Woolworths is using data analytics to determine which of its supermarkets would most benefit from refurbishment or new store format proof-of-concepts.
The retailer was revealed in March last year as a user of an A/B testing software package called MarketDial, and has now provided significant new details of its use cases.
“The whole reason that MarketDial is getting legs within this organisation is that it should become the core product in our capital management forums,” Woolworths’ general manager of data and retail analytics Doug Frank said.
“No major investment around changing the direction of the organisation that requires capital should now happen without the influence of MarketDial being used to test whether it's going to be effective or not.
“Ensuring it is embedded into our processes and disciplines is by far the most important thing that we're doing right now.”
The software is already in use in Format Development, which encompasses new store development and existing store refurbishment at Woolworths.
Mike Smith, who heads finance within Format Development, said MarketDial had been in use for a year.
“We’re very much at the start of our journey,” he said.
Smith said that store renewals ranged from “quite small” right up to “full total modernisation”.
“What we try to do in a renewal is understand what capital to deploy to extract the most value possible, but making sure we meet our customer needs,” he said.
“We may have a store, which hasn't been refurbished for quite some time. We know the refrigeration is extremely old and leaks, so it's got a bad customer experience and it's costing us a lot to maintain.
“The configuration of that store is probably not great so we might have constrained frontends, we might have really odd-shaped structures or blockages in sight lines that will need a full reset.
“And generally if those are in areas where we're got high volume - high turnover premium catchments - we know we need to go big.”
Trials and proof-of-concepts in Format Development are “essential”, he said.
“In Woolworths, we have lots and lots of initiatives, and the only way that we can really get some sense of the right area to invest our money is to go through this concept of not only trial but we have what’s called a proof of concept where we might try it on one or two shops just to make sure it makes sense,” Smith said.
“It’s really important as well through that phase that you are structuring your trial in a way that best represents where you want to potentially roll this to beyond.”
Smith’s team uses MarketDial to select stores that are likely to be the best candidates to participate in trials and proof-of-concepts, as well as stores that can act as a “control” to determine to what extent - if any - the trial had a measurable impact.
“If you get that bit wrong, you can quite materially change the outcome of the trial, and actually you can point quite significant amount of capital in the wrong direction,” Smith said.
“Testing means we're not burning capital,” added commercial finance manager Sindu Rasaretnam.
“So for us right now if we trial something, we know that it's only going to cost us say a tenth of the cost of the [full] rollout, and then we can see if it's actually had an uplift.
“If it hasn't had an uplift, there's no point in persisting with the rollout, and then we can repurpose that capital to an initiative with greater returns.”
Smith said that pre-MarketDial, decisions on trial locations were largely subjective and supported by spreadsheets.
“We would quite often pick stores because they're close to the head office … [or] that we thought would be a close representation,” he said.
“You'd have maybe … a very seasonal trading store that was by the coast that gets a huge peak during summer [that] may have been picked as a benchmark, and it really sort of skews your results and makes it very difficult to understand if actually the thing that you're doing to try and get an outcome is making the outcome or if it's an external variable.”
Frank said that misdirected capital as a result could prove costly.
“When you're a large organization, most of your capital investments are multi-million dollars,” he said.
“If you just get one of those decisions right where it could have gone wrong, you've paid for [MarketDial].”
Woolworths use of MarketDial adds a new dimension to what has emerged about its data analytics efforts over the past year.
It is using Google cloud services to power analytics initiatives aimed at better targeting of pricing and promotions, and localising product ranges in stores.
Woolworths is also using Tableau to visualise data across a range of internal functions.
Separately, the retailer’s innovation arm WooliesX is also known to be experimenting with machine learning and other technologies that could ultimately be brought to bear on its operations.