Reuters has a story about how Kroger “is experimenting with a variety of technologies as it battles Amazon.com and Walmart Inc to find a profitable formula to serve customers who want milk and eggs whisked to their doorsteps. These shoppers are a tiny but fast-growing segment of the $800-billion U.S. grocery market. Kroger must win them over to survive.”
While Kroger believes that its most valuable assets are “brick-and-mortar stores located within a mile or two of most of its current customers,” it also knows that the competitive ground is shifting.
“In May,” Reuters writes, “Kroger paid roughly $248 million for a minority stake in Ocado, a British company whose newest machines can pull together a 50-item grocery order in as little as five minutes. That technology leapfrogs what is currently in use by any retailer in the United States. It has turned Ocado into the world’s No. 1 online grocer, serving 679,000 active customers in the United Kingdom without operating a single supermarket.”
Kroger also “has teamed up with Silicon Valley self-driving startup Nuro to test a driverless delivery van in Phoenix. And Kroger continues to invest in curbside pickup.” And, “earlier this month it launched a beefed-up online shopping service called Kroger Ship that sends packages directly from its distribution centers via United Parcel Service Inc and FedEx Corp.”
The argument is that “Kroger’s new delivery push is a recognition of the value of online shoppers. These customers crave convenience and tend to spend more per order than those who just drop by the supermarket for a few items. The ‘first-mover’ advantage is key to locking them in.” While “analysts say online grocery purchases currently account for just 1 percent to 4 percent of U.S. industry sales,” there is a growing conviction that this number only will grow.
One interesting tidbit from the Reuters story:
“Chief Financial Officer Mike Schlotman revealed for the first time that the company never made money on Home Shop, a roughly 30-year-old delivery service it shuttered in April. Kroger offered it in just 20 stores in the company’s King Soopers division in the Rocky Mountain area, for prices ranging from $10.95 for an internet order to $20.90 for telephone orders. That was not enough to cover the cost of labor and the expense of operating a fleet of refrigerated trucks … Kroger replaced Home Shop with Instacart, one of a handful of third-party delivery firms that now serve more than 1,200 Kroger stores.”
“It’s highly inefficient to do that out of a store. You can’t get the critical mass you need,” Schlotman tells Reuters.
While Kroger believes that its most valuable assets are “brick-and-mortar stores located within a mile or two of most of its current customers,” it also knows that the competitive ground is shifting.
“In May,” Reuters writes, “Kroger paid roughly $248 million for a minority stake in Ocado, a British company whose newest machines can pull together a 50-item grocery order in as little as five minutes. That technology leapfrogs what is currently in use by any retailer in the United States. It has turned Ocado into the world’s No. 1 online grocer, serving 679,000 active customers in the United Kingdom without operating a single supermarket.”
Kroger also “has teamed up with Silicon Valley self-driving startup Nuro to test a driverless delivery van in Phoenix. And Kroger continues to invest in curbside pickup.” And, “earlier this month it launched a beefed-up online shopping service called Kroger Ship that sends packages directly from its distribution centers via United Parcel Service Inc and FedEx Corp.”
The argument is that “Kroger’s new delivery push is a recognition of the value of online shoppers. These customers crave convenience and tend to spend more per order than those who just drop by the supermarket for a few items. The ‘first-mover’ advantage is key to locking them in.” While “analysts say online grocery purchases currently account for just 1 percent to 4 percent of U.S. industry sales,” there is a growing conviction that this number only will grow.
One interesting tidbit from the Reuters story:
“Chief Financial Officer Mike Schlotman revealed for the first time that the company never made money on Home Shop, a roughly 30-year-old delivery service it shuttered in April. Kroger offered it in just 20 stores in the company’s King Soopers division in the Rocky Mountain area, for prices ranging from $10.95 for an internet order to $20.90 for telephone orders. That was not enough to cover the cost of labor and the expense of operating a fleet of refrigerated trucks … Kroger replaced Home Shop with Instacart, one of a handful of third-party delivery firms that now serve more than 1,200 Kroger stores.”
“It’s highly inefficient to do that out of a store. You can’t get the critical mass you need,” Schlotman tells Reuters.
- KC's View:
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It would be my sense that Kroger certainly is throwing its efforts in this area into a higher gear, and only can pick up speed now that the clock is ticking on its Ocado arrangement if it wants to maintain exclusivity in the US.
The level and speed of competition is picking up to the degree that Kroger has to take big swings.
