Photo: Kroger
Kroger still deciding whether to extend free grocery pickup
Kroger’s test of free pickup in most markets is a hit with customers, but the grocer is still analyzing what the long-term benefits might be before making it a regular offering.
New customers are using pickup that haven’t before, while existing pickup users are using the service with greater frequency.
“We’re still early in the analysis,” said Rodney McMullen, chairman and CEO, last week on Kroger’s third quarter conference call. “The customer adoption has been stronger — a little bit stronger — than what we were expecting. But we’re still at a point where we don’t need to decide that yet in terms of whether we extend it or not.”
The free pickup promotion began in early November and is running through Jan. 1. Kroger’s pickup program typically charges $4.95 for regular orders and $7.99 for expedited ones in most markets.
Gary Millerchip, SVP and CFO, said Kroger won’t be looking at individual transactions in deciding whether to extend the program but whether the program changes the level of engagement and drives long-term loyalty. Kroger will then weigh how free pickup adds value for the consumer versus price investments, fuel discounts and other aspects of the in-store experience.
“It’s really going to be a longer period of time before we could really evaluate the way in which it impacts the model with the customer,” said Mr. Millerchip.
During the quarter, Kroger expanded pickup to 1,915 locations and delivery from 2,326 locations — covering more than 96 percent of households in its market areas.
Digital platforms are “where customers are increasingly going to meet many of their needs,” Mr. McMullen said on the call.
Among other grocers, curbside pickup costs $4.95 at H-E-B, $5.95 at ShopRite and is free at Publix. Safeway’s Drive Up & Go service is free for orders of $150 or more and $3 for those under $150. Whole Foods offers free pickup for Amazon Prime members in an hour on orders of at least $35. Walmart and Target both offer free pickup, but exclude perishables.
Discussion Questions
DISCUSSION QUESTIONS: Will free grocery pickup, including perishables, become an expectation of consumers in the years ahead? What factors should go into Kroger’s decision to extend free pickup?
Poll
BrainTrust
Carol Spieckerman
President, Spieckerman Retail
Neil Saunders
Managing Director, GlobalData
Pickup is a rapidly growing part of the market. However, the issues with it remain the same for most digital grocery services: at worst it is unprofitable, at best it severely undermines margins. Kroger has tied a lot of its future to big scale fulfillment solutions, mostly for home delivery. There’s nothing wrong with that, but if they’re going to push pickup from stores they also need to invest heavily in micro-fulfillment and automation solutions to support stores.
Kroger’s indecisiveness could easily alienate customers. Kroger needs to either go all-in or sit this one out. Free pickup is already beloved by Walmart shoppers so the standard has been set. In other words, thanks to Walmart, free grocery pickup is already an expectation. If Kroger cuts the program at this stage, or (horrors) starts charging for it again, shoppers will have every excuse to shift to another source. Stop fiddling, Kroger. Go for it!
I believe free pickup will be table stakes going forward. The time to capture lifetime value is now. Getting in early and becoming the go-to retailer is a smart move.
To test this requires a proof of concept with control stores and test stores but I wouldn’t wait. Extending this service makes sense as grocery retailers must act now to hold off the even less profitable alternative of home delivery.