Building a data strategy for liquor retail

26 February, 2019 by Deborah Jackson

The Invigor Group analyses data to identify growth opportunities for businesses. Here Claire Mula, COO of Invigor Group discusses what liquor retailers need to know when building a data strategy in 2019.

Declining alcohol consumption in Australia means liquor retailers need to work smarter to compete and be successful. The largest retailers often rely on teams of analysts, alongside competitive pricing and convenient store locations to outperform competitors. However, independent retailers can also benefit from a more data-driven approach when managing their business for profitable growth.

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Rather than engaging in a price war, independent retailers need to harness the single most valuable weapon available to them to support their decisions: data.

Successful retailers are those that already embrace data analytics for informed everyday decisions like what products to have on the shelves, at what price to buy stock, what promotions or bundles to offer to maximise sales and/or margin, and where to direct their operational investments to grow more profitably.

In the past, access to data has been a barrier, as well as concerns around cost and access to internal resources with the right skills. This may have prevented some liquor retailers from fully embracing data analytics. However, new technology and ready-built tools are making it easier and more affordable for retailers of any size to leverage the power of data to make better decisions that grow their businesses.

There are many benefits for liquor retailers to use data to drive decision-making, here are four of them:

  1. Improve product range and promotions

When retailers can see what products are selling well, which ones are delivering the most margin, and which ones keep customers coming back to their store, they can make better decisions around merchandising, assortment, bundling, and product placement.

Data-driven decisions can help retailers move beyond volume to understand margin and drivers of profit or growth. The right insights can help retailers not only efficiently manage their own merchandise, but will also enable a more informed and balanced dialogue with banner groups, liquor suppliers and brands.

Data analytics can also be applied to promotions to understand the success in terms of volumes, sales and profit. In some cases, promotions that are successful at driving volume (which means they are effective) are not successful at driving the necessary uplift in sales to deliver a profit or return on the promotion. There can be a variety of reasons for this. For example, it could be the product is not very price elastic, a competitor brand ran a promotion at the same time or the product was purchased at the wrong price from the supplier. Using advanced analytics, retailers can see the factors that drive promotion success at a glance and adjust their campaigns as necessary. Without this knowledge, they may fail to make the changes to protect margins or they may result in a positive net return for those planned promotions.

  1. Price adjustment and competitive position

Retailers can use data to understand when prices are going up or down at competitor stores in real-time via alerts and live dashboards. In the Australian liquor market, this happens daily and up to multiple times per day among the larger liquor retailers and e-commerce retailers. Using data analytics helps retailers understand the impact of competitor price changes on key ‘power’ products and pack sizes for their business. Depending on the strategy, it will help to decide when and where to play on price and when not to be making price adjustments.

This lets retailers get on the front foot and be responsive when managing their own pricing. There may be opportunities for more margin that are being missed because a competitor has raised a price or gone off promotion. If the retailer is unaware of these changes until days or even weeks later, they could be missing valuable margin that flows to the bottom line.

  1. Customer understanding

Customer analytics can help retailers understand what drives customer purchase behaviour such as frequency and spend, and therefore how to turn occasional customers into high value or loyal customers. Customer analytics can demonstrate the most valuable customers and deliver insights into how to acquire more of them, and where there are opportunities to upgrade existing customers with the right product or bundle that impacts profitability. This greater understanding of customer behaviour lets retailers make better operational decisions such as product buying and assortment decisions; creating marketing campaigns that will resonate with high value customers; and developing bundles that are more likely to be purchased. This shifts the focus away from margin-eroding strategies such as discounting and price matching, into more intelligent ways of increasing customer value and profitability.

  1. Personalised engagement

Gaining a greater understanding of customers naturally leads to an increased ability to provide personalised engagement through initiatives such as loyalty programs, gifts with purchases, individualised recommendations, and more. Beyond in-store improvements, customer understanding needs to be linked to investments in customer engagement and marketing. This might be done by taking a segmentation approach to marketing such as through automated eDMs or through targeted acquisition campaigns on Facebook and Google. Ultimately customers will respond well to the messages that are most relevant to them.

For example, if we take a category lens to segment our customers, we may find a segment of consumers who typically purchase premium red wines and on occasion, craft beers together. We see that these customers are predominantly female, visit early in the week and have a high spend per visit, but that the frequency of their visit is lower than other customers. Our options may be to design targeted campaigns that can be sent out via email (if we have a customer database) or via targeted advertising aimed at the profile at the beginning of the week designed to drive them back to store more frequently than usual or to create a specific premium red plus craft beer bundle to assist with increasing basket or spend per visit on each occasion. The likelihood the bundle is adopted among this segment can be analysed in post transaction data as a way to understand what works to lift average spend among this segment.

Once a liquor retailer has decided to adopt a data-driven approach, there are a number of capabilities to consider building in 2019 for the greatest chance of success:

  1. Improve data literacy

The first and most important step in a data strategy is to build a roadmap to begin improving the organisation’s data literacy. Following a maturity model, this starts from flying blind to becoming data-aware. Even if the retailer isn’t already using analytics or advanced technology to collect and analyse data, they should at least be trying to develop reports and gain insights manually. The retailer can then progressively become more mature as key staff learn more about how to incorporate data into their strategic and operational decision-making processes, with the ultimate goal of becoming more automated and sophisticated over time.

  1. Cleanse the data

The quality of the insights derived from data is directly related to the quality of the data itself. If retailers are working with out-of-date, inaccurate, or irrelevant data, then the insights won’t be trustworthy. It’s therefore worth taking some time to organise the data, and cleanse it. That means removing duplicates and replacing old information with new information. While this may involve an upfront effort or investment, it will provide a significant return down the track as the business relies on the data more heavily.

  1. Shift mindset and behaviour

If the retailer hasn’t worked with data in the past, it’s important to take a methodical approach to embedding data in the operation. Start with accessible data such as transactional data from a point of sale system or e-commerce software. Make this easily accessible on a daily or weekly basis for different users in the organisation who make key decisions around merchandising and promotional plans. Over time, build a roadmap of additional data. Start by thinking about what you don’t know about customers or products today that if you did would make a significant difference to the business and work backwards.

One of the key questions clients often ask Invigor is “how much should I invest in data?” One way to approach this is to identify the ‘hard’ and ‘soft’ outcomes the organisation is looking for from data analytics. Review the decisions that affect investments, revenue or profit, and key supplier discussions that are critical to the business. Then determine how data can help, how to get it to the people who make decisions, and what data to provide to frontline staff. Once this has been identified, then the business can begin to review whether the data they have today is enough to deliver against these outcomes and what the value of those outcomes will be on the business in the short and long term.

  1. Monetise the data

Information is so valuable that some organisations are beginning to list it as an asset on their balance sheet. Retailers need to understand what their data is worth and determine who has the legal right to access and use that data. It’s also possible to monetise the data by turning it into revenue. This can be done by analysing the data to identify new revenue opportunities or partnership possibilities.

  1. Comply with privacy regulations

Collecting customer data brings a range of privacy and security compliance requirements. Australia’s Privacy Act includes the notifiable data breach (NDB) scheme, which requires businesses that collect personal data to keep it secure, and to notify the affected individual and the Office of the Australian Information Commissioner if a breach does occur. Aimed at giving individuals more control over their personal information, this legislation currently applies to businesses with an annual turnover of more than $3 million. However, regardless of whether the legislation strictly applies, it’s good business practice to keep customer information secure given the potential brand damage if customer data is compromised. All businesses that handle customer data should have a privacy policy, that is made available to customers and that is internally understood and complied with.

  1. Choose key data sources

Retailers already have access to a range of invaluable data sources and it’s important to tap those before investing in third-party data sources. For example, point of sale (POS) data can yield valuable insights into sales revenue, margin, and volume drivers. It can help retailers segment their products and drive assortment recommendations. It provides the clearest view of what’s happening in-store, and can help identify which products sell the most, at what prices, and when.

Analysing promotional data can help liquor retailers understand the immediate impacts of a promotion on volume, sales or margin. It can determine promotional efficiency and elasticity, and clarify the relationship between the promotion and volume, sales, or margin.

Customer data lets retailers segment their customers by personas and loyalty levels, then track their customers’ spend, frequency, and lifetime value. It’s important to understand who their most valuable customers are and focus on acquiring more of these customers, which ultimately will provide the highest return. It’s also important to understand which customers are at risk to reduce churn.

Once owned data sources are fully leveraged, it can be valuable to seek third-party data. For example, gaining insights into competitor products and pricing strategies, including their online and offline or promoted pricing, in an industry that’s still heavily based on catalogues, can help retailers understand how to manage their own pricing strategies.

  1. Make data actionable

Data can be analysed in any number of ways to yield insights about a vast range of topics. To avoid being overwhelmed by the possibilities, it’s important to determine what actions the retailer needs to make regularly. Based on that, the retailer can devise specific questions to ask of the data, which will yield insights that are actionable. In other words, information that is sufficiently detailed and provides enough insight into the future that makes it clear what actions the retailer should make.

  1. Test and learn

Many retailers already make successful decisions based on their instincts and industry knowledge. Data can help support these decisions and test new theories. This makes trial and error less costly and risky, because the theories can be tested on data before actions are put into real life. Knowing that theories can be tested before they’re implemented can help unleash the creativity of the decision-making team, considering more ambitious ideas than would have been possible in the past. This can pay dividends in a market where it’s difficult to stand out from the crowd.

  1. Build capability

Retailers should start to build data-related capabilities in whatever way is possible as soon as possible to avoid being overtaken by competitors. This could mean outsourcing data initiatives or recruiting for data skills. Regardless of the approach, it’s important to start now to avoid being left behind.

Liquor retailers have a unique opportunity to grow their businesses in 2019 if they can harness the wealth of data available to drive strategic decision-making. Doing so will let them compete more effectively with larger retailers and improve their own business performance dramatically. It’s important to take a data-driven approach to maximise every revenue opportunity.

This article was written for the 2019 National Liquor News Annual Industry Leaders Forum published in February.