Kroger CEO uses ‘shopalongs’ to see what’s working

CINCINNATI – Dressed in blue jeans and waiting patiently in line at the Starbucks kiosk, Dave Dillon blends in easily with the Saturday morning shoppers in a suburban Cincinnati supermarket.

But he’s there on a bigger mission than picking up some groceries. The chairman and CEO of Kroger Co. wants to see one of his stores through a customer’s eyes, and to understand why she makes the choices that she does.

On this day, he joins Pat O’Keefe, a stay-at-home mom who loves to cook and shops several times a week for fresh food and ingredients.

“Wow, look how pretty that is!” she exclaims at a gleaming array of sea bass, salmon and other silver, pink, and white seafood. She tells Dillon that the store frequently changes such displays. He already knew that, but it’s informative to him that a regular customer who says she prizes freshness notices it.

Tracking consumer behavior and spotting shifts have become increasingly important in a weak U.S. economy. In the low-margin, highly competitive grocery business, Kroger, which owns Northwest chain Fred Meyer, has fared better than peers. Kroger’s most recent earnings report showed a 6 percent rise in revenue while Safeway Inc.’s fell 1 percent and Supervalu Inc.’s dropped 9 percent.

Dillon tells Wall Street analysts that the nation’s largest traditional grocery chain has sophisticated consumer data none of its competitors can match. But he still frequently does “shopalongs” such as this one, visits consumers in their homes and peeks into their cupboards, shops stores alone and incognito, and drops in on employees unannounced. Most other top Kroger executives do, too.

“The data only tells you so much,” Dillon said, whose company has a shopper data-mining and marketing joint venture with Dunnhumby, a marketing company based in London. “Dunnhumby tells me what to look for and I go in and see.”

DunnhumbyUSA collects and analyzes data from millions of households that use Kroger loyalty cards, along with some 50,000 surveys each quarter, to help Kroger adjust marketing, sales and inventories to specific locations.

An example: the numbers told Dillon that shoppers using food stamps at Kroger doubled in the recession. He started asking questions in stores and heard consistently that the many first-time users got confused about what items were allowed under government rules. Dillon decided to add signs and train employees more to help such customers.

“It made me think we want to make sure they feel like valued guests,” Dillon said.

At Kroger’s suburban Harper Point store, Dillon walks with O’Keefe as she pushes her cart around the store’s outer ring. She describes a recent pot of minestrone soup she made, with vegetables picked up at Kroger, along with artisan bread from its bakery.

“She shops for ‘fresh,’ ‘nutrition,’ ‘healthy’ – we see that more often,” Dillon says.

Dillon admits later that not all shopalongs find such glowing feedback.

Shoppers are urged to be critical. They usually aren’t aware that Dillon is a Kroger employee, thinking he is a market researcher and making it more likely they will speak bluntly.

Their feedback – combined with data – led to changes in staffing, training and technology to create faster checkout lines, more-helpful employees and cleaner stores with better presentation.

“We can use our own intuition, our own eyeballs, our own sense of how the store should work, but that can be hugely enhanced by applying real data,” Dillon said. He said that in the past, he could tell you how many Kraft macaroni-and-cheese dinners Kroger had sold, but Dunnhumby allows him to see when, where, what else is bought, and whether a particular household buys them only on sale.

He likes mingling with employees in a less-formal way than as “the suit,” and if customers find out who he is, some come up to compliment him. That provides an exclamation point to any good revenue or profit results.

“It says to me we’re on the right track,” he said. “It says to me this is going to work out fine.”