September 13, 2006
Kroger Succeeds
As the saying goes, “nothing succeeds like success,” and when it comes to grocery industry success stories, Kroger needs to be put at or near the top.
The nation’s largest traditional grocery outfit reported strong second quarter sales, and the high cost of gas, Kroger executives suggest, is helping to fuel (our apologies) its growth as consumers prepare their meals at home rather than looking to restaurants.
“A family can be fed much more economically at the supermarket,” said David Dillon, Kroger’s chairman and chief executive officer of the company. “Fuel costs are higher and people are feeling the pinch.”
Kroger has also succeeded because of the number of formats it operates along with aggressive promotional programs.
Mr. Dillon said Kroger as also aggressively gone after savings, cutting costs with a number of energy-efficient and fuel saving initiatives.
Discussion Questions: What is Kroger doing right? What can it do to be more successful than it is today?
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We have to give credit to Kroger management for being willing to look outside their own boardroom — and borders — for best practice learning. Their willingness to exchange with TESCO and others is a great example. Another is their adaptation of dunnhumby and the way they have integrated that granular customer view into all aspects of decision making.
Kroger’s strength has always been people. Their leadership has been developed by making the investment in training, technology and benefits to maintain a continual flow in personnel development. While mostly internally developed, they are not inbred in mediocrity. They are cross trained, exposed to different markets and encouraged to be innovative. This has developed a strong cadre of middle management leaders in the wings to take over in any vacancy situation. Product knowledge, self manufacturing and an extensive procurement network works wonders to stay with the best in the marketplace.
CEO David Dillon has a strong team that gains the recognition and credit for the Company’s success. The failure of most chains has been monarchy management; Kroger is not that way.
They practice high ethics, sound fiscal responsibility and use research to stay on top of the customer’s desires of their local Kroger store. They think globally, but execute locally.
You can’t argue that Kroger has been showing some nice results lately. Kroger deserves some of the credit, but a lot of their gains are the result of the competitor’s failures. Winn-Dixie pulled the plug from Cincinnati and Louisville to Atlanta and Jackson. Albertsons threw in the towel and has been closing stores in Dallas/Fort Worth, Denver, California, and other areas they overlap. Safeway has shuttered several stores in Houston. Marsh imploded in Indianapolis. A couple of years ago Big Bear and Foodtown shut down completely in Ohio. Farmer Jack self destructed in Detroit. I guess we could go on all day. Kroger is just an average vanilla grocery store like all the rest. One thing they do right is that they do not play games just to get the stock price up. They have done a good job in using Wal-Mart as muscle to run out competitors who tried to put stock price before long term results. Kroger is also a master supermarket retailer at playing cat & mouse with the competition. Just when a weaker competitor is about ready to leave the market, Kroger lets up a bit, causing the competitor to think that perhaps their short term increases in sales is a result of their own skills, rather than Kroger allowing it to happen. Then when the competitor recommits to a market, Kroger lets them have it again. By prolonging the life of a weak competitor, it prevents a stronger competitor from entering the market.
Yes, more people are eating at home. However, the research I’ve seen said that more people are bringing take-out food home, ordering take-out, or bringing prepared food home. That’s not necessarily an advantage for a grocery store. Only IF consumers can purchase items that are prepared (without walking all over the store), easy to store and reheat, with good nutrition, that taste good will consumers buy food at the grocery store to feed their families on a regular basis. With two-career families and busy schedules, the average time for food preparation is 10-15 minutes. With all the ingredients in the store, most of the food preparation takes longer than 10-15 minutes so the door is wide-open for eating non-grocery food at home. Kroger has part of the equation but not all of it.
I couldn’t agree more with David about Kroger’s success, such that it is not necessarily about their success versus their competitor’s failures. Kroger, with as many locations as they have, are bound to be the destination of those who are watching their dollars. It is cyclical that when gas prices go up, people head back to the grocery stores. This will lead to a rise in sales for a lot of chains, not just Kroger. This jump in sales has not as much to do with what Kroger has done, and in fact should be attributed to the oil companies for driving gas prices up and the customers back to the grocery stores. Kroger has seen their financial situation in a slightly better light lately because they have continued to slash costs in other arenas such as new store development and remodeling of existing locations. Agreed, Kroger does a good job playing cat and mouse with a weaker competitor in their region. With the ongoing consolidation of the market however, Kroger won’t be able to strong-arm their competition for too long and will have to get back to the basic business practice of serving the customer with quality, service and price.
David Livingston offers very unique insight into the marketing prowess of Kroger by way of his extensive experience in market and site location analysis. To amplify his point, Kroger has indeed fed off of the missteps of some of their competitors, but they have not done so by staying the course. Their new Signature Store format is very thoughtfully laid out and offers a nice combination of upscale amenities but with their consistent “Right Store, Right Price” value message ringing loud and clear. Kroger continues to evolve both their facilities and the merchandising to adapt to the needs of individual marketing areas.
While I think Kroger is ill advised to build extremely large combination stores to compete with Supercenters, the majority of their moves are smartly driven by the needs of each individual markets in which they operate, rather by some behemoth, “one size fits all” approach that other large retailers have tried and failed to execute. I have no doubt that their aggressive use of customer data sourced from their relationship with dunnhumby is one of the chief reasons for this success. This market level approach to their business has paid huge dividends and allowed them to efficiently allocate capital resources where growth opportunities best present themselves.
I’m with David. Everybody should be blessed with poor competition.
Kroger understands the power of their “brands,” along with understanding the local markets they serve. Kroger is adapting to the needs of these local markets, while taking advantage of the economies of scale in operating a large company. The balance they’re achieving is helping them to differentiate their brands from Wal-Mart, while delivering value and personalization.
What Kroger does well is adapt to the situation at a particular moment. In Richmond, VA, this is the third time that Kroger has enter that market. They definitely know how to beat down the competition. And they like to chip away at the market leader, be it Ukrop’s there or Farmer Jack in Michigan.
And they will forever stay away from union areas such as Pittsburgh and Philly. They also seem shy from entering Northern Virginia, Maryland, DC, DE, NY/NJ and the rest of the Northeast, as well as avoiding Chicagoland and New Orleans.
These areas will remain for them their Achilles Heel. They know they can’t win there, so they don’t operate stores there. But where they do operate, they are very competitive.
Most can think it is the weakness of competition that has made Kroger successful. Maybe in a few KMA areas of Kroger.
Interestingly, Kroger has been ‘thinking outside-the-box,’ and has utilized its own gas station operations to lure shoppers to its stores. So the issues of high gas prices is neutralized.
The big plus, especially, in Louisville has been Kroger’s Chef Shoppe that have culinary chefs prepare foods, sides and entrees daily. And carry outs for meetings, etc. have bloomed to new heights, as well as major catering business.
This has helped Kroger advance its financial number, and satisfy shoppers. Don’t forget, the gourmet meat and seafood centers can also cook their products with Alto Shaams in the departments! Few, if any competitors do protein cooking.
No, the Chef Shoppes aren’t in every Kroger, and this is smart based on demographics of the neighborhood, or micro marketing to its closely located and selected shopper target.
Maybe the other key area of success has been Kroger’s ability to profitably counter Wal-Mart super centers in their respective areas. Few supermarkets can claim this critical feat!
And, finally, you are beginning to hear and observe better consumer service in many of the Kroger selling areas’ stores. Kroger is bringing associate knowledge and engagement into the “consumer needs formula”. This successful direction, to date, has proven very valuable. Bravo!
So if there are weak competitors in Kroger’s selling areas, you now know why, and importantly, Kroger’s winning formula for success! Consumers are in the strategic plan too!!!!
And a major Bravo. Hmmmmmmmmmmmmmmm
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We have to give credit to Kroger management for being willing to look outside their own boardroom — and borders — for best practice learning. Their willingness to exchange with TESCO and others is a great example. Another is their adaptation of dunnhumby and the way they have integrated that granular customer view into all aspects of decision making.
Kroger’s strength has always been people. Their leadership has been developed by making the investment in training, technology and benefits to maintain a continual flow in personnel development. While mostly internally developed, they are not inbred in mediocrity. They are cross trained, exposed to different markets and encouraged to be innovative. This has developed a strong cadre of middle management leaders in the wings to take over in any vacancy situation. Product knowledge, self manufacturing and an extensive procurement network works wonders to stay with the best in the marketplace.
CEO David Dillon has a strong team that gains the recognition and credit for the Company’s success. The failure of most chains has been monarchy management; Kroger is not that way.
They practice high ethics, sound fiscal responsibility and use research to stay on top of the customer’s desires of their local Kroger store. They think globally, but execute locally.
You can’t argue that Kroger has been showing some nice results lately. Kroger deserves some of the credit, but a lot of their gains are the result of the competitor’s failures. Winn-Dixie pulled the plug from Cincinnati and Louisville to Atlanta and Jackson. Albertsons threw in the towel and has been closing stores in Dallas/Fort Worth, Denver, California, and other areas they overlap. Safeway has shuttered several stores in Houston. Marsh imploded in Indianapolis. A couple of years ago Big Bear and Foodtown shut down completely in Ohio. Farmer Jack self destructed in Detroit. I guess we could go on all day. Kroger is just an average vanilla grocery store like all the rest. One thing they do right is that they do not play games just to get the stock price up. They have done a good job in using Wal-Mart as muscle to run out competitors who tried to put stock price before long term results. Kroger is also a master supermarket retailer at playing cat & mouse with the competition. Just when a weaker competitor is about ready to leave the market, Kroger lets up a bit, causing the competitor to think that perhaps their short term increases in sales is a result of their own skills, rather than Kroger allowing it to happen. Then when the competitor recommits to a market, Kroger lets them have it again. By prolonging the life of a weak competitor, it prevents a stronger competitor from entering the market.
Yes, more people are eating at home. However, the research I’ve seen said that more people are bringing take-out food home, ordering take-out, or bringing prepared food home. That’s not necessarily an advantage for a grocery store. Only IF consumers can purchase items that are prepared (without walking all over the store), easy to store and reheat, with good nutrition, that taste good will consumers buy food at the grocery store to feed their families on a regular basis. With two-career families and busy schedules, the average time for food preparation is 10-15 minutes. With all the ingredients in the store, most of the food preparation takes longer than 10-15 minutes so the door is wide-open for eating non-grocery food at home. Kroger has part of the equation but not all of it.
I couldn’t agree more with David about Kroger’s success, such that it is not necessarily about their success versus their competitor’s failures. Kroger, with as many locations as they have, are bound to be the destination of those who are watching their dollars. It is cyclical that when gas prices go up, people head back to the grocery stores. This will lead to a rise in sales for a lot of chains, not just Kroger. This jump in sales has not as much to do with what Kroger has done, and in fact should be attributed to the oil companies for driving gas prices up and the customers back to the grocery stores. Kroger has seen their financial situation in a slightly better light lately because they have continued to slash costs in other arenas such as new store development and remodeling of existing locations. Agreed, Kroger does a good job playing cat and mouse with a weaker competitor in their region. With the ongoing consolidation of the market however, Kroger won’t be able to strong-arm their competition for too long and will have to get back to the basic business practice of serving the customer with quality, service and price.
David Livingston offers very unique insight into the marketing prowess of Kroger by way of his extensive experience in market and site location analysis. To amplify his point, Kroger has indeed fed off of the missteps of some of their competitors, but they have not done so by staying the course. Their new Signature Store format is very thoughtfully laid out and offers a nice combination of upscale amenities but with their consistent “Right Store, Right Price” value message ringing loud and clear. Kroger continues to evolve both their facilities and the merchandising to adapt to the needs of individual marketing areas.
While I think Kroger is ill advised to build extremely large combination stores to compete with Supercenters, the majority of their moves are smartly driven by the needs of each individual markets in which they operate, rather by some behemoth, “one size fits all” approach that other large retailers have tried and failed to execute. I have no doubt that their aggressive use of customer data sourced from their relationship with dunnhumby is one of the chief reasons for this success. This market level approach to their business has paid huge dividends and allowed them to efficiently allocate capital resources where growth opportunities best present themselves.
I’m with David. Everybody should be blessed with poor competition.
Kroger understands the power of their “brands,” along with understanding the local markets they serve. Kroger is adapting to the needs of these local markets, while taking advantage of the economies of scale in operating a large company. The balance they’re achieving is helping them to differentiate their brands from Wal-Mart, while delivering value and personalization.
What Kroger does well is adapt to the situation at a particular moment. In Richmond, VA, this is the third time that Kroger has enter that market. They definitely know how to beat down the competition. And they like to chip away at the market leader, be it Ukrop’s there or Farmer Jack in Michigan.
And they will forever stay away from union areas such as Pittsburgh and Philly. They also seem shy from entering Northern Virginia, Maryland, DC, DE, NY/NJ and the rest of the Northeast, as well as avoiding Chicagoland and New Orleans.
These areas will remain for them their Achilles Heel. They know they can’t win there, so they don’t operate stores there. But where they do operate, they are very competitive.
Most can think it is the weakness of competition that has made Kroger successful. Maybe in a few KMA areas of Kroger.
Interestingly, Kroger has been ‘thinking outside-the-box,’ and has utilized its own gas station operations to lure shoppers to its stores. So the issues of high gas prices is neutralized.
The big plus, especially, in Louisville has been Kroger’s Chef Shoppe that have culinary chefs prepare foods, sides and entrees daily. And carry outs for meetings, etc. have bloomed to new heights, as well as major catering business.
This has helped Kroger advance its financial number, and satisfy shoppers. Don’t forget, the gourmet meat and seafood centers can also cook their products with Alto Shaams in the departments! Few, if any competitors do protein cooking.
No, the Chef Shoppes aren’t in every Kroger, and this is smart based on demographics of the neighborhood, or micro marketing to its closely located and selected shopper target.
Maybe the other key area of success has been Kroger’s ability to profitably counter Wal-Mart super centers in their respective areas. Few supermarkets can claim this critical feat!
And, finally, you are beginning to hear and observe better consumer service in many of the Kroger selling areas’ stores. Kroger is bringing associate knowledge and engagement into the “consumer needs formula”. This successful direction, to date, has proven very valuable. Bravo!
So if there are weak competitors in Kroger’s selling areas, you now know why, and importantly, Kroger’s winning formula for success! Consumers are in the strategic plan too!!!!
And a major Bravo. Hmmmmmmmmmmmmmmm