Kitchen 1883 may be a new platform for Kroger’s growth

Discussion
Conceptual drawing of Kitchen 1883 - The Kroger Co.
Sep 15, 2017
George Anderson

Kroger, the largest operator of supermarkets in the U.S., see an opportunity to grow its share of the food business with a new restaurant concept, Kitchen 1883, which it bills as offering “a fresh take on new American comfort food.”

The first location, at Kroger’s newest Marketplace store in Union, KY, will open later next month. The restaurant will be open for lunch and dinner daily and will serve brunch on Saturday and Sunday. Kroger describes the menu as “a melting pot of American and international flavors.” The 1883 name alludes to the year that the company’s founder Barney Kroger opened his first grocery store.

“Our goal is to create a gathering place that offers a genuinely delicious place to relax and experience our food,” said Daniel Hammer, Kroger’s vice president of culinary development and new business. “The restaurant will feature a made-from-scratch menu, hand-crafted cocktails and a community-centered atmosphere.”

Kroger is currently hiring team members to staff the restaurant. It is looking for individuals who “will be encouraged to share their passion for food with guests and help create an environment focused on hospitality and quality service that is unmatched in the industry.”

Kroger’s management is aware its competition for food purchases goes beyond other grocers. The USDA has reported that Americans now spend more on food consumed away from home than in it. With the rate of sales growth at restaurants slowing, supermarkets including Kroger, Hy-Vee, Wegmans and many others see foodservice operations helping to drive their share of total food purchases.

Rodney McMullen, Kroger CEO, told analysts on the company’s earnings call in March that he has been “very pleasantly surprised” by the willingness of customers to eat at the chain’s stores. “We believe that that will be an opportunity to grow the business and create a new leg, a platform for growth,” he said (via Seeking Alpha).

DISCUSSION QUESTIONS: Do you think consumers are more willing to eat out at restaurants associated with grocery stores today than in the past? Does Kitchen 1883 have the potential to be a significant contributor to Kroger’s performance in the years ahead?

Braintrust
"Done right, this is another way to connect with the customer."
"I just can’t get my head around the idea of a curated food and craft cocktail experience within a grocery store. "
"Like many others on the panel I have to keep wondering, what is Kroger’s unique selling proposition?"

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22 Comments on "Kitchen 1883 may be a new platform for Kroger’s growth"

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Phil Masiello
BrainTrust

The success of this concept will come down to culture. With the exception of Wegmans, Whole Foods and several specialty stores, grocers do not have a foodservice culture. And that is what it will take to prosper.

The economics of restaurants and the focus on service is counter to a grocery mentality. Let’s not forget that this concept has been tried many times and has not succeeded.

Kroger should try to figure out how to beat their competitors at e-commerce and home delivery before they venture into new business channels.

Anne Howe
BrainTrust

I just can’t get my head around the idea of a curated food and craft cocktail experience within a grocery store. I’m sure they can turn out good food, but this may be a very select market opportunity for Kroger.

Shep Hyken
BrainTrust

The short answer to the question about consumers eating at a restaurants is … Yes. They will and they already do. Hy-Vee’s restaurant concept is popular. The key is the right location, the right surroundings and the right demographic. Many grocery stores have buffets and prepared foods with seating areas. In some stores, it’s tough to get a seat during lunch and dinner. So the concept isn’t new. Done right, this is another way to connect with the customer.

David Livingston
Guest
1 month 6 days ago

Consumers will eat at grocery store-related restaurants if they are good. Kroger already has a number of restaurant formats that are just mediocre. They are no Wegmans or Hy-Vee. So why open a bunch of mediocre restaurant formats? Panic reaction to their stock crash and getting psyched out by Amazon. They should have learned their lesson after buying Mariano’s.

Steve Montgomery
BrainTrust

As Phil has pointed out there is a major difference between the cultures necessary to be successful in the retail and the restaurant industries. Both have some similarities. However one is primarily driven by providing access to items already sold to the consumer by a CPG brand, while the other relies on sales far more than simple availability. Each is difficult to do successfully separately — doing them under one roof is very difficult. There are success stories of this being done in the supermarket world but very few.

Lee Peterson
BrainTrust

Safeway did this in 2007. And after tweaking it over the course of five years, they finally closed it. It was better looking and had a better menu than this effort by Kroger AND it was in California, the home of new restaurant concepts. It was called Citrine. Google it.

I’m not suggesting that history repeats itself. I’m saying that Kroger does. Test after test, new prototype after new prototype, and what do we have? The most medium grocery experience ever produced. Just better PR. So what do they really play on? Price and convenient location. Which I would consider very slippery territory now with Prime next-day and Walmart lurking ever closer to your front door. Death by a million cuts.

Kroger reminds me of Sears or J.C. Penney. Behemoths that are such giant, archaic hairballs, they’ll never be able to be anything other than what they are. Will they be here in 50 years? Probably. Just a lot smaller and still just as aimless.

Brandon Rael
BrainTrust

This conceptually could work and has been a very effective model for both Whole Foods and Wegmans. However Kroger has to find a way to differentiate this model away from their standard grocery store format. Whole Foods already has the advantage of a curated, organic, holistic format which more seamlessly blends itself with any of their foodservice offerings.

Kitchen 1883 may end up drawing more customers into their grocery stores. But once they are there, what differentiating and competitive factors will Kroger offer from a specialty and organic lifestyle perspective?

Neil Saunders
BrainTrust

If the restaurant is good enough then yes, it can work. Sure there is a slight barrier to overcome among those who are not used to eating at supermarkets. However, as Wegmans has proved, this is possible. Even Hannaford’s new formats have dine-in areas (linked to the food counters) which are proving reasonably popular.

Adrian Weidmann
BrainTrust

The traditional lines of demarcation between foodservice, restaurant and retail have been blurring for some time. The distinction was completely obliterated when Amazon acquired Whole Foods. A recent NPD study found that consumers are spending more money on groceries to eat at home due to the rising cost of eating out and health awareness. Even though this has been attempted before, perhaps the time is ripe for this immediate consumption. Breakfast dining is a growth area and should be explored in this format. The environment will be critical for the success of 1883. Kroger doesn’t do anything without extensive testing so I look forward to tracking this development.

Harley Feldman
BrainTrust

Consumers are clearly willing to eat out in restaurants run by grocery stores. Whole Foods has had restaurants for a long time, a local supermarket chain Lunds & Byerlys has had restaurants for at least 15 years and the trend toward more fresh ingredients in restaurant food makes the grocery store-restaurant idea a natural fit.

I suspect the margins with restaurant food are higher than those with groceries. On top of that, the grocery chain has an excellent handle on the grocery costs that a standalone restaurant would not. This is a formula for grocers to have better financial performance with the addition of restaurants.

Scott Norris
Guest

And Twin Cities-based Red Owl was doing it successfully 60 years ago!

Gene Detroyer
BrainTrust

Let’s start by defining our business. Business definition is among the biggest barriers to a company moving forward. Once upon a time Paramount was a DJI 30 company. They defined themselves as “making movies.” At the same time a little cartoon maker named Disney defined themselves as in the “entertainment” business. Would Kodak still be here today if they defined themselves as in the “picture” business versus the “film” business?

So let’s define the business today’s supermarkets are in. Is their business to operate supermarkets or is to provide something greater to the customers who walk in their stores? Especially when more and more of the products they sell can be bought without ever walking into the store?

Mel Kleiman
BrainTrust

Like many others on the panel I have to keep wondering, what is Kroger’s unique selling proposition? What are the top 10 things that are going to drive me to eat at the restaurant? Just because they sell raw food and even some prepared food? It just seem strange to walk into a grocery store and sit down and eat. One suggestion is to make it a separate standalone unit or in some way separate it from the store.

I would love to see them open a restaurant under a different name and a different location not connected to the store and see if it is good enough to draw customers and thrive.

Dick Seesel
BrainTrust

Kroger has another growth vehicle if it chooses to exploit it: When it bought Roundy’s, it purchased the highly successful Mariano’s brand in Chicago (and its sister brand Metro Market, which has displaced the Pick n’ Save nameplate at several Milwaukee locations). Surely Kroger has many locations around the country that could stand a new approach to the grocery business, which Mariano’s can provide.

Lee Kent
BrainTrust

People are willing to eat out at places that offer great experiences and/or something unique that they value. Let’s say the chef picks certain groceries each week and prepares meals to show what can be done with the groceries. That could be fun and would help consumers make meal decisions. They just might come in for that. If Kroger simply throws restaurants into their stores, even if they have a good name, what is there to attract the consumer? Have customers heard of the chef? Is there something special being prepared? Think outside the box and maybe they will come. For my 2 cents.

Sterling Hawkins
BrainTrust

It is all about the experience. And it can look like what Lee is pointing to with a reputable chef, locally sourced foods and a synergy with the market itself. With all the data Kroger has they should be in the position to think through all of the experiential components to create value for the consumer and make it a successful venture.

Richard J. George, Ph.D.
BrainTrust

The battle for share of stomach continues to be complicated. This year one third of prepared meals do not come from a traditional or fast food restaurant. Restaurants in grocery stores significantly increase visits and therefore, the promise of more store sales. Plus, if done correctly, in store [sic] testaurants can enhance the store’s positioning. The challenge as noted by others is to do it right. However, I think the concept will flourish.

Craig Sundstrom
Guest

I’m a shareholder, but don’t live in the heart of “Krogerland” so my reaction to this is “wanna like it but….”
Basically I don’t think being operated by Kroger is going to make much difference, one way or the other (that’s particularly true if people aren’t aware of the ownership). Being proximate to a store presumably gives them good exposure, but not really different than any other restaurant in a strip mall near one of their stores.
I think it will succeed or fail based on the quality of its offerings … which is as it should be.

Herb Sorensen
BrainTrust

EXCELLENT idea! Terribly limited time schedule — hours open.

Scott Norris
Guest

Byerly’s restaurant & coffee shop was open till midnight or even later (possibly even 24 hours?) when I was in college in the 1980s, long after the store had closed — quality food at a reasonable price from their in-house catering department, great coffee, a solid place for families, late-night study sessions, or taking a date….

Come to think of it, I had a few early-morning meetings there too!

Tony Orlando
BrainTrust

Kroger has a huge opportunity to really make this a unique experiment, and it remains to be seen if they can pull it off. If I were involved, there would be a nice section of the menu dedicated to gourmet scratch prepared gluten free/sugar free options, as this is the category that remains way underserved, believe me I know. It can be done, and as someone who prepares this type of food for my store, the repeat customers are near 100%, as no one in my area is doing this. Locally sourced foods, and signature, soups, salads, entrees, & desserts, if done by a trained chef, will go along way to making this venture grow. I wish them well.

Kenneth Leung
BrainTrust

Whole foods in SF and Nob Hill in Redwood City both have a beer bar which seems to do okay. Consuming a beer in a restaurant attached to a supermarket seems acceptable in this area. If the quality of the restaurant is fine, people will come, brand affiliation or not. If it is supermarket food service level quality, then probably not. If it is truly restaurant quality food and service, having it inside a supermarket is just fine.

wpDiscuz
Braintrust
"Done right, this is another way to connect with the customer."
"I just can’t get my head around the idea of a curated food and craft cocktail experience within a grocery store. "
"Like many others on the panel I have to keep wondering, what is Kroger’s unique selling proposition?"

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