What Kroger, Walmart, Target learned from China about the future of grocery

Now in its 140th year, Cincinnati-based Kroger made a push for digital retail during the pandemic, and the grocery chain isn’t looking back.

Kroger has adopted an omnichannel strategy, integrating offline or in-store sales with online orders and logistics. It’s a concept that emerged in 2016 when Jack Ma, the founder of e-commerce giant Alibaba in China, coined the term “New Retail” and opened 300 high-tech Freshippo-branded supermarkets in 27 Chinese cities.

This “New Retail” model is “cut and pasted from businesses operating in China,” said Michael Zakkour, founder of 5 New Digital, a digital commerce and retail consultancy in New York. “We’re seeing this with Kroger, Target and Walmart. They’ve looked at the New Retail model born in China to fully integrate offline and online channels,” he said. “Same-day delivery, in-store restaurants, app-based sales and QR codes are each bright spots, and all happened first in China.”

Initially highly competitive and fragmented, the US grocery retail business has matured slowly. But when Amazon bought Whole Foods Market in 2017 and began implementing several cutting-edge technologies to make in-store shopping easier, it started a shift that spread to big retailers Walmart and Target.

“You can’t just be a 1990s grocer. You have to be bold, break things and adapt quickly,” said Yael Cosset, Kroger’s senior vice president and chief information officer, who leads technology and digital initiatives. Pointing to Alibaba, he said the Chinese e-commerce company has “done a fantastic job of reinventing the brick-and-mortar retail model with e-commerce in the online and offline world.”

SHANGHAI, CHINA – MAY 17: Shoppers wait in line to pay at an Alibaba Hema Fresh store on May 17, 2022 in Shanghai, China.

China News Service | China News Service | Getty Images

Cosset is leading the implementation of the omnichannel shopping experience. Kroger’s new retail business integrates shopping, e-commerce and logistics: automated delivery centers bag groceries; vans deliver same day to households; data analytics provide an early read on customer trends; mobile apps distribute customer promotions and coupons; local “ghost kitchens” prepare food for in-store pickup or delivery by van; QR codes handle online payments at self-checkout; and large online fulfillment centers and warehouses rely on robots to pack, sort and ship orders.

New automated fulfillment centers are an important part of the technology effort. These centers use artificial intelligence and robotics to replace labor-intensive tasks such as sorting and bagging groceries for delivery, while on-site workers handle operations such as engineering and inventory management.

“When you look at retail, there are two big opportunities: technology and data science, and secondly, supply chain logistics and fulfillment,” Zakkour said. “The lesson America’s retailers are learning is that when retail and e-commerce are seamlessly integrated, their operations can be more efficient with higher margins.”

Zakkour credited Kroger with being one of the more progressive US retailers in adopting this multi-channel approach. Rivals Walmart and Target are spending big amid ongoing capital investments, even in a slowing economy and a focus on technology.

“A “A company that doesn’t have Kroger’s laser-beam focus on technology is vulnerable,” said Jim Russell, principal at investment firm Bahl & Gaynor in Cincinnati. “These digital trends continue to advance, and Kroger is delivering very strong results in the pandemic and post-pandemic era.”

Digital grocery shopping took off during Covid as customers opted for e-commerce, eating at home and cooking. Kroger’s digital business grew to more than $10 billion in 2020 and grew 113 percent over the past two years. Based on this momentum, Kroger aims to double its digital revenue by the end of 2023. Kroger digital sales rose 8 percent in the second quarter of 2022, while combined in-store and online sales rose 5.8 percent from a year ago.

Supermarkets lagged behind other sectors in e-commerce at three to four percent of total sales, but have tripled during the pandemic, according to McKinsey, which predicts e-commerce will account for 18 percent of supermarket sales over the next three to five years.

“We’re now learning how well this digital transition is working at Kroger,” Russell said. He noted that “Half of Kroger’s app stores are driving incremental business, and half are cannibalizing in-store sales.” Total company sales rose 4.1 percent to $137.9 billion in 2021, and Kroger expects 2022 gains of 4 percent to 4.5 percent.

The grocer combined physical and digital experiences under its Restock Kroger initiative, launched five years ago, a strategy that required a large, long-term investment in robotics and supply chain management, as well as data analytics to understand and predict customer habits. personalize marketing.

“We use data to connect with customers through digital channels such as apps and website logins to streamline customer interactions and deliver personalized shopping experiences,” Cosset said. He noted that big box stores can lose the personal touch with customers that a local store provides. But using data and technology, Kroger can better connect with customers and personalize online advertising and promotions.

Cosset joined Kroger in 2015 when the grocery chain acquired the U.S. assets of London-based data science firm dunnhumby, a partner in which he held leadership positions. Kroger created 84.51° as a new business from dunnhumbyUSA, which serves Kroger and other clients including Procter & Gamble, Coca-Cola and Tesco. Cosset began leading Kroger’s digital growth strategy and e-commerce in 2017 and was promoted to head of technology in 2019, a role that expanded again two years ago to include 84.51° oversight of the grocery data analytics division.

Another acquisition that proved key to the new strategy was UK-based grocery e-commerce company Ocado Group, which Kroger bought in 2018 and partnered with to bring its home delivery platform to the US. Kroger opened its first three Ocado centers near Cincinnati, Atlanta and Orlando in 2021, and added Dallas and Wisconsin this year. Several more locations are planned. These huge hubs can handle thousands of online orders every day, and smaller facilities at the outlets provide last-mile delivery from delivery vans that can handle 20 orders at a time.

“Grocery in the US has historically been behind the curve compared to the UK, France and Germany,” said Hilding Anderson, head of North American retail strategy at Publicis Sapient. “US consumers were very slow and grocers focused on survival. It took Covid for US retail trends to catch up.”

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