Retailer of the Year: Kroger Remains Hometown Hero While Radically Transforming the Grocery Business
Analysts agree that Kroger is pursuing a wise strategy.
“Kroger is expanding the definition of what it means to be in the grocery business, with investments in automation and their move to sell own-label products in China,” Bill Bishop, co-founder of Barrington, Ill.-based consultancy Brick Meets Click, tells Progressive Grocer. “Expect that these moves will drive not only faster sales growth, but will also make Kroger a much stronger company. Credit Rodney McMullen for this.”
“The store really is becoming less and less relevant when you think about delivery, because the customer doesn’t really mind whether the order is picked from the store they shop or the store down the street,” Cosset says. “For us, it makes a big difference. It allows us to create density and make the service more sustainable financially to execute.”
By the end of the year, Cosset anticipates, the service will be available for up to 90 percent of Kroger shoppers. That’s in addition to the summer launch of a new offering in Kroger's omnichannel grocery program, direct-to-customer delivery.
“It’s really an addition to the portfolio of modalities,” Cosset notes. “Ten, 20 years ago in the U.S. market, 100 percent of grocery and food retailers would generate their sales through a brick-and-mortar footprint. Fast-forward to last year: We added the click-and-collect, the pickup service, the delivery service and now [are] really accelerating our direct ship-to-home service.”
For McMullen, it’s all about taking the friction out of the shopping experience.
“How do you just make it super-easy for a person to be able to do those things without having to think about it? It’s all pieces into that overall puzzle,” he says. “We’re figuring out ways to make it incredibly easy, and then have the right products located at the right spots. That’s what makes this business so exciting and so much fun.”
The store, Cosset asserts, is being reinvented to be more centered on experiences.
“As a customer, I may have different needs,” he observes. “If I’m replenishing my pantry with dry goods or paper towels, I don’t necessarily need to have the experience in the physical stores. Oftentimes, these are routine purchases that are on a regular schedule. That’s a perfect candidate for that item to be shipped directly to my home. It’s more convenient as well. Nobody wants to carry big items, whereas the delivery and pickup are more immediate in terms of service or expanse for the customer.”
It really shouldn’t have been a surprise to anyone, then, when Kroger announced its partnership with Ocado, one of the United Kingdom's online grocers, with which Kroger aims to solve the “last-mile” question for grocery deliveries in the United States.
“We had been having conversations off and on with Ocado for probably 2½ years,” McMullen acknowledges. “It took a while for [Ocado CEO] Tim [Steiner] to get comfortable with our ambition to serve America. It took him a while to get comfortable that we were serious. As they’ve grown in terms of talent and capabilities, their technology has made tons of progress over the last few years, so it really was a combination of Tim getting comfortable, in terms of what our aspirations were, and the technology that they had really started. ... They were improving upon something that was pretty good and making it great, and so it was really all those pieces working together. We’ve started the process on it. I’m working on seven cities for possible sites, but three where we’re doing the in-depth analysis, trying to find specific real estate.”
When Progressive Grocer reported on the deal last May, Steiner said, “As we work through the terms of the services agreement with Kroger in the coming months, we will be preparing the business for a transformative relationship which will reshape the food retailing industry in the U.S. in the years to come.”
Cosset elaborates on the U.S. introduction of the Ocado Smart Platform: “Ocado is a way for us to accelerate and simplify the fulfillment of delivery, by concentrating and consolidating volume. It creates automation and efficiency, which has a very positive financial impact for our shareholders and also allows us to provide a service to the customer that’s affordable. It also allows us to start distributing what’s referred to in the industry as a piece pack capability, and start bringing orders or small replenishment to different touchpoints for the customer. Smaller store formats can greatly benefit from that asset. When you think about reaching and being available to all of America, Ocado removes some of these barriers.”
In fall 2017, The Kroger Co. launched the Restock Kroger initiative at the company’s annual investor conference. Restock Kroger has four main drivers, which together create shareholder value:
- Redefine the Grocery Customer Experience (data and personalization, digital, space optimization, Our Brands, smart pricing)
- Expand Partnerships to Create Customer Value (infrastructure and technology upgrades, alternative revenue streams)
- Develop Talent (associate experience, investing in and retaining store associates, high-performing leaders and teams)
- Live Our Purpose (Zero Hunger | Zero Waste, Our Culture = Our Values + Our Promise)
“When you invest in your people, they stay longer,” McMullen says. “When they stay longer, our retention significantly improves, and the people fall in love with the things that we’re great at.”
He continues: “To me, there isn’t anything more pleasurable than watching somebody grow as a human being. I always want, when somebody comes to work for Kroger, for them to stay forever. But even if they don’t — the other day, I was talking to a gentleman at the convention center in Cincinnati. He was telling me: ‘My first job was at Kroger. I loved it. I used to be really shy, and it helped me get used to talking to people, and I worked [there] through high school and college. After I got out of college, I went and did other things, but I still use some of those things today.’”
Seventy percent of Kroger’s store directors started out as hourly associates. Getting in on the ground floor is something McMullen knows all too well: He joined the company as a teenager to pay for college.
“I started at Kroger for less money than I could’ve started somewhere else, because you get a tremendous amount of responsibility at a very young age, and you get to do something that’s a constant change,” he says. “If you look at that, what we’re trying to do is to help support people, to help them fall in love with people and to help them fall in love with food.”
McMullen hopes that connection will attract more young people to the business of food retailing.
“You get to engage with people two to three times a week,” he notes. “You’re there for many of the most important moments in people’s lives. The other day, I was in one of our bakeries, and the associate was making cupcakes for a reveal party. The couple didn’t know whether it was a boy or a girl yet, because they wanted to learn at the same time that their family learned. Our bakery associate knew and made the cake. Being able to be part of that occasion is pretty darn special, because you get to be part of lifetime events for a customer, and helping make that lifetime event a little bit more special is pretty darn cool. We have a tremendous success at getting people to come for a job that becomes a career.”
Jessica Adelman, group VP of corporate affairs, says that she hopes as many associates as possible take advantage of Feed Your Future, “because that’ll be better for Kroger and, of course, better for them in the long run.”
The workplace, Adelman notes, is transforming into something that offers purpose beyond selling.
“Irrespective of generation, people want to work at an organization with a sense of purpose, and they want to know that the place where they work has values that match their values,” she observes. “So we did some really deep work on our purpose — research, focus groups. We talked to a huge portion of our workforce and really came across our purpose, which is to feed the human spirit.
“There are two important legs of that,” Adelman continues. “One is our culture: our purpose, our promise, our values. The second one is Zero Hunger | Zero Waste, which is Kroger’s commitment to end hunger in our communities and eliminate waste across the company by 2025. … Living our purpose every day is really important to us. Every conversation we have at Kroger today, our purpose is right at the top: to feed the human spirit. And it’s unbelievable how motivating people find the idea that we’re going to try to end hunger in our communities and eliminate waste across the company. People really rally around it.”
“The piece that’s new for us, which is why we need the 2025 add-on, is food waste,” she adds. “That is an area — certainly in consumer consciousness, even in a national consciousness — that people hadn’t really been talking about. Certainly, we’ve been talking about recycling, and some of the other environmental topics, for quite some time, but food waste really has just bubbled to the forefront of our national consciousness as a major issue.”
Studies indicate that 40 percent of the food produced in the United States is thrown away, yet one in eight Americans experiences hunger. To address this, Kroger is partnering with World Wildlife Fund to conduct a comprehensive food waste analysis to identify where the company stands today in its journey to zero food waste, and to establish a framework for measuring and reporting food waste reduction going forward.
Among the actions being taken: Kroger is starting to stock Apeel avocados, a variety with extra peel that extends the fruit’s shelf life. This move, revealed at the one-year anniversary of Zero Hunger | Zero Waste in the weeks leading up to press time, is a partnership with Goleta, Calif.-based Apeel Sciences, founded in 2012 with a grant from the Bill & Melinda Gates Foundation to help reduce post-harvest food loss in developing countries that lack access to refrigeration.
“We are in the process of creating an entirely new foundation, the Zero Hunger | Zero Waste Foundation, which will be a public charity,” she observes. “We could use it as an innovator, an incubator, an accelerator, under the premise that some of the best thinking in food waste solutions may not be coming from nonprofits; they might be coming from some interesting person in their garage in Silicon Valley.”
The speed of change in the industry is unprecedented, according to McMullen.
“You have to be comfortable with change, and you have to be comfortable with being uncertain,” he advises. ‘Every stress point creates an opportunity, and finding that opportunity is what makes it exciting and fun. It’s also one of the reasons why I think it’s going to be easier to continue to recruit higher talent going forward. You’ll be able to help people see that they make a difference, a role where you can see that you’re helping make the world a little bit better place.”
Scale for Good
What’s a typical day for a Kroger executive? Predictably, the ones Progressive Grocer talked to say that there’s no such thing.
Based in Cincinnati, The Kroger Co. is one of the largest retailers in the United States based on annual sales, reported as $122.7 billion in the company’s 2017 annual report. Kroger holds the No. 18 ranking on the Fortune 100 list published in June 2017 and the No. 2 spot on Progressive Grocer’s Super 50 annual ranking of the top grocers in the United States.
As of Feb. 3, 2018, Kroger operated, either directly or through its subsidiaries, 2,782 supermarkets under a variety of local banner names, of which 2,268 had pharmacies and 1,489 had fuel centers. Kroger operates 37 food production plants, including 17 dairies, 10 deli or bakery plants, five grocery product plants, two beverage plants, one meat plant, and two cheese plants.
Founded in 1883 in Cincinnati and incorporated in 1902, Kroger operates stores in 35 states under some two dozen local and regional banner names, including Kroger, Ralphs, King Soopers, Dillons, Smith’s, Fry’s, QFC, Copps, Harris Teeter, Mariano’s, Fred Meyer, Food4Less and Murray’s Cheese.