Restocking the future

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Yesterday morning, Rodney McMullen, chairman and CEO of The Kroger Co., discussed his company’s innovations and plans for staying relevant in the future. Sara Eisen, co-anchor of CNBC’s “Squawk on the Street” and “Power Lunch,” moderated the session.

Eisen began by asking McMullen’s evaluation of consumer confidence and whether he thinks a recession might be in the offing. “We don’t see anything that would cause us to say a recession is right around the corner,” he said. “I think it’s easy to paint a picture where things could be fabulous, or where there could be a recession. We’re really at a fork in the road. If the trade negotiations we have going on come together the way everybody hopes they will, and there continues to be full employment, it’s easy to see how things could be significantly improved in a year and a half or so. But if things don’t play out the way we all want them to, then a recession is something that could happen.”

Meanwhile, Kroger is planning for growth in the years ahead. “It will come from two sources,” McMullen said, “redefining the grocery experience and seeking alternative profit streams.” One such alternative profit stream, not just for Kroger but for the entire sector, is online shopping.

This became front-page news in the summer of 2017 when Amazon’s acquisition of Whole Foods Market was announced, followed last spring by Walmart’s move into click-and-collect grocery shopping.

Noting that Kroger has a joint venture with (and partial ownership of) British online grocery shopping technology firm Ocado Group, Eisen asked if this move was prompted by his competitors’ activities. “We started on this journey well before Amazon bought Whole Foods,” McMullen said. “We assumed that at some point, Amazon was going to do something in the physical world. Our customers consistently showed us that they loved an in-store experience, but that there were also times when they’d love an online experience.”

The customer doesn’t really distinguish between the two, he said. “They’re thinking they have a particular problem at a particular point in time, and how do they solve it.” Overall, McMullen acknowledged, online grocery shopping is a problem still being solved. “To employ a baseball metaphor,” he said, “in terms of the customer experience, we’re in the second inning.”

And where, Eisen inquired, will it be in 10 years? Will online grocery shopping, at least in the U.S., be dominated by Kroger, Walmart and Amazon? “One will be Kroger,” McMullen said, “and there will be room for others.” Looking abroad, Kroger is selling some products through Alibaba, and learning what will work in the Chinese market. “So far we’re tracking with the numbers Alibaba gave us when we started out,” said McMullen. “We have no idea where it will go.”

Turning from how consumers buy to what they are buying, McMullen said Kroger’s line of organic and natural food and other products is a $2 billion-plus brand with a double-digit growth rate since being introduced five years ago. “We’re proud of our foods,” he said, “and we’re proud of what’s not in them.” That venture, McMullen said, came as a response to customer demand, not as a reaction to the Amazon/Whole Foods merger.

Another Kroger project is a joint venture with Walgreens, in which a small-footprint Kroger Express operates inside Walgreens locations. Right now it is limited to a small test in northern Kentucky. “It’s very convenient,” said McMullen. “Between Kroger locations and Walgreens locations in that part of Kentucky, nobody has to drive more than a mile to get to one of those locations.”

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