Kroger’s “seamless shopping experience” – why digital and tech spend remains in the corporate basket

US grocery giant Kroger Co was one of the sector’s online ‘poster children’ during the pandemic and continues to benefit from its early investment in digital tech, according to CEO Rodney McMullen. It all adds to the objective of a “seamless shopping” experience, he says:

Over nearly a decade, we made significant investments in our digital capabilities, building out our own properties, creating distribution channels in both pick-up and delivery, investing in automation, enhancing Personalization and introducing an industry-leading retail media network. While each of these capabilities required significant investments, we now have a unique digital experience that our customers enjoy.

The firm’s latest quarterly numbers indicate that this is translating into measurable benefits. Digital sales grew 11%, driven by an increase in both households and traffic, while within digital, delivery sales grew at 18% and continues to outpace other channels.

So what is Kroger doing right that others struggle with? As ever, we can look to the money, particularly in today’s inflation-hit macro-environment. McMullen argues:

We are helping customers save in multiple ways, including competitive shelf prices and loyalty discounts, personalized offers, fuel rewards and an expanded multi-tier Our Brands portfolio. Digital offers are an important way we deliver savings to customers and engagement continues to grow. With 5% more digital offer clips so far this year and that has led to 14% more savings for Kroger customers.

Personalization and loyalty also pay a large part, he adds:

Our Kroger Plus program provides our loyal customers access to savings and rewards that in turn drive traffic to our Seamless experience. As customers become more engaged, we gain deeper insights into customer trends while creating the data that enables us to grow Kroger Precision Marketing and deliver more effective promotions and relevant product recommendations.

We are working to grow Boost, the next level of our loyalty program, through new benefits and this quarter we announced the addition of Disney+, Hulu or ESPN+ streaming benefits with Boost annual memberships. Boost is one of the important ways we are increasing e-commerce penetration, providing customers an affordable membership model for free delivery.

That last point is important as McMullen goes on:

Increasing e-commerce penetration is important to our model, as households who shop with us digitally and are in our stores are our most loyal customers and increase retail media monetization opportunities as well. As our digital business grows, particularly in our delivery network, it continues to have a larger impact on our financial results. Improving profitability is a key priority and becoming even more important to our financial model.

Tech investment 

Kroger is still investing in tech innovation. McMullen explains:

We constantly evaluate new ways to apply data and technology to provide an even better Fresh experience and deliver more days of freshness for our customers. One of the ways we are doing this is through recent implementation of RFID-embedded labels on bakery items. These labels provide us with greater insights into our Fresh inventory, resulting in consistently fresher items and higher in-stock levels. We have seen encouraging results, including higher sales, in locations and categories where we have piloted the RFID labels and we look forward to scaling this to more stores.

We’re testing it. We’re happy with the initial result. The benefits are as much helping our associates be able to do their job a little bit easier. And it’s too early — it’s early enough to be excited about the potential. It’s too early to say this much we can budget in terms of what we would do. But the thing that we’re excited about for our customers, it’s helping us make sure we have fresher product for the customer and stay in stock better.

And it’s super exciting. We will look at other areas of the store to see what kind of opportunity it is. The cost per tag is still higher than we would like, so we still need to continue to work on focusing on the get the cost per tag down. But positive early results, really early in the process and excited about the potential. 

And, of course, there’s the inevitable toe-dipping into the waters of AI with the recent launch of an internally-developed, generative AI-powered sell-through tool, which helps to better manage inventory in both Fresh and center store departments through real-time insights tracking sales and shipments. This enables Kroger’s staff to prioritize sell-through, which in turn should optimize both sales and margins. There are now plans to further enhance the AI capabilities on the platform by extending into improved forecasting and end-to-end inventory management.

Don’t forget stores

Despite the emphasis on digital success, Kroger has not forgotten the other half of the omni-channel retail equation – the physical store. In its most recent quarter, the firm opened or expanded more stores than it has in seven years. McMullen explains:

Last year we talked about that we will open more stores this year than we have in several years and we would expect to continue to open more stores. And so far, the stores that we’ve opened, we’re happy with the way they’re connecting with customers and we’re happy in terms of the volumes they’re creating and the early read on the profitability of the stores as well.

So over time, we would hope that that would continue to be a tailwind, and obviously, on Seamless, we continue to see that as really critical to our five-year or 10-year future to be awesome there and we still have a lot of work to do to make where we’re indifferent, whether somebody shops with us online or in-store and we’ll continue to put a lot of effort there. 

My take

Still an exemplar for other grocery players, both in the US and beyond.