Realizing the Value of Supermarket POS Data

The Value of Real-Time Supermarket Point of Sale Data

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Realizing The Value of Supermarket Point of Sale Data....................3!


Storeplacer Overview

Table of Contents Granular POS Data is the Catalyst for Competitive Advantage ……………………………………………………………………………………….…..!

Industry Overview …………………………………………………………………………………………………………………………………………..…..!

Key Industry Trends!

Changing Consumer Preferences …………………………………………………………………………………………………………………..…... !

Digital Experiences………………………………………………………………………………………………………………………………..……….!

Mobility………………………………………………………………………………………………………………………………………………………!

eCommerce and Same-Day Delivery……………………………………………………………………………………………………………………!

Big Data and Personalization……………………………………………………………………………………………………………………..………!

Primary Value Areas for Transactional POS Data …………………………………………………………………………………………..…………….!

Storage, Access and Reporting!

Store, Unify and Enable APIs …………………………………………………………………………………………………………..……...…………!

On-Demand Business Intelligence and Reporting……..………………………………………………………………………...………..….……..…!

Predictive Analytics!

Localization………………………………………………………………………………………………………..……….............................................!

Inventory Optimization.………………………………………………………………………………………………………………………………........!

Fact-Based Merchandising and Instant Coupons…..……………………………………………………………..……….......................................!

Labor Utilization..……………………………………………………………………………………..………..............................................................!

Prevent Fraud to Reduce Shrinkage..……………………………………………………………..………...............................................................!

Real-Time Supply Chain Management...………………………………………………………………..…....................................................................!

Supply Chain Collaboration Partners..……...…………………………………………..………………..................................................................!

References and Credits…..…………………………………………………………………………………………………………………………………….!

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Problem!  Supermarket retailers, regardless of size, are at a significant competitive

disadvantage if they are unable to harness actionable data to address the modern consumer. Key factors driving this need include:!  The threat of imminent competition from Amazon.com, who has plans for

AmazonFresh to be in over 20 markets by 2014!

  Changing consumer preferences that favor value and relevance, including product localization, mobility and personalized offers!

  The drastic decline of storage fees which now allows high volume, high velocity data, like POS transactions, to be analyzed at a reasonable price!

  The proliferation in machine learning tools that can process large, complex data to automate decision-making!

51%!

18%!10%! 8%!

13%!

0%!

10%!

20%!

30%!

40%!

50%!

60%!

POS Transaction

Data!

Sensors in Retail

Environment!

Shopper Feedback!

Automated Product

Recognition!

Other!

Most Valuable Supply-Side Data Source!

Granular POS Data is the Catalyst for Competitive Advantage

Solution!  The most valuable data for grocers to extract operational insights and grow cash flow from is point-of-sale (POS) transaction logs1 !  Historically, POS logs were cost prohibitive to store because even a small retailer could process tens or hundreds of thousands of records daily!

  Real-time POS data also offers a unique opportunity to collaborate with the entire supply chain to boost revenue and operational efficiency!

  POS logs can be organized by metadata (order detail, customer, promotion, location, cashier, etc.), that provide key variables to forecasting:!

  Localization: what are the best products to offer in a given store and at what price!

  Inventory optimization: how can a store minimize inventory on-hand to reduce working capital?!

  Fact-based merchandising: one-to-one, relevant customer engagement and marketing based on known prior behavior!  Instant coupons: facilitate highly relevant, individualized offers to consumers at checkout, via email and through any digital channel!

  Labor utilization: how many in-store employees to maintain by hour of day each month?!

  Fraud: identify anomalies in cashier discounting and performance!

Source: Brick Meets Click!

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Industry Overview

Overview!  U.S. grocery store industry2!

  $1.1 trillion in sales!

  36,569 stores with >$2mm in sales!

  Typical revenue per store: !

  Chain: $2 million-$50 million!

  Independent: $2 million-$20 million!

  Products sold per location!

  Grocery: 15,000-60,000 items !

  Convenience: 800-3,000 items!

  Financial ratios!

  Net income margin: 1%!

  EBITDA* margin: 3-8%3!

!

Key Financial Drivers!  Inventory turnover: 40-50% of assets2 !

  Labor cost: 8-12% of sales3!

  Product mix and pricing strategy

!

!

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Important Trends!  Changing consumer preferences!

  Digital experiences !

  Mobility!

  eCommerce and same-day delivery!

  Big data and personalization!

!!

Emerging Threat:!eCommerce / Same-day Delivery Offering4,5!

  500,000 items available online, including fresh grocery and local products !

  Annual fee: $299 per year!

  Free same-day delivery for orders over $35!

  $7.99 delivery fee for orders below $35!

!History of AmazonFresh!  August 2007: Begins beta test in Seattle !

  June 2013: Expands to Los Angeles and announces plans to add San Francisco in 2013 and 20 new locations by 2014!

  August 2013: Acquires 1.5mm sq. feet of space in New Jersey

* Earnings before interest, taxes, depreciation and amortization!

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Consumer Shift to Value Seeker6!

  Shoppers are more focused on value today!

  78% seek discounts often vs. 61% pre-recession!

  Price-driven reasons for not shopping closest to home:!

  Lower prices (61%)!

  Lower prices on specific items (53%)!

  Better grocery product variety and selection (41%)!

Changing Consumer Preferences

61%!53%!

41%! 39%!

26%! 24%! 23%! 22%!

0%!10%!20%!30%!40%!50%!60%!70%!

Lower prices (in general)!

Lower prices on specific item(s)!

Better grocery product variety

and selection!

Better fresh food

quality and

variety !

Better private brand variety

and selection !

Just habit or more familiar!

Ability to shop more

quickly!

Better special

item selection (ethnic)!

Store Selection Beyond Convenience! (% Shoppers Whose Primary Store Is Not the Closest to Home)!

61%!78%!

28%!11%!

0%!20%!40%!60%!80%!

100%!

Always exhibited behavior!

Changed during recession!

Will revert to post

recessionary behavior!

Will exhibit behavior going

forward!

Consumers Seeking Discounts!(% of Shoppers)!

Ethnic Differentiation7!  Grocers will be forced to understand their customers better as

ethnic- and age-based merchandising presents new complexities!

  The ethnic population will increase to 47% of the US consumer base, a 13% increase in the next ten years !

  Between 2010 and 2025, Hispanics and Asian populations are forecast to grow the most, 41% and 37%, respectively!

  Age-based shifts!  The 65+ yr. old segment will increase 7%!  The under 18 and 25-44 yr. old segments will decrease!  All other age segments will remain flat

Source: Booz & Company!


+ -!








  Shoppers are using technology for discovery pre-trip and in-store!

  52% of consumers use technology while grocery shopping6 !

  32% use online coupons!

  23% check prices!

  31% use mobile devices!

  9% use mobile devices, online coupons and check prices!

Digital Experiences


32%!

23%!20%! 19%!

16%! 16%!13%!

9%! 9%! 9%! 8%! 7%! 7%!5%!

0%!

5%!

10%!

15%!

20%!

25%!

30%!

35%!

Get coupons pre-trip!

Check prices pre-trip!

Research products pre-trip!

Make shopping

list on mobile device!

Read product reviews pre-trip!

Track shopping

list!

Check recipes!

Check for coupons!

Track spend!

Research products!

Check prices!

Check nutritional

data!

Scan shelf lables!

Locate products!

Value Discovery and Other Activities! (% Shoppers who use technology for more than 25% of Shopping Trips)!

Other activities!Value discovery!








  68% of consumers believe mobile will play a significant role in the shopping experience7 !

  40% to compare pricing (e.g., GroceryIQ)!

  34% to navigate the store (e.g., Aisle411)!

  34% to use their loyalty app (e.g., Walgreens Balance Rewards)!

  32% to self checkout via a scanning apps (e.g., Walmart Scan & Go)!

  Supermarket consumers actively use mobile technology for building shopping lists, navigating stores, searching for coupons and at checkout!

!

Mobility

Loyalty! Scan and Go!

Price & Coupons! Navigation!

39%!34%! 34%! 32%!

24%!

12%!

0%!

10%!

20%!

30%!

40%!

50%!

Shopping List

Comparison Pricing App!

In-store Navigation

Tool!

Loyalty Application!

Self Checkout Scan App!

Mobile Wallet!

Geo-location Tool!

Anticipated Mobile Activities!









eCommerce!  U.S. ecommerce is projected to account for 8% of total retail sales, though 50%

of in-store purchases are estimated to be influenced online8 !

  While shopping online for clothes and electronics items is natural, it is still not a preferred way to shop for groceries!

  46% never or rarely buy food online10!

  Of those who buy online, 12% buy dry groceries and beverages and 4% buy fresh food and produce!

  However, many grocers are experimenting with ecommerce and in-store pickup!

  22 major chains launched e-commerce in 2012, up from eight in 20119!

  Online CPG sales grew from $5 billion in 2006 to over $12 billion in 20106

accounting for approximately 2% of total CPG sales!

  By 2014, online grocery sales are projected to reach $25 billion10!

  By 2025, 10% of total grocery sales are estimated to occur online7

!

!

!

Same-Day Delivery!  While same-day delivery for groceries is new, its future is uncertain!

  Pro case: 57% like the convenience of shopping from home; 47% like the convenience of home delivery6!

  Con case: The cost to deliver low-margin groceries may outweigh the incremental contribution margin on those sales!

  60% of consumers were willing to pay between $1.30 and $6.50 for home delivery, but few would pay for in-store pickup11!

  Few people may pay for a product they can get with no effort vs. driving to a store in the car!

  AmazonFresh may lower fees to “break even” to grow adoption!

  AmazonPrime was estimated to lose $11 per customer but achieved massive adoption as its members accounted for almost 40% of domestic sales12 !

  InstaCart and Google launched same-day delivery services to help supermarkets compete with Amazon and Walmart!

eCommerce and Same-Day Delivery

$5 !$8 !

$12 !$17 !

$25 !

$0 !$5 !

$10 !$15 !$20 !$25 !$30 !

2006! 2008! 2010! 2012! 2014!

U.S. Online CPG Sales ($ Billions)!

Source: Nielsen!








  43% of retail professionals believe the most important value of big data is faster decisions1!

  CIOs believe high priority big data areas that can transform grocery shopping include personalization, instant promotions and smart shelves capable of dynamic pricing7!

  Adoption is acceleration – in March 2013, 64% were active in big data initiatives vs. 20% in 2012!

!

Big Data and Personalization Smart Shelves!

76%!70%!

43%!38%!

0%!

10%!

20%!

30%!

40%!

50%!

60%!

70%!

80%!

Strengthening Shopper

Engagement!

Creating Personalized Promotions!

Enabling More Shopper Solutions!

Implementing Store-Specific Assortments!

Most Important Ways Big Data Creates Value!

Source: Brick Meets Click! Source: Booz & Company!








  Even the largest grocery retailers are not fully utilizing detailed POS logs, which hold a breadth of actionable intelligence in three primary areas: !

Primary Value Areas for Transactional POS Data

Storage, Access & Reporting!

  Store granular transaction logs which truly identify the shopper experience!

  Enable on-demand data APIs!

  Real-time interactive dashboards!

  Reporting!

  Augment data from sensors, offers, loyalty, SKU catalog, locations and more to gain a complete operational view!

Predictive Analytics!

High Impact!

  Localization!

  Inventory optimization!

  Fact-based merchandising!

  Instant coupons!

  Labor utilization!

  Fraud prevention!

!Other Impact!

  Customer segmentation analyses!

  Estimate customer lifetime value!

  Dynamic pricing optimization!

!

Real-Time Supply Chain!

  Faster replenishment means better in-stock rates!

  On-demand inventory eliminates costly logistics, fuel and hours to count items manually!

  Triggered notifications!

  Secure, CPG and partner login!








  Store and organize detailed POS log data for more granular reporting and relationship analyses!

  Aggregate many disparate systems to gain a single, unified view of operations!

  Turn your business into a platform with an on-demand application programming interface (APIs) layer!

  Empower IT to do more by shifting focus to front-end development and customer acquisition!

  Test and launch digital experiences in days or weeks, not months!

  Create personalized one-to-one marketing initiatives across any channel!

  Share data faster and easier with distributors, manufacturers and other partners!

Store, Unify Data & Enable APIs








Business Intelligence!  Incorporate data into customized predictive models!

  Power interactive dashboards and applications, for example:!

  Category manager: views products, prices, sales, trending items within each category !

  Store manager: views all data from their store!

  Regional manager: views data from all stores within their region!

  CEO/C-Level: views any data set!

!

!

!

Reporting!  Storing detailed transactional data allows for more granular reports !

  New technologies, like Hadoop, allow more information to be processed faster and cheaper than legacy systems!

  Run queries against hundreds of millions of records in seconds!

  Non-developers to analyze business trends via a reporting interface!

  Export results into excel or other statistical packages!

  APIs allow!

  Direct integration into enterprise data warehouse systems!

  Any developer to query datastore securely without direct IT involvement !

  Compete better and faster with APIs that facilitate business intelligence and reporting when needed, wherever needed!

On-Demand Business Intelligence and Reporting








  Category management, the widely practiced product strategy philosophy, is the idea that related products are grouped into categories (e.g. produce, pharmacy) that are treated as unique business units !

  Each manager has separate profitability targets and strategies to determine pricing, inventory and placement that are heavily influenced by local competition and customer demographics!

  Effective category management localizes the product mix and pricing that brings shoppers into the store and keeps them loyal !

  POS data helps to identify customer demographic impact and market basket trends across stores within a multi-location supermarket system!

  A store system that can optimize each store for their target customer and demographic market vs. an average for an overall multi-location system is well positioned to increase profitability of each store!

  Within each of those categories, certain brands may perform differently across stores due to the CPG’s local marketing initiatives, which are unknown to the store manager!

  Product relationships are quite complex to analyze across 15,000-100,000 SKUs with human capabilities but bode well for machine learning!

Machine-generated, adaptive intelligence can derive insights into !  How can I provide more relevant products to grow revenue and create a better shopping experience? !

  What are the relationships between products (e.g., if a consumer buys X, what else will they likely purchase)?!

  What is the ideal price for a given product by day of week and time of day?!

  How many customer segments do I have and what are they?!

  Does my store product mix match the local demographic?!

Localization








  75% of retail professionals believe inventory management has the greatest impact to managing the supply-side1!

  Inventory costs are the single most important driver of cash flow and accounts for 40-50% of total assets2!

  Unfortunately, due to its complexity, most independent supermarkets!

  Manage by intuition through experience and knowledge of local customer demographic!

  Do not know day-to-day inventory on hand, rather perform physical stock counts monthly to calculate inventory and shrinkage !

  Successful retailers minimize inventory by anticipating consumer demand!

  Actionable metrics, that combined with inventory lead times and marketing initiatives, can help retailers maximize in-stock rates and plan promotions to maximize sales and burn off slow-moving or obsolete inventory!

Machine learning algorithms applied to POS logs can unearth answers to key questions, such as:!  What and how much inventory should be held to maximize cash flow?!

  How many transactions and items will be sold next day and/or next week?!

  How can I project sales by day of week and day of month?!

  How should I handle seasonality or promotional items?!

  When do customers buy various goods?!

Inventory Optimization








  Grocers are poor at delivering relevant offers to consumers, even while a high level of personalization has become a mainstay in ecommerce!

  Recommendation models can be built from a variety of digital sources; POS data is widely believed as the top data source1!

  Transaction logs that can identify product similarities can drive recommendations for new customers with no history!

Benefits of Digital Coupons14!

  Higher redemption: digital coupons are reported to achieve an almost 20x higher redemption rate than traditional mediums13!

  Individualized: digital mediums can deliver specific, unique coupons for each individual!  Tracking: easy to analyze redemption rates for digital coupons in real-time vs. weeks to gather this information for printed coupons!

  Lower costs: retailers no longer have to spend money to print circulars!

  Timing: digital coupons can be launched in 72 hours compared to up to eight weeks for print promotions!

  Virality: digital coupons can be shared much easily to maximize reach!

Fact-Based Merchandising and Instant Coupons

Amazon – Product Recommendation Engine!  Amazon is a leader in applying machine learning to boost the user

experience through product recommendations!

  Recommendations provide targeted offers based on shopping and rating history, browsing behavior and other data they collect !

  A cooking enthusiast might receive on-site or email suggestions for cookbooks and ingredients based on past behavior!

52%!44%!

39%!32%!

24%!

0%!

10%!

20%!

30%!

40%!

50%!

60%!

Shopper Identified

Transactions!

Mobile Devices!

In-store Tracking!

Shopper Feedback!

Social Media!

Top Sources of Digital Breadcrumbs!

Source: Brick Meets Click!








  Labor is one of the highest cost items and estimated to average 8% to 12% of total revenue3!

  Store managers are generally responsible for scheduling employees via a schedule for nights/days and weekdays/weekends!

  Sophisticated grocers schedule labor based on transaction history, traffic counts from sensors and other data !

  Scheduling challenges occur for retailers that are constrained by union regulations or that have heavy volume fluctuations throughout the month!

  For example, retailers that services low-income consumers that use food stamps likely have considerably more traffic in the first few days of the month than the last few days. How should schedules be planned for this volatility?!

  Granular POS data holds the key indicators to forecast optimal staff to service expected site traffic!

POS logs hold key inputs to predicting:!  How many transactions will occur by hour by day?!

  What is the estimated foot traffic by hour by day?!

  Are certain cashiers more productive than others?!

  Can I estimate the average wait time per terminal?!

  What is the optimal mix of floor staff to achieve the desired customer experience?!

Labor Utilization








  Fraud at checkout is estimated to cost $828 million dollars13 annually largely via under-ringing, up charging, sales cancellations, refunds, price adjustments and other nefarious actions!

  The most typical employee theft is “sweethearting” whereby a cashier provides enhanced discounts or refunds to friends and/or family!

  Today, managers review weekly or monthly reports to identify fraudulent signals, but these reports take significant time to analyze!

  Solving problems faster can save thousands of dollars in shrinkage!

Machine learning can automate fraud identification; APIs can trigger alerts for detecting:!  Anomalies in transaction history, such as excess voids !

  Inventory discrepancies!

  Other fraudulent signals!

Prevent Fraud to Reduce Shrinkage








  The most untapped area of value for POS transaction log data is to create a real-time supply chain for distributors, manufacturers and other partners to collaborate on-demand !

  Supply portals may substantially increase revenue and loyalty especially through direct store distribution (DSD) channels!

  Target in-stock rates are generally around 95%!

  Faster replenishment increases revenue with better in-stock performance!

  The primary challenge for making this data actionable is volume, velocity and cost!  Larger retailers record millions of records of data each hour !

  As a result, most grocers only record summary level snapshots by day or hour severely limiting the intelligence that can be extracted!

  Historically, detailed POS logs were too costly to store though storage fees have dropped considerably (as illustrated below)!

Real-Time Supply Chain Management








Direct Store Distributors (DSD)!  DSD items make up less than 25% of unit sales in grocery, but

more than half of the profit15 !

  DSDs deliver products directly from manufacturers to the store to help retailers save money by eliminating a distribution layer and additional costs for delivery, logistics, and fuel !

  DSD helps grocers get money faster and reduce carrying costs!

  The average DSD supplier replenishes within two days, 5x faster than traditional grocery retail processes!

  In most cases, the DSDs own the inventory enabling products to hit the shelf faster with less working capital!

!

!

!

CPG Manufacturers!  Execute targeted hyper-local promotions optimized by hour/day!

  Analyze the immediate affect of local marketing spend !

  Improve manufacturing schedules to meet expected consumer demand!

  Understand product launch trends immediately !

Supply Chain Collaboration Partners

Leading CPG Suppliers!








!

1  Brick Meets Click, Moving Forward with Big Data: The Future of Retail Analytics, April 2013!

2  Standard & Poor's, Industry Survey, Supermarkets & Drugstores, January 2013!

3  Duff & Phelps, Food Retail Industry Insights!

4  Techcrunch: Amazon Bets On Web Groceries, Expands AmazonFresh To L.A., June 2013!

5  Fast Company: AmazonFresh is Jeff Bezos Last Mile Quest For Total Retail Domination, August 2013!

6  U.S. Grocery Shopper Trends 2012 (Food Marketing Institute), Booz and Company analysis !

7  Booz & Co, “Tomorrow’s Trends Delivered Today, Food Retailing 2013”, FMI FutureConnect 2013!

8  Forrester Research, Web-Influenced Retail Sales Forecast, December 2009!

9  Dynamite Data !

10  Nielsen, Five Things to Know About Online Grocery Shopping, May 2012!

11  AT Kearney, A Fresh Look at Online Grocery, 2012!

12  Time, Amazon Prime Loses $11 Annually Per Member … And It’s a Huge Success, November 2011!

13  Cardhub, Credit Card & Debit Card Fraud Statistics!

14  360i, Couponing in the Digital Age, June 2011!

15  Grocery Manufacturers Association, Powering Growth Through Direct Store Delivery, September 2008!

Credits !

  Authored by Jason Lobel, Bill Bishop and Vanessa Youshaei!

  Designed by Jasmine Yu!

References






Realizing the Value of Supermarket POS Data

Technology

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