Kroger’s Digital Investments Pave the Way for Success in 2021

The US grocery chain hit $10 billion in online sales in 2020 and heavily invested in micro-fulfillment centers.

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Need to Know

  • The grocery retailer’s digital sales doubled in 2020, hitting more than $10 billion.
  • Kroger’s digital strategy hinges on a 2018 deal with UK-based online grocer Ocado, which will see the retailer open as many as 20 robotic customer fulfillment centers, two of which opened this year.
  • Each CFC has the capacity to fulfill online orders equivalent to the sales volume of 20 stores.
  • In 2020, Kroger also generated $150 million in incremental operating profit from its digital shopper-focused retail media group, Kroger Precision Marketing (KPM).

Analysis

Grocery retailer Kroger made big digital gains in 2020 as shoppers turned to e-commerce for their food purchases.

The company’s successes are largely due to a digital-first strategy that it first rolled out in 2018, as part of its Restock initiative: order pickup was already available than 2,200 stores when the pandemic hit, leading to digital sales for Kroger in 2020 that surpassed $10 billion.

The company can also thank a well-established loyalty program for its digital gains: that program, along with Kroger Precision Marketing, the company’s retail media group, saw 500 billion personalized delivered to digitally engaged shoppers in 2020. These offers in turn generated $150 million in incremental operating profit. By the end of 2023, Kroger CIO Yael Cosset estimates Kroger’s digital sales will double again.

Kroger’s ambitious digital forecasting may be in part due to a 2018 deal with UK-based Ocado, an online grocery retailer. In 2018, Kroger inked a deal with Ocado to open as many as 20 robotic customer fulfillment centers (CFCs) across the U.S. The locations of eight CFCs have been revealed, and the first two — in Cincinnati and Orlando — opened this year. Collectively, the CFCs will comprise about three million square feet, and each facility will be able to fulfill the sales volume equivalent of 20 stores but using just 60% of the capital and labor.

Gabriel Arreaga, Kroger’s Senior Vice President of supply chain, said the strategic locations of these CFCs will allow the chain to serve 75% of the US population within a 90-mile radius. “In my experience leading supply chains in different economies and geographies, reach matters in creating an ecosystem that captures rapid market share and lowers operational cost aggressively,” Arreaga said. “That is why we invest in CFCs that cover a vast population with one single building, versus other competitors that invest in hundreds of facilities. We will scale faster.”

Kroger is also using Ocado’s in-store fulfillment (ISF) solution, which includes proprietary software that allows associates to find products and assemble online pickup orders more efficiently.

In addition to its fulfillment capabilities, Kroger has launched a number of new tools aimed at customer engagement and digital advancement. These include the launch of its Mirakl-powered third-party marketplace in fall 2020, which expanded the number of individual items available from the retailer by 50,000. In October, Kroger partnered with Whisk to launch shoppable online recipes, and earlier this year, the grocery retailer piloted contactless “scan and go” shopping carts that can scan, weigh, and check out products, and scan customer loyalty cards.

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