Kroger launches accelerator fund

Kroger's Natural Foods Innovation Summit, Nov. 2018 - Photo: 84.51°
May 20, 2019
Tom Ryan

The Kroger Co. has partnered with Lindsay Goldberg, a mid-market private equity firm, to launch PearlRock Partners, a platform to make early-stage investments and support the growth of emerging consumer brands.

PearlRock Partners is expected to leverage Kroger’s merchandising capabilities and predictive analytics as well as Lindsay Goldberg’s 20-year track record of investing in and supporting family-owned and founder-led companies to better position upcoming brands for growth. Brands under investment will also be groomed for Kroger’s shelves.

The platform will become a part of Kroger’s “alternative profit streams” portfolio, which has been promoted as key to hitting the company’s 2020 Restock Kroger profit goals. Kroger’s alternative businesses include 84.51°, its data analytics subsidiary; Kroger Precision Marketing, which sells advertising to brands guided by 84.51° insights; and Kroger Personal Finance, which offers a credit card linked to its rewards program.

“We are confident this partnership with Lindsay Goldberg will help discover and cultivate new brands that Kroger customers will love,” said Stuart Aitken, Kroger’s SVP of alternative business and CEO of 84.51°, in a statement. “We are transforming from grocer to growth company by deploying our assets to serve even more customers and create margin-rich alternative profit streams.”

Brian Kelley, a partner at Lindsay Goldberg who previously served as CEO of Keurig Green Mountain and president of Coca-Cola’s North American operations, added: “Backed by a state-of-the-art predictive data platform, real-world consumer product expertise and unparalleled merchandising resources, these next-gen brands will be poised for growth and offer Kroger’s broad customer base greater choice, convenience and innovation.”

The platform could help Kroger expand private label offerings. Boosted by the success of Simple Truth, private label already makes up more than a quarter of Kroger’s sales. Simple Truth expanded online internationally last year through a partnership with Alibaba.

PearlRock Partners may be competing against or eventually selling to many larger CPG companies. Smaller and nimbler niche brands are lately seen leading the grocery industry’s growth and many larger CPG companies have been acquiring them as growth vehicles.

DISCUSSION QUESTIONS: How do you see Kroger potentially benefiting from the formation of PearlRock Partners? Might the initiative cause conflicts with Kroger’s existing CPG trade partners? For up-and-coming food brands, is Kroger’s analytics and shelf space more appealing than partnering with a larger CPG conglomerate?

Please practice The RetailWire Golden Rule when submitting your comments.
"The idea of investing in external firms with a view to potentially taking them in-house at a later date makes a lot of sense."
"Whole Foods has been doing something very similar for years, to the best of my recollection."
"Smart move to take innovation strategies out of the building. PearlRock partners will innovate and disrupt current practice."

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12 Comments on "Kroger launches accelerator fund"

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Zel Bianco

This is a smart and well thought-out strategy. Kroger has looked at and continues to look at new areas for growth and greater profit margins that are above and beyond their traditional grocery business and these initiatives help to bolster both. These emerging brands have become the darlings of the industry for many CPG companies and will absolutely compete with brands and categories that their suppliers already sell to Kroger but they are buying these emerging brands to better compete and innovate, so why shouldn’t Kroger be in the mix as well? Private label, emerging brands that are being acquired by CPG companies and now by retailers – they will all need to find a way to compete and hopefully thrive.

Rob Gallo

A good move by Kroger. The balance of power continues the steady shift away from CPG to retail. Kroger can leverage its competencies to gain more visibility, control and margin opportunities. Simple Truth has been a huge win and it makes sense to develop other brands that resonate with consumers.

Oliver Guy

Grocers have used private label to increase margins for many years – so the challenge with trade partners has been going on all this time. Private labels now have and additional benefit in that they offer the ability for Kroger to differentiate themselves from competitors.

The idea of investing in external firms with a view to potentially taking them in-house at a later date makes a lot of sense – these start-ups may well be much more innovative than a private label team that operates within the walls of a large established retailer… This innovation drives creativity and hopefully a better result. My money says that is what Kroger is banking on.

Cynthia Holcomb

This discussion speaks to the political challenges that will arise when corporate Kroger personnel evaluate up-and-coming food brands. Leveraging analytics and shelf space as a means to an end in building new food brands are linear gate posts. Much like private label products driven by analytics result in the repackaging of commodities. It seems like a big lift for new food brands to see the light of day. People love a new food brand based on a “newly formed” emotional connection and reaction to the product, which is future-seeking. Contrary to data/analytics guidance forming a historically based framework from which to validate “quasi-new” food products. Whether an accelerator or in-house product development, barriers to entry are sky high for innovation in the corporate world.

Dr. Stephen Needel

I’m not sure Kroger has existing trade partners – it has vendors. If Kroger develops its own products that are more interesting to shoppers, great – the shopper wins in the end. If they develop something and sell it to an existing CPG company, great, the shopper wins in the end.

Michael Decker

Smart move to take innovation strategies out of the building. PearlRock partners will innovate and disrupt current practice. Getting the best of small company NextGen ideation and big company financial resources is a win-win for Kroger. Walmart, Tyson Foods, and Kraft Heinz are already on that bandwagon… so I don’t think any big brands have any right to complain!

Warren Thayer

Whole Foods has been doing something very similar for years, to the best of my recollection. It’s worked well both for them and the up-and-comers, for the reasons cited here. I don’t recall any pushback from competing vendors, and expect to see this grow further within the industry. With Kroger, it’ll depend on how well they mentor the small brands, provide support and get good results. If I were the small vendor, I’d be investigating both retailers’ and CPGs’ offers/programs and then moving ahead based on numbers, relationships and my own long-term goals. (On a personal note, good being back after a six-month battle with cancer. I won! Ha!)

Sterling Hawkins

I like how this gives Kroger more insight and participation in the brand world. They have the data and insight they need from the most important place: the point of purchase. As a startup brand, it’s a relationship that’d be hard to turn down, but might cause conflict selling into other retailers. The relationship between retailers and brands is already complex and this adds another piece to the puzzle.

David Naumann

The grocery industry has aways been hyper competitive and the formation of PearlRock Partners is another smart move by Kroger to diversify its portfolio and expand its private label. Kroger has one of the most successful lines of private label products and this will augment their product mix. While private label is a competition to CPG, it is also a revenue generator, as many private label products are created by the same companies that manufacture their flagship brands.

CPG companies are also adding increased pressure on grocers as they are beginning to sell directly to consumers with subscription-based home delivery services for frequently used products. Competition is coming from all directions for grocers and the winners will be those that diversify and hedge their bets. Smart move Kroger.

Paco Underhill

The American Grocery industry needs a refresh. We have no real national chains and the thought leaders are regional often family owned chains that are not afraid of taking risks. Kroger historically has stood on the sidelines and watched — cherry picking the winning idea that others have experimented with. Glad to see that leadership is trying to break that pattern.

Bill Hanifin

This is a brilliant extension of the strategy already in play, led by the 8451 launch a few years back. With excess cash available, Kroger is in a good position to create an environment for the study and development of new concepts and should benefit as a whole as a result.

Who would have predicted that a grocer would be leading an effort this a few years ago? Very creative on the part of Kroger.

Kai Clarke

This is an interesting strategy that needs to be better reviewed. The article does not cite any numbers for ROI for each dollar that Kroger is investing in this concept. More importantly, why is Kroger focusing on this, which is clearly out of its core competency? What will it take for Kroger to stay focused on maximizing its key businesses rather than spending even more dollars on other businesses? How do these investments allow Kroger to become a better grocery supplier and improve their gross revenues and returns? These are just some of the questions that I have for Kroger.

"The idea of investing in external firms with a view to potentially taking them in-house at a later date makes a lot of sense."
"Whole Foods has been doing something very similar for years, to the best of my recollection."
"Smart move to take innovation strategies out of the building. PearlRock partners will innovate and disrupt current practice."

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