Over $700 billion are spent on groceries annually in the US1. But only a negligible number of those purchases utilize new capabilities in data to improve their operations and customer experience. Grocery retailers should be concerned. While generating billions in sales, major grocery chains operate at razor thin profit margins, often 1%-2% of sales. While nearly every other retail sector embraces ecommerce, customer data, and personalization, the grocery business remains relatively under-invested in digital technology. But consumers will look to have those same purchasing and buying experiences in the grocery business as well, and grocery chains will need to prepare for a changing supply chain. Along with figuring out their strategic position in the chain, they will need to embrace data to better forecast inventory across an omni-channel shopping experience.
The Kroger Company, the nation’s largest grocery retailer, operates 2,778 stores and sold $115 billion of groceries to Americans in 2016. But Wal-Mart and Amazon-Whole Foods have their sights set on the $700 billion grocery industry and come equipped with better technology and modern commerce approaches. Not only are these ecommerce leaders able to sell food online and deliver it right to a consumer’s home, but they are gaining massive advantages in customer data that physical retail locations alone don’t have and therefore can’t use for inventory forecasting or SKU optimization. Delivery method aside, the data collected on consumer purchasing can lead to advantages in pricing, supply chain, and cross-selling that simply allows data-enabled businesses to outperform their competitors. Not only does Kroger stand to lose market share, but it will face a difficult battle to remain profitable if more data-driven competitors are able to operate more efficiently and price lower.
Just last month, Kroger unveiled big plans to leverage technology better in stores. Along with advanced ordering and in-store pickup, Kroger is developing technology within the store to change the buying experience. Currently, the grocery chain is testing mobile app and shelving integrations that allow customers to more easily locate items 2. Kroger hopes to have self-checkout available in most stores, along with digital coupons that can be accessed while the customer shops2. These require massive capital expenditures, including Wifi investments across all stores.
Outside of the consumer shopping experience, Kroger is using data to adjust category assortments at its stores. In 2016, the company revamped its category assortment in 6% of its stores using new data analytics, and it anticipates making these changes to 20%-30% of stores starting in 20182. Looking further out, Kroger is hoping to use image and sensor data to understand in-store customer traffic and optimize employee staffing 3. For example, by monitoring foot traffic within the store, Kroger can alert a pharmacist to go to the customer counter only when customers are present and can better staff delis based on typical customer wait times.
But incremental changes to the in-store shopping experience aren’t enough. While Kroger invests in mobile apps and in-store Wifi, they are under-investing in the omni-channel capabilities that will enable them to efficiently meet changing consumer demands. With a mix of online ordering and in-store purchasing, how will Kroger manage inventories between what goes on the shelves and what is kept separately for direct delivery? If more ordering moves online, how will Kroger promote items that previously garnered sales through strategic placement at the end of an aisle or alongside the cash register? Kroger needs to decide its strategic position in the changing landscape. If they intend to sell online directly to the customer, they should invest in their ecommerce platform and decide how best to distribute items without sending them through the retail store. If they intend to remain solely in physical retail, they should develop partnerships to handle last-mile delivery.
For longer term health of the business, Kroger should develop plans to better collect customer data. More tech-savvy competitors will someday be able to answer questions like “how many pounds of beef will we sell on the day of a thunderstorm?” or “what days does Joe come in and what does he buy?” These not only personalize the shopping experience, but allow stores to manage their perishable inventory and shelf space to reduce wastage and bring down costs.
In an industry still largely dominated by physical retail, how can Kroger go about better understanding their customers’ buying habits and collecting customer data?
While most grocery shopping still happens in stores, ecommerce has the potential to disrupt a large portion of the industry in only a few years. How should Kroger position itself in the supply chain so as to not become a shrinking middle layer?
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