Kroger sees value in 'failing forward'
May 13, 2016
by Monica Watrous
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The Kroger Co. has been testing a number of retail formats to evolve with today’s shoppers.
NEW YORK — Even a failed concept is considered a success for The Kroger Co., which has been testing a number of retail formats to evolve with today’s shoppers. If a particular initiative doesn’t work, the Cincinnati-based supermarket company may apply what it learned to another aspect of the business, said Mike Schlotman, executive vice president and CFO.
|Mike Schlotman, executive vice-president and CFO of Kroger
“Even if we decide format X isn’t going to be one that winds up being something we want to deploy, what you learn about the financials of that model and how to compete with them, a competitor, you’ve just taken your learnings to another level so you can remain relevant with your customers,” Schlotman said during a presentation on May 10 at the Goldman Sachs Global Staples Forum in New York. “So, not everything you try has to be successful for it to be a success for the company.”
As an example, the company recently introduced a new smaller-footprint grocery store concept called Main & Vine. With its first location in Gig Harbor, Washington, the format combines local, specialty and everyday products at affordable prices.
Kroger recently introduced a new smaller-footprint grocery store concept called Main & Vine.
“We clearly think there’s something there in that specialty, high food service environment that we can learn from and grow on with the one Main & Vine store we opened and the near-term success of that, and the ability for us to learn what the customers think about that,” Schlotman said. “But if for some reason any of those tests that we do aren’t successful, we know more about different pieces of that business that we can either replicate or decide not to replicate into our traditional stores.
“So, let’s say we decide we’re not going to open up any more Main & Vine stores, and we’re just going to take the learnings we get from that. There’s so much we’re already learning from the food service side of that that, if we just stopped today, that we could export probably 1,000 stores and improve their food service operations. The time and energy we spend on Main & Vine is going to be more than worth it to the full business.”
Kroger also is culling insight from Ruler Foods, a hard-discount format, similar to Save-a-Lot and Aldi, which it acquired as part of its merger with Jay C Foods Stores in 1999 and has expanded to better understand how the model works.
Kroger acquired Ruler Foods, a hard-discount format, in 1999 and has expanded it to better understand how the model works.
“We have to make sure we don’t let any supermarket mentality enter into a hard-discount format,” Schlotman said. “We have to let the customer decide how long the lines should be, not let somebody who thinks the line should only have two people. And we can’t worry about whether or not we’re bagging groceries or not bagging groceries when the customer’s perfectly willing in that environment to not have their groceries bagged for them…
“So, you have to understand what makes that format successful to the customer, not try to force a format on the customer that they aren’t willing to pay for. And we’re learning.”
As it seeks to expand into on-line retail, Kroger has launched ClickList, a mobile app feature that enables customers to order groceries on-line to pick up at the store. Schlotman said ClickList is available in about 40 to 45 Kroger stores today.
“The one thing we do know is the customers seem to like it, and generally speaking, if you’re offering a service that the customer seems to like, they’re willing to engage with you, they’re increasing their loyalty with you, over the long haul you generally figure out a way to wind up winning,” Schlotman said.
The company also is exploring grocery delivery, he added.
“The one thing I can tell you about is there really isn’t an option for home delivery out there that we aren’t trying to learn and understand somewhere,” Schlotman said. “And if you name most of the options, whether it’s our own trucks with home delivery, whether it’s an Instacart or an Uber, there’s some learning going on somewhere so we really understand the economics, and we understand what’s going on.”