Open Sesame: Kroger and Alibaba

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\"RRIt doesn’t take an enormous feat of memory to recall that quaint term “trade channels.” Yes, there was a time when apparel retailers sold apparel, food retailers sold food and department and mass merchandisers were broad-line retailers selling a little of everything. The channels were clearly distinct one from the other. So, for the most part, trade channels tended to be separate and easily definable.

Well, things have changed. Those channels have all run together to form a mighty river that’s sweeping all forms of commerce into a huge flood. Among the many retailers swept up in that deluge is Kroger. A short time ago, I wrote about the giant food retailer Kroger that’s now engaged in a massive data-driven initiative. Their intention is to redefine its business in many ways, including by breaching its trade channel to become more of a broad-line retailer. It has also evinced a previously unseen interest in online retailing, and getting there by acquisition.

Like far too much in the world of retailing, Kroger was doubtless jarred from its complacency by Amazon and, in this instance, its acquisition of Whole Foods. Polar opposites, Amazon is an e-commerce company, with a few physical stores; Kroger has huge holdings in physical stores, but little in the way of e-commerce. Now, both of them are moving toward the center as each endeavors to acquire more of what it lacks. That seems to be the norm – just look at Walmart’s new-world acquisition streak.

In that vein, it’s of more than passing interest to appreciate the scope of the news that Kroger is interested in forming some sort of alliance with China’s Alibaba, the self-declared largest e-commerce operation in the world. Alibaba redefines omnichannel with its online marketplace, local stores, bank and digital payments and a behemoth search engine.

Back Story

Now for a little background: A little-known fact about Kroger is that it has long experience with doing business in Asia. Quite a few years ago I had occasion to tour several supermarkets in Kyoto and Tokyo, all operated by the then-vibrant Daiei company. Those stores carried many Kroger private label grocery products. I was told that American product typically had a big following in Japan because it was considered exotic and of high quality. I was also told that the presence of the product might suggest a stronger business relationship between Kroger and Daiei. Although that didn’t happen, Kroger was on the ground in Asia long ago.

Also of interest, Walmart just announced that it has forged an alliance with Japanese e-commerce company Rakuten through its Japanese retailing subsidiary. Under that arrangement, Walmart will sell groceries on Rakuten. In reciprocity, Rakuten will supply e-books to Walmart.

So, with that bit of background, the possible alliance between Alibaba and Kroger takes on some clarity. My guess is that Kroger could supply grocery items to Alibaba, most likely its fairly new “Simple Truth” store brand line of organic and natural product, which spans several product categories. That line alone now represents $2 billion in annual sales volume in the US for Kroger.

In return, Alibaba might provide a product line to Kroger, but more likely it will provide Kroger with some valuable expertise in consumer-data analytics or online payment platforms. Kroger already does as well as any complex grocery company does with analytics, but just about everything is on the table for improvement. Quid pro quo, Kroger could also provide Alibaba with its data expertise concerning the American market.

Finally, and not incidentally, if we needed any more proof of Kroger’s interest in all things online, consider that Kroger tried to acquire boxed.com, the online bulk-product retailer, for as much as $400 million. Kroger lost out to a superior bid, although the bidding process isn’t over, so it’s not clear who will end up the winner.

We’re now in the midst of another huge wave of disruption in the grocery sector that will doubtless sweep some away.

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