Kroger CEO Feeling Confident
Like pretty much everyone else who has been paying any attention, Kroger CEO
David Dillon knows that Wal-Mart Stores plans to drop prices on a lot of items
as it seeks to regain a competitive edge that it has seemed to lose in recent
quarters.
While Mr. Dillon is usually quite reserved when it comes to commenting
on competitors, he seemed to deviate some yesterday when he told the Citi Retail
Conference in New York that he likes his company’s chances against Wal-Mart,
price rollbacks and all.
“That business model is in sharp contrast to the business model that we’re carving out at Kroger,” Mr.
Dillon said. The Kroger business model, according to an Associated Press report,
is clean stores with quick checkouts, well-trained store associates focused
on customer service and a broader selection of products.
“We think we stand out in those three keys, and we think we will stand out even more as years go on,” Mr. Dillon said. “I
think that does distinguish us from Wal-Mart, and I think there’s plenty of
room for our success, even with their success.”
For its part, Wal-Mart is pretty confident in its strategy, as well. Company
spokesperson Linda Blakley, told the AP, “We’re making it easier than
ever to save by offering thousands of rollbacks on the things families need every
day — including staples in our grocery aisles. Mom will hear the message loud
and clear through advertising and in-store programs that start now and will increase
in intensity in the coming weeks.”
Kroger’s Dillon believes the company is already seeing signs that its strategy
is spot on. He said the company is adding more “loyal households” who spend
more in Kroger’s stores.
He also said there are signs that consumers are becoming
more confident and spending more on items such as flowers, jewelry and wine. “We
think that’s a direct result of people feeling they can spend some discretionary
money,” he said.
Discussion Questions: Do you share David Dillon’s opinion that Kroger stands
out now from the competition and that it will do so even more in the future?
What do you see as the company’s greatest strengths and vulnerabilities?
Selection, service, and speed are all great to aspire to, but they come with a price tag. You don’t up your staff, better train your staff, and increase your assortment (reducing turns) without paying some kind of price. If Wal-Mart plays the low-prices card, Kroger will have some credibility issues with claiming low prices on branded products and increasing service at the same time.
Kroger has shown over the past several years that they are a new and vibrant competitor. While price is important, it’s not everything. Consider the Walmart mistake to remove SKUs from the shelf. Customer traffic was impacted by the elimination of the wrong merchandise. This had little to nothing to do with pricing. As Kroger continues to listen to their customers and deliver on their needs and wants, they will succeed. Another great example of a retailer doing more than holding their own against Walmart is HEB. HEB wins because they deliver a very different and tailored shopping experience for their customers. While HEB has a very aggressive pricing strategy, it’s about the experience, the differentiated assortment and the value consumers perceive. Kroger will continue to perform better than the industry average as they align their practices with their customers. Walmart can be very aggressive on prices, but the customers have voted with their wallets time and again; it’s not only about price. There’s so much more to the winning equation.
Kroger seems to know its markets. They are usually #1 or #2. They have taken advantage of the blunders of Safeway, SuperValu, A&P, Marsh, and Albertsons.
While Kroger is not in the same league as HEB, Publix, or Wegmans, they have been one of the sharpest of the average conventional grocers, wearing down A&P until A&P was forced to exit a few markets.
Kroger has been lucky too, benefiting from Safeway and SuperValu miscalculating acquisitions like Randall’s Dominick’s, Albertsons, etc. Kroger has used Wal-Mart to further punish their weaker competitors.
I think Kroger will succeed more on shrewd business strategy rather than any glad-handing buzz word speeches at investment conferences. Generally CEOs just tell analysts what they want to hear and it’s always positive. Mr. Dillon will successfully lead Kroger, but it will be more from backroom business strategy that we will never see in the press rather from sales floor window dressing.
Mr. Dillon is smart to stay out of a price war with Walmart. He is also smart to differentiate his stores with “…well-trained store associates focused on customer service…” The real test will be in his ability to drive these ideas down to the store with a detailed hiring, training and service strategy that is executed and monitored consistently across the entire brand. A monumental task.
While Kroger stores are not a common sighting here in vendorville, I shop Kroger on business trips and many of my friends and colleagues in other states frequent Kroger. Over the past couple of months, three friends have mentioned being surprised and delighted by the specialty items they have found at Kroger (two of them said that Kroger’s offerings unexpectedly “saved” them a trip to Whole Foods). Grocery store preferences are not a common topic among my crowd so this was duly noted!
I see Kroger as a bigger threat to higher end stores like Whole Foods, particularly if they continue to expand their specialty and gourmet items. Doing so will further distance them from Walmart; it’ll be like comparing Granny Smith apples to blood oranges!
First the reality that every organization is on a lifecycle. No exceptions, not even for Walmart. Once maturity is reached you, by nature’s law, move into decline…unless you leap the curve, transform, and re-invent yourself sufficiently that you start the lifecycle all over again. GM is the poster child of this reality.
It’s pretty well impossible to out-Google Google and it may be impossible to out-Walmart Walmart. So why would you try? Wouldn’t it be smarter to lay claim to new territory? Seems to me that is what Kroger is doing. Sure we all like a good deal but there are lots of customers who think that having to rummage around what too often feels like a retail version of a dumpster in order to save $2.79 isn’t worth it. Kroger seems to be going after those who want an intelligent approach to economic value.
If the question is does Kroger stand out from Walmart the answer is “yes.” If the next question is whether or not that’s a sustainable position, the answer is still “yes.”
Dave Dillon has proven himself to be Walmart’s worst nightmare–a scaled competitor who takes a thoughtful, balanced approach to his business.
The only way to win a deep price war against Walmart is to never move your troops onto the battlefield. Will that lose you some customers? Sure, but better that than all your profits.
In the past few years, Kroger has really spent more time and effort on knowing and understanding its consumers and retooling their loyalty program to become more personalized. The 20% of consumers who provide 80% of the revenue at Kroger are not the same 20% of consumers who provide 80% of the revenue at Walmart. Understanding the core consumer needs, wants, and trends are critical for success. Responding to those needs, wants, and trends will make Kroger different from its competitors.
Kroger knows they can’t win a price war with Wal. But that’s ok. Mr. Dillon is correct about expanded selection, well trained associates and quick exits. Those are huge things considering Wal fails in all three. Consumers are now putting a value on the customer experience and grocers like Wegmans, Trader Joe’s, Whole Foods, Publix and Kroger offer something more in terms of customer experience. That household loyalty is built right from the very first visit.
Dave Dillon has done a great job using all of their data, resources and dunnhumby to make the stores customer-centric shopping centers. Closer, cleaner, and not the [experience] that you have at Wal-Mart.
Kroger’s plan to focus on quick checkout, well trained associates and a broad selection of products aims right at Walmart’s weakness. Due to economics of scale, it will be difficult to battle Walmart on price alone. Now at the point that Walmart also begins to examine service levels and make improvements, Kroger will definitely be in a pickle.
Sam Walton once said, “it’s easy to compete against us, just do what we don’t do.” So, in that regard, Dillon’s strategy is spot on. But I wonder if Mr. Dillon gets out and shops his stores enough after reading his statements. It’s the right strategy, but they’re a long way from execution in the stores I visit weekly, especially on the customer service side. And if “broader selection” gets you to the cluttered aisles they have, not sure that’s working either.
Where Kroger has always been able to compete with Walmart is on the real estate (convenience) and size components. They truly ARE the neighborhood store, whereas Walmart is a destination event. And Kroger’s scale can hide a lot of regional and district flaws, which has helped them from a macro perspective.
Of course, all that could change if Walmart gets their Neighborhood Market concept where they want it to be. If that happens, Dillon’s strategy will REALLY be put to the test.
One thing I wanted to add is that Kroger is pretty much just another conventional grocer. They are not known for having the best store conditions, the lowest prices, or the best service. They are average. What they do well is behind the scenes. The way they control matters with labor unions, vendors, real estate developers, and government officials in a way often superior to their competitors.
Someday I hope a book is written on how they have played “cat and mouse” with competitors, slowly draining them of market share, then giving a little back to give them hope, and then eventually going for the kill shot like a bullfighter. Later they gobble up the spoils, taking the best locations left behind, knowing just how much to go for without the FTC getting involved. They are slow and tactful. I’ve seen competitors leave a market confused on what had happened to them, blaming Wal-Mart or the economy. Little did they know they were caught in a spiderweb weaved by Kroger.