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How Woolworths and Coles plan to use data to beat Aldi

Supermarket giants Woolworths Group Ltd (ASX: WOW) and Coles Group Limited (ASX: COL) are looking to use data to get an edge over Aldi.

A report out of Credit Suisse says that the domestic supermarkets can improve their market power by tapping more into the data they have at their disposal, according to the Sydney Morning Herald.

There are various data points that Woolworths and Coles have on their customers thanks to their loyalty card schemes, the choices customers make through online shopping and apps. However, data is only useful if you can make sense of it and then do something with it. That’s why both Coles and Woolworths are putting money and effort into data analytics and AI-like services. One of Aldi’s main differences is that it aims to just focus on the lowest prices, and not delve into the customer reward points side of things.

It can be important to know how to win customers and what they are interested in. For example, will a discount actually win a customer who usually shops at Aldi? Or are the large supermarkets simply giving current customers a discount? It would be better to win more infrequent customers if possible.

Woolworths and Coles are doing quite well recently even without this advanced analytics.

In the latest March 2019 quarter trading update Woolworths said that total group sales grew by 4.2%. Australian Food sales increased by 4.1% with comparable sales growth of 3.6%.

In the March 2019 quarter Coles supermarket sales increased by 3.2% on comparable sales growth of 2.4%.

These figures are not bad and both businesses are investing in automated distribution warehouses which should really help efficiencies and profit margins when they become operational in a few years.

Foolish takeaway

The share prices of Coles and Woolworths have been strong performers in recent months. Whilst a declining interest rate might help justify today’s valuations, I think there are better investment opportunities.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended COLESGROUP DEF SET. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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