A Machine Learning Pioneer in Grocery: You Guessed It Kroger
By: Noah Bricker
Kroger is paving the future for grocery shoppers through innovative, practical applications of machine learning, robotic process automation, and data analytics. The fact that a 125-year-old grocery chain based in Cincinnati, Ohio is helping lead the way may elicit raised eyebrows from industry outsiders, but grocery geeks should not be surprised. Kroger, who recently launched the Restock Kroger campaign[i] and acquired an equity stake in “RoboGrocer” Ocado[ii] [iii], is rapidly gaining the necessary digital and technological expertise to compete in the increasingly complex grocery industry[iv].
The central promise of the 2017 Restock Kroger plan is to deliver increased value to shareholders by combining automation and data analytics with Kroger’s food expertise[v]. The plan, which explicitly mentions the importance of leveraging machine learning[vi], is an attempt to solve the increasingly complex logistical challenges arising from customers demanding an array of new service capabilities and to fend off competition from tech companies who see the grocery space as an enticing candidate for disruption[vii].
To accelerate Restock Kroger, Kroger signed an exclusive partnership and acquired an equity stake in Ocado, the world’s largest online grocer who has a reputation for leveraging innovative applications of machine learning and automation to operate at lower costs and improve the customer experience[viii]. In the short term, Kroger will build 20 Ocado-designed Smart Warehouses within the United States before the end of 2020[ix] to fulfill online orders and create a more automated and flexible logistics network. These futuristic warehouses are intended to be replicas of the Ocado warehouses in the UK, which are heavily automated and process up to 1.5 million items a day[x], and will include several of the most advanced machine learning algorithms in the grocery business.
For example, Ocado will add their smart pick and packing machine learning network that controls video cameras and automated robots to open, align, and move grocery bags to picking stations where visual displays show human pickers where certain products should sit within the bags. The machine learning capabilities are so advanced that the algorithm considers product placement and weight when fulfilling your online so that your fresh meat is not placed next to the laundry detergent and one bag will not vastly outweigh another[xi]. Furthermore, with each order fulfilled, the algorithm improves, making the picking and packing process more efficient[xii].
In the long to medium term, Kroger is less specific about their aims for machine learning. However, the Restock Kroger strategy states that technological innovation in the data analytics and machine learning space will help accurately target customers with discounts and ads, better position products within stores to facilitate customer purchases, produce more granular demand forecasts, and customize pricing for individuals[xiii]. From this list of desired outcomes, there is no doubt that Kroger sees machine learning as a vital component of future operations.
While I admire and respect Kroger’s advancements in machine learning and robotic process automation, Kroger will need to realize benefits from machine learning and the Ocado acquisition prior to the completion of the Smart Warehouses in 3 years. To capture benefits in the next 12 to 24 months and remain a major industry player, Kroger should implement machine learning technology from Ocado that is less capital intensive and quicker to market. For example, Kroger could integrate Ocado’s fraud detection algorithm, which reduced online payment fraud by ~15x for Ocado[xiv], into their existing payment system and customer service algorithm, which identifies the most important and impactful customer complaints[xv], into their complaints processing approach. While these short-term measures will provide a short-lived advantage over competitors, Kroger must bring Ocado’s machine learning and technology development capabilities in house to achieve a sustained competitive advantage over competitors. Sustained investment in a large analytics and data science team will be one crucial way Kroger can stay at the front-edge of innovation and Ocado can and should be a partner in developing this US based team.
Several central questions remain unanswered as Kroger looks to be at the forefront of developing and implementing cutting-edge machine learning technology. How does a grocer based out of Cincinnati, Ohio seen by many as a slow-moving American giant attract and retain top notch tech talent to continue developing machine learning capabilities? Additionally, is Kroger’s current store footprint of 784 store locations a liability or an asset in a business where only 2% of grocery sales are currently online[xvi]?
[ii] Olson, Parmy. “The Robot Grocer.” Forbes Business Magazine. Pg. 56. December 12th, 2017. Via ProQuest, accessed November 10th, 2017.
[iii] Meyer, David. “Meet Ocado, Kroger’s Newest Weapon in its grocery delivery war with Amazon and Walmart.” Fortune. May 17th, 2018. http://amp.timeinc.net/fortune/2018/05/17/ocado-kroger-warehouse-automation-amazon-walmart. Accessed November 10th, 2018.
[iv] Marcarelli, Rebekah. “Kroger is Making Its Mark on Grocery Tech.” Gizmodo UK: Tech News Site. June 18th, 2018. http://www.gizmodo.co.uk/2017/02/inside-ocado-discover-the-hidden-robotic-intelligence-behind-your-online-shopping/. Accessed November 10th, 2018.
[vii] O’ Malley, James. “Inside Ocado: Discover The Hidden Robotic Intelligence Behind Your Online Shopping | Gizmodo UK.” Gizmodo UK: Tech News Site. February 7th, 2017. http://www.gizmodo.co.uk/2017/02/inside-ocado-discover-the-hidden-robotic-intelligence-behind-your-online-shopping/. Accessed November 10th, 2018.
[viii] Walker, Harry. “Ocado’s Robotics Lead the Way.” The Grocer. June 16th, 2018. Accessed via Lexis Nexis Academic, November 10th, 2018.
[ix] Meyer, David. “Meet Ocado, Kroger’s Newest Weapon in its grocery delivery war with Amazon and Walmart.” Fortune. May 17th, 2018. http://amp.timeinc.net/fortune/2018/05/17/ocado-kroger-warehouse-automation-amazon-walmart. Accessed November 10th, 2018.
[x] O’ Malley, James. “Inside Ocado: Discover The Hidden Robotic Intelligence Behind Your Online Shopping | Gizmodo UK.alGizmodo UK: Tech News Site. February 7th, 2017. http://www.gizmodo.co.uk/2017/02/inside-ocado-discover-the-hidden-robotic-intelligence-behind-your-online-shopping/. Accessed November 10th, 2018.
[xiv] Farrell, Steve. “Ocado Improves Fraud Detection 15-Fold with AI Developments.” The Grocer. March 10th, 2018. Accessed via Lexis Nexis Academic, November 10th, 2018.
[xv] Donnelly, Caroline. “Machine learning helps Ocado’s customer services team wrap up email overload.” Computer Weekly. December 5th, 2016. Accessed via ProQuest. November 10th, 2017.
[xvi] Henry, Zoe. “Why Amazon’s Expansion to Grocery Stores Is Brilliant Business.” Inc. Magazine. https://www.inc.com/zoe-henry/why-amazon-moving-into-physical-stores-makes-complete-sense.html. October 17th, 2016. Accessed November 10th, 2018.