2020 marked the end of the three year strategic plan, Restock Kroger. It enabled Kroger to reduce operating costs and strengthen its competitive moats including digital, shopper data, fresh and affordable food. The retailer has now outlined how it plans to win by leading with fresh and accelerating with digital as part of its new future-focused strategy.
Leading with fresh
One of Kroger’s strongest competitive moats is its fresh food assortment providing affordable products that cover a wide range of customers’ needs. The retailer believes cooking at home will be one of the major trends to stick in the post-COVID-19 world and so it will continue to enhance its food offer to attract more shoppers and drive sales further. How Kroger will differentiate the fresh food experience:
Continuously improve the supply: to guarantee even more freshness and longer shelf life by reducing days of supply and optimising transport. This improvement process will cover most produce categories but will focus on: bananas, berries, tomatoes and bagged salads, accounting for 28% of total produce sales at Kroger. Cost reductions will also be a key part of the strategy to guarantee an access to affordable fresh for everyone.
Provide qualitative and convenient meal solutions: by leveraging “Our brands” private labels, especially the range of meal solutions from the Home Chef brand. In 2020, Home Chef brand sales increased by 118% and it is now expected to become the next $1bn brand at Kroger. In addition, more partnerships are being implemented including delivery and pickup solutions with ClusterTruck providing restaurant quality meals and healthy options with Saladworks. Kroger also indicated a new meal solution offer for the entire family will be launched soon.
Maintain the pace of innovation: through the launch of new products aligned with shoppers’ expectations and by developing new ways to bring fresh to shoppers where and when they want it via ecommerce. The sales of health and organic-focused private label brand Simple Truth exceed $3bn and will continue to grow rapidly with more than 240 new products to be launched in 2021 (accounting for more than a third of all private label launches)
By strengthening the quality and affordability of the fresh food assortment, adding more meal solutions and developing new services to deliver fresh food to shoppers, Kroger should be able to recruit new shoppers and keep the existing ones. This strategy is aligned with two of the trends we identify that will shape the retail industry in the US in 2021: healthier lifestyle and savvier shopping behaviour (Retail Analysis subscribers can access the full report here)
Source: IGD Research
Accelerating with digital
In 2020, Kroger’s digital sales more than doubled to reach $10bn. This was due to the strong foundations implemented by the Restock Kroger strategy. Kroger’s seamless ecosystem will remain a competitive advantage, offering unique opportunities to engage with shoppers and strengthen the level of personalisation. The retailer has set ambitious targets to gain ecommerce market share and drive profitability by 2023:
Doubling ecommerce sales by 2023: by increasing customer reach. Kroger will increase its fulfillment capabilities (at stores and fulfilment centres), add new Hometown pickup locations and expand its customer reach to Florida via a new Ocado-powered fulfilment centre. It will also expand its assortment including new categories available on its marketplace. More ghost kitchen will open to provide quality meal solutions to even more shoppers. It will also focus on personalising every touch point through the customer journey through emails, push notifications, its loyalty programmes and products’ relevancy to continue delivering redemption rates four times higher than the industry average.
Doubling digital profitability rate by 2023: due to investments in technology and associates. Stores remain the strongest asset of Kroger, with 2,500 offering pickup or delivery. Reducing in-store picking costs is paramount. In 2020, the cost to serve from stores has been reduced by 14% and the plan is to reduce it by another 30% in the next few years through new technology platforms and well-trained staff. To continue to reduce delivery costs and improve the level of service, new fulfilment centres are being built, including through the Ocado partnership, with the aim to serve 75% of the US population.
Building a multi-billion retail media business: capitalising on its deep understanding of shoppers and sheer amount of data, Kroger seeks to build a multi-billion retail media business. Kroger Precision Marketing (KPM) enables to create a connection between marketing campaigns, shoppers and sales with measurable data from end to end. This offers unique opportunities for suppliers to create more targeted campaigns, reduce impression waste and ultimately be more efficient to drive sales or recruit new shoppers. More than 1,300 brands currently engage with KPM with a 85% retention rate.
The acceleration of the digital transformation at Kroger will strategically complement the strengths of the physical stores, especially around fresh food. By investing in different solutions including in-store picking, fulfillment centres and retail media, the retailer is diversifying its revenue streams. The focus on a seamless ecosystem and the personalisation of the shopping experience will likely contribute to deliver sustained growth and improve Kroger’s market share within the online channel.
Overall, by strengthening its physical stores with a focus on its fresh assortment and accelerating its ecommerce development to reach more shoppers, in more locations, more often, Kroger is well postioned to deliver sustained growth in the coming years.
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