On Top Of Their Game
They’re more like the tortoise than the hare. The large national grocer that has 339,000 employees working in 2,425 supermarkets in 31 states under two dozen local banners.
The same company that operates nearly 800 convenience stores, more than 1,000 fuel centers, and 37 food processing plants in the U.S.
Surely, that’s not the company that can operate with the nimbleness of a regional grocer with 50 or 100 or 200 chains, right? Or a specialty retailer with small footprint stores that lures customers with an experience and unique and unusual products?
And yet, there goes Kroger again. Plugging away. Moving up the list of the largest players in private label in North America. On the PLBuyer Top 35 list, Kroger gained another percentage of private label share in 2011, resting around 27 percent of its grocery sales. As its top competitor on the list, Walmart, continues to alter its mix of brand and private label offerings, Kroger inches closer and closer to overtaking the world’s largest retailer as North America’s largest private label destination for groceries.
But how does the company do it? How does a national retailer of that size go out every day and connect with customers on a level that its competitors cannot seem to match?
It is not simply one thing. In 2012, there was no major game-changing move that pushed Kroger forward again. Its largest private label news was the
PLBuyer Retailer of the Year
consolidation of its Naturally Preferred and Private Selection Organic private label lines into Simple Truth and Simple Truth Organic. And although the sales of the line have rocketed since the brand launch in the summer, the products involved were already on Kroger shelves.
No, it is the attention to detail, the careful marking of each step along the way, that has made the difference. Whether it’s the way Kroger makes use of the vast consumer data available to it through its association with Dunnhumby USA, its attention to quality on its private brands in the food and nonfood sectors, leading the way on traceability for its produce and fresh foods that lets customers know where the food they are buying came from, or its recent revamp of Private Selection and launch of Fresh Selections taking hold.
All of the little things are adding up for Kroger. No. 2 on the PLB Top 35 list. With a bullet. And now the 2013 PLBuyer Retailer of the Year, the second time in eight years the company can make that claim.
“You have the major guys out there, but given Kroger’s size, it’s really fascinating to watch what they’ve done and how they’ve gone about it, particularly in relation to the other major guys,” Wisner Marketing Group President Jim Wisner said. “It’s very different from what Safeway has done and what Supervalu has done. You watch people talk about the traditional supermarket segment shrinking, and going to alternative formats. As the pie gets smaller, someone becomes stronger than they were before. Kroger looks like that company.”
Gil Phipps, who took over as the vice president of corporate brands for Kroger at the end of August after Susan Sanderson left in the spring after five years at the helm, said the key for the company was matching its corporate brands to the customer.
“The focus is really all about meeting the customers’ needs and satisfying and simplifying their lives,” he said. “Everything we do really focuses on customer empathy.”
That is evident on a number of fronts, Planet Retail U.S. Research Director Sandy Skrovan said.
“Kroger has its pulse on shoppers and the competitive situation,” she said. “Its solid execution is what makes it a winner and able to outperform the competition. It is doing many of the right things, and doing them right: Strong price/value perception in the marketplace; best-in-class shopper analytics in partnership with Dunnhumby; strong portfolio of store formats from which to draw based on local market needs and surrounding demographics; solid private brand portfolio, which it continually evaluates and enhances; and now, finally, experimenting with small-box with its Turkey Hill/Turkey Hill Market concept.”
STARTING WITH BIG PICTURE
From a macro look, Kroger is not simply moving forward in private label. Jefferies & Co. analyst Scott Mushkin says the company is on a growth pattern.
“Using volume as a proxy for market share, our sources show Kroger is the No. 1 volume gainer in the U.S.,” he said. “That means Kroger’s at the top and has gotten better, not worse, as the year has progressed. A great private label program is certainly a part of it. Service, they just had a big program to improve service checkout times.
“In a lot of ways, we call them the un-Walmart now. It’s all about everyday low price as the common denominator in food, but Kroger has very good prices and on their own terms are much better in perishables, where they’ve made a big effort, and a very strong private label offering. So it’s the emphasis on service, very good prices on ubiquitous items, an innovative gas program, the loyalty program with Dunnhumby …”
The consistency on the retailer’s message, through corporate brands and all its divisions, comes from the top. And Mushkin said that CEO Dave Dillon has been at the heart of the company’s success.
“If there’s been a consistent food-at-home executor, it’s Kroger,” he said. “It’s a cohesiveness of message. It’s been doing the same thing for a long time, but it’s a simple message. It’s four things, not 24 things, and they’ve been able to translate that into a consistent message for the consumer, which is good.
“They have an underestimated and understated CEO. To really solidify him as a great corporate CEO he has to get the return on investor capital up. If he can do that, he will be thought of as a very visionary CEO.”
The work on checkout times has allowed Kroger customers to significantly decrease their time spent waiting to leave the store. And the relationship with Dunnhumby USA has not only provided Kroger access to consumer data, but the ability to do more with it than other competitors.
“I think they’re using it better and interpreting it better,” Mushkin said. “Data is data. They’re not only marrying it to decent consumer research, they’re also figuring out how to use the data, and then taking that knowledge and implementing it at the store. What I like is it used to be too reactionary. Now, you talk about Private Selection, and it seems more forward-thinking. What the consumer will want. They’ve put a lot of money into Dunnhumby and consumer research.”
Wisner said the proof was on Kroger’s shelves, where the retailer is able to compete well on price without sacrificing margins along the way.
“Why is Kroger able to significantly lower prices than the other two guys, but maintain the same or better margins? That’s just good management,” he said. “They always block and tackle better. Kroger was always the best of what was available four years ago. They know how to lead without getting on the edge. They’re usually not first to market, but they’re close behind, and with everything buttoned down. Particularly when it comes to managing merchandise and pricing strategies.”
WHAT THAT MEANS FOR PRIVATE LABEL
So we’re talking about a company with strong, steady leadership. A broad reach that crosses grocery, mass, convenience, and specialty retail. One with a partner that provides top-class consumer data and the ability to do something with it. And just enough foresight and innovation to keep them even with or ahead of their competitors.
So what does that mean for their corporate brands?
Start with the basics. Kroger features a three-tier basic platform, with its mainstay Kroger brand at the NBE level, Value brand as its entry tier, and Private Selection as its premium tier. Private Selection was relaunched in 2011, and Kroger’s Phipps said the brand has connected well with its audience.
“A lot of the excitement around Private Selection is on flavor and the flavor experience,” Phipps said. “That’s really fun, to listen to the customer feedback on that. The focus is on thrilling the customer.”
There’s the Big K brand of sodas, the Home Sense and Comforts for Baby brands that take care of cleaning and children, and Pet Pride lines of food and supplies.
And then there’s the specialty lines. Mirra Daily, the home and beauty line of products, and Simple Truth, which has received rave reviews from management and customers alike.
“There’s a lot of different ways to (connect to customers),” Phipps said. “Some of that is in the product simplifying their lives, and some of it is talking to the customer. We found there was a great deal of category confusion, and they were looking for a simple and honest solution, something they could understand. So Simple Truth is being up front with them and letting them know the things that they don’t want in there aren’t in these products.”
Wisner said the achievements go beyond brand launches or irregular successes.
“It’s part of their DNA at Kroger,” he said. “We’ve done education sessions there about private brands and its role, and it’s amazing. You go from division to division to division, and they’re all on the same page – even though they have more autonomy than some other retailers do. As much as they have more individual latitude, they seemed to have coalesced to a common point and common attitude.”
Those ideas stretch beyond the typical retailer brand program, he said. Kroger incentivizes managers on private brand sales, gives out supplier awards and makes the recognition meaningful, their corporate brands team has a significant amount of people with CPG backgrounds, and their manufacturing operations are “first-rate operations, divisions that can compete with anybody in the industry,” he said.
In the past couple of years, those tactics and ideas have led to some aggressive moves for the normally conservative retailer, Wisner said.
“They launched Mirra Daily, Simple Truth, the Big K soda redesign, and repackaging Private Selection, they’re a stealth player in wine and have been for a long time,” he said. “They were one of the early pioneers, and failures, in licensing, but they had a few hits as well. For a fairly conservative company, they have been very aggressive.”
Beyond the food side of products, Kroger has gained traction in nonfood as well. Its recent purchase of Axiem pharmaceuticals was a major step, Wisner said.
“When you get into the specialized stuff, where people spend $10,000 or more a year on drugs, that’s a whole separate kind of thing,” he said. “The fact they’re the first of the widely available supermarket chains to go in that direction is pretty impressive. It’s serious commitment.”
Wisner applauded their focus on nonfood, saying Kroger treated that side of the business just as it did the food side and not as an addition to fill store space. And with his company tracking the top 65 retailers’ use of digital and social media, he said Kroger scored high on that as well.
“You look at their digital coupon programs and right now I’d say they’re the head of the class,” he said. “They’ve gone after social media, beyond lip-service stuff.
They’ve got mobile apps for everything now, and the fact is, when everybody is ready to play there, they’re already there.
“Kroger is doing a better job on their store brands than everybody else. They’re hitting on all cylinders, moving faster than most other food retailers, particularly given their size.”
ROOM TO GROW?
How do you improve on hitting on all cylinders? You keep doing it. Kroger reached an estimated $24.4 billion in private label grocery sales in 2011, up more than $3 billion from the previous year. Walmart, meanwhile, dipped from an estimated $42.3 billion in 2010 to $31.4 billion last year.
There’s still a $7 billion annual difference between Kroger and Walmart. But the retailers are moving in different directions as far as private label is concerned. Slow and steady, cautiously innovative, consistently strong Kroger may yet win the race.
It might be with expansion from premium lines such as Simple Truth and Private Selection. It might be its Kroger and Value lines continuing to hit home with value-conscious shoppers still weary from the long recession. Or it might be new areas.
Like Totally Awesome.
No, not the ‘80s catch phrase. One of Kroger’s new test brands, launched last winter. It’s a program that solicited opinions and advice from real people, food bloggers and moms alike, to come up with a core of products with their stamp of approval. Right now, there are cookies, yogurt, macaroni and cheese, and broccoli and cheese dishes.
“It’s been a toe in the water,” Phipps said. “It’s a test evaluation that’s in our portfolio of brands, but not as broad based as the rest.”
And yet the idea, the thought process, the willingness to try, is a statement on what Kroger is doing today and plans to do tomorrow.
“When I hear about that stuff, it shows you a company that’s moving in a much better direction as far as being proactive with consumers, and giving them reasons to shop at Kroger,” Mushkin said. “Maybe that’s exclusive to Kroger items. Where the margins are better, they’re distinctive to the brand, it creates loyalty to the shopper, and a whole host of reasons that people love. That’s awesome. I think it’s a trial, but two or three years from now, it’s almost like an Angie’s List. It sounds like it could resonate incredibly well.”
“I’m curious to see how this plays out,” Wisner said. “It could be none of these things becomes a dominant thing, and maybe it’s a collection of 15 things that becomes important.”
If Kroger can continue to demonstrate the willingness to move forward, whether in its traditional supermarket space or other emerging channels, Skrovan said the needle will continue to point up for the retailer.
“Kroger must think outside the ‘center store’ box for future private label growth,” she said. “National brands will continue to innovate and challenge in the center store. The key for Kroger to break through the ’27 percent barrier’ and increase store brand penetration will be in finding gaps where private label can play a bigger role.
“Planet Retail thinks some future shifts in the competitive landscape and shopping behavior will open up more opportunity for private label expansion. For example, the small-box trend (for Kroger, Turkey Hill Market) – with a growing focus on immediate need, fresh and convenience – will require new products, convenience-oriented pack sizes and different promotions than that found at traditional larger footprint stores. A premium format like Fresh Fare fosters private label possibilities in fresh, prepared meals and specialty items as well as the ‘healthy’ space. Both trends portend a bigger role for private label.”