01 March 2019 Posted By : Suman bhatacharya

Canadian grocer Loblaws grows digital offerings to keep Amazon at bay

Loblaws, Canada’s largest grocery retailer, is on a digital push to keep its highest-value customers loyal.

The retailer is quickly upgrading its digital experiences and loyalty program as Amazon and Walmart gain market share in Canada. Loblaws expanded online grocery pickup to reach 75 percent of the Canadian population, and began a tie-up with Instacart to offer grocery delivery in late 2017. It’s also testing a partnership with startup Freshfood to offer customers discounts on products that are nearing their expiration dates. Loblaws’ investments in digital, supported by an Amazon Prime-style loyalty program that costs customers $75 a year, are the retailer’s protective barrier against the encroachment of big competitors.

“It’s in anticipation of Amazon building something [in grocery retail],” said Amar Singh, senior analyst at Kantar Consulting. “It’s trying to build a strong omnichannel presence, and they want to have a consolidated platform to grow loyalty with the PC Insiders program.”

Loblaws, which generated $36 billion in revenue last year, is no danger of losing its crown as the top grocery retailer in Canada. In online grocery, however, it risks ceding ground to competitors without a menu of services to cater to those customers. Its e-commerce sales last year were more than $381 million, according to the company.

“It’s a standard digital playbook,” said Forrester retail analyst Sucharita Kodali. “You need to figure out a way to retain your customers.”

While Amazon isn’t a significant component of the Canadian online grocery market, its appeal among digital-first shoppers is causing Canadian grocery retailers to build out their e-commerce offerings at a rapid pace. According to a poll carried out by Vancouver-based NRG Research Group last year, Amazon and Walmart are making headway among Canadian online grocery shoppers. The study found that 62 percent of Canadians who buy their groceries online say they buy them on Amazon, 37 percent buy them at Walmart and 23 percent purchase them at Loblaws. As Loblaws grows its online and delivery options, No. 2 retailer Sobey’s last year entered into a deal with U.K.-based Ocado, with whom it will develop an automated warehouse in Toronto to speed up fulfillment for e-commerce orders.

While 2018 was about scaling Loblaws’ digital services, 2019 will be about execution, with further investments in technology to drive customer adoption and satisfaction, Loblaws president Sarah Davis told investors on a fourth-quarter earnings call Thursday.

The company’s digital efforts are seen as a differentiator as other big-box brands rush to keep up.

“The rapid ramp (and traction) of Loblaw’s digital food initiatives, for online (food heavy) sales in excess of $500 million [Canadian]  is, in our opinion, not only impressive but should also give key competitors pause,” wrote Raymond James analyst Kenric Tyghe, in a recent report.

Features like online pickup and home delivery are becoming table stakes as more customers turn to e-commerce for grocery purchases. While online pickup for digital orders has performed well in the U.S., it’s still in an early phase of growth in the Canadian market, said Singh. With the potential for higher basket sizes, it’s an opportunity.

Singh added that Loblaws is smart to expand online pickup given its significant physical-store presence across the country. Loblaws operates more the 2300 retail stores across Canada, including Loblaws, Real Canadian Super Store, No Frills, Shoppers Drug Mart drug stores and Joe Fresh apparel stores.

Despite the flurry of digital upgrades, focusing on upmarket customers through fee-based grocery pickup, delivery and annual Prime-style PC Insiders memberships could open up room for competitors to gain ground with value-conscious shoppers, said Toronto-based retail analyst Bruce Winder.

“It somewhat insulates them [from competition,] but it’s not bulletproof because if you look at Loblaws’ business, it’s skewed toward the more affluent consumers,” he said. “They have some vulnerability for the lower-value customers who may go to Walmart or Amazon.”

Media companies eager to deepen relationships with their audiences are teaming up and turning to unified login systems so users can access multiple media sites through a single email address.

France is the latest country taking this route, with 10 media companies across news publishing, radio and broadcast setting rivalries aside to collaborate on a single tech system. Le Figaro, Altice, Team, M6-RTL, Lagardère Active, Czech Media Invest France, 20 Minutes, Les Echos-Le Parisien, Le Point and Radio France, who together reach around 80 percent of French internet users, are all in the as-yet-unnamed alliance.

The media groups are pooling resources — and €5 million ($5.7 million) in funding over three years to create an independent, common technology infrastructure that all publishers and other media owners can plug into. A consumer would then upload their email, and every time a person visits a site across any of the media company’s online portfolios, they’ll be able to login with the same details or stay logged in.

“As a publisher, we need a link with the reader,” said Bertrand Gié, deputy director of the Le Figaro news division. “Today, this is a tiny link through a cookie. Cookies are very imperfect and in danger.”

The idea is that one publisher’s single login strategy isn’t likely to have the necessary scale to rival the login platforms of Google, Amazon and Facebook. (The reality check of how difficult this will be is highlighted by the fact that publishers hope to score funding from the Google News Initiative.) And publishers are loathe to use tech platforms as identity systems. Moreover, with the prospect of ePrivacy laws coming to pass, having explicit consumer consent to use data is becoming paramount.

By September, audiences will be able to use their email address to automatically log into around 100 media sites in France, the alliance is running tests on up to three media owners in June. Logging in won’t be a requirement to access content to start with, but this could change. It’s fairly typical for broadcasters, like M6, for instance, to require a login for viewing shows on catch-up services.

European Lawmakers are still thrashing out the ePrivacy directive, which isn’t yet set in stone but would stipulate that consumer consent is needed for all cookie use. This has thrust media owners to team up for unified login systems in Germany and Portugal.

France has had more success over alliances than other European countries, programmatic alliance La Place was one of the earlier examples in the market, but that doesn’t make it challenging getting into bed with competitors, even with common enemies.

The alliance is only collecting email addresses, according to Gié. Collecting and sharing more personal data would have made discussion between alliance members, and competitors, more difficult. It’s then down to the media owner to build up a relationship with the readers and collect the relevant data to build our a profile to create personalized ads and services.

Media owners will offer incentives to those who register, like setting up specific alerts. With the login, people will be able to switch between devices while reading an article, for instance. Just 15 percent of people register with media sites in France currently, according to a report from Le Figaro.

A positive approach and a long-term view need to be the lowest-common denominators among all the alliance partners, said Alessandro De Zanche, founder of consulting firm ADZ Strategies, and best practices and knowledge needs to be shared to avoid falling into the previous publisher pitfalls of frustrating audiences through bad programmatic practices.

“The user is willingly, proactively and positively answering the proposition of the media brands and publishers,” he said. “It has to be based on value exchange, not value extraction. It’s important to preserve the trust.”

Buyers were gathered in Nashville this week for the Digiday Media Buying Summit. Conversations during sessions and during closed-door town halls were largely focused on client education, in-housing and brand safety. Edited highlights below.

Why brands don’t want to advertise alongside news
“There is now a question of the definition of news: what’s real and what’s fake? This started with Breitbart, and that’s where the question is.”

“We will run against news content. It’s about us finding the right audience. A lot of the keyword targeting doesn’t stick. For us, with what’s happening right now,  it’s not sticking. The articles are sometimes below the fold.”

“News of the day is the news. We can’t change that. So saying you can’t advertise on the news is to avoid reality. It’s incumbent on exchanges to do their jobs of whitelisting quality websites.”

“Brands don’t want to be near controversial issues or near any news. But the net of controversial issues has grown. The 24-hour news cycle means there’s always some kind of drama.”

Publishers need to do more
“In terms of news, what is going to have to happen is publishers need to have to do some work on their end. In many cases, they need to start working with writers to classify their stories. Most of the work is being done on our end, on the demand side.”

“We do have to have content tagging done in the article passed to the ad server so we can set up PMPs that will allow us to block specific keywords and types of articles. Publishers need to try. It’s the need to-do for publishers: to pass us your content tagging.”

The screenshot-industrial complex
“The thing is, tools like Grapeshot need articles to have a certain number of views before they can do anything, so God forbid the advertiser sees the one impression. So it’s about the screenshot.”

“We’re using a blunt instrument to block things. Even if someone were to set up a whitelist, it’s not clean.”

“Is there even any data showing if consumers see an ad near a piece of content they’re making a negative connection?”

“’Stay the hell away’ is the go-to feel.”

“All it takes is one letter from one person saying you were here. People are tweeting at advertisers. It’s fear of the screenshot.”

In-housing has led to agencies needing to pivot
“My team works mostly in social, and the biggest thing is Facebook making it easier for people to take it in-house.”

“As an agency, we’re now starting to work on a program where they have us on retainer to bounce their in-house ideas on us. It’s not ideal because it’s not scalable, but it’s the way to help us in this instance.”

“We’re also seeing it with big brands and with programmatic in-house. It’s happening because they read a couple articles someplace and then decide to do it. They’re then reaching out and asking us what DSPs we’re using. But clients are starting to see that everything is hard.”

Barstool Sports recorded more than $15 million in podcasting revenue in 2018, according to a source. Erika Nardini, CEO of Barstool Sports, declined to comment on how much revenue Barstool’s podcasts generated last year, but confirmed that it has become a meaningful business for the company. Half of Barstool’s advertising revenue is from podcasts, Nardini said.

Barstool’s network of podcasts currently consists of 25 active shows. Top shows include “Pardon My Take” (which is a top-10 U.S. podcast according to podcast measurement firm Podtrac); “Spittin Chiclets” (an NHL-focused podcast with former players Ryan Whitney and Paul Bissonnette); “Call Her Daddy” (sex and relationships); and “Fore Play.”

The cumulative reach across all of Barstool’s podcasts was 7.9 million uniques in January, up from 4.3 million unique viewers a year ago, according to Podtrac data provided by Barstool. Podcasts were also downloaded 37.9 million times in January, up from 19.9 million in January 2018, Nardini said. This has helped make Barstool a top-10 podcast publisher in the U.S., according to Podtrac. It ranked above such well-known media brands as ESPN but still trailed podcast heavyweights like NPR and The New York Times.

Audience growth is translating into revenue. Barstool has already sold 50 percent of its expected 2019 podcast inventory upfront, Nardini said. The average rate per spot grew 30 percent year over year. Other existing sponsors for Barstool podcasts include New Amsterdam vodka, FanDuel and SeatGeek.

Barstool’s podcasts are anchored by personalities, such as Dan Katz and PFTCommenter on “Pardon My Take.” This influencer approach has helped bring in loyal audiences and also turn some of these shows into franchises that can deliver different forms of revenue. For example, “Call Her Daddy” — which is a real name for a show in which hosts Alex Cooper and Sofia Franklyn talk about sex and relationships while living in New York City — is sponsored by men’s health brand Roman, but Barstool also creates merch for fans of the show. It has also become Barstool Sports’ second-biggest podcast, after “Pardon My Take,” and 70 percent of the audience is female, Nardini said.

“Podcasts are the single most compelling way we create IP,” said Nardini. “And it’s very natural for Barstool — podcasts and blogs are not that different.”

The podcasting market is growing, although still small. Podcast ad revenues are expected to reach $514.5 million in the U.S. this year, which pales in comparison to the tens of billions of dollars that go toward TV, search and digital video, according to an IAB report. Some digital media companies are building robust podcast operations that are main drivers of their business. The Ringer, helmed by Bill Simmons, has 28 podcasts and is reported to have done more than $15 million in revenue, mostly from podcast ads. Vox Media, which has a network of 75 podcast shows, also has an eight-figure podcasting business, according to Axios. The market for podcasts was recently validated by Spotify’s $340 million worth of deals to buy Gimlet, maker of popular podcasts, and podcast creation and hosting service Anchor.

“You’re seeing an acceleration of podcasts as a content medium; there’s way more awareness among consumers,” Nardini said. “Our ambitions in podcasts are very big.”

While podcasts are expanding into narrative formats, Barstool mostly sticks to a talk radio approach. Barstool podcasts typically has a small number of people on each podcast — for instance, there are four people on “Pardon My Take” including the two hosts — while the crew makes use of other parts of Barstool’s infrastructure including talent booking, promotions and merchandise. (The podcasts are separate from Barstool’s 12-hour live radio channel on Sirius, which consists of exclusive programming made for the channel.)

“We’re very talent-driven,” said Nardini. “[The podcast hosts] play an extremely active role in these podcasts. As a result, the podcasts are more personal, which is more compelling.”

Aldi is pushing to become the third-largest grocery retailer in the U.S., but instead of e-commerce, its path to scale is hinged on an aggressive private-label strategy and physical store expansion.

Despite a limited e-commerce presence (it’s currently limited to an Instacart delivery partnership),Aldi’s approach to building out its owned brands gives the grocer a chance of gaining ground among a younger, middle-income target audience. It’s a shift in strategy for the German-based retailer, which has traditionally focused on the budget-conscious consumer market. And although Aldi currently operates in two-thirds of the country, it’s aiming to go coast to coast as part of an effort to expand its store count to 2,500 by 2022, putting it just behind Walmart and Kroger.

“They’re moving more into upper-middle-class areas of the country with higher wages and demographics — it used to be they would put up a store in average and mid- to lower-income areas,” said Phil Lempert, grocery analyst and founder of SupermarketGuru.com.

To achieve this, Aldi is making major investments in its 1,600 stores $5 billion to remodel and expand its store count. Today, Aldi has stores in 35 states, according to the company. Aldi is moving upmarket with its private-label offerings, including a greater selection of organic meat products; expanded produce selection, including organic products; and growth in vegan and vegetarian categories. It has also rolled out a private-label wine line, along with more gluten-free and prepared meal options.

“Ten years ago, they only had one kind of olive oil, and now they have four,” said Lempert. “They have one that comes from a very specific part of Sicily, the crème de la crème of olive oils — so if I love a product from Aldi; I can’t get it anywhere else, and you’re locking in your customer.”

Private-label strategies help retailers grow a loyal following, keep customers in the retailer’s ecosystem and protect margin, a strategy that’s working well for Amazon, Walmart and Target, which are increasingly focusing on their owned brands as differentiators. Going private label also appeals to customers who want sustainable, quality products but are also price conscious, typical of millennial and Generation Z demographics, Lempert said. 

Moreover, perceptions around private-label grocery brands are changing.

“People used to think of private label in a certain type of way — an in-store cheap alternative, but that’s not the case anymore; we see millennials at a higher clip willing to experiment with private label on par with big-name multinational brands,” said Evan Mack, research specialist at Gartner L2.

Cara Brosius, grocery analyst at The Fredonia Group, said Aldi is increasingly catering to niche diets in an effort to appeal to higher-income, younger customers. Among the company’s premium private-label food brands, Aldi’s offerings include Earth Grown (vegetarian and vegan); Never Any! (meat free from antibiotics, hormones and preservatives) and SimplyNature (organic and non-GMO).

In expanding its store footprint and increasing private-label options, Aldi still isn’t exactly taking on Amazon. A recent report suggests that at $13.5 billion in revenue in 2017, Aldi captured just 2 percent of the U.S. grocery market — well behind Kroger, which made $97 billion in 2017. Aldi’s vulnerabilities, according to Mack, include a store layout that emphasizes utility over experience, and its scant attention to e-commerce and delivery. Aldi’s e-commerce footprint is restricted to a delivery partnership it launched with Instacart in September 2018.

The company’s e-commerce delivery moves, said Lempert, are more based on the fear of missing out rather than a coordinated approach to take on those channels. Regardless, the chain’s premium but affordable private-label offerings, combined with a smaller-format store than most big-box chains (averaging 22,000 square feet, in comparison to 179,000 square feet for an average Walmart Supercenter) could help it win, he said.

“They’re careful in curating things — if you look at their wine selection, it’s inexpensive but gets high scores, and besides private label, they’re increasing their produce selection,” he said. “[And] having a smaller store does well for them because the average person spends 22 minutes shopping.”

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