August 27, 2008, 12:00 AM

Supermarket sweep

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“Big retailers that were not formed around caring about that data still are playing catch-up on what to do with it. It’s not that they don’t have it; they don’t know how to use it better,” Cohen says.

Cohen adds that online retailers themselves have a ways to go in figuring out how to optimize use of that data. But programs such as FreshDirect’s still place it ahead of how most bricks-and-mortar grocery chains segment and target their customers.

“We marry all of your order data with your behavior on the site and then we talk to our customers through weekly market research. We combine all of that in a database, where we start to understand our customers as segments and as individuals, which lets us talk to them in a unique way,” Druckman says.

For example, FreshDirect defined a “new family” segment based on shoppers’ orders for products such as baby food. Approaching that customer segment in online research, it asked how well the site’s baby category was meeting their needs. Customers told FreshDirect it wasn’t doing as well as it had thought-they wanted more selection. “We doubled the items in the baby category and re-launched it a month ago.” Druckman says. Category sales have risen 20% since then. “We could do that because our database gives us the ability to know who our customers are, what they need and how to talk to them.”

Merchants in the online grocery space are finding that the key to e-commerce success is to attempt to minimize the channel’s limitations-such as letting shoppers who can’t actually see or touch a banana specify “yellow” or “green”-while leveraging it for what it’s uniquely equipped to do. And that’s to deliver convenience and supply useful and increasingly targeted information to shoppers- a concept that even grocery retailers that don’t have e-commerce are embracing to drive in-store sales.

As more shoppers get comfortable with buying across more categories on the web and also form the habit of researching online before heading out to the store, the opportunity of the grocery category will grow online. And despite operational challenges particular to the category, forward-planning grocery retailers that don’t look to the Internet to take on a bigger role in the future will miss out, experts say.

While only a very small percentage of grocery sales are online so far, the Internet already has a much larger role in driving sales, apart from e-commerce itself. “Today in grocery, the Internet probably has more application as an advertising and marketing vehicle than it does as a significant contributor to sales,” Cohen of Kurt Salmon says. “It should be worthy of serious management over time as it gets to be a double-digit portion of the business. Until that time it’s a marketing and promotions incubator to test and identify the right combination of communications to your best customers. It should be a flow of critical customer information that will help retailers online and in their bricks-and-mortar businesses.” l

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