Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Market Wisdom

Ten Lessons You Can Learn from Kroger

Kroger (NYSE: KR) is one of the biggest success stories in American retail in the last five years. Its revenues have grown by $20.02 billion, while rivals such as Walmart have been treading water.

Kroger’s revenue went from $88.85 billion in October 2011 to $108.87 billion in October 2015. That growth comes from seemingly unstoppable momentum; the nation’s largest grocer has reported continuous sales growth for 49 straight quarters or more for 12 years straight. More importantly, Kroger reported a same store sales growth of 5.4% in the third quarter of 2015. In contrast, industry leader Walmart (NYSE: WMT) reported a same store sales growth rate of 1.5% for the second quarter of 2015.

Not surprisingly, there is a lot that retailers and everybody else can learn from a company turning in such impressive results in an industry that is being devastated by the rise of and a greatly changing grocery market. The most important of these lessons are listed below.

Top Ten Lessons Kroger can teach Retailers

  1. A strong brand is worth its weight in gold. Kroger has gone out of its way to acquire a stable of the top brands in American grocery, including King Soopers in Colorado, Ralph’s in California, Fred Meyer in the Northwest, and Harris Teeter in the Atlantic states to name just a few. By acquiring brands and maintaining them, it effectively buys and keeps customer loyalty. Taking advantage of local brands with a strong reputation enables Kroger to enter new markets fairly seamlessly with none of the friction that accompanies a Walmart expansion. There is no hysteria about Kroger coming to town.


  1. Have as much control of the supply chain as possible. Kroger can offer some of the lowest grocery prices around because of its extensive ecosystem, which includes around 36 distribution centers, 37 food processing plants, and a vast fleet of trucks. This makes Kroger’s prices around 5% lower than direct competitors such as Whole Foods, as well as competitive with deep discounters such as Walmart, Aldi, and dollar stores. Kroger further enhances its control of the supply chain with private label brands, which give it direct control over prices and marketing.


  1. Diversification is everything. Kroger is far more than just a grocer; it now operates 326 jewelry stores, 1,330 supermarket fuel centers, and 782 convenience stores. Some of its supermarkets now contain cafes, sushi bars, coffee shops, and even gourmet cheese stores. Many of its marketplaces offer clothing, appliances, electronics, furniture and hardware, in addition to groceries. All this gives Kroger a wide variety of streams of revenue. It has helped the company avoid the downturn in traditional grocery sales. One advantage to diversification is that it gives customers a wide variety of reasons to step into a Kroger store.


  1. Constant communication with customers is vital. Most Kroger customers have noticed the customer surveys on almost every register receipt the grocer generates. These surveys often include contest entries and reward customers with free fuel points. The surveys are part of a strategy of constant customer communication and feedback. This gives Kroger a vast amount of data it can use to create customer metrics and assess their needs. It also helps the company evaluate store performance.


  1. Great retailers steal from the competition. Kroger has done a great job of stealing its competition’s best practices. It has copied Walmart and Meijer’s supercenters, Trader Joe’s private label products, Whole Foods organics and in-store cafes, and Aldi’s deep discounting to name just a few. Some of Kroger’s new Fresh Fare and Main & Vine stores even look a lot like Whole Foods. In recent years, Kroger has even tried to copy Amazon’s online sales and distribution model.


  1. Strategic acquisition works. When Kroger bought the Roundy’s company for $800 million in October 2015, it got a lot of bang for its buck. The highlights of the purchase included $4.03 billion in additional revenue, 39% of the grocery market in a major American city (Milwaukee), operations in another state (Wisconsin), 151 supermarkets, 101 pharmacies, and four additional brands: Metro Market, Mariano’s, Pick ‘n Save, and Copps. To add icing to the cake, Kroger was able to expand its presence in Chicagoland by 34 stores with Mariano’s.


  1. Keeping abreast of industry trends pays. Kroger was able to add $1 billion in revenue in 2014 through Simple Truth, a private label and organic brand launched in 2012. The company launched Simple Truth in order to head off the growing Whole Foods threat.


  1. Rewarding the customers pays. One way Kroger has kept customer loyalty and increased sales growth in an increasingly fragmented retail landscape has been through its rewards card program. Customers in the program get access to exclusive coupon and discount deals and can receive one gas point for every $100 worth of groceries purchased. That gives customers a good reason to spend more at the supermarket. It also makes a customer feel like part of the club and gives them a strong incentive to come back and shop.


  1. Attention to detail pays off. One reason why customers like Kroger stores is that they are generally clean, well-organized, and well-stocked, in contrast to the chaos often sees at Walmart or the dollar stores. Dollar General, in particular, is often a mess, with aisles full of boxes and empty shelves. By paying attention to basic detail, such as having sufficient numbers of people manning cash registers and shelves stocked, Kroger maintains a constant level of service that keeps customers coming back.


  1. Consistency pays. A major reason why customers like myself keep going back to Kroger is that it provides a consistently good shopping experience. One reason why Walmart has lost so many customers in recent years is inconsistent service. Safeway and dollar stores have had similar problems because of poorly planned growth. Customers like consistency, and if you cannot provide it, they will not come back.

These are just 10 of the lessons that smart marketers and retailers can learn from Kroger. The best way to learn from quality retailers such as Kroger is to use your eyes and ears, go into their stores, and look around and listen. The best companies always have a lot to teach us if we are willing to learn.

Disclosure: your arrogant neighborhood blogger owns shares of Kroger.