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Kroger builds on its invisible advantage

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Of all of the ways that innovation is happening in retail, some of the most profound changes are occurring in how retailers and brands engage with and influence shopper behavior. These marketing innovations, unlike a splashy new ad campaign, are happening in less visible ways that involve data capture, analytics, personalized offers, measurement, integration and
optimization. They’re also happening against a backdrop of huge changes in the way that brand budgets are allocated against new and existing media types. This is due to a quiet revolution happening in the marketing world, in which retailers have emerged as media platforms — networks, in essence. This revolution hasn’t been all that quiet for those involved in marketing, but it’s poised to gain traction in the second half of 2020 and beyond as digital grocery accelerates. Retailers large and small now realize the value of their shopper audiences in an increasingly digitally engaged world where everything is becoming clickable and shoppable. In such an environment, brand marketing budgets are being put to use in new,interconnected and highly measurable ways.

Kroger builds on its invisible advantage

“As shoppers are changing their buying behaviors, and there is an easier connection between an advertisement and influencing the buy, the reality is the days of historic silos in media investment choices are all starting to blur,” says , VP of commercial and product strategy for Precision Marketing (KPM) at 84.51°.

Those silos consist of brand investment dollars spent against awareness and consideration tactics, shopper marketing activities in store, or trade investment dollars used for price promotions at shelf. The fourth silo now involves spending related to digitally engaged shoppers interacting with e-commerce.

“We’ve gone from three relatively clear lines of investments on behalf of a CPGadvertiser to four potential verticals, which are starting to blur the line,” Pratt notes. “The path to purchase is no longer linear, and there are new ways to create shoppable moments that are not as distinct as before, when standing in front of a shelf.”

The Rise of KPM

Kroger recognized this shift sooner than most, when, in the fall of 2017, it created KPM, powered by its data science subsidiary 84.51°. KPM functions as a cross-channel media solution focused on precise, personalized communication to customers, with one distinct advantage: It taps into first-party purchase data from 60 million households that participate inKroger’s loyalty program and are connected to 96 percent of the Cincinnati-based grocer’s sales.

The insights and capabilities of KPM are shaping up to be especially useful in the back half of 2020 as brand marketers attempt to make sense of spending behaviors disrupted by .

“There is a whole new treasure trove of data,” Pratt says, “as we are seeing a lot of new households take advantage of grocery pickup and delivery at scale.” She believes that it’s a pivotal time for brands as new households buy different brands and experiment with new categories.

“This is a unique milestone moment for many brand marketers to think through how they protect who they have and how they retain who is newly influenced in engaging with their portfolio,” Pratt adds. “We have a unique opportunity to leverage our audience intelligence to help them deliver against the brand objectives they may have.”

Early indications are that brands are taking advantage of KPM. Despite the fact that brands slowed promotional activity in March and April as products were practically flying off shelves, the media business rebounded so strongly in May, as digital sales growth entered triple-digit territory, that Kroger CFO told investors that KPM was on track to experience 50 percent growth in 2020.

This rate of growth is noteworthy because, in addition to helping brands drive sales, KPM is a key element of Kroger’s “alternative revenue streams” that are expected to be key contributors to profit growth. In that sense, KPM is similar to Amazon’s advertising business, which blossomed as its website became immensely popular and overtook Google as the place shoppers went to first to search for products. By tapping into the traffic on its website, Amazon last year reported “other” revenues of $14 billion, which a footnote in its financial results said “primarily includes sales of advertising services, as well assales related to our other service offerings.” Other revenues in Amazon’s first quarter increased 44 percent to $3.9 billion.

It’s little wonder, then, that retail media is broadly appealing and the source of high expectations at retailers such as Kroger, which boasts similarities to Seattle-based Amazon, including a large and loyal base of customers that doubles as an audience.

“We remain confident in the significant potential of alternative profits, especially given the continued growth in traffic across our store and digital ecosystem,” Millerchip said when Kroger reported its first-quarter results on June 18. “Despite short-term headwinds due to COVID-19, we continue to expect alternative profit to be a major accelerator of our model in the future.”

Navigating ‘Super-Uncharted Territory’

Helping spread the KPM gospel with Pratt is a former Amazon executive well versed in the advantages of precision targeting. Nancy Winé joined KPM in May to lead advertising sales across all regions and clients. She spent the previous nine years at Amazon, where she co-created the consumables vertical, which is now the largest advertising vertical at Amazon. Prior to Amazon, Winé was on the senior management team for Integer/ TBWA, where she launched and scaled Integer’s Digitail practice across more than 600 employees.

“I love to build and make things, and grocery is super-uncharted territory,” Winé says of her decision to join KPM. “Kroger has a footprint and unique ability to win in grocery e-commerce, and I want to help continue to build out that foundation. We have a very long runway with KPM, and we are innovating and creating new ways to build baskets and drive impulse.”

The perceived length of that runway comes back to the major structural changes happening in the marketing world overall as all forms of digital grow and intersect.

“There has historically been a significant difference in investment choices, and as we look forward, we are starting to see those lines blur, and it’s largely due to new opportunities to engage with customers, but also customers’ new opportunities to buy, whether they’re in their car, on a sofa, in a store or anywhere in between,” Pratt observes. “The future is really about unlocking more shoppable moments, and doing that with the most effective audience to deliver against a brand’s objectives, driving clarity into how investments influence behavior and creating more end-to-end synchronization. That’s what advertisers are clamoring for, and what they deserve.”

Looking forward, Pratt and Winé hint at new KPM experiences and new content opportunities to inspire connections to brands, but offer no details except to say that they’re excited to release details soon. The pair also indicate that future capabilities will be driven by what advertisers are most interested in and how KPM leverages its assets to deliver against those needs.

“We are really focused on driving a new level of accountability into media investments,” Pratt notes.