Founded by Bernard Kroger in 1883, the modern Kroger retail chain based out of downtown Cincinnati, Ohio is the largest pure grocery retailer in the world. With annual sales of over $88 billion across 3,800 stores it is an impressive though patient and conservative business.
As you stand in the Kroger head office reception area at the foot of the 30-something floor tower, a flat panel screen scrolls the average wait time for shoppers queuing up. It was just 38 seconds. And that reflected my shopping experience in a new Kroger Marketplace store in Frisco, Texas, several days earlier. The Marketplace stores are new format fresh produce focused stores and they go head-to-head with HEB’s fresh offering.
I remember the first time I ever visited a Kroger store and the fresh section was outstanding. Now it’s been improved upon and is the store’s core offering. The layout is visually stunning, right down to the polished apples, which have as much to do with stock turn as with theatre and display. One of the latest stores has a shaded car park with valet and buggy service to and from the store.
The older stores are being refurbished into the new format, and when Kroger does these things it does them properly. Kroger recently refurbished the town of Lansing, Illinois; not the store, but every Kroger store in the town at once! A store refurbishment is the key capital investment area for any retailer, and it isn’t done for fun. The sales increase after refurb is somewhere between 6% and 12% depending on location and size.
However, what makes Kroger so profitable and far-sighted is that over many years it has built a vertically integrated retailing company that owns 40 manufacturing sites which directly supply factories and business with dairy, meat and bakery products. Just so we understand what this means, Kroger is a huge grocery retailer, as well as a very large fresh and processed produce supplier. In fact, Kroger’s own brand quality from its factories is so good that it is a contract manufacturer and supplies other retailers.
But why has Kroger focused on fresh produce, when retailers like Tesco in the UK have focused on retail own brand in categories like liquor, beer and wines? Well, the highest perceived value and greatest differentiator in any grocery store brand in the minds of shoppers is the fresh produce. Whether that be meat in the case of FAREWAY, or dairy, bread, fruit and vegetables in the case of Kroger. However, unlike branded liquor, fresh produce is unbranded, meaning that the retailers own offering is effectively without competition.. Retail owned fresh produce has a very high perceived value – high price product in a shopper’s basket, offset by limited brand presence.
What does all this mean to Kroger as a company? Well, it has an own brand sales target of 50% overall. Currently this stands at around 35%, but Kroger has well over 50% own brand share within key categories including dairy, meat, fruit and vegetables. Interestingly, while it has 35% own brand overall, it only generates about 28% of its retail profit from these sales. But where it owns the factories it also receives 100% of the manufacturing margin.
A clever, patient and conservative $88 billion retailer.
In his role as CEO of CROSSMARK, Kevin Moore looks at the world of retailing from grocery to pharmacy, bottle shops to car dealers, corner store to department stores. In this insightful blog, Kevin covers retail news, ideas, companies and emerging opportunities in Australia, NZ, the US and Europe. His international career in sales and marketing has seen him responsible for business in over 40 countries, which has earned him grey hair and a wealth of expertise in international retailers and brands.
CROSSMARK Asia Pacific is Australasia’s largest provider of retail marketing services, consulting to and servicing some of Australasia’s biggest retailers and manufacturers.