Kroger’s Data-Driven Future

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\"\"Much has been written in The Robin Report about the epic struggle between Amazon and Walmart for supremacy in U.S retailing. The advantages enjoyed by each of these behemoth retailers is obvious: Amazon is unburdened by physical store locations and ships directly to consumers; Walmart has the advantage of store locations, which are ripe to be refined into experiential venues and service points for online commerce.

We’ll see how the Amazon-Walmart dynamic plays out, but in the meantime, what about mass-scale retailers that aren’t in the broad-line business, such as those in food retailing? What are they doing other than watching the battle royal between their major competitors with bemusement?

Well, up to now, watching the slugfest from afar might have been enough. Food retailing has been uniquely resistant to various disruptors, including the online revolution sweeping through other retailing formats. To a great extent, that remains true to this day. But the disruptors just aren’t going away. Food retailing is being buffeted by the long, ongoing sunsetting of mass-market brands and consumers’ desire to have a bespoke experience across all retailing formats and their electronic devices.

Kroger’s Grand Plan

Now Kroger, the giant of food retailing, is stirring and has big plans for changes intended to keep it squarely in the game. It’s easy to underestimate how big a company Kroger is, especially for those of us in the Northeast where Kroger has no store presence. Elsewhere Kroger is ubiquitous. It’s the nation’s largest conventional food retailer with some 2,800 stores and 450,000 employees. It hosts about 8 million shoppers per week and its annual sales volume is approaching $120 billion.

Given its mass, even small changes undertaken by the chain are complex; larger changes even more so. Kroger’s new openness to facing the complexity of change may be driven by the fact that after an unusually long run of stellar financial performance, its numbers have been slumping lately, along with the value of its equity. The buyout of Whole Foods by Amazon accelerated the downward drift of its equity.

Regardless of motivation, let’s see what Kroger is up to in terms of a plan for change. The main features of the plan include assembling an oversight management team and identifying new uses for consumer-driven data. It will be interesting to see how Kroger intends to finance its changes, which will probably involve a big selloff of assets.

Not long ago, Kroger selected a team of three executives to drive the change program that’s dubbed the “Restock Kroger Plan.” Tapped to lead the effort was Mike Donnelly, newly promoted to executive vice president and chief operating officer following the retirement of the previous incumbent. Working with him were top finance and IT officers. Kroger chairman and CEO Rodney McMullen said the change program would “redefine the food and grocery experience for consumers and drive sales.”

That’s easier said than done. What Kroger is currently pursuing is making greater use of consumer data to bring the company closer to an omnichannel retailer. Kroger has long been a leader is using data in the food retailing arena and has greater data resources than any other food retailer. Yet, along with all food retailers, Kroger still has a long way to go down that road, which is extraordinarily difficult to follow because of the huge number of SKUs in supermarkets.

Specifically, Kroger intends to use data analytics developed by its Kroger Precision Marketing unit to reset supermarkets to prominently display what sells well and downgrade what doesn’t. The plan will involve featuring Kroger’s successful “Simple Truth” private brand range of natural and organic products, reducing pharmacy wait times and possibly boosting its own meal-kit offer. Frequent shoppers will also see stepped-up promotional activity aimed directly at them and their buying preferences, such as special coupon and recipe offers.

Kroger will also expand its proprietary “ClickList” program, which allows consumers to enter an order online and pick it up at a Kroger store. Kroger charges fees of $4.95 or $7.99, depending on the size of the order, for the service. Consumers have been willing to pay the fees without complaint, and if that continues it will relieve Kroger in a big way from the necessity of getting into the costly home-delivery business. Kroger will also shore up its collection-point business by reducing prices to keep them in line with Amazon’s.

Collaboration and Partnerships

All of the changes already cited may pale in comparison to other pending plans. For instance, it’s reported that Kroger may seek an agreement with Ace Hardware to establish home-improvement centers within Kroger supermarkets. Following that logic, Kroger could also partner with numerous other retailers such as those in beauty, fashion, electronics, toy and others to supplement the store-in-a-store concept. In short, Kroger may move toward being more of a broad-line retailer.

To the downside, though, proposed changes will cost a lot to implement across a store network the size of Kroger’s. How will they be financed? Kroger has acknowledged that it’s considering the sale of its convenience-store business, which in itself is a big business. Kroger has more than 780 convenience stores, operating under several names, generating annual sales of $4 billion. Kroger could easily reap $3 billion from a sale of these assets.

Beyond that, Kroger intends to halt the majority of new-store developments for a while, which will liberate a sizable cash flow. It looks like Kroger is pretty serious about its “Restock Kroger Plan.” Kroger’s plan of change should give some inspiration to other retailers being marginalized by changing market dynamics. If a century-old legacy company like Kroger can make the effort, why can’t others, whether new or old?

Here’s an example of what might be done. The relatively new meal-kit business, with players such as Plated, Blue Apron and Hello Fresh, along with some 200 imitators, is teetering on non-viability because of an inability to retain customers. Much needed venture capital is drying up.

They have little to lose by making big changes, maybe by forgetting about the mass market and offering niche solutions, such as regional and ethnic cooking. They could also aim at the dieting market, specializing in certain diets. And why shouldn’t Weight Watchers get into the business?

We can only hope that both new- and old-world companies become nimble enough to address the changes they need to make to keep up with the future.



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