The number of personalized interactions between Kroger and its digital shoppers in 2020, or as SVP Yael Cosset put it, “half a trillion!”
Personalization is one of three strategies through which Kroger intends to accelerate market share gains in coming years, Cosset said in a presentation: working existing assets even harder, and expanding assortment are others.
Cosset said personalization was key to loyalty: Customers who add a digital channel to their engagement are retained at a 98% rate; personalized offers to them are opened and redeemed at four times the industry average. “People tend to focus heavily on traffic growth, and it is critical as growing traffic means you are a destination. But conversion is equally critical, because it guarantees our customers come back and increase their loyalty. And personalization is what drives conversion," he said.
Kroger added 5.2 million customers to its digital programs last year: They shop 1.5 times more frequently and are spending twice as much as store-only customers, Cosset said.
Kroger will also look to gain share through doubling the capacity to serve pickup and delivery through stores alone, while improving the cost to serve by 30%, and through geographic expansion via Ocado and tests such as Hometown Pickup. Expanding assortment means “doubling down on key categories with huge upside potential”—Cosset mentioned adult beverages, plant-based foods and Murray’s Cheese—while also leaning harder into meal solutions and expanding an online marketplace by millions of items. “This continues to be a great growth opportunity as we leverage the increased traffic we saw last year and monetize our customers’ engagement through e-commerce and media growth in an asset-light, margin-rich model,” Cosset said.
The number of Ocado CFCs in progress—and that may be all for a while.
While officials shared a lot of promising figures around Ocado—including a projection they’ll be more productive than the like number of stores they’ll serve (20) by year five—they also confessed that the “up to 20” units contemplated when they announced the deal with Ocado in 2018 will remain in the “up to” range for a while as they pursue ways to bring their costs down and observe how the first batch do. “If we can be relevant in the market after those 11 sheds, and we continue to bring cost down and reduce the ramp-up curve, you’ll see more and more of our releases saying which markets we’re going to go next,” said Gabriel Arreaga, SVP of supply chain, in response to a question from an analyst. “But as of now, it’s 11 sheds and then we'll continue to grow as the market grows as well.
U.S. population living within 90 miles of a planned Ocado shed. That compares to the 45% of U.S. shoppers living within two miles of a Kroger store and provides a key understanding to how Kroger views the potential for large warehouses to reach more shoppers.
“Where our strategy gets really exciting is the interplay between our stores and dedicated customer fulfillment centers working together to deliver for our customers regardless of their set of needs,” Arreaga said. “When combined, our stores and customer fulfillment centers create an ecosystem where brick-and-mortar and distribution automation and AI can deliver to customers from the most efficient solution without sacrificing the customer experience or assortment.”
Total private label sales at Kroger in 2020. What the company refers to as Our Brands is a “pathway to deepen and widen our competitive moats,” said Stuart Aitken, chief merchandising and marketing officer.
Kroger’s Simple Truth brand reached $3 billion in sales last year—it alone would be the second-largest CPG Kroger sells, he said. Kroger sees its own brands as a “not-so secret weapon that we intend to scale and leverage with even greater focus.” That’s because customers like them, he said—net promoter scores for its Kroger, Simple Truth and Private Selections labels are 30% to 40% higher than comparable CPGs—and 100% of the new items Kroger launched last year are rated as good or better than CPGs.
Kroger has plans to introduce 600 new private-brands items in 2021.
Kroger customers who say they choose where to shop based on the quality of fresh products, according to Mary Ellen Adcock, Kroger’s SVP of retail operations. Befitting the “Leading with Fresh” theme of Kroger’s new strategy, Adcock said the company would “lean into our leadership” in this category this year through enhanced operational processes designed to improve the fresh experience both in stores and online.
To the latter end, Kroger reduced wait times for customers coming to pick up by 30%, Adcock said, utilizing a technology in its shopping app it calls On My Way. That helped to drive down Kroger’s cost to serve pickup by 14% while expanding the service to 2,220 locations.
Customers that have received COVID vaccinations at Kroger stores—along with more than 100,000 employees. Of the customers receiving the shots, about one-third are new to the company. “Obviously, we’re creating a positive relationship with that customer, and we will expect to be able to continue that positive relationship and continue deepening over time with that customer by making them aware of what Kroger offers on a relevant basis,” said Rodney McMullen, CEO.
Kroger made headlines by offering associates a $100 bonus to get vaccinated. Other associate benefits on the way this year include an anticipate $350 million to be invested in higher wages, said Gary Millerchip, chief financial officer.
Advertising revenue growth from 1,300 brands engaged across Kroger’s media portfolio in 2020, said Cara Pratt, VP of commercial and product strategy for Kroger Precision Marketing, a division of its 84.51 analytics group.
These “alternative revenues” are helping to fuel investment in the digital ecosystem at Kroger and strengthening the retailer’s relationships with brands, Pratt said. Kraft Heinz, for example, realized a 5X return on ad spend at Kroger last year, she said.
“We are on a mission to be a preferred media company for CPG advertisers,” Pratt said. “We’re proud of the impact we’ve made to transform the media ecosystem, and we look forward to continued success as a leader in this dynamic industry, and to contributing to Kroger's increasing digital profitability.
Same-store sales growth contemplated as part of Kroger’s long-term growth algorithm, up from a previous estimate of 2%-3%. (As it laps COVID gains from 2020, same-store sales are expected to decline between 3% and 5% this year.) Officials said they believed COVID would continue to be a tailwind as Kroger holds onto a portion of the shifted mix of food consumed away from home in part because it believes consumers have learned to—and are enjoying—meals cooked at home, but also because of trends like “premiumization” that took root last year as stuck-at-home shoppers treated themselves to better expressions of food.
“We’re really clear in our mind that there’s a consumer change that we’re well-positioned to take advantage of that can continue to grow,” said Millerchip.