Kroger impressed the industry with its Q1 2018 results, which it announced yesterday. “Restock Kroger is off to a fantastic start,” said CEO Rodney McMullen.

With sales metrics up across the spectrum, increasing investment in its employees and local communities, and two highly strategic moves — partnering with Ocado and merging with Home Chef — Kroger is making steady progress in setting itself up for future success.

Manufacturer and agency partners should note three key implications as they continue to build collaborative strategies with Kroger through the rest of the fiscal year:

Digital will drive growth. With 66% digital sales growth in Q1, expect Kroger to put more urgency and importance on digital and eCommerce. Kroger reaches 75% of its current shoppers today with its eCommerce offer, and wants to reach 100% eventually — even in markets where it does not have a physical footprint. The Ocado partnership announced in May will be a critical piece to Kroger’s eCommerce puzzle. With ongoing investment in ClickList and Vitacost.com and expanding collaboration with Instacart in new markets, Kroger is illustrating its focus in this space. Suppliers and partners will need to build concurrent and complementary strategies for the physical and digital shelf, with shopper marketing and trade spending to match.

Private label will expand and innovate. The company reported that Our Brands “set the record for the highest-ever retail dollar share in our history,” reaching 26.7 dollar share. Driving this growth were Simple Truth and Simple Truth Organic, which will remain the foundation of an increasingly innovative and competitive offer. With further investment in a new Culinary Innovation Center, Kroger will be able to invest in new product development for its Our Brands business similar to that of its manufacturer partners (and competitors).  

Product partners competing against Kroger’s Our Brands on shelf should wholly embrace Our Brands, particularly Simple Truth, as a branded competitor. Historic strategies against private label focused on price, but now is the time to lean on your brand equity and explore a “compete-collaborate” mentality. How do you build out Kroger’s Our Brands in noncompetitive categories, while pushing back on them in your own?  

Food service and prepared foods will serve as the key component to recapture food-away-from-home spending. In July 2017, Kroger announced an aggressive shift from focusing on share of grocery dollars to focusing on winning a larger share of stomach. Through an increasing and intriguing prepared foods offer, investment in Prep+Pared meal kits, the acquisition of Home Chef, and the expansion of the Kitchen 1883 concept, Kroger is showing it is serious. For food and beverage manufacturers, it is time to start connecting internally with your food service counterparts. Build a story that connects the dots between how you support Kroger in food service and deli as well as on the shelf. Are there opportunities to build efficiencies and grow your business in both places?

For retailers, Kroger’s key growth pillars remain important for you to understand. However, many of you are building off the same pillars: digital, private brands, and food service. The key will be to understand how you can differentiate your experience and offer from Kroger’s, just as you must stand apart from and above other competitors in your marketplace. It has never been a more important time to be unique, efficient, and connected to your shoppers who expect and demand nuanced differences from all their favorite retailers. Pricing remains a soft spot for Kroger. While shoppers have made it clear that price is not the sole reason for shopping at Kroger, the retailer continues to invest in price, sometimes in categories that it does not need to. Retailers that already deliver on experience and assortment may win by avoiding the pricing game and instead winning on margin.

Regardless of how you partner or compete with Kroger, know that it has invested in the short term for long-term success. We anticipate a strong fiscal year, and further surprises in 2018 and 2019.

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For more information, please contact:

Diana Sheehan, Vice President
diana.sheehan@kantarconsulting.com

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