How Kroger wins in center of store

by Monica Watrous
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Kroger is enjoying continued growth in a challenged category.

NANTUCKET, MASS. — The center of store has been a sore subject for many grocery retailers and packaged food companies as more consumers shop the perimeter for products perceived as fresher. The Kroger Co., however, continues to enjoy growth in the category amidst industry-wide challenges.

“We are probably one of the few outlets that continues to grow units in the center of the store, and… with as big a piece of business as that is for us or any more traditional or conventional retailer, it’s important that those categories grow nicely,” said Mike Schlotman, senior vice-president and chief financial officer, during a June 23 presentation at the Jefferies Consumer Conference in Nantucket, Mass.  “Otherwise that total top line is going to be tough to push.”

For the Cincinnati-based supermarket chain, the grocery department represents half of the volume. Produce, conversely, represents about 10%.

“If you think about produce is 10% of my business, if it grew 10%, that is only a 1% contributor to the top line,” Mr. Schlotman said. “If I can get grocery to grow 3%, that is a 1.5% contributor to the top line because it is half the weight of my overall sales. So it’s important. It’s important that those big categories continue to grow.”

One way Kroger has improved its center aisles is with a revamped coffee section.

Mike Schlotman, senior vice-president and c.f.o. for Kroger.

“We’ve redone our coffee aisles to address the way people shop for coffee, and it’s not all just K-Cups,” Mr. Schlotman said. “There are still plenty of people who want and desire the whole beans and the grinds and making sure you have the right variety and the flavors and the new offerings in that world as well.”

Kroger also has organized its sections to provide an easier and more intuitive shopping experience for its customers.

“So if a mom is in the store shopping for the lunch basket or the lunch box for the children, a lot of those things we now have in the same aisle,” he said. “Shelf-stable juices and snack crackers and those kinds of items you will see in the same aisle. So it makes shopping for that product easier when they come in to do that shop.”

An increase in the number of natural and organic products available from packaged food companies has also kept Kroger’s center of store healthy.

“More products continue to be introduced in a variety of those areas,” Mr. Schlotman said. “More customers are choosing to live that lifestyle and want those products, and we are doing a really good job of converting people who have been long-time loyal Kroger shoppers who didn’t know, didn’t care, or didn’t appreciate the breadth and depth of the offering we have in the organics and are now standing in our store to buy those versus perhaps going to a competitor to buy them.”

While the center of the store remains alive and well for Kroger, the retailer plans to expand its prepared foods offerings. Mr. Schlotman admitted his company’s selection of hot meals “pales in comparison” with that of its competitors.

“We think we have a long runway in front of us of our ability to offer a better proposition for our customers in that category,” Mr. Schlotman said. “We added some talent at the beginning of the year to shore that up. He came from a competitor. He has run his own restaurants. He speaks three languages. He has lived in Europe. He is a sommelier, quite a talented guy and he has already had an impact on some of the things we’re doing in the short six months he has been with us.”
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