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Kroger CEO says no one has the ‘data and insights’ that it has
Kroger CEO Rodney McMullen has plenty of reasons to be cheerful. The nation’s largest supermarket chain store operator is coming off a record year and, while matching 2020’s comps might be too much to ask, there are plenty of signs indicating that Kroger will continue to build on its strengths while adding new ones that help generate sales even more profitably.
The grocer grew its same-store sales, excluding fuel, by 14.1 percent last year, aided by a 116 percent jump in online sales. Kroger’s growing private label business was up 13.6 percent during a year when it posted an operating profit of $2.8 billion. The supermarket giant also found alternative revenue streams, notably through its retail media program, which delivered $150 million in operating profit.
Mr. McMullen, who often speaks of “competitive moats” that Kroger has established, is a firm believer that the retailer’s data and insights enable it to outperform its rivals.
“Many retailers have transactional data, but no one has the customer data and the insights that Kroger has,” he said on the company’s third quarter earnings call in December.
Kroger claims to have delivered half a trillion personalized recommendations to customers in 2020. The grocer has said that customers appreciate the preciseness of its offers — the company’s email open rate is nearly 18 percent higher than the industry average. About 95 percent of customer interactions on Kroger’s website and app are enabled by personalization, which drives engagement and purchase.
Kroger saw its digital business pick up during the fourth quarter, while at the same time achieving modest improvements in operating profits on these sales. The company currently does deliveries from 2,472 stores and offers pickup at 2,223. Ninety-eight percent of all Kroger households are now covered by these services.
The retailer is looking to ramp up revenues and profits of its online operations, including paid media. Kroger, according to reports by CNBC and Supermarket News, has set a goal of doubling online revenues by 2023.
In March, the grocery giant did a soft opening of its first automated customer fulfillment center (AKA shed) with Ocado. The formal opening is planned for this month. Kroger expects to open 11 of these warehouses this year and nine others to later. The retailer sees sheds helping it handle more orders at a lower cost.
- Kroger Delivers Strong Fourth Quarter and Fiscal Year 2020 Results – The Kroger Co.
- Kroger (KR) Q4 2020 Earnings Call Transcript – The Motley Fool
- Kroger (KR) Q3 2020 Earnings Call Transcript – The Motley Fool
- Kroger looks to make online grocery orders more profitable, double digital sales by end of 2023 – CNBC
- Kroger to ‘lead with fresh, accelerate with digital’ in 2021 – Supermarket News
Discussion Questions
DISCUSSION QUESTIONS: Do you agree with Kroger CEO Rodney McMullen’s statement on the company’s strength in data analytics and action, specifically as it relates to personalization? What role do you see for Kroger’s sheds, store delivery/pickup and retail media in its goal of doubling online revenues at operating margins more in line with its in-store business?
Poll
BrainTrust
Thanks to its initial partnership with Dunnhumby, which also helped launch U.K. grocer Tesco’s Clubcard program, Kroger built out the capacity to gather and mine customer data many years ago. It is still paying dividends to this day and is very effective in activating customers and driving spending. That said, insights only go so far: retailers need to execute on them, and here Kroger deserves credit for its early ambitions in digital. All that said, I wish Kroger would improve the experience at some of its stores. Newer ones are nice, but there are still far too many old and shabby ones in the chain!
Could there be a message in those too many old and shabby stores? Investment is finite. Perhaps Kroger doesn’t see investment those stores as part of their future versus the other initiatives outlined in the discussion?
Customer data and insights are essential to truly personalize the customer experience. Customer data starts with customer identification and Kroger’s strong loyalty program encourages almost everyone to join the program to receive discounts. Personalized promotions based on what consumers buy are imperative to avoid the shotgun approach of promoting everything to everyone. The retailer with the most data and insights wins!
It would be hard to argue with Kroger’s assertion. It has a long history of putting data at the top of the hierarchy. Kroger’s groundbreaking partnership with Dunnhumby planted the seeds for its ambitious owned data platform and retail media aspirations. Now that the foundation has been laid, Kroger is poised to fully monetize its investments.
Kroger certainly has the data, insights and execution that actually made the difference. But it is a stretch to say no one else has it. Kroger does not do non-grocery categories. Walmart and Target do – in addition to being in grocery.
Maybe compared other national grocery chains Kroger can claim leadership, but that comparison is kind of pointless.
For some reason, the CEO’s statement strikes me as funny: “Many retailers have transactional data, but no one has the customer data and the insights that Kroger has.”
Not to be a jerk, but how does he know that?
Further, the company’s earnings compared to Target and Walmart say that a focus on tech investments around product picking and delivery is really in order. So far, it hasn’t really translated.
I’m really happy to see grocers making good use of analytics for personalization online (and I assume in stores), but also look forward to seeing those grocers make operating improvements.
Industry vets all know the story of Kroger’s early Dunnhumby relationship, and the company has been astute enough to make data collection and mining a driving force. Kroger needs to be mindful that other stores are good at data also; strong analytics is table stakes — not a moat.
There is no question that the future of retail is going beyond transactional data to true insights. Many retailers can’t do this, and some of those think they can. Exceptional data capabilities may well be the key differentiator going forward.
Kroger is to utilizing their data and insights about their customers as effectively as Walmart has always used its data and insights effectively with their supply chain and logistics. Yes, many have been aware of the perch Kroger has been sitting on for years and have been trying to catch up but no one has with the exception of Amazon.
Also, I agree with Neil, too many shabby stores tends to knock down Kroger from its high horse.
There’s a little company in Seattle called Amazon that would rightly disagree with Mr. McMullen’s assertion. And it’s not even close.
There are also small companies in Bentonville and Minneapolis that might rightly disagree as well.
Data + insights + ACTION. Action is the operative word. Investing and implementing. Did Target and Lululemon really have data superior to that of other retailers? Or did they have the vision and fortitude to act and take the short term financial hits that put them in their current leadership positions?
The value of what Kroger is doing is what they are doing with those other initiatives, sheds, store delivery/pickup and retail media in its goal of doubling online revenues. Kroger is understanding where the business is going and growing. They are following the customers’ preferences and habits. They are taking action. Massive data is valuable, but only as valuable as what you do with it.
If they continue with this thinking, in 2030 there will be a Kroger we do not recognize by today’s standards, leaving the other traditional grocery operators stuck in a narrow view of their businesses.
No one? Wonder if he’s aware of who Amazon is — ya think?
Kroger is one of the innovative leaders in the grocery space. What Kroger has built internally is indeed very impressive. Simultaneously, those technology and insights are also available for many retailers with the right technology partners.
When Amazon and Alibaba started to plan their offline presence, an entire ecosystem of retail technology solutions came into the market that specializes in helping retailers identify and apply relevant data to improve their businesses.
Amazon is still leading in online personalization results. Their personalized engine has gained up to a 30 percent basket boost. New York startup Halla specializes in food recommendations using natural language, and menu data input helps their clients achieve similar results with a simple plugin.
Other retailers leading in the offline personalization space include Sam’s Club, Sainsbury’s, and Fairway Market. They are the first grocery stores to achieve double-digit scan and go the adoption – opening up the capability to deliver personalized recommendations to shoppers inside their stores too. Taking it one step further, Westside Market is the first in the nation to apply both scan and go and location navigation (powered by SIRL) inside their stores.
Innovation does not happen in a vacuum. No single retailer, however impressive, will have exclusive access to the best data in transforming their stores.
As discount retailers with quality products like Aldi and Lidl grow their presence in the U.S., the domestic retailers are seeing a sales impact of almost 5 percent in the first few months of their new stores opening. Precisely understanding which products are contributing to these losses, from which segment of shopper, etc. is paramount to countering the competitor threat. From that angle, I believe, Kroger has built a good competitive moat that will continue to strengthen as they double their digital sales.
As Kroger continues expanding its digital marketplace and paid media opportunities, we will discover whether their data analytics is a true “competitive moat” in the space. Personalization is a start, but leveraging first-party data to generate ad revenue while producing meaningful return on ad spend for brands will be an important determinant. Walmart’s ad platform (Walmart Connect) has produced some amazing ROAS results for brands of all sizes. Can Kroger beat Walmart’s ad performance? We’ll have to wait and see.
Kroger’s data dominance can underpin/inform their growing footprint and strategy in healthcare and wellness for consumers who increasingly see their homes as safe havens for health-making. Grocers have earned shoppers’ trust in the COVID-19 pandemic, where trust has eroded for government, Big Tech, and some segments of health care such as health plans (per the 2021 Edelman Trust Barometer). As a trusted vaccination provider, Kroger will further build on its strengths in the healthcare ecosystem. If the company can mash up data and deliver it to coach people for wellness and daily health decision making, they’ll be part of the retail health ecosystem that health consumers demand.
I believe Kroger has tremendous opportunities to take a moment to consider the value their front-line workers inside Kroger stores bring to Kroger. These people are the face of Kroger.
The following is my personal experience as a very long-time Kroger shopper.
Shopping specifically at QFC Kroger stores here in the Northwest, it has become a very glum experience as a consumer to shop QFC. Employee turnover is constant. Unhappiness abounds. Even the long-timers who could smile are gone. I game the checkout line to figure out what cashier I should check out with to avoid my groceries being thrown on and piling up on the conveyor belt. I bag my own groceries which I prefer to my groceries being thrown in a bag while the cashier pretends to be busy with paperwork. Or I grin and bear it and take my cart of groceries over to the self-checkout computer voice gal who shouts commands at me. As a consumer, it is both sad and frustrating to experience employees being so unhappy at work.
Coupons? Personalization? I guess defining personalization bears a definition. I buy tomatoes, I get constant coupons in the mail for tomatoes. My “digital coupon” app is still stuck in my old Seattle QFC store. I have spent considerable time trying to get the app over the past five years to recognize my Portland store. No luck. So at checkout, I don’t qualify for app-enabled digital discounts. I have sought out a manager in-store or via phone with no success. Oh, and all of sudden there is a new pricing game at QFC, mimicking the Walgreens model of three for one, etc. promos. Get out the calculator.
So why do I continue to shop QFC? The answer is that I shop only for items not available at Trader Joe’s or local New Seasons. Kroger has a great opportunity to invest in their employee’s happiness, especially given the risks their front-line workers have taken and are still taking during COVID-19 times. Bottom line: “data and insights” is meaningless for both employees and shoppers if everyone is unhappy shopping at Kroger.
Yeah, they need to get some better data. I have seen all of what you describe at multiple other Kroger divisions. The attitude is not just the same as 5-10 years ago. I don’t know what has happened, but as you say, who cares how much data you have if the employees and customers are unhappy?
Yes. My experience exactly. Thanks for your comment.
I noticed a lot of questioning on this thread about McMullen’s comment. The point is as a CEO he’s obligated to lead, which includes touting his brand. As a company it’s quite possible Kroger has amassed very pointed and highly focused data on customers across the board – beyond the usual transaction logs. Especially for customers who buy at Kroger specifically, through the Kroger Rewards and Kroger Plus loyalty programs. More importantly, Kroger sells fuel and convenience – they happen to be the third-largest fuel center in the U.S. with over 1,200 fuel centers. There will be products, habits, even travel trends that Amazon and Target just won’t have data on. The data collected needs to be harnessed into decisions – and that’s the hard part.
I have been working with leadership there and it is their whole culture not just the data assets. They will win on data and analytics because that is how they are viewing the transformation of marketing, personalization, and retailing. Kay, who leads their media team, was quoted recently in an article by Jack Neff at Ad Age that was based on a new brand growth framework I designed. Her comments would be illuminating on this issue.
First of all, it is audacious and admirable of Mr. McMullen to consider “customer data and insights” as a competitive moat. He has a point in that everyone has access to data, but a very few are turning that into action. Often times, you do get examples of pockets of excellence, but using individualized data to drive everyday customer experience is truly commendable on Kroger’s part. He is perhaps not correct to assume that Kroger is the only one doing it though. In retail, the paradigm of what was called “execution” has changed from being store centric to now being customer centric.
When I read the headline of this post I thought about one of my favorite quotes from Lee Smith when he was President of Walmart and a reporter asked him how he would rate Walmart as a retailer and he said, “we are only a 6. We have so much to learn and so much we can be doing better.”
I believe this was the way Kroger approached its business under the previous CEO Dave Dillion as well. They were always trying to improve. Even when something seemed to be working they tried to make it better — not scrap it entirely — keep it, but make it better. That was also the culture of the old Fred Meyer in the ’90s. This new Kroger culture does not seem to be like that. It seems to be too proud of itself and too confident in itself.
Dunnhumby. I live in Chicago, no Kroger. However K bought Mariano’s. I received precisely targeted coupons monthly in a “tasty” mailing.
The balance of the selling model is not as tasty as Mariano’s was.
However, it is improving the assortment by location. I shop in two, located in very different Chicago neighborhoods with increasingly unique breadth of goods sold.
Kroger sits at the top of the pyramid when it comes to its national footprint of supermarket banners. As the largest operator in grocery, it sees more daily supermarket customer interactions than anyone, and by extension has curated the most significant set of consumer analytics, brand preference intelligence and buying behavior insights across the pure grocery retail spectrum. It is fascinating to witness these operators become as much of a technology/digital/data science platform as they are retailers.
Let’s use this data Kroger, to find out how shoppers like some of the initiatives you’ve done the past couple years at Smiths:
1. Stopped accepting Visa credit cards because fees were too high but then went back on it around November 2019 and started accepting them again;
2. Closed stores at 8 PM during COVID Pandemic earlier than any other competitor forcing people to shop in very crowded stores with no option to shop during the later less crowded hours, while various other competitors were still open until 10 PM or 11 PM;
3. And their most recent hit: soon starting to charge a fee between $.50 and $3 for customers to obtain “cash back” with a debit card purchase in the store;
4. A digital coupon app that routinely has 600+ offers to sort through and you can only add up to 150 offers at a time on your card.
Further, I have largely stopped shopping at Smiths and have received nothing in the way of retention offers or other things to get me back into the store. One time around 2012 I was away from any Kroger territory for about 3 weeks traveling and when I got home about a week later, a postcard in the mail showed up with a $10 off $50 purchase at Smiths. I am sure it was based on my lack of purchases as when I redeemed it rang up as “retention offer” or something.
Kroger has become very headstrong. It doesn’t seem to be about “customer first” anymore like it was when Dave Dillon was CEO and they were making constant improvements to their offering, service levels, pricing, and overall experience for the customer. Technology improvements were being rolled out with obvious benefit to the customer like the Que Vision for checkout line tracking. Now it has shifted to a top down mentality where they have centralized too many things. This reminds me a lot of the old Safeway chain under Steve Burd toward the end of his tenure there, though some of Kroger’s more recent moves seem even more headstrong and even less customer friendly than stuff the old Safeway did (amazing they can top that).
The other difference is Safeway had even higher prices, nicer stores and better product quality … and we still see what happened there.
Kroger is on the right track — personalization using data insights, the role of data analytics and action, and enabling technology are all variables that will keep Kroger in the game.
BUT they are not alone. I don’t agree with McMullen’s statement of other grocers only have transactional data.
Albertsons partnering with Google, Amazon Grocery, Target, Walmart, and even Sobeys and Loblaw are all using insights to make data driven decisions. They are also using robotics, automation, contactless technology, etc. to enable the future of grocery.
What will set these grocers apart is the customer experience, the expansion into private label using customer insights, and especially the use of new/innovative technology to keep customers keep coming into their stores. The question is what will set Kroger apart from the others? It seems they are all using the same consulting firms with the same playbooks on The Future of Grocery.
Having the best data and insight is great, wonder if they are thinking of monetizing the data in additional to using it to execute operational improvement. In terms of some of their aging stores, I do wonder if the plan is to improve ecommerce to the point that they will let go of some of the older stores or convert them to fulfillment points, rather than remodel the aging store.
I’ve said for years that grocers have known more about me than any other segment in the retail industry. I can’t disagree with Mr. McMullen’s statement. The additional revenue streams they launched will help them to continue to lead the way in personalization and customer experience.