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The Dallas Morning News this morning reports that Kroger is continuing its strategy of opening an online-only business in markets where it does not have stores - it already is doing so in Florida, and has said it plans to do so somewhere in the northeastern US - with an expansion into Oklahoma City.

According to the story, Kroger plans to use an Ocado-powered robotics warehouse being built in Dallas to serve the Oklahoma City market.  "The Dallas facility was announced in 2019 and is nearing completion," the Morning News says.  "Dallas is a hub in a highly automated hub-and-spoke system … Kroger will use a 50,000-square-foot spoke facility on 8801 North I-35 Service Road in Oklahoma City to receive orders from the Dallas hub … The Oklahoma facility will be able to deliver to customers within 200 miles from it. The facility is expected to become operational this year and will employ up to 191 full-time employees."

Gabriel Arreaga, Kroger’s senior vice president and chief supply chain officer, tells the Morning News that this move is part of Kroger’s strategy “to double its digital sales and profitability rate by the end of 2023 … The spoke facility will provide unmatched, impeccable customer service and improve direct access to fresh food in areas eager for the variety and value offered by Kroger."

KC's View:

I've said all along that it makes a ton of sense for Kroger to establish digital beachheads in markets where it doesn't have stores.  It can build on whatever brand recognition it already has without all the headaches of bricks-and-mortar stores, and then can decide whether it wants to open stores or buy an existing company to build on the digital foundation.

Which creates competitive issues for existing retailers in these markets.  They have to start competing aggressively with Kroger with the expectation that it is going to have an impact on sales.  These retailers have to find ways to get closer to their customers.

One thing I might bet on is the possibility that once Kroger gets its digital businesses going in these markets, it could open dark stores that could function as mini distribution centers, but build them in a way that allows customers access to them.  They'd be bare bones, with different kinds of expectations than traditional stores, but could also disrupt market dynamics.