Kroger's Continued Tech Investment Producing Surprising Results

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Kroger's Continued Tech Investment Producing Surprising Results

By Tim Denman - 12/06/2016
As the grocery segment continues to suffer through a deflationary cycle, market leaders like Kroger know that now is not the time to scale back innovation investments. In fact, by investing in its technological infrastructure and capabilities today, Kroger is preparing itself for even greater profits once the deflationary period ends.

"As expected, deflation persisted during the third quarter," said Rodney McMullen, chairman and CEO, Kroger on a recent earning call with analysts. "And as we’ve said before, transition periods create a difficult operating environment. This is the third time we’ve had deflation in 30 years; and in previous instances, deflation lasted from three to five quarters in a row. We’re in the middle of the cycle right now, and it’s not fun, still our tonnage continues to grow, our total market share continues to expand, and we’re focused on executing our strategy."

Kroger's long-term strategy is to improve its connection with customers and associates and to implement process changes that help lower the final costs of goods and improve the shopping experience.

One area Kroger continues to invest in to meet its strategic vision is its click-and-collect service, dubbed ClickList. Currently, the grocer offers the service in more than 550 stores, an increase of over 50 stores in just the last month alone. The retailer is aggressively rolling out the solution at the locations it believes will produce the greatest user acceptance.

"We have identified overall how many stores we think makes sense and it’s over half of our stores, we think would make sense to have ClickList," said McMullen. "Now, at some point it will slow down a little bit just because the stores that are easy to add, we will have added them."

ClickList allows online customers to shop for more than 40,000 items, including fresh meat and produce. After their online cart is full the shopper simply confirms the order and selects a pick-up date and time. Once they arrive at the store they pay for and collect their order, the customer doesn't even need to leave his/her vehicle if they don't want to, a Kroger associate will bring their purchases out to their car. For more on the service visit Kroger's ClickList webpage here.

Kroger is dedicated to growing its digital capabilities both through its ClickList solution, advanced website and mobile app. The digital push is helping spur engagement; in fact to date Kroger shoppers have downloaded more than 3.5 billion digital offers.

As shoppers continue to embrace Kroger's digital initiatives some unexpected benefits are beginning to emerge. For example, ClickList shoppers are more apt to purchase bulker items that they might have avoided in the past due to their sheer size, since a Kroger associate will deliver the items to the trunk of their car.

"Customers are finding it convenient to buy bigger packs, because they don’t have to fill up their carts with it," said Michael Schlotman, executive vice president and CFO, Kroger. "We do that for them and put it in their trunk. So they are maybe buying a 12 pack of paper towels instead of four pack of paper towels, because they don’t have to worry about space in the cart. We continue to be pleased with our tonnage growth."

Kroger has been through challenging deflationary markets before, most recently in 2002. The mega grocer has learned from those tough times and knows that the depressed financial numbers will not last forever. In order to grow when the deflationary period is over Kroger must continue to invest in its capabilities to retain its marketing leading position not only in sales but technical firepower.

"A silver lining of deflationary environments is that, it reveals to us how we can run our business better by shining the light on areas we can improve," McMullen said. "It is really tough when you’re in it, but we’ll be in a position to benefit from changes we’re making today once we’re out of this cycle."