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Is Kroger’s CEO Right About the Grocer’s Problems, and What Are the Best Solutions?

Written by Nicholas Morine

Kroger delivered a first-quarter report card described as “very modest” by Global Data managing director and RetailWire BrainTrust panelist Neil Saunders, with total sales excluding fuel up 0.5%, comp sales excluding fuel up 1%, and net income up 4.3%.

“Kroger has enormous reach and powerful economies of scale. The problem is that, for many years, it has failed to capitalize on these things. The company hasn’t been aggressive enough, nor has it been sufficiently progressive,” Saunders said.

“The result is that it’s become a bland, middle-market grocer that isn’t sufficiently differentiated. It doesn’t win on price. It doesn’t win on experience. It doesn’t win on private label. It doesn’t win on ecommerce in the way Walmart does. And that means it struggles to hold on to sales as customers increasingly shop around for alternatives,” Saunders added, noting that new CEO Greg Foran was an “assertive” leadership figure who has a good chance of righting the ship.

And in a recounting of recent remarks by Foran produced by Retail TouchPoints editor-in-chief Kate Robertson, it was made clear that the Kroger CEO remains steadfastly optimistic about the supermarket format’s future, as well as his company’s more specifically.

Kroger CEO Points to Three Major Problems Facing the Grocer

But it wasn’t all rosy news for Foran, as he delineated three categories presenting very real and present problems for Kroger.

  • Operating costs are growing out of control: “First, our operating costs have been growing faster than our sales. That’s not sustainable, and frankly, it’s not acceptable,” Foran said during the recent earnings call, noting that by slashing a bit of fat from the costs side, savvy investments could be made moving forward.
  • Corporate agility needs to improve: Foran unequivocally called for an improvement to the speed of corporate decision-making, wringing the most value out of Kroger’s existing workforce and established assets.
  • Execution is lacking: In terms of execution consistency, work needs to be done. While top-performing locations are properly showing up on the store standards front, many are not. “Over the last 15, 16 weeks, I’ve probably now gotten to well over 100 of our stores, and many of our competitors. As a rough rule of thumb, I would say that two out of five [re: Kroger locations] I would find in very good condition. Another two out of five are in moderate condition, and there’s generally one out of five where we could improve the performance,” Foran said.

On the positive strategy side, Foran signaled that it was time for Kroger to stop playing defense and start expanding into suitable markets; that ecommerce sales and expansion thereof would dovetail nicely with the grocer’s Kroger Precision Marketing RMN; and that conscious or targeted price reductions and promos could draw customer attention in an era of ongoing economic pressure.

Foran Talks About the Five Fs and Their Importance for Kroger

And on a broader level, Kroger underscored the importance of returning to the fundamental “Five Fs” of its core business:

  • Fast: Convenience is non-negotiable, especially considering today’s choosy and time-crunched customer. Stock needs to be on hand, checkouts need to be speedy, and online order speed and accuracy is paramount.
  • Fresh: Kroger plans to raise standards, particularly around protein and produce options, to satisfy today’s grocery shopper.
  • Friendly: Better training, streamlined tools, and new uniforms could make Kroger’s frontline workforce a differentiator versus competitors in the grocery space.
  • For you: The grocer holds comprehensive loyalty data, spanning nearly all (95%) transactions. Kroger intends to leverage this data to produce customized shopper offers that are likelier to spur customers to action.
  • Affordable: As Foran admitted that this last entry didn’t exactly begin with an F, keeping prices low was a cornerstone of the company’s plans — particularly in the pursuit of “consistent, easy-to-understand value,” per Robertson.

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