Approach Paper - “Red Dot” Article List Key SKUs from a customer grocery shopping perspective

Peshwa Acharya

Further details, contact:

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Objectives of the Exercise

Objective

The objective of the exercise to identify core products that are in the shopping list of majority of customers. The functional teams would then work towards ensuring

•  100% availability of these products in store

•  Competitive pricing for these products in Reliance stores

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Customer Insight perspective Customer Insights Perspective

Different sets of customers have different choice and preferences of products based on demographics, income profile, lifestyle pattern etc.

Key aspects of customer behavior that needs

to be studied for coming up with the list of common appeal SKUs :

Geographies – The food/ grocery taste in

India is very typical of the communities- defined primarily by the geographical segments (state and language), caste etc

Product preferences and purchase habits - Identify products that would find its way in the grocery shopping list of most customers in the geography, irrespective of their income profile, lifestyle, educational backgrounds, price sensitivity levels

•  State wise - The ‘Red Dot Article list’ is being made state wise to take care of regional/ community tastes

•  All India Common - State wise lists can be analyzed to see what part of Red Dot Articles are common for all of India

•  Seasonality factor - Few SKUs in ‘Red Dot Article list’ will be flagged as seasonal items, these can be replaced on change of season by other relevant SKUs (by merchandising teams).

State wise ‘Red Dot Article list’ selection-

The rest of the presentation details the approach and logic followed in preparing the ‘Red Dot Article List’ for Tamil Nadu

The approach has been refined after iterative discussions and inputs from DSS, Operations, D&L, Merchandising and Marketing teams

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Approach for preparing ‘Red Dot SKU List’ Based on Customer product selection and purchase habits

Identify products that would find its way in the grocery shopping list of most customers in the geography, irrespective of their income profile, lifestyle, educational backgrounds, price sensitivity levels

Approach 1: Prepare a list of 70 items that would find its way in the list of most customers, and then find

200 SKUs that best represent these 70 items Approach 2: Identify key segments of customers a) Up market Customers (b) Mid segment Customers

(c) Price Sensitive Customers - Identify products that all these segments (intersection) are likely to purchase. Prioritize these items to come up with the top 200 SKU list

Approach 3: Top SKUs that we sell in our stores – Common set of SKUs that are present in each of the

three lists – top 200 by value, by quantity and by bill penetration. This approach is being worked out by OPs Team (Saket, Pankaj & Pranay)

Final ‘Red Dot SKU List’ •  Approach 1 and 2 are measures of the key product items in customers’ grocery shopping list

(study based on RelianceOne customer database) •  Approach 3 is the priority list of top SKUs that are selling in our store, based on complete sales

data •  Our final ‘Red Dot SKU list’ for a state takes the best of these three approach •  A higher weightage is given to product bricks that are likely to be higher up on the grocery shopping

list, rather than ones that the customers are currently purchasing in Fresh stores.

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Approach 1 : Preparing ‘Red Dot SKU List’

Product brick is the right surrogate for items that customers put in their shopping list. The choice of SKU (brand, pack size, price point) is the next level of decision. Top 70 bricks bought by maximum number of customers were selected from a total of 460 bricks (Food, NF FMCG, Houseware, Lifestyle-Cosmetics, Fragrances) that are sold in store. We have excluded F&V and Fresh Dairy The top bricks intuitively cover most grocery items that a household would purchase in that state

There are about 2,900 SKUs belonging to these 70 product bricks that are available in our stores. To prioritise we have prepared a list of the top 200 SKUs belonging to these bricks that should always be available in store. Logic : SKUs within these 70 bricks with High Bill Penetration are products preferred by most customers (intersection of customer segments along demographics, price sensitivities) List prepared by taking top 4 SKUs in terms of Bill Penetration for the top 30 bricks, and 2 SKUs each from the remaining 40 bricks

On an average, 80,000 RelianceOne members have purchased from Reliance Fresh stores in TN in each of the last three months.

Study customer purchases in TN Fresh

Stores

Top 70 items (product

bricks) in their shopping list

Top 200 SKUs (most purchased SKUs for these 70 items in the customer shopping

list)

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Approach 1: Further insights into key shopping habits

Customers are doing selective shopping in Reliance Fresh Stores

• Out of 64,000 customers who have visited our stores in TN in Jan 2010, about 54% have purchase F&V and 42% have purchased staples. • Key staples products consumed in TN – raw rice, boiled rice, chana dal and tur dal have very low penetration in the customers’ basket (only about 9% customers bought boiled rice)

• Only about 16% have purchase laundry detergents, 5 % have purchased hair shampoo

Customers are doing selective shopping in our Reliance Fresh Stores. • The customer penetration of top items in the monthly shopping in TN like rice, laundry detergents, soaps and shampoos is extremely low and need to be addressed via assortment and price reviews • However, the top 100 bricks being bought by customers in our stores very closely represent items in their grocery shopping list and is a good starting point for identifying ‘Broad Appeal SKUs’

Product Brick purchase frequency

0% 5% 10% 15% 20% 25% 30% 35% 40%

HAIR SHAMPOO

SANITARY NAPKINS

H'HOLD DISINFECTAN

RAW RICE

TUR DAL

BOILED RICE

CHANNA DAL

DENTAL CLNSING

ATTA

SPICES - WHOLE

NOODLES

CITRUS FRUITS

WASHING-P'SONAL

CORE BISCUITS

LAUNDRY DETERGENTS

CHOCOLATES

SUNFLOWER OIL

BANANA

ROOTY VEGETABLES

TEMPERATE VEGETABL

BASIC VEGETABLES -

Pro

duct

Bric

k

Percentage of Customers who have visited TN - Fresh stores in Jan 2010

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Approach 2 : Preparing ‘Red Dot SKU List’

Up market Customers purchased a total of 8100 SKUs in the last three months. Price sensitive customers purchased a total of 8400 SKUs. The Common list of SKUs bought by both segments is about 6300. This large overlap in SKUs purchased also implies that the taste of both segments is very similar when it comes to grocery shopping. The product intersection might be much less in apparel, consumer durables or lifestyle shopping categories

Identified top 100 bricks that are represented by these 6300 common SKUs. Only 2 bricks were different from product brick list from Approach 1 Prepared union of brick list (102 bricks) List prepared by taking top 4 SKUs in terms of Bill Penetration for the top 30 bricks, and 2 SKUs each from the remaining 40 bricks

Surrogate Products were identified for a) Up market Customers (b) Mid segment Customers (c) Price Sensitive Customers for Tamil Nadu Customers in the segment was extracted – ROne customers who shopped for these surrogate products in TN during the last 6 months. • Up market Customers identified – 12,600 , • Price Sensitive Customers identified – 21,200 • Overlapping Customers – 2,200 Nearly 20% of UPmarket Customers were overlapping with Price Sensitive Segment. Taking another Mid-Market Segment would result in a base that has a huge overlap with the two extreme segments. Based on this input, the number of segments were limited to two.

Segment Customers into

a) Up market Customers (b) Mid segment Customers

(c) Price Sensitive Customers

Based on purchase

history

Identify common

products that each of the customer

segments are buying

Prioritize from this list

of common SKUs: Top 70 bricks leading to

top 200 SKUs

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Approach 2: Further insights into key shopping habits

Price sensitive Up-market

10,496

Distribution of Customers for the Identified Customer Segments

19,048 2,206

Price sensitive Up-market

1,883

Distribution of SKUs that the two unique customer segments purchased

2,083 6,358

The grocery purchase pattern of Up-market and value seeking (price sensitive) customer segments is very similar. There is a large intersection in their product purchases • The top 100 bricks represented by the 6300 common SKUs has 98 bricks in common to the top bricks identified through Approach 1

• The identified segments would be useful in further studies in the purchase behaviour in product segments like apparel and lifestyle

The intersection of the two customer segments has been left out while identifying products purchased by these segments, so that that the difference in product purchases can get more pronounced

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Summary : Red Dot Article List – Tamil Nadu Best of both Approaches 1.  Union of the top 70 bricks given by Approach 1 and Approach 2 were taken 2.  Red Dot SKUs given by : List prepared by taking top 4 SKUs in terms of Bill Penetration for the top

30 bricks, and 2 SKUs each from the remaining 40 bricks Reasoning:

Each of these key items in the customer shopping list needs to be adequately represented in ‘Red Dot SKU list’. From a customer standpoint, higher weightage is given to brick level availability, rather than just top 200 SKUs by Sales

Product SBU Product Segment No of Bricks No of SKUs

Sum of **% Share in

Total Store sale (B/E)

FOOD BEVERAGES 9 18 2.6%CONFECTIONARY & SNACKS 8 22 0.7%DAIRY 3 6 0.6%FOOD & BEVERAGE SERVICES 2 6 0.4%NON VEGETARIAN 1 2 0.4%PROCESSED FOOD 13 40 2.7%STAPLES 20 67 12.5%

FOOD Total 56 161 19.8%FMCG -NONFOOD HOME CARE 7 19 1.0%

PERSONAL CARE 6 18 0.7%FMCG -NONFOOD Total 13 37 1.7%HOME HOUSEWARE 1 2 0.0%HOME Total 1 2 0.0%Grand Total 70 200 21.6%

Tamil Nadu - Red Dot SKU Summary