Kroger Co (NYSE: KR) is taking online groceries to the next level and opening a new front in its escalating war with Amazon.com (NASDAQ: AMZN).
The nation’s largest grocer is testing a new organic grocery service through its Denver-area subsidiary King Soopers. Internet Retailer reported that Kroger has added a feature called KingSoopers.com/Live Naturally to the King Soopers site. Live Naturally is an online store that looks a lot like Amazon.com.
It serves as a showcase for Kroger’s organic offerings, including its highly successful Simple Truth private label as well as a wide variety of products not found in a typical King Soopers store. The idea behind Live Naturally is to use the ecommerce and fulfillment platforms that Kroger acquired when it bought vitamin retailer Vitacost.com last year.
The system combines Vitacost’s fulfillment solutions with the click and pull application Kroger got when it bought out the Harris Teeter supermarket chain last year. Click and pull allows a customer to order an item online and pick it up at the grocery store. The system is being tested in Denver because King Soopers has been testing both click and pull and a delivery service called Home Shop in the region for a few years. Denver is also one of the markets where Kroger tests out new services before expanding them nationwide.
Kroger apparently has no plans to roll out Live Naturally nationwide. Instead, it will test the service in Denver and then slowly move it to other cities if it works out.
The Endless Aisle
One advantage to Live Naturally is that it will allow Kroger to offer a far wider selection of organic products without increasing shelf space or store stocking costs. Using the technology, specific items can be shipped directly to the store for the customer to pick up.
Kroger is hoping to develop what it calls the endless aisle online—a giant selection of items designed to increase the inventory that it can sell without incurring additional store costs. Internet Retailer reported that Live Naturally will offer around 36,000 natural and organic products.
One way this can be done is to stock specific products in just one or two stores in a market; for example, in upscale neighborhoods where people are more likely to buy organic. If somebody in another part of town orders something like quinoa pasta, it can simply be shipped to his or her neighborhood store.
This system is also being deployed to head off Amazon, which is now offering some private label brands online, and Walmart Stores Inc. (NYSE: WMT), which is testing similar capabilities. Another reason for the experiment is to try to reach one of the harder demographics to sell to: millennials.
Kroger is hoping to reach more millennial shoppers that do not respond to some of its traditional marketing methods such as newspaper inserts and TV advertising. Since a lot of younger people do not read newspapers or watch broadcast TV, it is safe to assume they are not seeing Kroger ads.
By placing a wide variety of merchandise for sale at Live Naturally, Kroger is hoping that persons searching for organic items, such as brown rice, will find them through search engines. That way a 30-year-old mother looking for organic baby food will be more likely to find it and peruse some of Kroger’s other deals.
Kroger also needs to establish itself as a viable organic grocer in the eyes of younger shoppers that might think of it as their mom and dad’s grocery store. One way to do that is to become the go-to place for organic foods.
This shows a very sophisticated grasp of ecommerce on Kroger’s part. It also demonstrates how this chain has become America’s biggest grocer and will probably stay that way for the foreseeable future.
Kroger Needs Revenue Growth
There is another reason why Kroger is making such an aggressive foray into e-commerce. The grocery giant needs some revenue growth, which has been slowing after remarkable increases in recent years.
Kroger reported a pitiful year to year revenue growth rate of .27% on April 30, 2015. As recently as January 2015 it had reported a rate of 8.55%. The mega grocer needs to take some serious action to generate new revenue growth. Live Naturally could help it do that because it targets two fast-growing segments: organics and ecommerce.
The best known organic grocer, Whole Foods Market (NASDAQ: WFM), reported a year to year revenue growth rate of 9.78% on March 31, 2015, according to Ycharts. Another organic grocer, the much smaller discounter Sprouts Farmers Market (NASDAQ: SFM), reported a revenue growth rate of 18.67% on March 31, 2015. Kroger’s web sales also grew by 7% in 2014.
Live Naturally is also a direct shot at both Whole Foods and Sprouts, which compete directly with King Soopers in the red hot Denver grocery market. Kroger is trying to develop a strategy to counter the fast-growing organics and to head off potential competition from Amazon.
Kroger is once again demonstrating why it is not only the nation’s largest grocer but one of the nation’s most sophisticated retailers. Amazon is going to have a hard time competing with this giant in the grocery business.
Disclosure: Your friendly neighborhood blogger is a longtime King Soopers customer and Kroger stockholder who conducts retail sales through Amazon.com.