Will using Uber for home deliveries work for Kroger?

Discussion
Source: Uber
Mar 07, 2017
George Anderson

Kroger’s streak of quarterly same-store gains has ended after 13 years, but the supermarket giant is intent on starting a new run. Part of the strategy may come in tests the company is running “to solve the last mile equation” for grocery consumers including a home delivery pilot with Uber, according to Kroger CEO Rodney McMullen (via Seeking Alpha).

“We’re testing with Uber delivery in several locations with plans to expand in 2017 where our customers can order through ClickList and choose to have their groceries delivered by a local Uber driver,” said Mr. McMullen on Kroger’s earnings call last week. “We have a couple of other home delivery tests as well,” he added.

Until now, Kroger has concentrated its online efforts on ClickList, its ordering and in-store pickup system. Last year the company announced plans to offer the service at up to 1,200 stores, approximately 45 percent of its locations. Kroger is slightly more than halfway to its goal with 640 stores currently offering the service.

Kroger, according to a Cincinnati Business Courier report, has offered home delivery using its own vehicles through its King Soopers division, but has not expanded the service beyond the Denver area.

A Cowen research report (per CNBC) estimates that online grocery sales will grow at a 20 percent annual compound rate between now and 2022. Amazon, according to Cowen, will move from being the ninth largest grocer in the U.S. today to number three by 2021.

“More and more customers are connecting digitally with Kroger,” said Mr. McMullen. “We are leveraging refined customer insights from 8451 as well as years of online shopping experience from both Vitacost.com and Harris Teeter to develop a sophisticated understanding of our customers’ behavior when shopping with us online, in store and both.”

“We’re utilizing this rich data set to make decisions about where the right locations to offer ClickList, what are the right assortments and promotions to engage customers online and how can we offer the quality and convenience online that customers’ have come to expect from a Kroger brick-and-mortar location,” he added.

DISCUSSION QUESTIONS: What do you see as the best model among grocery home delivery services operating today? How likely is Kroger to become a major factor in home delivery of groceries over the next five years?

Braintrust
"Grocers must do the outsourcing in as close to a white label manner as possible and ensure that the grocers continue to own the consumer."
"Clever idea, but Kroger needs to give people the option of using Lyft — not all consumers want to use Uber."
"...no more risky than any given consumer driving the groceries home in their car."

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20 Comments on "Will using Uber for home deliveries work for Kroger?"

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Camille P. Schuster, PhD.
BrainTrust

Clever idea, but Kroger needs to give people the option of using Lyft — not all consumers want to use Uber. This will be especially useful if consumers can schedule a time for their groceries to arrive.

Paula Rosenblum
BrainTrust

I like the Uber model. I find Uber Eats to be fast, efficient and timely. But people also love Instacart.

The odd thing for me is that despite my desire to buy as many things as possible online, I still go to the grocery store for frozen foods and fresh items. I find that my local Publix is out-of-stock way more often than I would have expected, so I end up looking for substitutes often. I hope Kroger has taken that into account.

Tom Redd
Guest

First, being a Kroger fan via their Fry’s division, I am pro-Kroger delivery. We would be glad to pay for our cooking needs or milk during the year. Why? The hassle of the driving, the store process and the risk of seeing people we know at the store.

For others in our area this is a smart move. A lot of older people (and some I know) who go to Fry’s for the social aspect are unsafe on the road and Kroger is helping by not letting them get behind the wheel. Heck, a self-driving car would lock its doors and not even let them in. They are a danger near wheels.

Kroger and their strong loyalty system could apply points to members’ gas cards for using the delivery system. That would be another reason this would work in Scottsdale, AZ.

David Livingston
Guest
5 months 13 days ago

I recall working in Denver 17 years ago and King Soopers was delivering groceries with their base being operated out of a low-volume store. Time flies. The days of positive same-store sales is over for many grocers. Online shopping is just eating too much into it. Due to Kroger’s large market share in the U.S. it gives them a big head start. As far as who has the best model, I can’t say. So many have their positives and negatives. My gut feel is that most of the models used today won’t even be around in five years and will be replaced by better models.

Dave Nixon
Guest
Dave Nixon
5 months 13 days ago

Kroger WILL figure this out as all retailers will at varying levels. It will clumsily bridge the gap until the commercial version of Uber is created, where the drivers simply become “for hire” for retail and commercial entities to solve the last-mile dilemma. And savvy retailers like Kroger could help fund that themselves, as they have with their previous joint ventures like dunnhumby. Why rent or buy when you can own? The Uber pilot could simply be a test for things to come when they do this themselves.

Jon Polin
BrainTrust

Businesses should focus on what they do best and partner with external partners who bring expertise to other parts of the equation. Grocers, therefore, should focus on assortment and pricing and consumer experience. Grocers, other than the Krogers and Walmarts of the world, should outsource their multichannel commerce development, and all grocers should outsource their last-mile delivery to the Ubers and Lyfts and Delivs of the world. The key for grocers is to do the outsourcing in as close to a white label manner as possible and ensure that the grocers continue to own the consumer and the relationship with that customer.

Adrian Weidmann
BrainTrust

Kroger needs to develop multiple business relationships to keep its delivery options open. Uber, Lyft and a variety of delivery services for restaurants. As more and more senior folks stay in their homes grocery delivery services will continue to be successful. My 88-year-old mother still lives on her own and I’ve been looking into a service to deliver her groceries. I have to believe this reality will continue to expand. The challenge will be security. This will all be great until someone gets assaulted or worse. Then it will make the evening news!

Richard J. George, Ph.D.
BrainTrust

I applaud Kroger’s testing of different options for the final mile. Whether it is Uber, Lyft or some other home delivery model is of less concern to me than determining which models maximize customer satisfaction and Kroger’s profitability. I have always been a fan of click and collect since it increases the probability of getting customers to visit the store while picking up, adding many high-margin items not normally purchased online. Data shows that online when combined with in-store purchases is more effective (greater sales and satisfaction) than either option done separately.

Lyle Bunn (Ph.D. Hon)
BrainTrust

Hats off to Kroger for testing this innovative approach. One-plus-one can equal compound value, in particular for shut-in, semi-shut-in, wheel-less and busy professional households. Convenience and time savings are powerful contributors to spending approaches.

Lee Kent
BrainTrust

What I like best about what Kroger is doing is the way they are looking at their data. They are being very thoughtful about the promotions and assortments that will best engage consumers online. Regardless of the method they use to handle the last mile, being smart about what your customer wants and how to meet that demand is the right first step.

As for using Uber or Lyft or Instacart, it all comes down to the driver and whether they will be able to represent the brand adequately. The Instacart folks are all about and only about shopping. They engage directly with the consumer and make sure they are getting the right thing. Uber and Lyft are only about the fare and they don’t want to have to wait around for package to be ready. The main thing here is that there are plenty of options as long as you get the first part right.

And that’s my 2 cents.

Tony Orlando
BrainTrust
I am trying to wrap my head around this third-party Uber deal. Correct me if I am wrong, but does Uber have a special refrigerated van with frozen and medium temperature storage? Probably not, and therein lies the problem for me. Staple goods from the center store I can understand, but delivering perishables with Uber is a big mistake. Laws have already been passed on the delivery of perishables from manufacturers all the way to the consumer’s home, and it requires dual temperature zones for home delivery and special vans that meet these requirements or the potential for lawsuits is huge. I am a proponent of safe food delivery and, as a caterer, I must take special care of the food I serve off-premises. Kroger should not be doing this with any third party that does not meet the new standards, and as smart as Kroger is it amazes me that this program is moving forward. This will be closely scrutinized in the future, as there are a lot of companies trying to get into the grocery delivery business and it must be done right. This is why “free delivery” is impossible, as the cost to do this properly is… Read more »
Ben Ball
BrainTrust

Tony, you raise a great point (or maybe a “counterpoint”?) which is how the delivery of groceries by Uber is perceived. Clearly, Kroger is treating it as a single order going directly to a single home — no more risky than any given consumer driving the groceries home in their car. And much the same way restaurants that deliver one-off take-out orders use cabs or Uber drivers. But will the court view it that way when someone sues Kroger for the salmonella they contracted due to receiving warm meat? Which standard will the court apply? That this is a “one-off” independent transaction and not subject to the same rules your catering trucks or a Domino’s driver are? As Stephen Kouzoumis used to say: “hmmmm……..”

Tony Orlando
BrainTrust

Hi Ben. Believe me the rules have changed. I work for ChefKo Meats out of Cleveland, and we talked about this today. These new laws were passed about a year ago, and Kroger can do whatever they want, but playing with fire isn’t something I would choose to do. We’ll see how this goes, and I’m willing to bet more rules will be coming down the road, as Government loves piling on, because they can.

Fool Me
Guest
5 months 6 days ago

Tony, I’m checking with the various health departments in the greater Houston market. You have the county and each little incorporated city within the county (Harris) all have a health department that require not only the cold temps but for prepared hot foods, they must maintain above 146 degrees F. Now throw all of that into the mix and let’s say I’m delivering from a Kroger store and the delivery range is like 5 miles, Logistically I really need to have a minimum of 5 stops to break even, and the time involved is going to be about 15 minutes per stop by the time I get back, so the last stop is going to be in my truck/car for 75 minutes … how does that affect the temperatures?

Larry Negrich
BrainTrust

I would suggest that Kroger find a delivery option that gives them some competitive advantage. Use of Uber/Lyft/another ride-share service could be a solution in select markets to fill a gap, but what is the differentiator from any other online grocer?

Anne Howe
BrainTrust

Yikes! With Uber’s dark culture cloud looming, Kroger might want to look for a supplier that can white-label delivery services under the Kroger brand umbrella. Vetting and proper training of the humans to “rep the brand” correctly is the key to success here.

Shep Hyken
BrainTrust

Home delivery has been around for years. It’s just in the recent years that the concept is becoming more than a convenience, but also a channel of business. Be it Uber, Lyft or a local delivery company, it doesn’t matter. The stores will find a cost-effective way to deliver. The customer will decide if it’s worth paying a premium to have the groceries delivered. When those two intersect, and the data says they do, then home delivery will continue to grow in popularity. We are entering an era of convenience. Quality of product and customer service are table stakes. The store that tips the balance by providing a higher level of convenience will win.

Brian Numainville
BrainTrust

Having been directly involved in assessing home shopping and delivery projects in the past, several considerations come to mind here. How does the retailer ensure food safety standards during the transport of the food by Uber? What happens if no one is home when the delivery arrives? What is the image of the retailer when an Uber driver pulls up and is rude to the shopper? Is this a cost effective delivery method? There are more questions than answers at this point in my view. It’s great to try innovative approaches but retailers better have answers for all the practical concerns.

Guy Mucklow
Guest
Guy Mucklow
5 months 12 days ago

Kroger’s decision to use Uber for home deliveries is an interesting one, as it highlights an important consideration that is often overlooked in the current age of online shopping.

Once a shopper submits an order at checkout, the customer experience is not over. Instead, retailers must focus on the last leg of the online shopping journey: the delivery. Ensuring the delivery process is fast and reliable is just as important as providing user-friendly product navigation and a seamless checkout process. Delivery delays or failures can have a devastating impact on customer satisfaction, customer loyalty, and company revenue.

By prioritizing and working to perfect this important step, Kroger is setting itself up for long-term success.

Fool Me
Guest
5 months 6 days ago

Kroger just did away with their seniors discount program, and yet they want to expand and increase their business. One has to look at the overall actions of a company, the direction(s) that it takes and its actions in conjunction with its words. The failure for Uber to have frozen, mid and air-conditioned delivery vehicles is a real puzzle, as to why they would risk the shutdown by the various health departments that oversee the many location of their stores … how ya gonna get by that one, I don’t really know. Oh add one more: if you add “hot prepared food” to the mix, how will they keep it at 146 degrees F?

wpDiscuz
Braintrust
"Grocers must do the outsourcing in as close to a white label manner as possible and ensure that the grocers continue to own the consumer."
"Clever idea, but Kroger needs to give people the option of using Lyft — not all consumers want to use Uber."
"...no more risky than any given consumer driving the groceries home in their car."

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