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We look at how Kroger has become one of the most innovative retailers globally and the strategic choices which are transforming its business model.

This in-depth guide to the USA explores the key trends in grocery retail and the growth strategies of the leading retailers in the country.

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Kroger and Loop, the circular ecommerce platform developed by TerraCycle, have formed an exclusive grocery retail partnership agreement in the US.

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Kroger is partnering with Lindsay Goldberg, a private investment firm, to develop a new platform to identify, invest and help grow the next generation of leading consumer brands.

Supporting Kroger’s alternative profit streams model

The two companies will create a new entity, PearlRock Partners, which will sit within Kroger’s alternative profit streams portfolio. PearlRock will be one of the largest data-driven investment vehicles focused on consumer brands. It will optimise Kroger’s merchandising and predictive analytics expertise and Lindsay Goldberg’s track record of investing in and supporting family-owned and founder-led companies. Commenting on the launch, Brian Kelley, a Partner at Lindsay Goldberg who previously served as CEO of Keurig Green Mountain and President of Coca-Cola’s North American operations, stated,

“We are thrilled to partner with Kroger to help grow tomorrow’s most successful consumer brands alongside the entrepreneurs who built them. Backed by a state-of-the-art predictive data platform, real-world consumer product expertise and unparalleled merchandising resources, these next-gen brands will be poised for growth and offer Kroger’s broad customer base greater choice, convenience and innovation.”

Source: Kroger

Optimising private brand capabilities

Kroger will also be able to draw on its expertise in developing private brands. Last year, sales exceeded $22bn as it focused on driving growth through ranges including Simple Truth and Private Selection. Its insights into the latest product trends and understanding what resonates best with consumers will help the smaller brands it will be working with to refine their products, packaging and marketing approach. Working in this way will also provide Kroger with early sight of potential winners which could go on to become much larger brands.

Aiming to grow operating profit by $400m

Last year, Kroger outlined its plan to change its profit model through developing alternative profit streams. It plans on optimising its stores, logistics and data assets to create incremental new profit streams as part of its goal to grow operating profit by $400m by 2020. It plans to use this to invest further in redefining the customer experience, which in turn will enable it to further optimise its assets. This latest initiative aligns with this.

Data capabilities becoming an essential component of retail

The partnership with Lindsay Goldberg also highlights the growing importance of having deep data capabilities within retail organisations. This has been a strength for Kroger for several years, but especially since 2015 when it acquired the technology assets of Dunnhumby USA to form its data-science unit, 84.51°. More recently Kroger has been utilising its data to drive its category resets programme, a key component of its ‘Restock Kroger’ strategic plan. The retailer is also optimising its data to build a significant media business, which it also views as being an important driver of future profitability.

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Kroger has launched a new range of meal solutions through its partnership with Home Chef, the meal kits business it acquired last year.

Three new Home Chef branded ranges

The new ranges build on the existing Home Chef and Home Chef Express products. They include ready-to-cook meals, heat and eat meals and lunch kits. The development of these three new ranges follows on from the introduction of Home Chef’s meal kits into around 200 of Kroger’s stores last October.

Source: Kroger

Offering customers flexibility and convenience

The ranges have been developed to provide consumers with more flexibility and to help meet their convenience needs. The oven ready meal kits require less than five minutes of prep and cook in around 30 minutes, directly in the packaging. Six complete meals will be available in-store, with menus rotating on a monthly basis. The heat and eat meals mark Home Chef’s first venture with ready-to-heat products.

Developing Home Chef as a private label brand

The new ranges will initially be made available at the Mariano’s stores in Illinois and Kroger stores in Ohio. The business anticipates rolling-out the meal solutions to additional markets throughout the year. This will build on the roll-out of its existing ranges to a further 500 stores and the piloting of the Home Chef Express range at 65 Walgreens stores in Chicago. These programmes demonstrate how Kroger is developing Home Chef as a private label brand, a key strength for the retailer, following its acquisition. Over time, we expect this to be stretched further into relevant meal solutions categories.

Meal solutions helping to redefine the customer experience

Developing broader meal solutions is a key element of Kroger’s strategy to redefine the customer experience. Within its stores, it has introduced branded partnerships for hot food, working with locally relevant providers. It has also been testing a new app which enables customers to order ahead for its meal ranges and is rolling-out an ‘Easy For You’ flash-frozen bulk meal solution.

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Kroger has gone live with the expansion of its self-driving grocery ecommerce delivery pilot to the Houston market.

Partnering with Nuro

Kroger is working with self-driving vehicle company, Nuro, for the expansion of this programme, following an earlier test in Scottsdale, Arizona. It currently operates from one store in the Houston market, making deliveries into two zip codes. A further store will join the programme later this spring, adding another two zip codes. The pilot has started using Nuro's self-driving Toyota Prius fleet. Nuro’s next generation driverless vehicle will be introduced later this year.

Source: Kroger

Potential to significantly scale-up in Houston

The initial pilot confirmed for Kroger the flexibility and benefits provided by autonomous vehicles. Customers have also been very receptive to having their groceries delivered in this way. Through moving the test to Houston, where Kroger has a significant presence, there is an opportunity to significantly scale up the programme in the future.

Improving the economics of grocery ecommerce

Self-driving vehicles could be an important component in improving the economics of grocery ecommerce. Last-mile delivery represent a significant proportion of overall costs. Retailers in North America are currently testing several fulfillment and delivery models as they look to reduce channel costs. These include hyper-local robotic fulfillment, third-party crowd-sourced delivery platforms and shared centralised distribution models.

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An essential summary of trading priorities, latest developments, and other key commercial insights for Kroger.

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