Kroger mines loyalty card data to send savings to customers

CINCINNATI — Lisa Williams has never liked sorting through coupons, and she no longer has to at Kroger Co. grocery stores.

Every few weeks, coupons arrive in Williams' Elizabethtown mailbox for items she usually loads into her cart: Capri Sun drinks for her two children, Reynolds Wrap foil, Hellmann's mayonnaise. While Kroger is building loyalty — with 95 percent of a recent mailing tailored to specific households — Williams is saving money without searching through dozens of pages of coupons.

"I'm not that big a coupon clipper," she said. "It seems like a lot of coupons you see are (for) things that you never use."

Although the recession has revived penny pinching, Americans are still redeeming only 1 percent to 3 percent of paper coupons. In contrast, Kroger, the nation's largest traditional grocery chain says that as many as half the coupons it sends regular customers do get used. Kroger's part ownership of a data mining firm allows it to use the reams of information its shopper cards collect in many ways, including giving shoppers coupons mainly for products they regularly buy.

Simon Hay, chief executive of dunnhumbyUSA, the British data-mining and marketing operation Kroger co-owns, said targeting promotions becomes even more important in a recession.

"In a growing economy, you might get lucky because there is more money around," he said. "But if there is less money around, the question is, how can you be absolutely certain that you've got the right offers in the right places?"

Many retailers have loyalty cards, and some offer "instant coupons" at checkout based on buyers' habits. But dunnhumby, named for founders Clive Humby and Edwina Dunn, who are married, is about more than coupons. Kroger also uses dunnhumby's consumer analyses — which the data firm augments with customer interviews — to guide strategies for promotions, pricing, placement and even stocking variations from store to store.

"You know you're going to sell milk, but not all stores sell milk in the same ratio," said Kroger President Don McGeorge. "Tide detergent sells everywhere, but not evenly everywhere. In some areas, Gain sells more."

DunnhumbyUSA has signed up such other big clients as beverage maker Coca-Cola, home improvement chain The Home Depot, consumer products maker Procter & Gamble, department store chain Macy's and food makers General Mills and Kraft Foods.

Hay said it is crucial for his company to protect customers' privacy by using the information dunnhumby gathers only to help retailers understand buying habits.

"We understand that this is long-term, and if we do anything to exploit that relationship, then we destroy the value for our clients," said Hay.

That value has been noted. Scott Mushkin, a Jefferies & Co. analyst, cited Kroger's "superior customer knowledge" in October, saying stocking and promoting the right products creates loyalty and drives profitable sales.

McGeorge declined to say how much of dunnhumbyUSA's annual revenue of some $200 million lands on Kroger's ledger other than to say, "It's not an insignificant amount."

Kroger invested in dunnhumby and formed dunnhumbyUSA five years ago when it resolved to make better use of its shopper loyalty cards, first issued some 10 years ago and now in the hands of 55 million people.

"Our problem was that we didn't have the expertise to turn that data into insight," McGeorge said.