Digital transformation of merchandizing - Albertsons sees tech investment as the "tide that raises all boats"

Stuart Lauchlan Profile picture for user slauchlan August 1, 2022
The US' second largest grocery chain is rethinking its approach in the Vaccine Economy, both online and offline.


The rebalancing of online retail to pre-COVID norms has continued apace in recent months with a number of bellwether brands turning in disappointing numbers. Nowhere has the shift to new Vaccine Economy levels been seen more starkly perhaps than in the online grocery space.

But while there is that adjustment of the omni-channel balance still underway, Albertsons has provided some positive insights with Q1 digital sales up 28% year-on-year. The company, the US’ second-largest grocery chain after Kroger, also reported that omni-channel households increased 34% year-on-year, with retention rates over 90%, which is good news given that such customers spend 3x more than an in-store-only shopper.

That said, on the physical side of the omni-channel model, in-store transactions are up on the back of a return to the store by shoppers as well as new merchandizing strategies, including the firm’s Just for U loyalty program, which has grown its membership base to 31 million.  Actively engaged members have also hit an all-time high with such customers spending 4x more than a non-actively engaged member.

All of this leads CEO Vivek Sankaran to declare:

These growth trends affirm our belief that engaged and connected digital and in-store experiences will result in long-lasting customer relationships and industry-leading growth. The underpinnings of the next phase of our transformation strategy.

This is based on the far-from-original notion of “placing the customer at the center of everything we do”. But what that lacks in imagination as a basic premise, Albertsons is working hard to do the harder part - putting it into action. That means focusing on a number of strategic pillars, explains Sankaran:

We are deepening our digital connection and engagement with our customers, which supported our 28% digital growth. This growth was driven by an expansion of our services and innovation. For example, we were operating 2,075 Drive Up & Go stores at the end of Q1. Our focus on speed is paying off. For example, our express delivery two-hours or less is now available to 74% of our households and penetration of this option has increased fivefold versus prior year.

Tech incoming

New merchandizing features have been added to the firm’s unified mobile app, providing what Sankaran calls “an increasingly personalized and curated digital experience”. Other digital tools included a meal planning tool which is pulling shoppers into using the app. Sankaran says:

The meal planning capability inspires our customers to engage in our app more frequently as they plan, shop and prepare the recipes we offer, which can be filtered by dietary preferences such as carb-conscious, vegetarian and pescatarian. In Q1, we had over 1.2 million unique visitors explore our meal planning tool, and over 40% of them used it to add to shopping list functionality in the app to create their shopping list.

The customer-facing in-store experience is also being upgraded, he goes on:

We are differentiating our store experience with a deepening engagement through the use of technology to automate task management, thus creating more time for our team members to assist our customers despite a difficult staffing environment. We're also simplifying the end-to-end shopping journey by improving localized assortments and adjacencies of complementary products, installing more checkouts and adding grab-and-go sections to ensure a convenient and easy experience.

In support of our omni-channel growth, we are evolving store operations, building out staging areas for Drive Up & Go, adding way rooms for easier picking and installing additional MFCs….In our stores, we are rolling out AI-based and machine learning technologies to improve the customer experience in self-checkout, enhanced freshness and product availability in produce and ready shrink. In addition, we have continued to modernize our technology through cloud migration and the upgrade of our edge computing platform.

And inevitably there’s technology enhancement behind the scenes as well, he adds:

We are modernizing our capabilities in part through an improved supply chain, enhanced data and data analytics and ongoing productivity, all built on the foundation of being locally great and nationally strong.

In supply chain, we are currently increasing automation in two of our largest distribution centers and expect to continue to roll out similar automation across our network over the next several years. We've also begun the progressive rollout of a new enterprise-wide warehouse management system that is expected to be fully implemented network-wide by fiscal 2025.

Both these initiatives are expected to materially improve our ability to differentiate our fresh quality to improve in-stock conditions, lower our cost to serve and improve our end-to-end supply chain data analytics capabilities.

Overall, he concludes, the Customers for Life strategy is working and delivering the goods in the new reality of the Vaccine Economy:

We are adapting quickly and we are executing well. We are adding customers and engaging customers more frequently through our loyalty program and our e-commerce offering. Customers spend more with us and stay longer with us because we're able to tailor assortment and promotional offers for them…Our stores are operating more effectively and efficiently as our supply improves and our new technology stakeholder, and we are proactively managing our costs.

It’s all about rethinking some old norms, he adds:

If you go back to the past, the old behavior in our sector was that we would all run a 10-page ad and blast promotions that didn't give us a return, okay?…I think there's plenty of technology and data and digital access and so on today to become much more targeted and get a better return on promotion.

My take

That last point from Sankaran is an interesting one and a theme picked up by CFO Sharon McCollam, who comments:

We've said consistently that with the pricing, promotion, data analytics investments that the entire industry has been making over the last several years, we believe that it is the tide that raises all boats. This isn't a specific Albertsons discussion. We believe that this discussion applies to most of our sophisticated competitors that through personalized promotion, it is why the media collectives are doing better….Suppliers and the retailers together have realized that the effectiveness of promotion can be so much greater when you can personalize and you use data analytics to drive it. And so I think that over the last couple of years, if you take a look at the investments that we've all made in those capabilities they have changed the game. 

Given the decidedly mixed fortunes of so many of the major supermarket and grocery chains around the world at present, that’s a game a lot of them need to learn to play.

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