Why Your CPG Brand Needs a Kroger E-Commerce Strategy
We interrupt this regularly scheduled program about the online grocery dominance of Amazon and Walmart to bring you a newsflash: Kroger isn’t waving the white flag in the online grocery wars anytime soon. We repeat: the largest pure-play grocer in the U.S. is not giving up on e-commerce.
On the contrary, Kroger is playing offense, taking it right to Amazon and Walmart to try and beat them at their own game. Kroger understands that consumers are increasingly buying groceries online, and it’s making impressive progress on its push to combine its online and offline operations.
Here are five reasons every CPG brand needs a dedicated Kroger e-commerce strategy.
Impressive E-Commerce Growth
Did you know that over the past two years, the number of Kroger customers buying grocery and other CPG products online grew 172%? That’s almost six times more growth than Amazon, the market leader.
What might be most impressive is that Kroger basically had no online sales at all until 2014. Early that year, Kroger acquired Harris Teeter, a South Atlantic regional chain of grocery stores with more than 200 locations, in part because its online business was larger. That acquisition allowed Kroger quicker access to technology and digital team members to accelerate its online business.
In 2018, Kroger saw its online grocery sales surge 66% year over year to an impressive $5 billion. Additionally, the grocery retailer reported a 42% increase in online sales for its first fiscal quarter of 2019, which the CEO expects to trend toward an annual run rate of $9 billion going forward.
Large Network of Stores
Being the largest pure-play grocer in the United States, Kroger has a substantial amount of physical locations. While once thought of as a liability, the approximately 2,760 stores under banners such as Kroger, King Soopers, Ralph’s, and Harris Teeter provide Kroger with a huge opportunity to leverage its omnichannel potential.
According to recent Nielsen estimates, click-and-collect’s share of total CPG e-commerce sales has more than doubled to 11% during the past two years. The click-and-collect fulfillment model has become attractive to consumers who are hesitant to fully embrace pure-play e-commerce grocery shopping. In response to this consumer demand, grocery retailers like Kroger, which now has close to 1,700 order pickup locations, have aggressively added this fulfillment option.
While click-and-collect has been growing fast, Kroger isn’t putting all of its eggs in one e-commerce fulfillment basket. Kroger understands that consumers are also interested in on-demand delivery, which it began in November 2017 through its partnership with Instacart. Kroger now offers on-demand delivery from more than 2,100 locations. Additionally, Kroger also launched its own online grocery delivery service called Kroger Ship at the end of 2018.
With all of these fulfillment options combined, Kroger is able to reach 93% of its customers through e-commerce, with a goal of 100% coverage by the end of 2019.
“Outside the Four Walls” Mindset
If you follow the retail landscape today, you will hear a lot of the executives mention the idea of “building the brand outside of their four walls.” While tactics can differ by retailer, the purpose is to extend a brand to consumers when they are not inside a physical location. Kroger is exploring this idea with a concept called Kroger Express. Kroger Express will allow shoppers to order groceries from Kroger’s website and pick them up at Walgreens. With close to 9,600 locations, the partnership could provide massive opportunities for Kroger if the test proves to be valuable.
Additionally, Kroger is looking to extend outside of the United States by partnering with e-commerce giant Alibaba to sell to Chinese consumers. While the initial partnership will be focused on offering Kroger’s private-label products, it could be assumed that success will lead to further opportunities to meet Chinese consumers’ growing demand for high-quality food products.
Arguably the toughest challenge to overcome in any quest to overtake Amazon’s online grocery dominance is mastering e-commerce fulfillment. Though Kroger is extremely efficient in moving pallets of products across the country from its warehouses, the retailer knew that experience wouldn’t necessarily translate into successful online parcel fulfillment.
That is why Kroger acquired a 5% stake in U.K.-based, online-only supermarket Ocado, becoming the exclusive user of its technology. This technology helps grocery stores run automated warehouses and deliver directly to the customer. Kroger just broke ground on the first Ocado fulfillment center in the United States, and it aims to have 20 fulfillment centers in the next three years.
In 2017, Kroger CEO Rodney McMullen introduced a multi-year strategic plan named Restock Kroger. The initiative set out to change the makeup of Kroger and position it as a growth business. The overall plan for Restock Kroger took inspiration from Amazon’s retail flywheel strategy. Many of the items discussed above are integral parts of Restock Kroger, but there are several others that are important to note:
- Microsoft Partnership: Kroger announced a scan-and-pay initiative with the help of Microsoft. Shoppers can take products off the shelf and scan them in the Kroger app to purchase them, without stopping at the register. Kroger is also experimenting with digital in-store shelves that indicate everything from prices and promotions to nutritional and dietary information.
- Kroger Precision Marketing: Analysts expect digital sales to account for 20% of Kroger’s business by 2022. That type of potential creates an advertising opportunity that Kroger is ready to handle thanks to 84.51, the in-house data technology company that it acquired in 2015.
- Nuro Partnership: Kroger’s answer for solving last-mile logistics challenges could come from artificial intelligence leader Nuro and its self-driving delivery vehicles.
- Kroger Rush: As part of retail’s effort to create the online equivalent of the immediate gratification shoppers feel in stores, Kroger is testing a service that delivers meals and groceries to customers in as little as 30 minutes. This is similar to Ocado Zoom, a program that its partner uses in the U.K. market.
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