{"id":33860,"date":"2018-11-13T17:22:33","date_gmt":"2018-11-13T22:22:33","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/data-and-machine-learning-the-new-grocery-battle-ground\/"},"modified":"2018-11-13T17:22:33","modified_gmt":"2018-11-13T22:22:33","slug":"data-and-machine-learning-the-new-grocery-battle-ground","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/data-and-machine-learning-the-new-grocery-battle-ground\/","title":{"rendered":"Data and Machine Learning: The New Grocery Battle Ground"},"content":{"rendered":"

\u201cData is the new battle ground\u201d according to Stuart Aitken, chief executive of Kroger\u2019s analytics unit, 84.51\u00b0. [1] Since Amazon\u2019s arrival on the retail scene, retailers have witnessed the power of big data as Amazon has leveraged its consumer data to capture share. Now with Amazon\u2019s stunning 2017 acquisition of Whole Foods, America\u2019s grocers are now staring down the same barrel retailers have been. This shift to omnichannel retailing has created many challenges for retailers as they need to profitably provide a compelling offering to consumers across each channel. But this widening of the shopping funnel created many opportunities for retailers \u2013 and for grocers now too.<\/p>\n

To date, the grocery channel has seen lower online penetration due to consumer hesitance to buy food sight unseen. [2] Consumer purchasing behavior is changing however, thanks in large part to the growth of same-day delivery options like Instacart and the growing Whole Foods \/ Amazon platform. Food shoppers are increasingly splitting their dollars between supermarkets, discounters, club stores, specialty shops and online food retailers, as compared to the historical \u201cone stop shop\u201d approach. [1] In the one stop shop world, Kroger, the largest US grocer by revenue, only worried about competing with Walmart, Target and other supermarket chains with brick and mortar footprint. But this shift in consumer behavior has sparked an online arms race not only with their traditional brick and mortar competition, but the online behemoth that is Amazon. A major change with this blurring of channel lines has created a huge opportunity for Kroger and other grocers as they are able to amass vast amounts of proprietary consumer purchasing and behavior data that can be used in previously unimaginable ways.<\/p>\n

In 2015, Kroger acquired dunhumbyUSA, a subsidiary of the UK-based analytics company and since renamed as 84.51\u00b0, to harness the power of big data and machine learning. Kroger has turned to machine learning to develop predictive models that can in turn be used to inform strategic decisions across all aspects of the business – everything from assortment selection, store layout, pricing decisions, promotions, and supply chain and logistics decisions. Kroger 84.51\u00b0 deploys the \u201csupervised learning\u201d method of machine learning, which \u201ctrains a model on sets of labeled data and then uses the resulting models to make predictions or classifications on data where the outcome is uncertain.\u201d [3]<\/p>\n

Kroger has sought to embed machine learning across the organization to automate processes and products. In late 2017, Kroger launched the \u201cRestock Kroger\u201d initiative. A 3 year, $9B transformation program to improve its ecommerce, digital, and omnichannel business and redefine the customer experience. [4] The effects of these efforts can be seen in assortment and store layout changes in over 1000 Kroger stores across the US. On perhaps the more innovative front, we are seeing increased personalized marketing efforts.<\/p>\n

\u201cToday Kroger uses 850 algorithms to personalize the coupons it mails to 12 million households. The company can use purchase data to determine whether someone has gone on a diet, had children or retired, and to market different products to those customers accordingly. Some Kroger coupons have a redemption rate of 65%, compared with a national average of about 5%, executives say.\u201d <\/em>[1]<\/p>\n

Kroger has not disclosed the financial impact from its personalization efforts, but according to BCG research, personalization efforts can drive incremental revenue growth in the range of 6-10%. Kroger delivers over 3 billion personalized recommendations annually, and over 1.1B personal digital coupons were downloaded in FY18 Q2 alone. [6]<\/p>\n

Investors have rewarded Kroger for these efforts over the last year, as the share price has risen roughly 50% from $21 a share in October 2017 to almost $32 a share in November 2018, despite disappointing second quarter results. [7][8] These are the right moves for Kroger to deliver a compelling omnichannel offering. For Kroger to maintain its leading position in the grocery world, it will need to accelerate its efforts in the short- and medium term. In the short-term, Kroger\u2019s use of data for machine learning should:<\/p>\n