buy groceries, we notice things like the length of the lines or how annoying (or convenient) the self-checkout lanes can be. We notice how easy or hard it is to find the five things we need so we can get the hell out of there. In fact, each of these behaviors and the heuristic nature (identifying efficiency, think shortcuts) of our experience are heavily studied and designed.

Tracking the way people buy, identifying their personal desired experience and providing that exact experience is the holy grail of retail. Most of us are fairly cynical when it comes to generally annoying tasks like grocery shopping. We think the placement of products and the paths we are forced to take through the store are designed to create impulse buying. This is true in certain cases, but the major retailers have made a crucial discovery that is far more mature than showing your kids candy when you’ve reached the end. Creating the exact experience you want every time results in your becoming a predictable, consistent spender. This one key insight fundamentally changes everything. In retail marketing, this is known as the Three C’s of Customer Satisfaction: consistency, consistency, consistency.

So, how do you do this? In our industry, any individual agency has any number of clients. Each client has his or her own desires, spending habits and risk tolerance. Our approach so far has been to create the role of a producer—more proficient than just sales but not quite customer service, a hybrid approach to manual relationship development. Modern retailers figure out who is going to buy what and when. Then, they attract the customers to them to make the sale. In contrast, we send our producers into the field to uncover opportunities through traditional relationship development.

Want to grow? Put more producers in the field or take them from our competitors. This works, it has always worked, and unfortunately there’s a long-held belief that it always will. After all, how in the world can we track the individual desires of 100,000 individual clients of insurance, right? Wrong. If there are other industries that have figured this out (for millions), why can’t we?

This brings us back to grocery store. In a single day after the announcement of the Amazon-Whole Foods deal, Kroger’s grocery store chain stock dropped 11%. What do the institutional investors know that we don’t? Let’s start with a few basics. Kroger is the largest grocery retailer in the U.S. and the second largest general retailer behind Wal-Mart. With annual revenues exceeding $115 billion and a tremendous number of sub-brands, this organization is on the forefront of advanced retail technology. In fact, Kroger maintains a massive big data environment that tracks the spending habits and buying behavior of millions of individual customers. These data are absolutely critical to the company’s operations, driving everything from purchasing to placement to logistics. Everything this company does is based on what they know about you.

Now think about Amazon. Their entire platform is based on experience—figuring out how to remove as much friction as possible. When my daughters need shampoo, I send them to Amazon. Their individual, specific needs and desires require us to visit too many separate stores, but Amazon has it all, and you can buy it from your phone the moment you happen to think about it.

And herein lies the problem for Kroger. For as much as they know about your family and the factors that encourage you to buy in a consistent way, they still need you to get in your car and go to their store.

Amazon making a push into groceries in a big way will create a ripple effect that will flow through multiple sectors of our economy. As the power of predictive sales analytics combined with ease of use and on-demand service spreads through more industries, traditional retail sales will become a thing of the past.

So where does this leave us? Everything I’m talking about runs on data. Sure, there’s technology involved to process those data, but this isn’t really a tech play. It’s all about market intelligence. It’s about reducing friction and creating a consistent buyer. But first we have to take baby steps. Agency automation systems need to focus on data collection and analytics rather than focusing solely on transacting business. Agencies need to build capabilities that provide for the analytics and the creation of data-driven insight.

Data literacy isn’t about creating graphical reports from yesterday’s data, it’s about identifying what someone needs and giving it to them every time. When we start to do this, we’ll start to participate in our future rather than watching it from the sidelines.

Gagnon is The Council’s CIO. christopher.gagnon@ciab.com