Despite increased competition from meal kit services and e-commerce giants like Amazon and Walmart, the Kroger supermarket chain has had a standout year. Kroger’s first quarter earnings report revealed a 66% spike in digital sales over the previous quarter, leading the company’s stock to surge more than 9% at a time when many supermarkets are struggling just to get by.
One of the keys to Kroger’s success, according to a number of industry analysts, is the company’s recent push into the digital space. Kroger has been able to connect its digital and in-store elements in a way that’s unlike other supermarket chains of its size, and that shift has elevated the overall customer experience. Restock Kroger and ClickList Pickup are just two examples of programs Kroger is leaning on as it pushes further into digital. The company also recently inked partnerships with the meal kits maker Home Chef and Ocado, a British online grocery provider.
In order to find out more about how these and other digital efforts are boosting Kroger’s bottom line, helping the company exceed analyst expectations with a $2 billion profit on revenue of $37.5 billion, we spoke to Ed Kennedy, senior director of commerce at the global software firm Episerver. Here’s what he had to say.
Kroger has connected digital and in-store elements through services like ClickList Pickup, which allows customers to order their groceries online and pick them up curbside. By giving consumers the option to shop online and pick up in-store, it’s clear that Kroger is listening to increasing demands for convenience.
Convenience is the most natural competitive experience for grocers like Kroger to compete with Amazon. Amazon will match Kroger’s supply chain and pricing strategies with the Whole Foods footprint and their industry leading fulfillment capabilities. With over 2,700 stores compared to just 479 Whole Foods locations, Kroger has the potential to reach many more consumers looking to save time on their evening or weekend errands.
The grocery chain has also innovated by offering digital coupons, so customers can ditch paper coupons for their smartphones, which creates a more convenient, seamless shopping experience.
How do you see those digital initiatives impacting Kroger’s earnings?
I’m unsure if digital initiatives have directly impacted bottom line, yet. When retailers, including grocers, invest in omnichannel fulfillment programs such as click-and-collect or curbside pickup, there is often a downward pressure on operating income in the short term as inefficiencies are worked out. Training store associates to basket and stage online orders efficiently, investing in data integration of where inventory is located, and designing easy-to-use website experiences soak up initial resources.
That isn’t to say their isn’t top-line financial impact. It is clear that consumers respond well to companies that innovate the overall customer experience and that evolve alongside the latest technologies.
What can other supermarkets learn from Kroger’s successes with digital?
The traditional web/store silos need to be dismantled and retired. Digital executives and operations executives need to unify their revenue and profitability targets to ensure internal bureaucracy and conflict don’t stifle customer experience innovation.
Regarding the customer experience, Kroger is setting the tone for grocers’ response to digital by embracing it full-throttle with website improvements, ClickList features, partnering with fulfillment providers, and enabling digital coupons in store. Some grocers may need to take a more measured approach by testing these initiatives in smaller markets before rolling out enterprise-wide.
Supermarket chains can learn from what Kroger is doing by adapting to shifting customer expectations for more seamless digital and in-store experiences. By blending in-store elements with digital platforms, supermarkets can meet the modern, connected consumer wherever and however they prefer to shop.
More broadly speaking, how does connecting online and offline shopping elevate the customer experience?
Consumers have come to expect more than what the traditional retail experience offers, and they crave digital-enabled experiences that maintain consistency across physical and digital touch points and that offer unique and personalized shopping experiences.
In fact, nine out of 10 consumers are okay with brands knowing more about them if it supports a more rewarding and satisfying shopping experience. The key to meeting these expectations is to offer a blend of both digital and in-store features to enhance the overall experience. Connecting digital and in-store is one way brands are elevating the customer experience. By implementing tools like smart mirrors in-store and user-generated content and facial recognition sign-in online, brands can make shopping more convenient and engaging—enhancing both the digital and in-store customer experience.
Big picture, what does the success that Kroger is having right now say to you about the future of digital in the supermarket industry?
The ubiquity of buy-online, pick-up-in-store programs across apparel, electronics, and home goods is now causing consumers to transfer their expectations into the grocery category. Consumers are also becoming familiar with and prefer quick-serve restaurants that provide order-ahead—à la Starbucks and Chipotle—and are becoming familiar with food delivery services such as GrubHub and UberEats. In some ways, Kroger is catching up to the broader consumer expectations. If executed well, this will lead to preference of using Kroger’s online services over Amazon or other competing grocers, which will translate into loyalty, top-line, and bottom-line growth.
In today’s increasingly complex grocery industry, brands need to adopt innovations that allow them to stand out amongst competitors and deliver convenient experiences that alleviate common shopping pain points. We are already seeing companies make these changes and adopt new digital features, such as Target Restock, which now offers free two-day shipping on orders of $35 or more. And we’ll see more brands adopting these types of features to stay competitive and make each interaction with their brand seamless and relevant.
Stephanie Miles is a senior editor at Street Fight.