June 7, 2012
FD Buyer: Kroger – A Lesson in Market Share
Through a special arrangement, presented here for discussion is a summary of a current article from Frozen & Dairy Buyer magazine.
How come Kroger hasn’t seen the market share losses that other traditional grocers have reportedly seen through channel shifts in consumer spending? David Dillon, Kroger’s chairman and CEO, believes it’s because the company takes a different view of who its competitors are versus other grocers.
"We look where our customers spend their money," Mr. Dillon said on a recent conference call in response to an analyst’s question on the topic. "And because we look at it that way, our battle has been for a market share of that bigger pie."
The analyst particularly wondered how Kroger’s own "value proposition" and incentives, such as fuel deals, had averted the company from not only losing customers at the "bottom end" to low-price competitors but also at the "top end" to limited-assortment chains.
The question came after Mr. Dillon bragged earlier in the call that Kroger had achieved an industry-leading 33 consecutive quarters of positive identical supermarket sales results. He credited the company’s Customer 1st strategy’s "relentless focus" on four keys: people, prices, products and shopping experience.
Addressing the analyst’s question, Mr. Dillon said the Customer 1st focus was developed in the nineties after management recognized that the grocer had become fixated on "just producing earnings" and wasn’t customer-focused enough.
"We’ve talked a lot about it, and it sounds more like marketing words, but actually, we genuinely mean it," said Mr. Dillon. "We look at the four elements of Customer 1st. We invest in those in the ways that we believe are meaningful to our customers. We save money in places that don’t matter to the customer and reinvest it in the places that do. And I think it’s that approach that has created the results that you described. I would agree with your viewpoint, we think we have not suffered the same channel changes that others have, but we’ve had to live in the same channel changes that others have had to live with. And we just had to address it in a different way."
He also implied that food retailing had changed dramatically over the last 15 to 20 years.
"The grocery industry as we all grew up in it really doesn’t exist anymore," said Mr. Dillon. "We don’t think of that as our industry. We don’t have a real good name for it other than food, but it is a broader industry than just the traditional food industry."
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Discussion Questions
Discussion Questions: Do you agree the traditional grocery industry “really doesn’t exist anymore?” What is behind Kroger’s apparent success against alternative channel competitors?
Poll
I think Kroger is exactly correct in looking at the marketplace. Think for a minute about the growing trend of food trucks in urban centers. If you’re a restaurant and don’t consider them competition because they don’t have a building or waiters or in some cases even dishes, you’re mistaken.
I think Kroger looking at the full spectrum of when consumers get their main meals, snacks, drinks and so forth as all parts of food retailing going forward is more in line with reality than thinking we are still in the “old grocery store” mindset.
If Mr. Dillon says that the traditional grocery industry “really doesn’t exist anymore” it’s because he has verified it from the consumers’ perspective. Kroger’s policy to observe consumer spending lets them follow the changes in how shoppers shop. Tracing the shifts in behavior keeps Kroger on the leading edge, allowing them to adjust their strategies and hold on to their customers.
The traditional grocery industry still exists, but is quickly fading away. Just about every market study I do now, there is new competitor in it or is coming that we didn’t have a few years ago. Walmart Neighborhood Market, Dollar General Market, Target Pfresh, a local Hispanic store, a natural foods store of some kind, and perhaps Save A Lot in a recycled building. A lot of these stores have taken over the skeletal remains of a chain store supermarket that failed.
Kroger is one of the better operated traditional grocery stores. They are a survivor and have benefited as Walmart has driven out their weaker competitors. What I have noticed is that by adding fuel to many of their stores, this had no doubt improved store sales. Operations wise, they are still pretty much a plain vanilla grocery store.
While they may have 33 quarters of positive same-store sales, I would bet if you remove inflation, huge drug price increases in pharmacy, fuel price increases, and removed stores that added square footage from expanding, the story is not so pretty. I wonder if they actually moved more tonnage for 33 quarters?
An onslaught of new competitors are opening as the economy is now booming again. Shoppers continue to gravitate away from the store their mom shopped at. There are fewer and fewer weaker competitors that will provide a buffer from the Walmart effect. Could be one reason why Kroger’s stock is near their 52 week low and never seems to go up from year to year.
I’m very pleased to see these results for Kroger. The two shopper-centric rules I see at play here are: 1. A conscious and successful effort to look in the direction of the shopper, rather than having their entire mind obsessed with the supply chain. It is a totally different view — opposite direction. 2. To define their business by what their shoppers buy or MAY buy in their stores. In other words, define their business by the needs of the people in their stores, not by a suite of merchandise that they carry on their shelves.
Those two points are worth billions in profits, and are really closely related — and sadly missing from most of the self-service retail world.
The food industry has changed forever, as I face challenges from everybody today. You can buy food everywhere, and it will continue to change, as drug stores are now selling fresh meat. Kroger runs good stores in very good locations, and caters well to the middle and upper income consumers quite well. Competing for the low end, which is growing ever larger is becoming a very large field of stores, all beating each other up over price. The winners will be stores who can control SKUs at aggressive pricing, and offer up super perishable deals, that the Big Box stores cannot.
This business is crazy, all of us need to work smarter to survive!
In the sense that there is an increasing number of outlets, both retail and online, that consumers use to source traditional supermarket items, the supermarket industry has changed. Kroger has recognized this change and has done a decent job adapting.
On the other hand, I think some of the statements from Mr. Dillon are “CEO speak,” always touting a very progressive and non-traditional way to view their competitors and the overall marketplace and putting the customers first.
In reality Kroger’s success, in my view, is chiefly due to their very intelligent pricing, promotion and assortment strategies. They use customer data better than almost all of their competitors. While they have made some improvements in stores, departments, and customer service, they are still a long way from being a leader in any of these areas.
Kroger’s excellence is subtle. It is not overtly evident in their stores, presentation or service delivery, but shines through in the value their customers recognize in their increasingly relevant promotions, prices, and assortment they provide each day.
Mr. Dillon is one of the brightest leaders in the industry today — an industry that includes both traditional options and more. Actually, the business of delivering food in the free world has always been in a state of change. What does “traditional” really mean? If you refer to buildings with aisles of merchandise, then, sure it still exists. Why wouldn’t it? Answer: a more efficient delivery system comes along.
We now see that happening, but not across the full range of products. Cold chain products are particularly troublesome. Plus there’s the issue of purchase decision. Few people can plan ahead beyond the next meal. They still need to go to the food options to choose. Don’t see that changing much.
Kroger’s total being as Kroger is a great explainer as it moves beyond the traditional grocery industry. It blends the best of past expectations with today’s more specialized wants just as do Wegmans, Whole Foods and Trader Joe’s.
Kroger’s success has resulted from its honed skills in promoting, merchandising, sampling, product and entree selection, presentation and service to its targeted customers. Its convenient locations are icing on the Kroger cake.
Kroger also deserves credit for the focus they have on serving the loyalty card customers they have with value on a segmented basis. The focus on retention of current shoppers versus “chasing skirts” to get new shoppers is a differentiated approach that is clearly working.
Kroger stores are not perfect, but they are a reliable place to shop and do offer a consistent experience overall with enough options to please most shoppers.
I think one area of improvement for Kroger is staff training. The checkout experience is the least shopper focused, at least in the stores I shop in regularly. Baggers should be taught how to pack bags, and cashiers should show some appreciation for the shopper that is standing before them.
One consideration is that unlike some other national takeovers, Kroger has always tended to retain the local branding in place. Examples; King Soopers, City Market, Dillons, Smiths, Fry’s, Fred Meyer, etc. Supermarkets shoppers like “local.”
The traditional grocery industry does still exist, but those retailers are going to continue to lose. The same statement can be made for the entire retail industry.
The Kroger philosophy is on target. It is customer-centric. “Let’s provide what the customer needs.” Most retailers say “Let’s have the customers buy what we want to sell them.” Then they wonder why it doesn’t work.
While the ‘Customer First’ philosophy (or at least its implementation) is unique to Kroger, the second aspect of their success — the idea that “everyone is our competitor” is not. H-E-B has employed the same philosophy to successfully “own” south Texas for years. Neither the mighty Walmart nor the specialty Hispanic stores have been able to “tread on H-E-B.”
Congrats to Dave Dillon and Kroger on the successful implementation of both philosophies. The combination is truly powerful.
Absolutely. The traditional grocers for the most part represent the “big middle” which has struggled for differentiation in a market consisting of other more viable alternatives. From extreme value to upscale to cool to club to online, offerings are now targeted to specific consumers who no longer need to compromise as was the case frequenting the traditional supermarkets.
I am reminded that there are no longer food retailers that everyone likes a little. There are only food retailers that someone likes a lot.
Traditional supermarket retailing is morphing. Food is available in a wide variety of venues ranging from dollar stores to online. Whether it is at the category level or the whole store, there is no shortage of food being sold. And all of these avenues contribute to redefining “competitor” in the supermarket world. It isn’t as simple as just looking at the other “grocery stores” anymore.
Listening to the voice of shoppers today is critical. Consumer insights can tell us a great deal about why shoppers choose to shop where they do And retailers that embrace and take action based on these insights will succeed in the future.
Kroger’s stores and products aren’t anything special…it’s the second “P,” price, that drives its performance and market share gains (and, yes most quarters volume has increased). However, they’ve had to give up margin to get that share. They’ve trimmed just about 100 basis points off their EBITDA margin over the past 3 years…at some point they will need to stabilize their margin, but will the consumers stay loyal?
It is so refreshing to see Kroger continue to do an excellent job maintaining same-store sales. So many stores suffer from leadership that doesn’t have a strategy other than survival. Success starts at the top through leadership and the setting of the proper culture, which Mr. Dillon does so well. All successful businesses must be able to change with the times, but yet retain their core strengths and values. Kroger is a good example of how to do this.
Another often overlooked or poorly executed issue in large companies is a good succession plan. Kroger selects and grooms their senior managers extremely well as the results have proven. Good job Kroger.
Kroger is not a typical grocery store. In the ’90s, Kroger began to focus on defining its mission, understanding consumers, and creating efficiency. Since then the focus has been the same but they continue to get better at understanding their consumers and creating efficiencies. Managing that paradox is the key to success which makes them not a typical grocery store.
The traditional grocery industry exists in the same way that the “traditional” family exists today. Long gone are the 2.4 kids per household, one and a half cars per garage, and three-quarters of a pet.
Retailers in the food business have had to adapt their merchandising and marketing efforts to numerous different segments of the consumer market. Kroger has done that more effectively than their competitors on a broad scalable manner. And, that’s the reason that they have held and built on their market share and profitability.
As one vendor mentions in the May issue of Frozen & Dairy Buyer, “Kroger has a clear strategy that is shopper-first, from the CEO to the buyers.”
That’s a winning formula.
Mr. Dillon, along with the key members of his team seem to “get it.” This is still very much a crippling economy. Market share and accurate demographic statistics are vital to survival and imperative for stability and growth.
I’ve spent a lot of time watching Kroger steadily improve its operations over the past 5-10 years. Some of the divisions seem to be run better and seem a lot more inspired than others, but they seem to have universally (well, not Ralphs) improved execution, mix, and pricing during this time period.
They have a good format in Fred Meyer and one that I feel could be expanded a lot if they actually wanted to expand it.
They seem to slowly be developing “better” stores in each of their divisions. The Marketplace Stores have far better developed perimeters than their comparable stores in the same markets. The “fresh fare” stores are also very good, albeit not used much away from Ralphs. The QFC division has some very nice operations. Fry’s has a lot of formats between a lot of marketplaces and one offs such as their “signature marketplace” and their “mercado.”
I think Kroger’s ongoing culture of improving things will bring them away from being so “plain vanilla” — at least in some of the divisions. In a lot of their markets, “plain vanilla” may work fine enough. Not everyone wants to shop at Walmart… and Kroger’s pricing is very close.
This doesn’t even touch on their strong, strong private label program….
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I think Kroger is exactly correct in looking at the marketplace. Think for a minute about the growing trend of food trucks in urban centers. If you’re a restaurant and don’t consider them competition because they don’t have a building or waiters or in some cases even dishes, you’re mistaken.
I think Kroger looking at the full spectrum of when consumers get their main meals, snacks, drinks and so forth as all parts of food retailing going forward is more in line with reality than thinking we are still in the “old grocery store” mindset.
If Mr. Dillon says that the traditional grocery industry “really doesn’t exist anymore” it’s because he has verified it from the consumers’ perspective. Kroger’s policy to observe consumer spending lets them follow the changes in how shoppers shop. Tracing the shifts in behavior keeps Kroger on the leading edge, allowing them to adjust their strategies and hold on to their customers.
The traditional grocery industry still exists, but is quickly fading away. Just about every market study I do now, there is new competitor in it or is coming that we didn’t have a few years ago. Walmart Neighborhood Market, Dollar General Market, Target Pfresh, a local Hispanic store, a natural foods store of some kind, and perhaps Save A Lot in a recycled building. A lot of these stores have taken over the skeletal remains of a chain store supermarket that failed.
Kroger is one of the better operated traditional grocery stores. They are a survivor and have benefited as Walmart has driven out their weaker competitors. What I have noticed is that by adding fuel to many of their stores, this had no doubt improved store sales. Operations wise, they are still pretty much a plain vanilla grocery store.
While they may have 33 quarters of positive same-store sales, I would bet if you remove inflation, huge drug price increases in pharmacy, fuel price increases, and removed stores that added square footage from expanding, the story is not so pretty. I wonder if they actually moved more tonnage for 33 quarters?
An onslaught of new competitors are opening as the economy is now booming again. Shoppers continue to gravitate away from the store their mom shopped at. There are fewer and fewer weaker competitors that will provide a buffer from the Walmart effect. Could be one reason why Kroger’s stock is near their 52 week low and never seems to go up from year to year.
I’m very pleased to see these results for Kroger. The two shopper-centric rules I see at play here are: 1. A conscious and successful effort to look in the direction of the shopper, rather than having their entire mind obsessed with the supply chain. It is a totally different view — opposite direction. 2. To define their business by what their shoppers buy or MAY buy in their stores. In other words, define their business by the needs of the people in their stores, not by a suite of merchandise that they carry on their shelves.
Those two points are worth billions in profits, and are really closely related — and sadly missing from most of the self-service retail world.
The food industry has changed forever, as I face challenges from everybody today. You can buy food everywhere, and it will continue to change, as drug stores are now selling fresh meat. Kroger runs good stores in very good locations, and caters well to the middle and upper income consumers quite well. Competing for the low end, which is growing ever larger is becoming a very large field of stores, all beating each other up over price. The winners will be stores who can control SKUs at aggressive pricing, and offer up super perishable deals, that the Big Box stores cannot.
This business is crazy, all of us need to work smarter to survive!
In the sense that there is an increasing number of outlets, both retail and online, that consumers use to source traditional supermarket items, the supermarket industry has changed. Kroger has recognized this change and has done a decent job adapting.
On the other hand, I think some of the statements from Mr. Dillon are “CEO speak,” always touting a very progressive and non-traditional way to view their competitors and the overall marketplace and putting the customers first.
In reality Kroger’s success, in my view, is chiefly due to their very intelligent pricing, promotion and assortment strategies. They use customer data better than almost all of their competitors. While they have made some improvements in stores, departments, and customer service, they are still a long way from being a leader in any of these areas.
Kroger’s excellence is subtle. It is not overtly evident in their stores, presentation or service delivery, but shines through in the value their customers recognize in their increasingly relevant promotions, prices, and assortment they provide each day.
Mr. Dillon is one of the brightest leaders in the industry today — an industry that includes both traditional options and more. Actually, the business of delivering food in the free world has always been in a state of change. What does “traditional” really mean? If you refer to buildings with aisles of merchandise, then, sure it still exists. Why wouldn’t it? Answer: a more efficient delivery system comes along.
We now see that happening, but not across the full range of products. Cold chain products are particularly troublesome. Plus there’s the issue of purchase decision. Few people can plan ahead beyond the next meal. They still need to go to the food options to choose. Don’t see that changing much.
Kroger’s total being as Kroger is a great explainer as it moves beyond the traditional grocery industry. It blends the best of past expectations with today’s more specialized wants just as do Wegmans, Whole Foods and Trader Joe’s.
Kroger’s success has resulted from its honed skills in promoting, merchandising, sampling, product and entree selection, presentation and service to its targeted customers. Its convenient locations are icing on the Kroger cake.
Kroger also deserves credit for the focus they have on serving the loyalty card customers they have with value on a segmented basis. The focus on retention of current shoppers versus “chasing skirts” to get new shoppers is a differentiated approach that is clearly working.
Kroger stores are not perfect, but they are a reliable place to shop and do offer a consistent experience overall with enough options to please most shoppers.
I think one area of improvement for Kroger is staff training. The checkout experience is the least shopper focused, at least in the stores I shop in regularly. Baggers should be taught how to pack bags, and cashiers should show some appreciation for the shopper that is standing before them.
One consideration is that unlike some other national takeovers, Kroger has always tended to retain the local branding in place. Examples; King Soopers, City Market, Dillons, Smiths, Fry’s, Fred Meyer, etc. Supermarkets shoppers like “local.”
The traditional grocery industry does still exist, but those retailers are going to continue to lose. The same statement can be made for the entire retail industry.
The Kroger philosophy is on target. It is customer-centric. “Let’s provide what the customer needs.” Most retailers say “Let’s have the customers buy what we want to sell them.” Then they wonder why it doesn’t work.
While the ‘Customer First’ philosophy (or at least its implementation) is unique to Kroger, the second aspect of their success — the idea that “everyone is our competitor” is not. H-E-B has employed the same philosophy to successfully “own” south Texas for years. Neither the mighty Walmart nor the specialty Hispanic stores have been able to “tread on H-E-B.”
Congrats to Dave Dillon and Kroger on the successful implementation of both philosophies. The combination is truly powerful.
Absolutely. The traditional grocers for the most part represent the “big middle” which has struggled for differentiation in a market consisting of other more viable alternatives. From extreme value to upscale to cool to club to online, offerings are now targeted to specific consumers who no longer need to compromise as was the case frequenting the traditional supermarkets.
I am reminded that there are no longer food retailers that everyone likes a little. There are only food retailers that someone likes a lot.
Traditional supermarket retailing is morphing. Food is available in a wide variety of venues ranging from dollar stores to online. Whether it is at the category level or the whole store, there is no shortage of food being sold. And all of these avenues contribute to redefining “competitor” in the supermarket world. It isn’t as simple as just looking at the other “grocery stores” anymore.
Listening to the voice of shoppers today is critical. Consumer insights can tell us a great deal about why shoppers choose to shop where they do And retailers that embrace and take action based on these insights will succeed in the future.
Kroger’s stores and products aren’t anything special…it’s the second “P,” price, that drives its performance and market share gains (and, yes most quarters volume has increased). However, they’ve had to give up margin to get that share. They’ve trimmed just about 100 basis points off their EBITDA margin over the past 3 years…at some point they will need to stabilize their margin, but will the consumers stay loyal?
It is so refreshing to see Kroger continue to do an excellent job maintaining same-store sales. So many stores suffer from leadership that doesn’t have a strategy other than survival. Success starts at the top through leadership and the setting of the proper culture, which Mr. Dillon does so well. All successful businesses must be able to change with the times, but yet retain their core strengths and values. Kroger is a good example of how to do this.
Another often overlooked or poorly executed issue in large companies is a good succession plan. Kroger selects and grooms their senior managers extremely well as the results have proven. Good job Kroger.
Kroger is not a typical grocery store. In the ’90s, Kroger began to focus on defining its mission, understanding consumers, and creating efficiency. Since then the focus has been the same but they continue to get better at understanding their consumers and creating efficiencies. Managing that paradox is the key to success which makes them not a typical grocery store.
The traditional grocery industry exists in the same way that the “traditional” family exists today. Long gone are the 2.4 kids per household, one and a half cars per garage, and three-quarters of a pet.
Retailers in the food business have had to adapt their merchandising and marketing efforts to numerous different segments of the consumer market. Kroger has done that more effectively than their competitors on a broad scalable manner. And, that’s the reason that they have held and built on their market share and profitability.
As one vendor mentions in the May issue of Frozen & Dairy Buyer, “Kroger has a clear strategy that is shopper-first, from the CEO to the buyers.”
That’s a winning formula.
Mr. Dillon, along with the key members of his team seem to “get it.” This is still very much a crippling economy. Market share and accurate demographic statistics are vital to survival and imperative for stability and growth.
I’ve spent a lot of time watching Kroger steadily improve its operations over the past 5-10 years. Some of the divisions seem to be run better and seem a lot more inspired than others, but they seem to have universally (well, not Ralphs) improved execution, mix, and pricing during this time period.
They have a good format in Fred Meyer and one that I feel could be expanded a lot if they actually wanted to expand it.
They seem to slowly be developing “better” stores in each of their divisions. The Marketplace Stores have far better developed perimeters than their comparable stores in the same markets. The “fresh fare” stores are also very good, albeit not used much away from Ralphs. The QFC division has some very nice operations. Fry’s has a lot of formats between a lot of marketplaces and one offs such as their “signature marketplace” and their “mercado.”
I think Kroger’s ongoing culture of improving things will bring them away from being so “plain vanilla” — at least in some of the divisions. In a lot of their markets, “plain vanilla” may work fine enough. Not everyone wants to shop at Walmart… and Kroger’s pricing is very close.
This doesn’t even touch on their strong, strong private label program….