Is Kroger in denial about the magnitude of its challenges?


Kroger is in denial about the competitive challenges it faces. That’s the central thesis of a Bloomberg opinion column by Sarah Halzack, who criticized the grocer for announcing strategic moves such as product assortments personalized by store and improvements to customer service as little more than anteing up table stakes in the current retailing era.
Ms. Halzack characterized executives at Kroger as describing the “current rough patch” it is going through as adapting to shifts that take place in the industry “every 12 to 15 years.” Kroger, which confidently maintains it is in the process of responding to the market’s challenges, doesn’t understand that the e-commerce transition taking place now is “a dramatically different business model, with a new set of competitors, logistical hurdles and profitability impediments,” writes Ms. Halzack.
Kroger unveiled its new strategic plan at its annual Analyst Day meeting this week. The plan, known as Restock Kroger, includes reducing capital investments in new stores while using technology to optimize product assortments and improve customer service in existing locations.
Kroger’s plan includes:
- Utilizing customer data from its 84.51 division to offer more personalized recommendations to customers throughout the year. Kroger maintains that it currently “delivers more than three billion personalized recommendations” annually.
- Building on digital investments such as its ClickList click and collect program. Last year, Kroger announced it planned to offer the service at roughly 45 percent of its stores. The company has also has been testing home delivery using Uber.
- Keeping customers happy through smart pricing. Kroger maintains it has invested more than $4 billion in pricing going back to 2001.
- Developing its private label portfolio. The company has seen annual sales of its own brands grow 37 percent from $15 billion to $20.5 billion between 2011 and 2017.
- Investing in its store-level associates. Kroger plans to spend $500 million over the next three years in improve training, “rebalance pay and benefits,” offer performance incentives and define career opportunities.
The one area of Kroger’s plan that has gotten the most attention from investors was its announcement that it was exploring strategic alternatives for its convenience stores including a possible sale of the 784 stores under the KwikShop, Loaf ‘N Jug, QuickStop, Tom Thumb and Turkey Hill Minit Markets banners.
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Kroger Outlines Plan to Redefine the Way America Eats and to Deliver Value for Customers & Shareholders – The Kroger Co.
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Kroger Must Admit Its Amazon Problem – Bloomberg
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Kroger exploring sale of convenience stores – Cincinnati Enquirer
DISCUSSION QUESTIONS: Do you think Kroger management is failing to fully grasp that its current challenges are unlike others that it has encountered in the past? Does Restock Kroger hit or miss the strategic mark, in your opinion?
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17 Comments on "Is Kroger in denial about the magnitude of its challenges?"
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Founder and CEO, CrunchGrowth Revenue Acceleration Agency
There doesn’t seem to be anything new in Restock Kroger. It is a lot of the same old same old. I think the Kroger management is employing the Ostrich Principle to management. Hide your head in the sand.
Senior Vice President, Dechert-Hampe (retired)
“It’s really, really different this time. No, really it is!” (And the end of the world is just days away … )
Kroger has been doing this right for a long time. Just like Walmart, they have a solid core strategy and a management team that knows how to adapt it to current trends (notice I said trends — not fads). Some of the changes Kroger is testing will have a big impact on their e-commerce/delivery business in the future.
As usual, the predictions of the end of the world are premature.
Managing Partner, Advanced Simulations
I agree with Ben; most of the money in grocery is still in physical stores — improve those.
Chief Executive Officer, The TSi Company
Urban Planner
President, The Ian Percy Corporation
EVP Thought Leadership, Marketing, WD Partners
Have any of you ever worked with traditional grocers? For the most part, you’re dealing with procurement specialists. Definitely NOT customer-oriented thinkers. Take a hairball the size of Kroger, put it on top of said non-customer thinking and you’ve got a recipe for disaster in today’s age. Table stakes: I totally agree with Sarah’s comments.
Add to this the fact that competitors who ARE customer-centric are entering the marketplace daily (some big ones too!) and you just doubled the size of the urgency tent. But what do we hear? Increased table stakes. That, to me, is definitely the sign of a company that just doesn’t get it.
To Ben’s point, will they go away tomorrow? No. Will J.C. Penney go away tomorrow? No. Will Kmart? On and on. The point is relevance. And to me, Kroger is irrelevant and continues to prove that on a consistent basis.
Independent Board Member, Investor and Startup Advisor
While we can’t really hear the discussion of the Kroger board of directors, I suspect the conversation may go facing another typical rough patch. However, history also credits Kroger as a top notch operator in the supermarket space for the past couple of decades with sound business decisions and a focus on efficiencies and robust operational processes.
I have no doubt that focusing on the core elements of the business will reap rewards for Kroger. But will these benefits be sufficient to maintain leadership in the new grocery battleground? It’s good to heed some advice from Intel’s legendary CEO Andy Grove, “only the paranoid survive.”
There’s a fundamental shift taking place in retail and while grocery was once thought to be immune from dramatic business changes, non-traditional competitors will make sure those changes are applied. Blocking and tackling are an absolute must, but you’ve got to run and connect on some deep routes.
Director, Solutions Marketing with Alteryx
I think she’s a bit correct. You expect leaders to have a vision that is bigger than current trends. Retailers are at different stages of maturity and execution for sure and that matters a lot. But I see her point.
This quote from her article is what spurred my thoughts here: “When executives proudly discussed achievements like knowing their shoppers’ hobbies or whether they use an iPhone or an Android device, all I could think was: Isn’t this simply the standard now that we’re many years into the era of Big Data? What retailer isn’t doing something like this, or at least trying to?”
Co-founder, CART
There’s definitely a bit of balance that needs to take place. Yes, improving product assortments personalized by store and improvements to customer service are table stakes; they are necessary to continue to compete in the marketplace today. And the vision is missing. Understanding what new retail experience Kroger can create sets the stage to thrive in the future.
Consultant, Strategist, Tech Innovator, UX Evangelist
I disagree with all the bashing from a different perspective: Two or three times a month we buy (mostly) grocery items from Vitacost — a Kroger brand. They almost always execute very well and with discounts are markedly less expensive than Amazon — a place we rarely buy grocery from. We don’t expect two-day delivery yet sometimes it happens. And incidentally, we’ve unintentionally showroomed Whole Foods for many of the packaged-goods staples that now come from Vitacost, due to the substantial price difference and doorstep convenience.
So in short, Kroger has the possibility to remain competitive if they take lessons from Vitacost (among other sources) and stay focused on their game and the needs/desires of their customers.
Kroger is not in denial and they don’t really have any real strategic plan. Its all just jargon for the press release in order to increase stock price. At the end the day, Kroger is simply one of the better run plain vanilla sterile supermarket chains. Every grocer can say they are doing what Kroger is doing.
So a year ago Kroger was a Wall Street darling and now they are in denial?
Do they have an organic growth problem? Yes, that has been clear for the last decade, ergo their decision to become more acquisitive. And they continue to generate profits and cash flow. They are growing online business, albeit mostly click and collect. Delivery, which is a small fraction of online grocery, is mostly through third parties but they are testing their own. No one has figured out grocery delivery, including Amazon.
Ask any landlord if they have any qualms renting space to Kroger. My only concern would be if Kroger management actually takes this type of criticism seriously.
President, Global Collaborations, Inc.
Kroger has had a consumer centric strategy for years and appears to be continuing that strategy with the new announcement. Kroger is committed to providing the consumer service their consumers want. Doing that sounds more productive than following every new technology or industry approach being tried. Focusing on doing what their consumers want really well is definitely consistent with the strategy they have been pursuing.
CFO, Weisner Steel
Probably no need to go into the specifics of Ms. Halzack’s claim. Actually one can’t go into specifics since there don’t really seem to be any other than breathlessly mentioning Amazon and Whole Foods. (Does she even have any idea of how WF functions?) But ultimately it’s pretty simple: it’s between people who think grocery will remain primarily store-based, and any transition to online — if occurs at all — will be gradual and handled by existing players vs. those who think it will rapidly — if not, in fact, instantly — becoming an online delivery model because, you know … “Amazon”. I’m in the former camp.
As for the ideas Kroger outlined: they don’t strike me as revolutionary, but rather fine tuning what successful businesses are always engaging in. Are there other things they might do? Perhaps, but management is far better to know than I whether or not they should.
CEO, President- American Retail Consultants
Kroger still needs to understand not just the new online marketplace, but also its new level of competition including Lidl, Aldi and others who are creating a new shopping experience, pushing even lower prices at store level (think eggs for $.38 a dozen, milk for $1.57/gallon). They are then combining this with an online presence in-store, as well as follow-up communications, coupons and alerts. Lower prices, online strength, new customer experience, great service and a simple, fast shopping experience. These are the standards for today’s retail mark that Kroger needs to focus on.
Global Senior Director, Retail Business Unit at SAP
Kroger as a grocery company did quite well during the great recession, growing from a base of about $60B in revenues to about $90B when the recession ended. This showed they have resilience as an operator. They also showed imagination by acquiring their IP assets with the 84.51 investment (ex DunnHumby). In addition, if you search their patent applications, they also demonstrate knowhow not traditionally associated with grocers. Given their ability to acquire both online properties and meal kit startups etc. as Walmart is also doing in digital I think they have as good a chance at making it through this era as any other pure play grocer, but as always only time will tell.