Does a Boxed acquisition make sense for Kroger?

Discussion
Photo: Boxed
Jan 15, 2018
Tom Ryan

Boxed, the online retailer and wholesaler of bulk items, reportedly has a surprise possible suitor: Kroger.

The news was first reported by Forbes and then confirmed by a number of other media outlets. Forbes said Kroger was the first of multiple bidders for Boxed, which could fetch as much as $500 million. Others listed as possible suitors include Aldi, Costco and Target.

Often compared to an online version of Costco, Boxed sells a wide variety of food and household items in bulk sizes at a discount, with an average delivery time of two days. Boxed doesn’t require a membership fee like a wholesale club, but does add free samples to mimic another part of the warehouse experience. Most of Boxed users are Millennials, and most purchases are made on mobile devices.

Launched in 2013, Boxed now reaches 48 states, with warehouses in Las Vegas, Atlanta, Dallas, and Union, NJ, where it is based.

For Kroger, the purchase of Boxed is seen as a response to aggressive moves made by others, including the acquisition of Whole Foods by Amazon, Walmart’s acquisition of Jet.com and Target’s purchase of same-day delivery platform Shipt.

Such a deal could put Kroger in a better position against warehouse clubs like Costco, even though Boxed co-founder and CEO Chieh Huang told The Associated Press last year that he sees his business taking share from local supermarkets, drugstores and c-stores as Millennials embrace the convenience of online shopping across categories.

Last year, Boxed launched a new program called SmartStockUp, which uses information about customer habits such as purchase data along with broader restocking trends to anticipate when customers will need to replenish a particular item. Boxed then displays a “Need this Now” or “Need this Soon” recommendation when the customer visits the website.

In forming its 84.51⁰ analytics arm through its 2015 acquisition of dunnhumby’s tech platform, Kroger claims to be the largest collector of food purchase data in the U.S. and sees being able to deliver personalized recommendations as its competitive advantage.

But some see Kroger downplaying its online opportunity. In mid-December, Kroger rolled out its ClickList click-and-collect grocery shopping service at its 1,000th location, reaching about 36 percent of its stores. At its Investor Day in October, one analyst questioned why Kroger was still charging $4.95 for the service.

Kroger only began offering home delivery earlier this year. The service is now in about 300 locations through partnerships with Strip, Roadie, Uber, Instacart and others.

DISCUSSION QUESTIONS: Does an acquisition of Boxed make sense for Kroger? In your opinion, has Kroger made the necessary investments in its online business to keep up with Amazon, Walmart and others?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"An acquisition is a short-cut but, regardless, Kroger has a lot more work to do online across the piece."
"What Boxed would provide to Kroger would be another competitive weapon in its arsenal to better compete with multiple formats."
"I’m starting to ask myself, “What business is Kroger in?”"

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13 Comments on "Does a Boxed acquisition make sense for Kroger?"


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Neil Saunders
BrainTrust

It does make sense for Kroger to get into this space, if only because bulk buying of grocery and household items is increasing. However, this is something Kroger could develop itself if it had a more coherent online strategy. An acquisition is a short-cut but regardless, Kroger has a lot more work to do online across the piece.

Phil Masiello
BrainTrust

What Boxed would provide to Kroger would be another competitive weapon in its arsenal to better compete with multiple formats. The question is whether they could use it correctly.

E-commerce has not been the strength of many grocers. They simply don’t understand how to engage their customers online. My point is, making the investments in online is one part, using the information to make better customer decisions is where Amazon beats everyone.

If Kroger is the largest collector of food data, they need to begin to use it with their brand partners to build better physical and online stores for their customers and maximize profitability throughout the extended supply chain. That is what makes Walmart a great retailer.

Paula Rosenblum
BrainTrust

I’m starting to ask myself, “What business is Kroger in?” Recently it announced it was getting into the private label apparel business, and now it’s thinking of selling bulk?

Does this potential acquisition make sense? I guess question #1 is “What is Kroger’s business strategy?”

If it is really “keep up with Amazon, Walmart and others” I think the company is in big trouble. Differentiation is important. Not me-too’ism.

Richard Layman
Guest
2 years 8 months ago

Given that Kroger has owned Fred Meyer since 1999, private label apparel is hardly a stretch. That being said, what was a quantum change from Walmart’s acquisition of Jet was that it was in large part an acquisition of talent, maybe a brand, but more importantly a different way for conceptualizing online commerce from how Walmart had been doing it. Now the momentum for the company seems to be changing as it relates to e-commerce.

Kroger needs to do the same thing, at least as it relates to the e-commerce end of the business. Do they have the capability to create cross banner brands and ways of doing business? Sure they do. But as I said before, it appears that they have lots of “stranded best practice,” that outside of creating decent superstores and adding nonfood categories to stores with the Marketplace format, they don’t seem to be doing transformational change. Can Boxed be the answer? Probably not, but stock analysts will be happy.

Max Goldberg
Guest

It seems like acquiring an online grocery service is a must have for serious retailers, and Kroger is late to this game. Boxed could give Kroger a fast start into online grocery, as Jet did for Walmart. I wonder when any of these online grocery services will turn a serious profit.

Lyle Bunn (Ph.D. Hon)
Guest

Kroger, like other brands, has a loyal customer base. And like so many (including Walmart) improving the shopper experience brings abundant rewards. When acquisitions bring new insights to the enterprise, and demonstrate the retailers wish to be of better service, consumers will respond. When the value is real, new approaches take hold and provide inflection and pivot points to ongoing incremental benefits.

Ryan Mathews
BrainTrust

There are several ways to look at this deal. On the positive side, it does give Kroger another way to touch consumers. At $500 million, it’s also a relatively small bet. And, it allows Kroger to get more serious about being a digital and physical player. On the other hand, one has to ask oneself if bulk purchases are really what Millennials want — assuming in fact this is a Millennial-focused idea. Also, Paula raises a good point. The right answer hinges on what Kroger wants to be when it grows up. Finally, there is the more immediate issue of focus, i.e., who does Kroger see as its current and near term (two to five years) customer? And, yes, its a dumb idea to make an online acquisition just because that’s what all the other kids are doing.

Mohamed Amer
BrainTrust
Mohamed Amer
Independent Board Member, Investor and Startup Advisor
2 years 8 months ago
Acquisitions are necessary and desirable when doing so fills a missing element in your strategy, accelerates building of capabilities, or introduce a new perspective to the business. The latter occurs when the business environment is changing at a fast pace due to technology and/or lifestyle changes that disrupt how your customers purchase and consume goods and services. Last fall, Kroger announced their “Restock Kroger” strategy that included exploring the sale of their c-store business. Boxed may be viewed as a new definition of what an online c-store might look like but with a twist given the model’s bulk quantities approach. So, an acquisition of Boxed can get Kroger (or another suitor) more in sync with how Millennials would like to shop, the evolving definition of convenience, and a mobile-first ordering strategy. Kroger can also benefit by increasing their data and personalization strategic thrust while delivering more digital experiences for their customers. Strategically, Kroger realizes that the way their customers eat and define value is changing and they want to ensure they influence that outcome. A… Read more »
Richard J. George, Ph.D.
BrainTrust

I think this makes perfect sense for both Kroger and Boxed. I had the opportunity to listen to Chieh and his colleagues and believe the Boxed concept represents a unique strategic advantage, particularly as it focuses on Millennial shoppers. The center of the retail store will continue to shrink. For Kroger, Boxed represents an opportunity to recapture lost COS sales as well as provide them with in-store space for enhancing their fresh offerings.

Doug Garnett
BrainTrust
Doug Garnett
President, Protonik
2 years 8 months ago

Would Kroger buy Boxed to operate the existing service or are they just looking at underlying technology to support their other efforts? It’s a worthwhile question to ponder in these tech purchases.

As to the overall question, I think Kroger is doing well and is aggressively pursuing its online business. And, sometimes, far too much. At our local Fred Meyer, we lost an entire row of parking to curbside pickup … whose spaces are nearly always empty while the parking lot is always full.

The fundamental reality for all these services like curbside and like bulk purchase is that they are niche. There are consumers who love and use them — but a percentage. Kroger pursuing that percentage makes sense. But we all need be careful that we don’t believe Kroger sees them as “taking over” — the words that the digerati use to raise VC funding to make things like Boxed. They’re just good narrow opportunities for Kroger to pursue.

Mark Price
BrainTrust
Mark Price
Managing Partner, Smart Data Solutions, ThreeBridge
2 years 8 months ago

Since Millennials are not consistent shoppers in grocery stores and bulk purchases are not a key part of Kroger’s current business model, a potential acquisition of Boxed would be largely incremental. Not only would such an acquisition provide Kroger with incremental customers and revenue, but it would also provide the company with valuable customer purchase insight. Both organizations have a strong focus on customer transactional data, which would make such an acquisition even more valuable.

Craig Sundstrom
Guest

“Such a deal could put Kroger in a better position against warehouse clubs like Costco” seems to sum this up quite well, so the question is “is Costco someone they should be competing against?” My thought is, if they can do it well … but of course that’s the big “if.” Costco has been around for a long time and, while the business models of both are sufficiently diverse that it’s probably wrong to say they don’t go head-to-head anywhere, it’s safe to say it’s limited. This would seem to indicate a change in direction to a more competitive relationship — if “relationship” is even the right word — and as such, I have the same concerns as with any business toying with the “ain’t broke, don’t fix it” model.

Howard Davidson
Guest

Missing in the discussion is the brand personality that Boxed has cultivated with its customers to help drive its growth — highly personalized (literally a personal note from the person who packed your box) customer service and unique touches like their program to provide materials to turn their boxes into creative fun projects for kids. Can this scale for a Kroger? Not so sure. And if not, is part of their DNA then lost and possibly, some of their sales magic?

wpDiscuz
Braintrust
"An acquisition is a short-cut but, regardless, Kroger has a lot more work to do online across the piece."
"What Boxed would provide to Kroger would be another competitive weapon in its arsenal to better compete with multiple formats."
"I’m starting to ask myself, “What business is Kroger in?”"

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