Behind the Instant Coupons, a Data-Crunching Powerhouse
By Robert O'Harrow Jr.
Washington Post Staff Writer
This article is reprinted without permission from the Washington Post under the fair use doctrine. © Copyright 1998 The Washington Post CompanyThursday, December 31, 1998; Page A20
For a clue about the immense scale of data collection going on in the grocery industry these days, take a close look at checkout counters in stores across the Washington region.
Sitting next to many cash registers are small devices that print instant coupons. Each coupon is based on an item the customer just bought, and it typically offers discounts from competitive brands, such as Pepsi or Coca-Cola.
The process may seem simple to many consumers, who receive the coupons along with their receipt. But it is actually driven by a vast data-crunching enterprise run by a company called Catalina Marketing Corp. of St. Petersburg, Fla.
Catalina officials claim in promotional materials that the company's electronic marketing network reaches more than 151 million shoppers every week in more than 11,600 stores in the United States. Catalina officials said it promotes the products of 150 companies that manufacture food and other consumer goods.
Much of the data used by Catalina is anonymous. The instant coupon network, for instance, relies on information about what someone just bought, not the person's identity. But increasingly, Catalina uses its computing power to gather names, e-mail addresses, shopper-card numbers and other personal information for a variety of its services.
The company claims it maintains purchase histories of 30 million households, from more than 5,000 stores -- information that can be analyzed in ever finer ways, according to information the company provides at its site on the World Wide Web.
Industry analysts say Catalina has grown rapidly in recent years as a result of its ability to meld marketing and old-fashioned discounts with computer power and the Internet. In the 12 months that ended in September, the company reported pretax earnings of $84.7 million, a 22 percent increase over the previous year. "The results speak for themselves," said Amor Towles, director of research for Select Equity Group in New York.
But critics say Catalina's success represents a growing threat of intrusion into the lives of millions of consumers, many of whom don't have any idea how information about them is being swept up and analyzed by company networks and computers.
Robert Biggerstaff, a database specialist, said Catalina has one of the largest personal data operations the country. Yet there's virtually no oversight of Catalina's or its grocery and manufacturing partners' use of the data in the long run, he said.
"Nobody knows Catalina is out there," said Biggerstaff, a privacy advocate who has testified as a computer systems expert before the Federal Trade Commission, referring to customers. "None of them know what's being done with this information."
Catalina officials declined repeatedly to discuss their programs or the company's privacy policies. Industry analysts say Catalina currently does not release individuals' names or personal information to outsiders, even though the company extensively analyzes that data on behalf of food manufacturers and others. Analysts said Catalina also segregates personal data by grocery chain.
Cary Siegel, a Catalina vice president for marketing, said his clients asked the company to withhold comment, citing competitive concerns. "It has nothing to do with anything on privacy. We feel totally comfortable about that realm," Siegel said. "This is something we'd love to talk about, but we can't. . . . It bothers them. . . . We just need to lay low."
Some of Catalina's own promotional material, however, offers insight into what the company does with the personal data it collects. One service is a "manufacturer loyalty program," which allows a manufacturer "to strategically target specific households based on actual purchase behavior over time."
This means that Catalina can track precisely what items individuals or families buy. The company uses giant computer systems known as data warehouses to search for people with certain kinds of shopping patterns or lifestyles. Working on behalf of consumer goods manufacturers, it then singles out those people for marketing.
One pitch at Catalina's Web site offers this scenario: "A manufacturer wants to target all consumers who have purchased low-fat, heart healthy products during the last 52 weeks. Using frequent shopper card numbers, households that regularly purchase low-fat/heart healthy products are selected and tracked for a year."
Catalina also uses its technological savvy to create shopper-card programs for grocery chains whose customers "enter their name, address and demographic information," according to promotional material on the Web.
"In an increasingly competitive retail marketplace, the real challenge is to help our clients collect relevant information from the profitable shoppers, then utilize it to build relationships with these individuals," a company official said in a news release on the Web.
The company has expanded its efforts to disseminate data as well. One Catalina service enables participating supermarkets to receive reports about shoppers over the Web. Grocers can identify customers who spend, say, an average of $40 a visit and buy cold medicine, pet food or some other category of product at their store.