Kroger Co. is making progress on its push to meld its online and offline operations. However, those omnichannel efforts are putting a strain on its bottom line.
The nation’s second-largest grocer on Thursday reported third quarter net income for the quarter ended Nov. 10 was $317 million after accounting for a decrease in the market value of its investment in U.K. online grocer Ocado Group PLC. On an operating basis, Kroger’s earnings for the quarter were $394 million, which was a tick below the $397 million reported for the comparable period a year earlier.
Kroger, No. 86 in the Internet Retailer 2018 Top 500, also reported its digital sales for the quarter rose 60% compared with the year-ago period but did not break out those numbers. Total sales decreased 0.3% to $27.67 billion in the third quarter compared to $27.75 billion for the same period in 2017. Excluding fuel sales and the recent divestiture of its convenience store unit, total sales increased 1.7% in the third quarter over the same period last year, Kroger reported.
In May, Kroger agreed to buy a stake in Ocado and license technology that helps other grocers run automated warehouses and deliver food to customers’ doors. In November, Kroger and Ocado selected Monroe, Ohio, for their first U.S.-based customer fulfillment center—the first of 20 planned customer fulfillment centers, or “sheds,” across the United States.
Since last year, Kroger has been working on a strategic plan, called Restock Kroger. Among other things, the plan aims to expand Kroger’s digital and e-commerce efforts and make broader use of personalized customer data. As the new approach unfolds, Kroger has been investing in technology and omnichannel capabilities.
Kroger Ship and Kroger Express expanded
Along with its third-quarter results, Kroger announced its delivery services and pickup points for online orders now reach 90% of the households it serves. In addition, its Kroger Ship service is now available in all of its supermarket divisions.
Kroger operates 2,765 grocery retail stores under a variety of banner names, including Kroger, Ralphs, Roundy’s, Dillons and Mariano’s. Introduced in August, Kroger Ship is a direct-to-consumer e-commerce platform that delivers non-perishable grocery items.
In October, Kroger said it would team up with Walgreens Boots Alliance Inc. to test a “new format and concept” that will allow customers to order Kroger grocery items online and pick them up at 13 Walgreens drug stores. In the last few days, Kroger provided more details about that initiative, which has been expanded. The concept, called Kroger Express, will involve opening Kroger-branded grocery departments inside the 13 stores.
Kroger Express will offer an assortment of 2,300 products, selected using customer data and insights provided by Kroger’s technology and market research subsidiary 84.51°. The selection will include Home Chef meal kits, national products and Kroger’s private-label Our Brands products.
Kroger also says it will soon start selling Home Chef Express meal kits in 65 Walgreens locations in the Chicago area.
In May, Kroger paid $200 million to acquire Home Chef, a meal-kit retailer that claims to have grown its revenue to $250 million last year.