The Kroger Co.’s selection as the 2022 Supermarket News Retailer of the Year was well-earned.
As usual, the choice was difficult, and a number of companies were deserving. But one thing stood out for Kroger: conviction.
Kroger’s decision to take a deep plunge into e-commerce may end up answering a question on the minds of many in the industry: Is a large-scale online grocery operation viable for brick-and-mortar supermarket chains? Well, Kroger will give us a peek as its automated fulfillment network, powered by Ocado Group, continues to unfold.
In mid-2018, Kroger announced an exclusive U.S. partnership with U.K.-based online grocery specialist Ocado to identify sites for about 20 high-tech customer fulfillment centers (CFCs) over the ensuing three years. The plan was seen as a win for Kroger but by no means as a slam dunk — and some industry observers even called it risky. They said the potential benefits of the CFC model were countered by major concerns. What’s more, online grocery’s market share remained small. Research from Mercatus/Incisiv pegged the U.S. e-grocery market at just 2.7% of overall grocery sales in 2018 and 3.4% in 2019.
How things change. The pandemic triggered a boom in online grocery shopping. Mercatus/Incisiv estimated the e-grocery market at 8.1% of total grocery sales in 2020 and 9.5% in 2021, projected to reach 11.1% this year and 13.5% next year, and top 20% by 2026. And where do things stand with Kroger? Seventeen Ocado CFCs have been announced, and six are operational. Also live are nine of 12 announced Ocado-automated “spoke” facilities.
This has enabled Kroger establish a presence in one state where it lacks physical stores and positions it to do the same in two more states and one new region. The AI-driven network also provides quite a platform for expanding Kroger’s $28 billion Our Brands business, spreading its “Fresh for Everyone” value proposition, fine-tuning seamless omnichannel shopping, and leveraging troves of data to personalize the experience for customers.
Kudos to Kroger for sticking to its vision. Chairman and CEO Rodney McMullen told more about Kroger’s journey in an interview with SN for the Retailer of the Year cover story, as did CIO Yael Cosset in an SN Off the Shelf podcast.
“Long term, one of our visions is to serve America, because we think everybody deserives fresh, affordable food,” McMullen said of the Ocado rollout. “It allows us to go into new markets with something different than what is already there and do it in a way that’s efficient.”