Kroger opens up its COVID retail survival playbook to its peers - and eats its own digital dog food

Profile picture for user slauchlan By Stuart Lauchlan June 22, 2020
Summary:
Kroger is sharing its learnings from COVID-19 with other retailers in the form of a blueprint for businesses. Meanwhile earlier digital investment pays off for the grocery giant.

Rodney McMullen
Rodney McMullen

Over recent weeks, a number of major retailers have anecdotally shared ‘war stories’ of how they have dealt with the COVID-19, but US grocery giant Kroger has gone one step further and put down its strategic thoughts in writing for peers to access and tap into. In the words of CEO Rodney McMullen:

Kroger has learned and continues to learn a lot while keeping our stores and supply chain open and serving America during the pandemic.  We have been able to share our learnings with other businesses and communities to help as they begun to safely reopen through a resource guide we created called Sharing What We’ve Learned: A Blueprint for Businesses. Our blueprint includes actionable recommendations and learnings that we have applied as well as what we have learned through regular interaction with governments, health departments and with business leaders in other countries, including Italy, Singapore and China, all of which were ahead of the US in terms of the pandemic cycling through their countries.

It’s a blueprint that covers a lot of ground, from HR through supply chain to digital, data and technology. On the latter three, actions points include leveraging data and monitoring enterprise trends, which allows Kroger to:

  • Identify locations that could be at a higher risk due to an increase in confirmed community cases.
  • Identify locations where staffing may be impacted due to the number of cases or quarantines.
  • Identify which roles appear to be most impacted due to COVID-19 absenteeism.
  • Prepare for resurgence of potential cases as states begin to re=open.

To achieve this, organizations need to deploy the most suitable analytics tools they can find. A checklist of how to go about sourcing such tech is provided:

  • Begin by defining the specific outcomes you want to achieve or the business questions you need answered.
  • Prioritize them and begin working in that order to meet your most urgent needs first.
  • Don’t be concerned about perfecting tools or processes immediately as speed is more important than perfection. 
  • Put controls in place to protect the confidentiality of the data collected and consider building in levels of access. 
  • Think about how you will collect data, including internal and publicly available information, and how to ensure its accuracy.
  • Create a plan for sharing the data appropriately with leadership and others who need to know to ensure employee privacy, only sharing data that is anonymous and in aggregate.

Firms are encouraged to re-evaluate their business models and available technologies to see where digital presence can be expanded, while on the topic of the re-imagined workplace, guidance centers on having access to reliable tech:

  • Evaluate equipment needs and develop a plan to obtain proper equipment for those who need it, including laptops, remote access tokens, etc.
  • Have support available, including reference guides, tip sheets, and support lines for the resources employees will need at home, including virtual meeting tools and VPN.
  • Prepare managers and team leaders for the new working reality by investing in additional training.

Dog food time

Has Kroger been ‘eating its own dog food’? It looks like it has. In common with other major grocery chains worldwide, COVID-19 has led to accelerated adoption of online grocery ordering and delivery, in Kroger’s case just as its partnership with Ocado rolls out.  But McMullen insists that the firm’s Restock Kroger transformation plan, which was underway long before the crisis, had put the firm on the right track anyway:

Under Restock Kroger, we have made significant strategic choices over the last several years to transform our business model and to redefine the customer shopping experience, partner for customer value, develop talent and live our purpose. We have invested aggressively in technology to establish a seamless digital eco-system and we have made incremental investments in Fresh, our brands and personalization…The benefits of the changes that we have been making to our business model were accelerated by COVID-19. For example, our heavy investments in technology enabled us to reliably sustain the incredible, almost overnight increase in demand for our pick-up and delivery services.

He adds:

Kroger began investing in digital several years ago to build a seamless eco-system that would deliver anything, anytime, anywhere. As a result, we have over 2,000 pick-up locations and 2,400 delivery locations reaching 97% of our customers with a seamless customer experience that combines the best of our physical stores with digital. These investments were especially timely as customer adoption of pickup and delivery grew significantly during the pandemic. Because of our existing eco-system, we were able to respond quickly to further expand and enhance our e-commerce services.

We were able to quickly offer and promote end demand, no-contact delivery and low-contact pick-up services. We expanded and improved contact-free payment solutions like Scan, Bag and Go and Kroger Pay. We took several steps to support the higher volume of pick-up orders, including hiring additional e-commerce associates, adding more order pick-up slots and increasing the frequency of communications with customers. We also began testing our grocery pick-up-only location in Cincinnati.

All of this has paid off so far, with a 92% year-on-year growth rate for digital channels across the past few months, rising to triple digits in May and, to date, in June. All of this validates the decision to invest heavily in digital, says McMullen:

If you look at the strategic decisions we’ve made over the last several years, it highlights those decisions really paid off in the current environment…We fundamentally believe that long-term trend will continue where people will continually depend more on e-commerce. We certainly have seen that being accelerated. We don’t think it will stay at the accelerated higher level where it is today permanently, but we do think fundamentally the growth has been accelerated and will be higher than where it started before COVID-19 and then grow from there.

That’s good news in terms of margins and future prospects, he adds, as it’s a long term return:

When [customers] first switch to e-commerce, we’re spending the labor to pick their order where before that the customer spent that labor. What we find is, over time we continue to get more efficient with our picking operations and picking an order and the customer spends more money with us, so their total spend increases. So customers that first started shopping [via] e-commerce three years ago, they’re to the point now where their profitability is the same as before they went to e-commerce, but we’re getting a higher percentage of their spend. Looking forward, we believe we’ll be able to continue to reduce the cost to serve that customer.

Enter Ocado

The ongoing tie-up with Ocado to use its retail tech platform to jumpstart Kroger’s e-commerce credentials will play a key role here. McMullen says:

Our partnership with Ocado remains an essential part of our all being seamless eco-system. Our Customer Fulfillment Centers (CFC) will accelerate our ability to serve customers seamlessly and in a more cost effective way. Earlier in June, we identified three new regions: The Great Lakes, The Pacific Northwest, and the West for placement of our high-tech sheds.

And the best is yet to come, he argues:

We believe Ocado’s value as a partner is not just its current capabilities, but also in how quickly the company is able to innovate and serve rapidly-changing consumer markets. We are designing a flexible distribution network, combining this aggregated demand and proximity of our stores, medium size facilities and large size facilities. You can see this strategy taking shape in the new automated CFCs, which will span a range of sizes. The new facility in the west will measure 300,000 square feet. The new facility in the Pacific Northwest will measure 200,000 square feet and the facility in the Great Lakes region will measure a 150,000 square feet. The varying sizes demonstrate the flexibility of the Ocado fulfillment eco-system to best serve the respective markets. Our network will flex as demand matures and the optionality will allow us to fulfill same day or next day delivery or pickup and customer or store replenishment.

One of the things that’s incredibly important is all that pieces tied together including Ocado will allow us to continue to grow and improve our profitability of that part of the business…What we find is we get a significantly higher share of that customer’s total household spend. There isn’t anything that we’ve seen that wouldn’t cause us to believe that the new e-commerce shopper doesn’t feel that way and a lot of those customers are telling us they intend to continue to shop more e-commerce than before. We would expect to get a higher share of their business. We’ve also seen a lot of customers new to Kroger come and use our delivery and pickup business and we’re seeing nice repeat purchases from those customers. So all those things cause us to feel good about the things we have in place and feel even better about Ocado and the other pieces that we are working on going forward.

My take

Kroger’s Blueprint for Business is a nice piece of community outreach from the retailer. To anyone who’s been tracking the retail sector’s response to the COVID-19 crisis, there’s perhaps nothing in it that is earth-shatteringly surprising or original, but it’s a tidy digest of some repeatable strategic action points that travel across different areas of the market. And right now,  all help is welcome! As stores are re-opening around the world, it’s important to remember that flinging open the doors to the socially-distanced masses doesn’t mean things are back to normal - and frankly let’s bear in mind that for large tranches of the retail industry, the ‘old normal’ was pretty bad anyway! - so an ongoing, updatable playbook is something that will be needed for a good while yet.