Kroger's sustained same-store sales growth and market share increases in some markets are putting a strain on the company’s ability to serve those markets efficiently.
"We have a lot of pinch points today that have been created in our logistics systems. It wasn't built to handle the ID sales growth we’ve had," Mike Schlotman, Kroger's CFO, confessed last week at the company's annual investor conference in Cincinnati.
To catch up, Kroger will spend approximately $355 million on new logistics capabilities in this fiscal year, up from about $200 million four years ago. This spend includes getting new facilities off the ground in Atlanta and Cincinnati, two of Kroger’s largest geographic markets.
"We've always had an approach at Kroger of, 'let's go get the business [and] build the logistics system to catch up. So in some geographies, we're playing a bit of catch-up."
In Cincinnati, a new perishable distribution center in Blue Ash will serve the Kroger’s Cincinnati market exclusively - an arrangement that will also allow for the current provider in Shelbyville, Ind. to better serve Kroger’s growth in Indianapolis, Schlotman said. The Cincinnati warehouse is set to open shortly.
And in Forest Park, Ga., a newly-built warehouse allowed Kroger to consolidate operations of several separate buildings; and is automated such that it's "lights-out for the dry grocery piece," Schlotman said.
That facility, not only eliminated costs of shuttling items between centers, but improved order accuracy as a result, Schlotman added, revealing that Kroger stores in Atlanta were so used to inaccuracies in deliveries stemming from missed connections between various facilities they tended to make "safety orders" - if they wanted three items, he said, they’d order five.