Is there a secret sauce to Kroger’s online success?

Discussion
Source: Kroger/Ocado
Dec 17, 2020

With pandemic-huddled households discovering online grocery shopping, Kroger has broken onto eMarketer’s top-ten U.S. e-commerce retailers list.

America’s largest grocery chain landed at nine, moving ahead of Costco and bumping Macy’s off the list.

“The pandemic has shifted consumer priorities,” said eMarketer analyst Cindy Liu in a statement. “Kroger will benefit from two tailwinds this year: Eating at home continues to be in favor among Americans, and there’s been greater interest by consumers in ordering groceries online.”

In its third quarter, Kroger’s digital sales catapulted 108 percent, contributing 4.6 percent of the chain’s 10.9 percent identical sales growth (without fuel). On its quarterly call, Kroger officials cited past investments in fulfillment, personalization and omnichannel as contributors to the online growth.

On fulfillment, Mr. McMullen said Kroger’s more than 2,200 pickup and 2,450 delivery locations has “allowed us to capture the increased customer demand for e-commerce offering during the pandemic we have today, reaching 98 percent of our customers with a seamless customer experience around in-store shopping, pickup, delivery, and ship-to-home modalities.”

The vast majority of digital customers are also shopping in-store, they visit more frequently and, on average, spend twice as much as those shopping in-store only.

He mentioned further plans to build a “flexible network of fulfillment options” with the expansion of its Ocado partnership to build online fulfillment centers in Michigan and in the south.

Online, Kroger is advancing personalization by leveraging its extensive customer data. Mr. McMullen said, “About 95 percent of customer interactions with product on our website and app are enabled by personalization, driving a significantly higher level of engagement in our offers and nearly doubling the likelihood of adding an item to a cart.”

Digital is also incrementally profitable, supported by increasing cost efficiencies around fulfillment and digital advertising revenue.

“We think the pandemic has accelerated the growth or transition to digital probably by three years or so,” said Mr. McMullen. “A customer really expects to be able to get something in-store, pickup or delivery. And they expect to be able to bounce back and forth based on what’s easy for them.”

DISCUSSION QUESTIONS: Is Kroger’s online business benefiting from similar or unique factors compared to other traditional grocers? What advantages has Kroger created for itself relative to its competition?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Unlike some other retailers, Kroger was already making extensive investments in online capabilities well before the pandemic."
"Kroger’s shift to digital is a prime example of the benefits of having a flexible and nimble strategy with the ability to make quick decisions."
"I think Kroger’s success is partially based on their ability to deliver on the promise of an omnichannel experience for their shoppers."

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13 Comments on "Is there a secret sauce to Kroger’s online success?"


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Zel Bianco
BrainTrust

I think Kroger’s success is partially based on their ability to deliver on the promise of an omnichannel experience for their shoppers. They have been perfecting this position for a number of years now, so I am not surprised at their win here. They have also worked hard to be data driven and have used that expertise to drive their online business bigger and faster than their competition. Kroger is an example of how traditional retailers can lead the pack.

Neil Saunders
BrainTrust

Like all other grocers, Kroger is benefitting from the rapid growth of digital. However unlike some other retailers, Kroger was already making extensive investments in online capabilities well before the pandemic. This has allowed Kroger to cope with the upswing in demand and to do so profitably. One of the real positives for Kroger is that it is experimenting with a variety of different fulfillment methods from fully-automated warehouses to traditional pick-from-store models. This gives it maximum flexibility as the market continues to change.

Gene Detroyer
BrainTrust

Every grocery retailer could have benefited from “two tailwinds this year: Eating at home continues to be in favor among Americans, and there’s been greater interest by consumers in ordering groceries online.” But not every grocery retailer had the Kroger experience.

Kroger set out to make it work and are reaping the rewards. They didn’t just look at online as an extension of in-store; they understood what it would take to be uniquely successful for the shopper. And the result was that the shopper kept coming back.

It should be the primary objective of any retailer to eliminate the competition, not with aggressive prices or promotions, but to eliminate the competition in the shoppers’ mind. Amazon has done this with Prime. Kroger has done this with groceries.

Gary Sankary
BrainTrust

Kroger was making smart investments in digital capabilities before the pandemic. The win for Kroger has been the ability to scale these capabilities when consumers came calling (en masse) and demand amplified. Being an early adopter has provided them with a head start in this space, but never forget that this is retail and the market changes. The competition will continue to improve in these services, and consumer demand for them will ebb and flow. The real secret advantage here is how well Kroger is able to assess their customers’ next demand and start to position themselves to meet that need.

Shelley E. Kohan
BrainTrust

Kroger’s shift to digital is a prime example of the benefits of having a flexible and nimble strategy with the ability to make quick decisions. Kroger has spent time, money and other resources to build a back of house infrastructure and supply chain that is robust enough to deliver a digital business. As one of the top U.S. retailers (currently ranked #3), it has a tremendous business that it can change on a dime, unlike the battleship of Macy’s, so it is not a surprise that Kroger moved up on the e-commerce top ten list. As a side note, as another indicator of great leadership, Kroger was one of the first retailers early in the pandemic to share best practices for handling the new environment in its Blueprint for Success.

Joe Skorupa
BrainTrust

Great points, Shelley. Love the “battleship” description of Macy’s. Kroger’s secret sauce: 1. Massive tech/digital/omnichannel investment that started several years ago (so different than the usual grocer mentality), 2. Willingness to put money into experimentation, innovation and leading-edge initiatives (Ocado), and 3. Fearless and effective leadership to move fast (the Covid-inspired Blueprint for Success, curbside pickup, scaling e-commerce, etc.).

Camille P. Schuster, PhD.
BrainTrust

Kroger is benefiting from its investment in technology to enable personalization and the ability to shift directions. By knowing where inventory is at all times, Kroger knows what products are being received where, at all times, so that delivery can be flexible and fulfillment can include shop in-store, pick up at store, or delivery to consumers. Without that investment in technology this flexibility would not be possible. Ramping everything up since the onset of the pandemic would not be possible. The investment and institutionalization of the systems had to be in place much earlier. That is what made the flexibility possible.

Ryan Mathews
BrainTrust

Kroger ticked off the two most critical strategic boxes; preparation and execution. By getting ahead of the evolution to e-commerce Kroger was in position to capitalize on the opportunity created when the pandemic struck. But, of course, being in position is only half the battle. You need to be able to execute as well, which Kroger has clearly done. The best time to plan for change is before, not after, it happens.

James Tenser
BrainTrust

As Louis Pasteur famously said, “Chance favors the prepared mind.” The twin tailwinds cited by Kroger’s McMullen blow for all grocers, but Kroger is well positioned to sail ahead.
The company’s ongoing investments in knowhow and fulfillment infrastructure certainly put it in a strong position to capitalize on shoppers’ shift to digital. But there is another factor which may be even greater – scale. All the companies on the eMarketer top-10 list are very large. Three – Amazon, eBay and Wayfair – are digital first/only. The remaining seven were already market-leading store operators with significant capital and brand equity.
There is no “secret sauce” powering Kroger’s digital success. It has wisely and openly pursued an aggressive investment strategy in online shopping and fulfillment. It was prepared to succeed before it caught the COVID-19 tailwind. No surprise that it is soaring now.

Doug Garnett
BrainTrust

Kroger’s online business is most likely thriving due to COVID-19 and decent execution by the chain. That does not mean it’s a long term change of similar size to what Kroger is seeing now.

Herb Sorensen
BrainTrust

This discussion on Kroger’s “merging of bricks and clicks” is very helpful.

However, it remains to be seen how far back to the past norms of shopping things will return, as the pandemic recedes into memory. I’m reminded of Kroger’s (Fred Meyer) “experiment” with scan-and-go technology several years ago. It’s possible that the pandemic will make a permanent, major shift in shopping. But I am skeptical. The immediacy and 360 experience of local, in-store shopping can be supplemented. But shopping in a physical “everything store,” (Amazon’s tag) is a permanent attraction of the bricks environment.

Casey Craig
BrainTrust

The line that stood out and pointed to Kroger’s success here was that they had made, “past investments in fulfillment, personalization and omnichannel as contributors to the online growth.” Kroger’s leadership had seen that digital commerce was worth the investment and now it’s paying off. While most retailers had to adapt to this year’s surge in online shopping, Kroger already had the digital products in place and was able to support their customers immediately. It’s another great example of how all retailers could benefit from a strong omnichannel strategy as we continue to use online shopping and curbside pick-up more frequently.

Mark Ryski
BrainTrust

It’s one thing to have a solid strategy, but quite another to execute effectively — Kroger has both and the results reflect this. Krogers approach remind me of Target and Walmart in their approach to leveraging technology to deliver services customers want. While other grocery retailers are working on similar initiatives, I think Kroger has a big lead, which I expect will only get bigger.

wpDiscuz
Braintrust
"Unlike some other retailers, Kroger was already making extensive investments in online capabilities well before the pandemic."
"Kroger’s shift to digital is a prime example of the benefits of having a flexible and nimble strategy with the ability to make quick decisions."
"I think Kroger’s success is partially based on their ability to deliver on the promise of an omnichannel experience for their shoppers."

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