Kroger on the cutting edge

by Monica Watrous
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Kroger has achieved 44 consecutive quarters of same-store sales growth.

NEW YORK — “I would say right now it’s a good time for grocery stores.”

The comment was made by Mike Ellis, president and chief operating officer of The Kroger Co., during a March 25 presentation at the Telsey Advisory Group Consumer Conference in New York. And though consumer confidence may be improving, his view of the industry is a particularly positive one.

With sales of $108.5 billion in fiscal 2014, the Cincinnati-based retail chain has posted 44 consecutive quarters of same-store sales growth, as many of its competitors have fumbled with challenges and changes in the way today’s consumers shop.

“Our share is growing — our food share in most of the markets we do business in,” Mr. Ellis said. “Where it’s coming from, it’s really hard to say.”

Keeping pace with change is a critical component of Kroger’s success. The retailer remains closely connected with consumers to deliver quality, value and convenience through a number of forward-thinking initiatives.

“It’s probably safe to assume that any trend or idea that might be out there, that we are probably testing it somewhere, somehow,” Mr. Ellis said. “We just don’t shout about everything because we don’t want to get people excited about it if it doesn’t work, or we have to tweak it or stop it or change it dramatically.”

 

Kroger's Simple Truth and Simple Truth Organic lines generated $1.2 billion in sales in fiscal 2014.

Making organic accessible

A healthy portion of Kroger’s sales come from natural and organic products. The company’s Simple Truth and Simple Truth Organic product lines produced $1.2 billion in sales in 2014, within two years of launching.

“The retail price spread between the conventional product and the natural and organic product was pretty wide,” Mr. Ellis said. “I think over the years we’ve narrowed that spread, and both from an availability of product position and just customer demand.

“The price compression, I think, has helped move more people into that area. But today, you look at some of the items that are just on fire — chia, quinoa, dairy, plant-based dairy products are really big, soy, almond types of things, large pack yogurt, organic berries, frozen and fresh…

“It’s just on fire right now. And for us, trying to stay connected and have the right products at the right prices has been a lot of work, but I think we are getting a piece of that.”

Another contributing factor is the proliferation of natural and organic products across the store, from the deli counter to the dairy case to the center aisles.

“You can go up and down a lot of grocery aisles and see organic boxed cereal and organic soups and organic green beans in the canned vegetable aisle,” said Mike Schlotman, senior vice-president and chief financial officer of Kroger. “We’ve done a great job of connecting with (the natural and organic) customer and probably keeping them in our store to buy more of that product, either because they liked our price point, they didn’t realize we have it, and now we are so well-developed in it they realize we have it. Where they used to shop for that, we don’t really know. But that would probably be taking share from one of the other outlets.

“And I seriously wouldn’t know whether it’s Whole Foods or one of the more specialty stores in the area. But we are doing a really, really good job with that customer.”

Kroger’s store brands generate about a fourth of the company’s sales, as the quality and perceptions of private label products improve.

“It’s not generic products like it was 30 years ago when I started with Kroger,” Mr. Schlotman said. “This is high-quality brand, quality product. But the customer understands it’s high-quality, it’s a better price point…

“We call it switchover, not trade-down.”

But whether customers buy national brands or store brands matters little to Kroger, he added.

“At the end of the day, we don’t have a preference for what they buy,” Mr. Schlotman said. “Our job is to figure out what they want and figure out a way to give them more of it at the best price, make it convenient and have a great shopping experience.”

Added Mr. Ellis: “You know, I don’t really buy into, oh, the retailer has the power right now or the C.P.G. Because at the end of the day, if Kraft wanted to raise the price of American Singles by $1 a package, we can’t keep them from doing it. We may have fewer facings, they may not be in an ad… (but) it’s not punitive. It’s just that’s not the right value for our customers. And our customers will tell us it’s the wrong price for that product.

“We’ll carry it because there will be some people that want it. It just won’t be prominent in the spot.”

 

Prepared foods is a focus of innovation for the retailer.

Reinventing prepared foods

Another key to continuous growth for Kroger is innovation in prepared food offerings, from juice to pizza to artisan cheese.

“We are the largest sushi retailer in America, and nobody really knows that,” Mr. Ellis said. “And so, I think we just have to keep innovating and listening to the customer, and really giving them what they ask for.”

The retailer’s prepared foods selections vary by region, with barbecue shops in some markets and house-smoked salmon on the West coast.

“You have to continually reinvent prepared food,” Mr. Ellis said. “The customer is changing so quickly.”

 

Technology is another way Kroger captures growth.

Delivering with digital

Digital technology also figures into Kroger’s growth strategy. More than 160 of the company’s Harris Teeter stores offer on-line shopping for front-of-store pickup, and with last year’s acquisition of e-retailer Vitacost.com, Kroger now sells 45,000 products on-line for home delivery.

“The customer is thinking differently about how they shop today,” Mr. Ellis said. “And we just have a lot of work to do to really figure out what does the customer really want? How do they want it delivered? What’s the price they are willing to pay? And how are we going to fulfill that need?”

Consumer shopping preferences are driven by a number of factors, including demographics, geography, population density and traffic.

“And it can be different by what’s going on in their life right now,” Mr. Schlotman said. “If a family has a newborn, Harris Teeter would tell you they see a pickup in their on-line — you can pick it up in front of the store because they don’t want to get the child out of the car and shop.”

 “So, there’s a lot of things that influence how a customer wants to interact with you. What we’re trying to do is build a model where, if they want to come in the store, we’ve got a very convenient great shopping experience in the store; with Vitacost, trying to figure out how to use that as an on-line outlet; and then the ‘express lane’ that Harris Teeter calls it where they can order on-line and pick it up in front of the store.”
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READER COMMENTS (1)

By Steven Johnson 3/26/2015 1:30:59 PM
It's a great time for an industry getting a 79 Billion dollar US Government subsidy in the form of CASH (SNAP). What happens when SNAP is reduced? When Slotting fees are gone?