Kroger’s early ‘risky’ bet on digital, creating ‘seamless’ ecosystem boosts sales, creates new CPG marketing opportunities
Long before the pandemic turbo-charged online shopping, delivery and click and collect, Kroger teamed with the UK-based online grocer Ocado Group to introduce in 2018 a hub-and-spoke delivery model that combined customer fulfilment centers with vertical integration, machine learning and robotics to more quickly deliver fresh food at a lower cost to consumers.
At the time, the move was viewed as risky by some, but three years later is paying off as consumers seek a more convenient shopping experience and, as inflation for food continues to climb, personalized promotions that allow them to buy what they want at a price they can afford.
This is illustrated in the company’s strong topline growth in its third quarter reported Dec. 1, which includes a 2.5% increase in ‘loyal households’ thanks to personalized offers, a 10% increase in digital sales and a 6.9% increase in identical sales without fuel.
These gains allowed the company to raise its full year guidance to include a projected operating profit of $4.8 billion to $4.9 billion (up from a previous prediction of $4.6 billion to $4.7 billion). It also expects identical sales to increase 5.1% to 5.3% for fiscal 2022 compared to previous guidance of 4% to 4.5%. And EPS is now expected in a range of $4.05 to $4.15 versus $3.95 to $4.05.
“If you look at market share, the trends continue to improve, and we feel good about where we are, but we’re not satisfied with where we are,” CEO Rodney McMullen told investors Dec. 1 during the company’s third quarter call.
'Fresh for everyone' boosts traffic, loyalty
He explained that much of the gains seen in the quarter are a culmination of Kroger’s investment in its “fresh for everyone” and accelerating with digital strategies.
“Fresh remains important in today’s environment and we are committed to bringing the freshest products to our customers’ tables. Our Fresh for Everyone strategy is grounded in keeping products fresher, longer,” and at the now 1,252 stores certified under the Expanded Fresh Produce Initiative identical sales are up, McMullen said.
Personalized marketing resonates with shoppers seeking savings
“In regard to personalization, our customers are looking for opportunities to save on the products they love. Our loyalty programs and personalized promotions allow them to do just that. We continue to use our leading data science capabilities to develop unique customer insights and offer targeted promotions on the products we know they love. This strategy is driving digital engagement with digital coupon downloads, 32% higher than last year. We anticipate these interactions will continue through the holidays with customers expected to realize more than $200 million in savings from our highly personalized digital offers,” he added.
Kroger’s drive to provide savings to customers at a time when many are feeling squeezed financially from inflation also is reflected in advancements to its Seamless strategy, which included introducing during the quarter app enhancements that make it easier for customers to find savings, including through in-app flash sales and allowing customers to clip digital offers directly from their cart, McMullen said.
For shoppers who prefer an in-store experience or who don’t want to fuss with delivery, Kroger expanded its 3-hour pickup lead times to all stores in its network, with as little as one hour lead times in some areas, McMullen said.
New advertising opportunities for CPG companies
Kroger’s investment in digital and creating a seamless shopping experience also is creating new opportunities for manufacturers to connect with its shoppers. For example, the retailer expanded its precision marketing advertising to include connected TV and video capabilities and added Snapchat as a new channel.
“CPG brands are finding significant value in our unique ability to build custom audiences that draw on our data to deliver precisely measured return on investment,” and create more immersive and experiential marketing that resonate with consumers, McMullen said.