Tuesday, June 4, 2013

‘Big Data’ Fine-Tunes Product Assortments For the Dannon Company

The Dannon Company has used all manner of in-store marketing and merchandising tactics to help snatch dominance of the American yogurt aisle from General Mills’ Yoplait brand lately. Now the American arm of Paris-based GroupeDanone is bringing a really huge club out of the closet: “Big Data,” wielded by none other than IBM.

Dannon is using IBM’s cloud-based predictive analytics to ensure that it has the right product mix delivered at the right time to satisfy consumers in the highly competitive $7-billion U.S. yogurt market. The move already has reduced the frustration of out-of-stocks for Dannon consumers and retail customers, enhanced the brand’s ability to manage a proliferation of SKUs in the yogurt section, boosted Dannon’s forecasting abilities, and allowed its sales, merchandising and distribution staffs to focus on creating and executing effective promotions rather than doing math.

“In the average supermarket in the U.S., you may find up to 200 different SKUs in yogurt,” Michael Neuwirth, senior director of public relations for the Dannon Company, told CPGmatters. “So it’s a really crowded environment. The benefit of predictive analytics for us is to be able to improve our forecasting, which then improves the shopper experience for the retailer.”

In the fast-growing and dynamic yogurt business – made so, in part, recently by the rise of Greek yogurt and Dannon’s strong play in that segment – such an edge can be crucial because, as Neuwirth explained, “the category is growing in dynamics and dollars and importance to our [retailer] customers.”

Jay Henderson, strategy director for IBM Smarter Commerce, told CPGmatters that the biggest benefit to Dannon of IBM’s new predictive-analytics capabilities is that “it shields the complexity of the analytics” from the brand. “Rather than needing to staff up on a bunch of PhDs and data-mining capabilities and statistics, Dannon can focus on trade and promotion planning. The reports from the app show them forecasts and help them adjust the knobs and dials, but a lot of the complex and sophisticated science behind it is handled by our team.”

Confirmed Neuwirth: “Spending less time on forecasting allows our team to spend more time on business development for our retailers.”

This helpful application of Big Data essentially involves looking at a two-year history of Dannon purchase data, which “can give you a good sense for seasonalities and trends and how the promotions that Dannon is running in conjunction with retailers are impacting substitution and incremental lifts in purchase.” The IBM platform “basically uses sophisticated algorithms to take that history and project forward” with ideal configurations of SKUs at any given moment, Henderson explained.

All of the strategic and tactical enhancements enabled by the Dannon-IBM alliance come together most importantly to address the challenge of out-of-stocks. There’s nothing worse for a brand or retailer, of course, than for a shopper to approach the Dannon section in the yogurt aisle and find – nothing, or at least not the variety or size or flavor they wanted.

“Yogurt and the fresh-dairy aisle in general are high-turn environments and are promotionally sensitive,” Neuwirth said. 
“So out-of-stocks has been an issue for yogurt retailers and manufacturers. If we’re able to reduce the out-of-stocks, that is a win for the retailer because it’s a sale that otherwise wouldn’t have happened.

“And it’s a financial issue because there is a relationship and an experiential component: The shopper is looking for a specific SKU that may be on promotion that week, for instance, so [the platform with IBM] is going to reduce the likelihood of a disappointing experience for the shopper.”

Actually, as Neuwirth explained, it may be the retailer that benefits more from IBM’s help than the Dannon brand per se, because of how shoppers think about the out-of-stock experience. “When I’m in the supermarket and I see that my favorite item isn’t there, I don’t think about the manufacturer of that item. I think about the retailer,” he said. So Dannon’s involvement with IBM was “driven by our commitment to put our customers’ business first. And that means having the right product available to the retailer at the right time so that they’re maximizing the value of their sales.”

The IBM partnership also will help Dannon and retailers with another burgeoning aspect of the yogurt business: SKU proliferation. Even before the Greek-style boom, Dannon, Yoplait, Stonyfield and other leading yogurt brands as well as independents kept launching a stream of new products aimed at finding and creating new sweet spots with American consumers. They have included more products aimed specifically at kids as well as various applications of probiotics, such as in Dannon’s Activia, and, of course, continued attempts to get the weight-loss-oriented customer.

Then Greek-style happened, adding new brands – such as segment leader Chobani – and a whole new category of products that American consumers suddenly were demanding.

“Variety is important,” Neuwirth said. “The protein seeker interested in Greek is a different motivation from the weight-management seeker looking for the lowest-calorie snack and different from the mom looking for an afterschool snack for her kids. So the proliferation continues, but the linear footage in the supermarket doesn’t grow as quickly – only slowly and steadily.

“We counsel our customers, and they notice as well,” he went on to say, “that the continued growth of the yogurt category will be driven by innovation and variety. That doesn’t mean swapping out yesterday’s favorite for tomorrow’s. It means there’s still going to be a market for yesterday’s favorite as well as the opportunity of the future.”

So, Neuwirth said, another important role of IBM’s predictive-analytics platform is to help Dannon and retailers not only avoid out-of-stocks, but also try to make sure they present the ideal mix of products to the consumer in an environment where the store can’t waste space stocking endless dozens of each SKU.

“It’s helping us to fine-tune the planning process so the shopper finds the product they want when they walk into the store,” Neuwirth said. “That’s the end goal, and it means the shopper is satisfied. It’s good for the retailer and manufacturer and all parties.”


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