Omni-channel retail in a Vaccine Economy - Kroger prepares for a pragmatic 2021 response

Profile picture for user slauchlan By Stuart Lauchlan December 8, 2020 Audio version
Summary:
2020 has seen an explosion in rates of online grocery shopping, but is it sustainable into 2021 once vaccines make a return to the store aisles safer? Kroger is preparing for various outcomes.

Kroger stores

There was some good news this week for ‘America’s Grocer’, Kroger, after it entered eMarketer’s Top 10 of US e-commerce companies, earning itself position number 9 for the first time on the basis that its digital sales are predicted to come in at $11.28 billion for 2020, a 79% year-on-year jump.

That’s the good news. Less good news - while digital sales grew 108% year-on-year in the firm’s Q3, that growth rate slowed from the 127% boost it enjoyed in Q2. That raises an important question that impacts the entire grocery retail sector - can the COVID-19-driven shift to online shopping be sustained in a ‘Vaccine Economy’.

In other parts of the world - Europe, the UK in particular - the surge in online grocery ordering and delivery has been a top-up of a trend that was already part of the retail norm. In the US, the surge towards digital has been a massive acceleration of a practice that had barely taken hold pre-COVID.

As such, while the hefty increase in the UK might fall back slightly, there’s no question of the digital shift having been just a blip. In the US, the take-up of online ordering has been impressive, but is it permanent or just a temporary necessity that will erode once in-store shopping reasserts itself?

For his part, Kroger CEO Rodney McMullen is being pragmatic in his assessment of what 2021 might hold post-COVID lockdowns:

As you look to 2021, we expect, obviously, the digital growth won't be as much as it was in 2020, but we would expect for the customer to continue to expect digital service. But the thing that to me is inspiring and great to see is that customers that are digital shoppers generally still continue to come into the store to use it and to have an in-store experience when they want to. And that customer basically spends double what they spend if they don’t. So we really like the overall seamless omni-channel experience that we're delivering and creating for the customer and we would expect as we continue going forward that that will continue to make progress on the profitability of that digital shopper.

He adds:

Everything we can see, we think that pandemic has accelerated growth or transition to digital probably by three years or so. It wouldn't surprise me if it dropped off a smidgen, but I think it will continue to grow from that, because it is a long-term trend where the customer really expects to be able to get something in-store, pickup or delivery, and they expect to be able to bounce back and forth based on what's easy for them.

Whatever happens, he declares, Kroger need to be ready to meet the customers where they are as:

We believe a number of the impacts of COVID-19 will be structural and lasting.

Meeting the changes

So what does that mean in practical terms? McMullen says the key to what happens next lies in “leveraging our unique data and customer insights”. This is about the relationship that Kroger has with its customers and what it knows about them and how that insight can be exploited to service both the buyers and the bottom line:

Many retailers have transactional data, but no one has the customer data and the insights that Kroger has. The quality of our data is a massive advantage because it allows us to develop a significant alternative profit business that generates income from the traffic, while benefiting our customers.

Our personalization efforts motivate our customers to continue to show interest in Kroger’s communications, where nearly 80% have asked to receive relevant information and offers from us. Our customer email open rate is nearly 18% higher than the industry average, which illustrates our ability to offer relevant content and offers to our customers. We continue to advance our personalization technology. About 95% of customer interactions with product on our website and app are enabled by personalization, driving a significantly higher level of engagement in our offers and nearly doubling the likelihood of adding an item to a cart.

Delivery drivers

Seamless is another keyword for 2021, says McMullen:

Kroger began investing in digital several years ago, to build a seamless ecosystem that would deliver anything, anytime, anywhere. As part of our journey, we have been evolving our fulfilment network. First, taking advantage of our existing assets, our physical stores, providing flexibility and proximity to our customers with broad and relevant assortment to meet their needs. Second, expanding our network of assets and capabilities with the portfolio of various size facilities, optimize based on volume, demand profile and density, leveraging scale and automation to meet the rapidly changing customer needs.

Our early investments laid the foundation, including over 2,200 pickup locations and over 2,450 delivery locations, which allowed us to capture the increased customer demand for e-commerce offerings during the pandemic we have today, reaching 98% of our customers with a seamless customer experience around in-store shopping, pickup, delivery and ship-to-home modalities. We are innovating and building out a flexible network of fulfilment options and working with key solutions providers.

In common with most retailers - and all grocery firms - delivery has become a major selling point during the COVID crisis. Kroger has what it pitches as a unique model with Instacart, whereby in its role as predominant delivery partner, it fulfils remote orders. Customers come onto kroger.com or via the Kroger app and place an order, then Instacart picks the products out and completes the deliver.

Then of course Kroger’s relationship with online grocery platform provider Ocado will be ever more important in 2021, explains McMullen:

We continue to progress on our Ocado facilities program, with plans to build customer fulfillment centers in Michigan and in the south region of the country. The upcoming opening of our first two fulfilment centers in early 2021 in Monroe, Ohio, and Groveland, Florida in collaboration to leverage some of their in-store fulfillment capabilities.

Customer cash

Ultimately how 2021 pans out once vaccines are in mass distribution remains open to considerable volatility. What Kroger - and all other retailers - needs to do is be aware and be sensitive to the circumstances customers find themselves in, post-COVID restrictions. McMullen admits:

Obviously, there are some customers whose financial situation continues to be very strong and growing, but there are other customers [where] their financial situation has been more pressed, especially as they've been affected in COVID in different ways,  on losing jobs and things like that.

We believe when you look long-term that it's important for customers to understand we did not take advantage of them during COVID and we continue to invest both in everyday pricing and promotional pricing and waiving fees for pickup, things like that to try to help customer's budget to go further. We think it's one of those things where the customer is going to appreciate everything that we've done during COVID when we get out of COVID.

My take

While a post-vaccine grocery sector may no longer see the ludicrously long online waiting lines that we saw early on in the COVID crisis, the shift to digital shopping that was already well underway in the UK and Europe is unlikely to recede to any great degree. That box has been well and truly opened. In the US, that’s less certain, although the acceleration of the online shift has been so strong that again it’s not something that’s just going to flip back to pre-COVID norms. That said, there will be a recalibration of customer intent and the likes of Kroger need to be aware of the need to find the new omni-channel balance that has proved so elusive in other retail sectors.