Retail Champions 2020: Kroger

This is the fourth online installment of the HomeWorld Business 2020 Retail Champions, a special report from the May 18th print edition examining six retailers that will lead the post-COVID-19 retail recovery. View a digital version of the entire May 18 edition by clicking one of these links: Flipbook or PDF.

CINCINNATI— Kroger is entering a new phase in its development influenced by the coronavirus crisis but with deeper roots and a definite vision of a future when the company will have more ways to engage consumers.

As it has dealt with the COVID-19 pandemic, Kroger issued the report “Sharing What We’ve Learned: A Blueprint for Businesses,” detailing what it has learned about keeping employees and customers safe. Rodney McMullen, Kroger’s chairman and CEO, positioned it by asserting, “Our stores are the centers of our communities.”

The blueprint includes best practices for maintaining a safe retail environment as well as ideas about how companies can deal with issues regarding people, sourcing, manufacturing, supply chain and communications, but central to it is Kroger’s basic vision of itself as a key community resource, an idea that has become a strategic cornerstone.

In 2017, the company instituted a strategy it calls Restock Kroger to build on its foremost role as a traditional local supermarket operator into an omnichannel retailer that can serve consumers.

The coronavirus outbreak gives Kroger the chance to accelerate initiatives that can speed it to the ultimate goal. The company has been investing in technology that has advanced its ability to gather data and manage consumer relationships. It acquired Dunnhumby USA as a wholly owned offshoot of the British research firm that helped Tesco establish its renowned loyalty program. In both cases, the program generates data subject to sophisticated analysis, allowing the retailer to customize propositions for consumers. Other Kroger technology has helped the company handle developments. For example, the company operates a system that tracks traffic into stores, which has helped Kroger maintain social distancing but also provides additional data it can review under any conditions.

Online shoppers already can choose delivery and pickup options on Kroger’s landing page. As such, Kroger already had resources available for consumers to use as movement restrictions and social distancing disturbed their shopping habits. As consumers take advantage of new services, the company not only gets a sales boost but also reams of new data it can apply in the next phase of its Restock Kroger strategy, which includes the employment of under construction Ocado fulfillment centers.

Curbside pickup and delivery services have limitations when established sources are involved, especially stores, where consumers and employees shop the same space, and attached labor costs and functional inefficiencies weigh. Beyond that, they don’t address an issue Kroger faces moving forward with its omnichannel strategy.

Ethan Chernofsky, vp/marketing at Placer.ai, pointed out that traffic patterns and analysis demonstrates that Kroger stores don’t draw as do competitors perceived as having added value, such as Wegmans.

“That’s Kroger’s challenge,” he said. “It’s seen as a community grocer. That’s where they’ve struggled. They don’t have the value-added appeal.”

However, Chernofsky said, the COVID-19 pandemic has elevated the stature of the neighborhood supermarket as a lifeline for essential needs. It may convert some consumers who have been shopping more in other grocery formats into more enthusiastic customers of Kroger’s several banners. Perhaps more importantly to long-term strategy, Kroger can accumulate and draw data from consumers shopping and, as many consumers try its services, including pickup and delivery, for the first time, develop vital insights.

Kroger is advancing its partnership with Ocado, an online-only grocer that developed a fulfillment and delivery system in the United Kingdom using technology including automated fulfillment centers and artificial intelligence delivery routing. Recently, Ocado has been partnering with specific food retailers by essentially setting up those partners in its business. In the U.S., that’s Kroger.

Thomas Brereton, retail analyst for market research firm GlobalData, said the U.K. market has seen a significant expansion of grocery delivery in urban areas. Ocado has an urban focus, and so is operating in a competitive market segment by leveraging a specific approach to the consumer. In the U.K., he said Ocado filled “a gap in the already developing arena. It has targeted younger, affluent shoppers.”

Ocado has emerged as an important British food and grocery segment presence. Brereton pointed out, “Ocado continues to grow fast and have a strongly positive growth outlook. It sits within a high growth market, and is expanding to new U.K. regions, so growth will likely remain double-digit for the foreseeable future.”

Not only does its success suggest that its Ocado partnership will give Kroger a lift in the delivery arena, but the positioning and expertise as a specialist in urban geographies could prove complementary to the advantages the U.S. retailer brings in serving primarily suburban and exurban communities.

“Ocado’s greatest strength lies in its fulfillment automation and data collection,” Brereton said. “Greater initial investment in tech allows it to keep long-term employee costs low compared to rivals and provides capital for other, more adventurous exploratory routes.”

In April, Ocado launched its other partnership in North America, with Sobeys in Canada. In reviewing that development, Brereton observed that the opening of one of Ocado’s automation-heavy customer fulfillment centers in Canada provided timely, as it prepared to open as coronavirus-related demand swelled. He noted that 29.2% of global consumers now spend more time shopping for food online. As the market has evolved, Ocado’s automated fulfillment center provides solutions to delivery challenges, allowing the partner quick access to accelerating online demand. A view on Sobeys integration of Ocado systems should offer some insight into Kroger prospects.