Kroger - what was learned from COVID and how to retain the best in the Vaccine Economy

In common with so many organizations, grocery giant Kroger has faced a challenge as the Vaccine Economy takes shape. The retailer was, like others in its space, forced to change and adapt rapidly in the face of the pandemic, accelerating omni-channel transformation to meet the needs of consumers enduring a crisis like none other before.

Kroger was a success story in this respect, as diginomica has been tracking, going so far as to produce a handbook of best practice for other retailers based on its own experience. While COVID continues to case a shadow over the retail sector today, the question now is, what next? And also, what have we learned, as Gary Millerchip, SVP and CFO at Kroger told its 13th US All Stars Conference last week:

We've all been through a tremendous amount of during the pandemic and saying, what are the things we can learn from that? How do we move at a faster speed, allow more accountability and responsibility to be lower in the organization where it's best to make the decisions? We sort of embraced a transformation in the company during COVID to say, how do we make sure we put the right structure in place to take the learnings from COVID to be able to accelerate the way we run the company day-to-day bringing those learnings from COVID together?

One of the areas in which COVID impacted on operating models was the increased importance of having convenient and safe delivery/pick-up options for consumers. In this respect, Kroger benefitted from its stores being, on average, within two miles of its customers, enabling it to use these physical outlets as digital fulfilment hubs. It’s an extension of an existing focus on convenience, argued Millerchip:

Going back a number of years actually, we've invested meaningful capital and technology to improve the speed of checkout through the store. So when you're shopping a big store environment, you can get through the checkout very quickly. That would be by using technology for resourced checkout lanes, but also for self-checkout and using new technology to allow customers to scan their own products or testing baskets in the store.

So really focusing on how do you help customers through the checkout as quickly as possible? Leveraging technology and tying technology across the store to your telephone and digital access to Kroger. So as you shop the store, how do we give you more access to information on your phone, whether it's building a shopping list really quickly navigating the store and then which aisle the product would be in to be able to get in the store conveniently and maximize the experience?

Customers still really see convenience is critical to overall where they choose to shop and how they choose to shop. I think if you add to that what's happened in the last couple of years, really digital is changing the way customers define convenience as well. So as a recent example, we launched something called Kroger Delivery Now, which allows us to be able to deliver to customers within 30 minutes if they order online or a more sort of narrow assortment of products. 

Data is a critical enabler here, he added:

I think one of the things that has changed over overtime that we've been able to really kind of help the performance of Kroger, but also help our customers, when you combine the power of the data that we have as a company, with the fact that so many more customers are now digitally-engaged. You're able to offer that value in a more personalized way. We think that is something that continues to really resonate with customers and it's allowing us to be able to navigate some of the challenges of the headwinds around cost in the market, while at the same time still finding ways to get value to the right customer that's really looking to manage their budget on a sort of fixed budget schedule, by really providing those offers and those capabilities.

Learnings

As Kroger has stepped back and looked at what it can learn from its pandemic experience, the firm’s partnership with online grocery platform leader Ocado has inevitably played a part, according to Millerchip:

We've been really pleased with the customer reaction to Ocado. So, if you look at the Net Promoter Score that we look at, they’ve been really positive, off the charts positive and higher than we would have even expected them to be when we started the journey. I think that's a combination of all the elements of the experience coming together.

If you think about what happened during COVID, we had to grow our digital business to 2x almost overnight, certainly within less than a month, with the way that customer changed their behavior. And as proud as we were as a team as how we did that and stood that up, the experience could be better. We want it to be an even stronger, more proposition that really drives even greater loyalty from the customer.

When you look at what we've been able to do with the Ocado solution, whether it's the level of in stock that you can achieve, because you're pulling all the product from one location rather than sourcing it from multiple different sources, for example, through the store; whether it's the on time delivery, that the customer sees and the precision in which you can achieve that through using the smart platform that we have with Ocado; whether it's the sort of ‘white glove experience’, as we call it, where there's a driver turning up that's Kroger branded that is bringing product into the customer's house…you combine all those things together and we've been really pleased with the way the customer responds. And we're certainly seeing similar kind of layering of loyalty and repeat usage that Ocado would talk about in the UK.

None of this can be taken for granted, he cautioned, but to date it’s been a great success:

It's a huge undertaking. There's a lot of technology involved. So the technology working in the way we expect it, the reliability, and the consistency and the delivery have been have been super strong and something that we've been really pleased around, especially as we're standing up a number of facilities one after the other.

Doing all this during COVID was something no-one could have predicted. Millerchip noted

I don't think we ever expected to be doing this through a pandemic. So in a tight labor market, ramping up the labor and getting the right amount. Even though it's less labor intensive than a store, you're still having to bring a number of new associates together or move associates into one big facility. I'd say, we took a little bit of time to make sure we adapted our strategy from what we probably thought pre-pandemic, to make sure that we've got the resources at the level they need to be. How quickly you can ramp up the facility based on some of the unique dynamics in the labor market would be would be one thing.

And then the second thing I think would be how do you integrate the Ocado solution into our overall digital strategy? We had a $10 billion digital business before we opened an Ocado facility. A lot of our customers know Kroger for digital today and Ocado is an accelerator of that strategy, and helps us to accelerate an engagement with customers. So when we open the facility in Munroe, how do you optimize the use of Ocado to accelerate share growth and new customer growth, and where does it make sense to use the facility to be providing a sort of support for a store so you can free up capacity in the store where they've been picking all the orders? That's been a journey to make sure we're maximizing new growth, while also maximizing the use of the technology.

My take

An ongoing journey in a turbulent macro-environment for retailers of all descriptions.