The Kroger Co., the nation’s the largest stand-alone grocery store and second-largest grocer in terms of overall grocery sales, wants the world to know it’s not going to sit back and watch Amazon.com Inc. and Wal-Mart Stores Inc. split up the online grocery marketplace.
The 134-year-old company has a new plan, called Restock Kroger, designed, among other things, to build on Kroger’s already sizeable commitment to e-commerce and its use of customer data to personalize how it deals with customers. The grocer presented the plan in a web presentation for Wall Street analysts on Oct. 11.
“Obviously we feel great about our strengths, but we also think it’s important to make sure you understand that we are facing reality,” Kroger CEO Rodney McMullen said during the webcast. “What got us here won’t get us to where we aspire to be.”
Getting to where it needs to go, McMullen said, means making better use of Kroger’s data and accelerating its digital efforts to meet changing consumer expectations for ease, speed and personalization in all channels.
“The customers tell us that they like to engage multiple ways,” McMullen said. That means improving the quality of digital experiences and making online technology work seamlessly with stores is vital to winning and keeping customers.
One way to do that is to help shoppers save time. With that in mind, Kroger updated its personalized search results on its e-commerce site. The website now prioritizes products customers have purchased in the past and goods they are more likely to replenish, based on the last date of purchase. That change, which was implemented over the past several weeks, has already resulted in a 33% increase in “add to cart” clicks for the items that appear at the top search results, Kroger says.
In addition, the company says it will expand its Scan, Bag, Go pilot to program to 400 stores in 2018. Scan, Bag, Go, which Kroger had been testing in 20 stores, allows customers with the related mobile app to pay for items using handheld scanner as they’re shopping a store’s aisles.
Kroger, No. 88 in the Internet Retailer 2017 Top 1000, says it also will take a more data-driven approach to aspects of the grocery business not related to e-commerce, such as laying out its stores, making pricing decisions, and training and hiring employees. Amazon is No. 1 in the Top 500, and Walmart is No. 3.
The Restock Kroger plan will include investments in the “internet of things” sensors, video analytics, machine learning networks, robotics and artificial intelligence. Also coming will be an expansion of Kroger’s private-label brands and a push to maximize stores for self-checkout. The whole program is expected to cost $9 billion over the next three years, funded by capital investments, cost savings and free cash flow, according to Kroger.
While Restock Kroger signals an intensified focus on the e-grocery game, Kroger is no stranger to e-commerce; It has been working aggressively to become an omnichannel player.
During a September conference call with Wall Street analysts, McMullen said Kroger operates more than 813 pickup locations for online orders and expects to offer the service at more than 1,000 locations by the end of the year, up from about 640 at the end of 2016 and 220 in 2015. In total, Kroger operates 2,796 supermarkets.
In recent years, Kroger has made several acquisitions aimed at building its e-commerce and customer analytics capabilities.
Kroger’s $2.4 billion acquisition of Harris Teeter Supermarkets in 2014, for example, brought with it Harris Teeter’s buy online, pick up in stores technology, which was later deployed at Kroger locations. Also in 2014, Kroger bought Vitacost.com, an online retailer of vitamins and related products, for $280 million.
In addition to the Harris Teeter and Vitacost mergers, Kroger also has made a string of pure-play technology acquisitions. In 2014, Kroger bought YOU Technology, a coupon, sales and content aggregator. In 2015, Kroger formed 84.51⁰, its customer-analysis unit, from technology assets it purchased from dunnhumbyUSA. 84.51⁰, named for the longitude of Kroger’s Cincinnati headquarters, was later merged with Market6, a retail technology company Kroger bought in 2016.
During the Oct. 11 webcast, Mullen said the company considers digital engagement as more than just e-commerce. It’s also about better understanding individual customers and providing special offers targeted at them, regardless of whether they shop online. Already, he said, Kroger uses its data to deliver more than 3 billion personalized coupons to its customers every year.
The Restock Kroger announcement and the webcast coincided with the release of a Form 8-K in which Kroger confirmed its previous 2017 earnings guidance, issued preliminary guidance for 2018, and announced that it was exploring the potential sale of its convenience store business.
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