August 23, 2013
COLLOQUY: Is Canada Next For Kroger?
Through a special arrangement, what follows is a summary of an article from COLLOQUY, provider of loyalty-marketing publishing, education and research since 1990.
If some industry observers are correct, shoppers of the Kroger Co. may one day be redeeming their fuel points by the liter as well as by the gallon.
That could be the case if the American market tightens up any further. As the Cincinnati-based supermarket chain pursues its planned acquisition of Harris Teeter Supermarkets in the Southeast, few new geographic territories remain for it to expand in the United States. Some retail experts suggest the nation’s largest traditional grocery chain could instead take its stores, and its leading loyalty program, into Canada.
"Canada’s a much more accommodating market," said Burt Flickinger III, managing director of Strategic Resource Group. "I think Kroger would do U.S. acquisitions first and then Canadian acquisitions as a strategic sequel, but if the U.S. acquisitions are priced at a premium, I can see Kroger changing the order and moving into Canada."
If so, Kroger’s loyalty data, spanning roughly 2,400 supermarkets and mass merchandise stores in 31 states, would be an asset — if it can be applied seamlessly to Canadian consumers. This is why analysts suspect that any northern expansion by Kroger would likely be through a sophisticated, and financially sound, acquisition.
"Kroger’s advantage is the expertise in how it would leverage, organize and integrate the data in its merchandising and marketing strategies. But depending on how they enter this market, they won’t have the existing data," said Brian Ross, president of Precima, a LoyaltyOne analytics solution. "Every major competitor in this market has a loyalty program and every one has an advantage over Kroger in that they already have the data. Unless Kroger acquires someone and leverages existing data, it’s starting from scratch and the race would be on."
The Canadian market is certainly seeing its share of consolidation, including Sobeys’ move to acquire Safeway Canada and Loblaw’s pending merger with Shoppers Drug Mart. Target entered the market this year through the acquisition of more than 200 Zellers stores. Walmart, meanwhile, continues its expansion into Canada, with 380 locations. Both Target and Walmart lack loyalty programs.
Chuck Cerankosky, an analyst with Northcoast Research Partners, who has covered Kroger for more than 20 years, said it is known not to overpay. But he agreed that its loyalty program surely would give it an edge.
"It’s very easy to generate sales in a new market by lowering prices, but you need profitable sales and loyalty [marketing] is a way to do that," said Mr. Cerankosky. "You need the best customers and the program helps you know who they are."
BrainTrust
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Discussion Questions
Does expansion in Canada make sense for Kroger? How important will it be to make an acquisition as part of its entry? How much of a competitive advantage would its established loyalty program be if it opens stores in Canada?
Poll
Something tells me that Kroger will wait and see how Target does with its efforts in Canada before making a move. If it doesn’t go well, there will be a lot of real estate available at low price. If Target does succeed, and many initial indicators are favorable, than Kroger has a road map to work from.
On the loyalty program side, nearly everyone north of the border uses Air Miles, so it won’t be a competitive advantage. Kroger will basically be asking shoppers to forgo adding to their stash of points in favor of starting a new program. Unless, of course, Kroger develops some kind of relationship with Air Miles….
Having a good loyalty program gives Kroger an advantage over other traditional supermarkets with loyalty programs. We often forget that loyalty programs are for middle of the road grocers. Those operating in the high excellence tier usually avoid them simply because its a gimmick and they don’t need gimmicks.
Kroger is not going to move into Canada simply because it could implement its loyalty program. They would only move into Canada when they find a bargain for sale from a retailer who can no longer go it alone. It would have to be a good bargain because any acquisition means a decline in sales while going through the learning curve. Going into a new country, it would probably be even worse.
Kroger can’t become what it wants to be by remaining what—and where—it is.
Kroger has found or created ways to successfully compete against Walmart and other good food chains in the U.S. But one must consider that Canada has some very good bi-lingual grocers. They won’t be easily dislodged by a good newcomer from the U.S. (Are you listening, Target?) And with Kroger’s effective loyalty program not withstanding, Kroger would bring much more than that to Canadian shoppers for consideration.
Now, folks, go back to the lead paragraph and re-read it.
Interesting speculation about Kroger’s northern exposure, but the market in Canada is not some soft target.
I think it would be a mistake for anyone to under-estimate the two top supermarket dogs in Canada—Loblaw and Sobey’s.
The bi-lingual requirement presents unfamiliar operational challenges (software en Francais, mes amis?), as well as for the frequent shopper program.
Plus, the geography is pretty vast. Even sticking to Canada’s southern border. Vancouver is 3,800 miles from Halifax and the markets are disconnected.
So, I don’t see Kroger conquering Canada in a single offensive any time soon.
Moving into Canada might be an good opportunity for Kroger, but it will be a challenge. In addition to the strong competition from dominant Loblaws and Sobey’s, the market is much smaller and more diverse, both demographically and geographically.
Target is dealing with supply chain issues, which is not surprising considering limited volumes, higher costs for products, transportation,import issues, etc. There is a learning curve here.
Air Miles Rewards program has a solid position, and is valued by most shoppers as it is so widely offered. A new loyalty program would be challenging to develop, unless an incentive based on gasoline discounts was offered—Canadian Tire keeps its customers across Ontario with these rewards.
The best route would be an acquisition, as Canada it is not an easy market to enter—volumes are much smaller compared with US, and shopper expectations are different.
The Canadian market is not easy, especially when there are existing grocers like Sobeys and Walmart expanding their grocery line. Supply chain challenges for especially US based retailers who are tying to bring economies of scale and synergies with home market, makes it tough to be profitable at the beginning.
Sobeys has a loyalty program already. Walmart has localized to a great extent and it’s possible since the number of stores is not large—at just 380. There is no question that Kroger’s loyalty program is an advantage. But will it be an advantage enough? That’s something time will decide. Kroger has to tread these waters carefully.
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Something tells me that Kroger will wait and see how Target does with its efforts in Canada before making a move. If it doesn’t go well, there will be a lot of real estate available at low price. If Target does succeed, and many initial indicators are favorable, than Kroger has a road map to work from.
On the loyalty program side, nearly everyone north of the border uses Air Miles, so it won’t be a competitive advantage. Kroger will basically be asking shoppers to forgo adding to their stash of points in favor of starting a new program. Unless, of course, Kroger develops some kind of relationship with Air Miles….
Having a good loyalty program gives Kroger an advantage over other traditional supermarkets with loyalty programs. We often forget that loyalty programs are for middle of the road grocers. Those operating in the high excellence tier usually avoid them simply because its a gimmick and they don’t need gimmicks.
Kroger is not going to move into Canada simply because it could implement its loyalty program. They would only move into Canada when they find a bargain for sale from a retailer who can no longer go it alone. It would have to be a good bargain because any acquisition means a decline in sales while going through the learning curve. Going into a new country, it would probably be even worse.
Kroger can’t become what it wants to be by remaining what—and where—it is.
Kroger has found or created ways to successfully compete against Walmart and other good food chains in the U.S. But one must consider that Canada has some very good bi-lingual grocers. They won’t be easily dislodged by a good newcomer from the U.S. (Are you listening, Target?) And with Kroger’s effective loyalty program not withstanding, Kroger would bring much more than that to Canadian shoppers for consideration.
Now, folks, go back to the lead paragraph and re-read it.
Interesting speculation about Kroger’s northern exposure, but the market in Canada is not some soft target.
I think it would be a mistake for anyone to under-estimate the two top supermarket dogs in Canada—Loblaw and Sobey’s.
The bi-lingual requirement presents unfamiliar operational challenges (software en Francais, mes amis?), as well as for the frequent shopper program.
Plus, the geography is pretty vast. Even sticking to Canada’s southern border. Vancouver is 3,800 miles from Halifax and the markets are disconnected.
So, I don’t see Kroger conquering Canada in a single offensive any time soon.
Moving into Canada might be an good opportunity for Kroger, but it will be a challenge. In addition to the strong competition from dominant Loblaws and Sobey’s, the market is much smaller and more diverse, both demographically and geographically.
Target is dealing with supply chain issues, which is not surprising considering limited volumes, higher costs for products, transportation,import issues, etc. There is a learning curve here.
Air Miles Rewards program has a solid position, and is valued by most shoppers as it is so widely offered. A new loyalty program would be challenging to develop, unless an incentive based on gasoline discounts was offered—Canadian Tire keeps its customers across Ontario with these rewards.
The best route would be an acquisition, as Canada it is not an easy market to enter—volumes are much smaller compared with US, and shopper expectations are different.
The Canadian market is not easy, especially when there are existing grocers like Sobeys and Walmart expanding their grocery line. Supply chain challenges for especially US based retailers who are tying to bring economies of scale and synergies with home market, makes it tough to be profitable at the beginning.
Sobeys has a loyalty program already. Walmart has localized to a great extent and it’s possible since the number of stores is not large—at just 380. There is no question that Kroger’s loyalty program is an advantage. But will it be an advantage enough? That’s something time will decide. Kroger has to tread these waters carefully.