Kroger's CFCs will rely on a fleet of purpose-built vehicles to deliver orders within a 90-miles radius.
Private Brands and Personalization
Leading with fresh and accelerating with digital to deliver a seamless shopping experience made for a good headline following Kroger’s meeting with investors. However, as the company begins to put more meat on the bones of how it expects to achieve total shareholder returns of 8% to 11%, two other key areas stand out as having an impact on Kroger suppliers.
The company is intent on growing its Our Brands business, which already consists of 15,000 items that generated sales last year of $26.2 billion. One of its newer brands, Simple Truth, launched only five years ago, recently surpassed $3 billion in annual sales. The company’s next billion-dollar brand, according to Stuart Aitken, Kroger’s chief merchandising and marketing officer, will be Home Chef. Acquired in June 2018 for $197 million, the meal solutions brand saw a sales increase last year of 118%, according to Kroger.
Our Brands are a major competitive advantage for Kroger, but as the retailer continues to expand their presence, it creates new competitive pressures for branded suppliers. While this dynamic has existed since the advent of private brands, Kroger is elevating the pressure on brands while it also gives them powerful new tools to engage more effectively with shoppers.
KPM is a retail media platform that’s best in class in the industry and also part of a major trend of changing how brands connect with shoppers. Led by SVP Cara Pratt, KPM is helping brands capitalize on the shift to digital purchase behaviors while also serving as a meaningful new alternative revenue stream.
“Media mix investment follows consumer behavior, and e-commerce is in the early stages, particularly grocery and particularly in the United States, of an upward trajectory,” Pratt says. “Brands want to get closer to influence purchase, and recognizing that more than ever, consumers are making decisions in a digitally constrained shelf.”
Pratt notes that 85% of the top 500 keyword searches on Kroger’s site are for unbranded search terms, making the case that the retailer has become Google-like in its role as a search vehicle.
“There is an incredible change happening in the media ad tech landscape and, frankly, the entire media supply chain,” she observes.
Privacy regulations and changes to the use of third-party data sources make the use of first-party data such as Kroger’s more valuable, because of the direction connection it affords shoppers.
“Now more than ever, it is critically important to leverage Kroger as the No. 1 digital grocery destination, as measured by Comscore, to allow brands to drive food inspiration, and ultimately bring more performance to the media supply chain,” Pratt says.
Power of the Platform
One trend in the retail industry is that retailers increasingly refer to themselves as “platforms,” as opposed to retailers. Doing so helps convey a broader set of capabilities that are intertwined and mutually reinforcing to create a flywheel effect of accelerating growth. That’s the situation at Kroger, whose platform is seen as positioning the company well to win in a post-COVID world.
“Our four competitive moats of seamless, personalization, fresh and Our Brands are stronger today than ever before, reinforcing our confidence in our ability to grow sales and market share,” McMullen affirms.
As the company executes strategies in each of those areas, it’s looking at the size of the market share prize differently from some others. Kroger considers the market it serves to be valued at $1.4 trillion, because it believes in a share-of-stomach point of view. McMullen introduced that concept when the original Restock Kroger plan was introduced three years ago. In essence, Kroger competes with anyone that offers food to consumers, including foodservice operators satisfying meal occasions that could be served by Kroger.