On Tuesday, Kroger announced it will sell its goods on Alibaba’s website, opening an online storefront on the giant’s Tmall Global marketplace.
Earlier this month, Kroger introduced a new at-home, speedy delivery service – Kroger Ship – that gets home goods to customers in two days.
A distribution play with an international e-commerce powerhouse? Delivering more convenience to shoppers at home? I think it’s time to start taking Kroger more seriously.
The chain is the contender in the grocery wars and increasingly a retail power player to watch, based on its smart use of data, an established footprint, and a growing one-to-one advertising arm.
Data plus some smart moves. If you’re a retailer in the grocery space, odds are you already think of Kroger as the most data-savvy and innovative of your peers (however much it might pain you to admit it). As others have noted, the chain has grown its digital customer base through “predictive behavior modeling” and tailored experiences by leveraging its Plus Card loyalty program. Turns out customers really like receiving personalized promotions and tailored pricing (yet another compelling proof point for the smart and principled use of data).
But Kroger’s direct industry peers aren’t the only ones who should feel a sense of unease at the chain’s adept operationalization of its strategy. Amazon and Target should be more worried, not less. Objectively speaking, Kroger is the existing brick-and-mortar grocery chain that has the best opportunity to compete with Amazon (second to Walmart).
Look at what else the company has done recently:
- Invested $17M in its Northern Kentucky distribution center, ramping up production and hiring more people (July)
- Completed its merger with meal kit company Home Chef (June)
- Launched a pilot with Nuro to explore grocery delivery via fully autonomous road vehicles (June)
These are clear signals that Kroger understands what it has to do to compete effectively with Amazon’s speed and efficiency: maximize distribution operations, remove friction in the consumer buying journey (e.g., physical visits), and explore innovative ways for consumers to save time.
An impressive footprint. On pure numbers, Kroger eats Amazon for lunch with a massive footprint that’s easily 5x what Amazon offers. Kroger has nearly 2,800 stores across the country, plus more than 40 distribution centers and 37 manufacturing facilities where it produces bread, dairy, meat and other grocery products. Its thousands of stores are essentially distribution centers placed where most people live, and it manufactures more of its own cheaper food. That’s a sizeable advantage over Amazon.
In contrast, Amazon’s acquisition of Whole Foods gave it just 479 stores – a great play that certainly ups its number of food-oriented distribution centers and further entices Prime members to shop. Yet Kroger still wins for now simply because it’s very hard to quickly re-create a similar level of physical presence. That said, Kroger could make more headway in grocery delivery. Ship is a start but time is of the essence. The chain should leverage its network of stores and add a nice, tidy online experience to support widespread delivery.
Advertising power. Of all retail segments, grocery stores have the best opportunity to make use of data. Consumers may put off buying a couch or only occasionally buy electronics but all of us need to eat. Shoppers tend to visit grocery stores at least once a week and that frequency translates into more data.
If data is the new oil, then Kroger has barrels of this liquid gold. CPGs know the retailer is sitting on the rich first-party data sets that underpin custom, curated, one-to-one outreach that resonates with customers. In fact, this data is much more aligned with what brands need to build really good relationships with consumers than even Facebook or Google.
Kroger has more than depth – it also has breadth. The chain touts its ability to touch 20 million customers on its own digital properties, with access to 300 million devices for co-branded ads on the broader web. And, of course, that large physical footprint comes into play as well, whether it’s end cap displays, signage, or even branded events within specific stores.
Kroger’s got all the pieces here to play – but can they move fast enough? That remains to be seen – and because some of the obstacles are cultural, it may be a lift. That this 135-year-old company has survived technology and business evolutions is a huge testament to its ability to adapt successfully. But Amazon is a technology company that just happens to be doing retail; the innovator’s mindset is embedded in everything they do. The same can’t be said for Kroger.
While I certainly wouldn’t bet against Kroger, I’m not ready to bet the farm on them either. They could dominate on the grocery side of retail but they have to accelerate the pace.