What exactly happened with Kroger?

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pseudo3d
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What exactly happened with Kroger?

Post by pseudo3d » February 11th, 2020, 9:40 pm

I wanted to put this in the Amazon grocery store thread but I didn't want to de-rail. It was in response to this:
storewanderer wrote:
February 9th, 2020, 9:37 pm
The biggest thing is Amazon says it may do something and it sets shockwaves through the grocery industry. Look at all the initiatives Kroger has been doing the past couple years to try to catch Amazon. Is Amazon even selling any more groceries now than they were a year or two ago? I'm not so sure. But Kroger has sure shifted a ton of capex spending to trying to combat Amazon, much to the detriment of their existing store base/store base expansion opportunities. All because Amazon says it will expand Whole Foods, or open hundreds of grocery stores, or says something else along those lines. All Amazon has to do is talk to set an established chain into a major strategy shift.
My main point was that Kroger may not have been reacting to Amazon, even though it seemed to change around the same time they (Amazon) announced they would buy Whole Foods Market. But there must have been something to change Kroger so radically in the course of a few years.

In 2015 and 2016, Kroger was on top of things. While Albertsons was fiddling with its new purchase of Safeway, Kroger still smoked the combined company in terms of stores and earnings. They were building new "Marketplace" stores across all divisions, which despite stating not competing with Walmart, was getting close to it as they were able to drop their food prices and re-merchandise the stores (goodbye furniture, hello clothing). They made plans to enter Hawaii and bought Roundy's toward the end of the year, giving them the Milwaukee market and Roundy's top-tier Chicago supermarket, Mariano's, which made Jewel-Osco look dowdy and boring. They purchased a stake in Lucky's Market, which seemed like a growth vehicle, and opened a few smaller prototypes, including Fresh Eats MKT in Ohio (a 12k square foot convenience store/grocery store hybrid) and Main & Vine (in a former QVC).

And then things started to go off the rails around mid-2017, with Kroger announcing a series of new technology initiatives that would change the company. The Marketplace stores, which had already been slowing, dried up with almost no new stores being built. The entire convenience store division was off-loaded. Visa cards were briefly banned at Smith's. A push for delivery-based services was created, including buying Home Chef. Fred Meyer started to get slowly whittled away. Divisions became more similar to each other instead of more decentralized. Lucky's turned out to be a big loser and announced that they would close down nearly all of their stores, practically overnight. Cap-ex was cut, smaller markets were discarded, and the stores have noticeably suffered as a result.

To blame this solely on reacting to Amazon (which, despite the WFM purchase did not exactly revolutionize the grocery market) would only make the leadership of Kroger look worse, willing to throw away years of hard work getting Kroger (and its brands) to where they are today all for chasing "technology initiatives" is absurd.

So what happened? Did Kroger have some sort of executive shuffle that wasn't well-publicized?

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Re: What exactly happened with Kroger?

Post by storewanderer » February 11th, 2020, 10:38 pm

I guess we will know in a few years what will happen with Kroger. I've been wrong about things before, but I did accurately predict when the first Albertsons and the old Safeway went the wrong way. The circumstances were much different and both were on weaker footing than Kroger.

I think there is still time for Kroger to right itself. They probably need to get back some of the talent they kicked off with voluntary early retirement programs in 2017 as that really gutted the divisions of their last talent (they were already way down in headcount compared to 10 years before), and that was when they really started to control/centralize everything like fresh department merchandising and ads in Ohio.

The issue I see is they are so committed at this point to the technology investments. Hundreds of millions of dollars have been committed to those investments. Plus the hundreds of millions of dollars lost in Lucky's Market. This is not a good situation and this is all money that could have gone to building up the store base and dominating over Albertsons/Safeway.

I actually predict Albertsons/Safeway to overtake them in marketshare in the next few years on a national level. It may take some sort of acquisition for that to happen but a few years ago that would have been very unlikely.

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Re: What exactly happened with Kroger?

Post by pseudo3d » February 12th, 2020, 6:54 am

storewanderer wrote:
February 11th, 2020, 10:38 pm
I guess we will know in a few years what will happen with Kroger. I've been wrong about things before, but I did accurately predict when the first Albertsons and the old Safeway went the wrong way. The circumstances were much different and both were on weaker footing than Kroger.

I think there is still time for Kroger to right itself. They probably need to get back some of the talent they kicked off with voluntary early retirement programs in 2017 as that really gutted the divisions of their last talent (they were already way down in headcount compared to 10 years before), and that was when they really started to control/centralize everything like fresh department merchandising and ads in Ohio.

The issue I see is they are so committed at this point to the technology investments. Hundreds of millions of dollars have been committed to those investments. Plus the hundreds of millions of dollars lost in Lucky's Market. This is not a good situation and this is all money that could have gone to building up the store base and dominating over Albertsons/Safeway.

I actually predict Albertsons/Safeway to overtake them in marketshare in the next few years on a national level. It may take some sort of acquisition for that to happen but a few years ago that would have been very unlikely.
I don't know about Albertsons/Safeway overtaking them in market share nationally, even if they have been gaining ground in the Smith's region. While Albertsons/Safeway has a lot of big-city districts (SF Bay Area, Washington DC, Chicago, Boston) that Kroger has either little or no market share, Kroger blankets much of Middle America where Albertsons/Safeway hasn't had stores in years (if ever).

I do agree that at this point, Kroger getting rid of entire divisions like early 2000s Albertsons or early 2010s Safeway is extremely unlikely. The most I can see is disposing of Mariano's and continuing to cut out smaller markets especially where competition is tough (the Lake Charles market is now 2-2-2 with Rouses and Albertsons tied, the College Station/Bryan market is now 5-2 H-E-B leading, whereas just 10 years ago it was 3-3 with one of H-E-B's stores still being a Pantry).

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Re: What exactly happened with Kroger?

Post by arizonaguy » February 13th, 2020, 9:33 am

storewanderer wrote:
February 11th, 2020, 10:38 pm
I guess we will know in a few years what will happen with Kroger. I've been wrong about things before, but I did accurately predict when the first Albertsons and the old Safeway went the wrong way. The circumstances were much different and both were on weaker footing than Kroger.

I think there is still time for Kroger to right itself. They probably need to get back some of the talent they kicked off with voluntary early retirement programs in 2017 as that really gutted the divisions of their last talent (they were already way down in headcount compared to 10 years before), and that was when they really started to control/centralize everything like fresh department merchandising and ads in Ohio.

The issue I see is they are so committed at this point to the technology investments. Hundreds of millions of dollars have been committed to those investments. Plus the hundreds of millions of dollars lost in Lucky's Market. This is not a good situation and this is all money that could have gone to building up the store base and dominating over Albertsons/Safeway.

I actually predict Albertsons/Safeway to overtake them in marketshare in the next few years on a national level. It may take some sort of acquisition for that to happen but a few years ago that would have been very unlikely.
Walmart shifted a lot of its focus to online at the same time Kroger did (closing several stores, slowing new store development to a crawl) but it seems like they plan to utilize a lot of their existing infrastructure to support online (ship to store, delivery from store, converting closed stores to warehouses). Kroger is building an entire distribution network and fleet of warehouses separate from their existing operation.

Those Ocado automated warehouses cost $55 million each (and they're building 20 of them). They're only useful for fulfilling online orders. Think of how many stores they could build for that price. I'm not even convinced that online ship to home grocery shopping will ever scale up to be as prevalent as online dry goods / electronics ship to home shopping is today. It seems like they could have a number of expensive white elephants on their hands.

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Re: What exactly happened with Kroger?

Post by buckguy » February 13th, 2020, 1:06 pm

Kroger has, historically, been a defensive operator. Never the innovator, sometimes a little late in the game. The closest thing to an innovation was superstores which were too late to help them in some of their larger markets (Cleveland, Pittsburgh, St Louis) where the competition had had these kinds of stores for ages, but were timed well for a lot of other places. They weren't the first to have drug stores, but fairly early but they lacked the dynamic expansion in the 60s to optimize those stores the way that Jewel, for example, was able to do and in the end they sold the stores rather than just really absorb them into superstores which would have made more sense. They rarely initiate price wars. They've been slow with technology although their self-checkout is the most efficient I've used.

They seem to be stumbling a bit with their formats and giving into the temptation to run stores on a more uniform basis, which probably hasn't always helped them in the past. Creating this alternate distribution infrastructure is a real risk on top of that---despite the upswing in online buying, there's probably a limit to what people will want to buy that way-----some things don't ship well and there are people who never will want someone to choose perishables for them. OTOH, it allows them to expand into areas where they don't have stores and given that Kroger is mostly a middle of the road, easy to take for granted store, it may not work out for them. Still, why order from Kroger when you have Publix or any number of better loved competitors, or even local middle of the road forgettable places---I can't imagine ordering from Kroger instead of Giant or even Safeway---they'd have to create a real incentive for that and I don't know how they would do that in a way that creates long-term profitability.
Last edited by buckguy on February 14th, 2020, 11:44 am, edited 1 time in total.

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Re: What exactly happened with Kroger?

Post by pseudo3d » February 13th, 2020, 3:25 pm

buckguy wrote:
February 13th, 2020, 1:06 pm
OTOH, it allows them to expand into areas where they don't have stores and given that Kroger is mostly a middle of the road, easy to take for granted store, it may not work out for them. Still, why order from Kroger when you have Publix or any number of better loved competitors, or even local middle of the road forgettable places---I can't imagine ordering from Kroger instead of Giant or even Safeway---they'd have to create a real incentive for that and I don't know how they would do that in a way that creates long-term profitability.
H-E-B does have an online store where out-of-area shoppers can get some of their specialty store brand foods (dry goods like salsa and coffee), but they've been developing those items for years. There's no special brand item (that can be shipped without refrigeration) that Kroger (or Albertsons/Safeway, for that matter) has that's worth going out of the way for. That's why the Florida warehouse in particular seems like a mistake. If the justification is "it's not Publix", Albertsons had three attractive stores in the major Florida cities with competitive prices and some admirable perishable departments, and it wasn't enough to save them.

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Re: What exactly happened with Kroger?

Post by storewanderer » February 13th, 2020, 7:40 pm

buckguy wrote:
February 13th, 2020, 1:06 pm
Kroger has, historically, been a defensive operator. Never the innovator, sometimes a little late in the game. The closest thing to an innovation was superstores which were too late to help them in some of their larger markets (Cleveland, Pittsburgh, St Louis) where the competition had had these kinds of stores for ages, but were timed well for a lot of other places. They weren't the first to have drug stores, but fairly early but they lacked the dynamic expansion in the 60s to optimize those stores teh way that Jewl, for example, was able to do and in the end they sold the stores rather than just really absorb them into superstores which would have made more sense. They rarely initiate price wars. They've been slow with technology although their self-checkout is the most efficient I've used.

They seem to be stumbling a bit with their formats and giving into the temptation to run stores on a more uniform basis, which probably hasn't always helped them in the past. Creating this alternate distribution infrastructure is a real risk on top of that---despite the upswing in online buying, there's probably a limit to what people will want to buy that way-----some things don't ship well and there are people who never will want someone to choose perishables for them. OTOH, it allows them to expand into areas where they don't have stores and given that Kroger is mostly a middle of the road, easy to take for granted store, it may not work out for them. Still, why order from Kroger when you have Publix or any number of better loved competitors, or even local middle of the road forgettable places---I can't imagine ordering from Kroger instead of Giant or even Safeway---they'd have to create a real incentive for that and I don't know how they would do that in a way that creates long-term profitability.
To pile it on, they had decades to establish an online presence for Fred Meyer where they could have sold a full host of items online but they never bothered. Even as retailers who went bankrupt and out of business like Shopko had online sales going on, Fred Meyer didn't. They do now have some kind of online ordering for Fred Meyer but it doesn't seem to be the full Fred Meyer mix of non food.

I really do not think this is going to end well.

Wal Mart seems to have grown its online presence while at the same time attempting to make improvements to the stores. Wal Mart has identified its shortcomings and has improved upon them. Adding self service pick up towers near the front of the store is an improvement because now you don't have to go spend 3 minutes to walk to the back of the store, wait 3 minutes for help, and wait another 3 minutes for the help to find your package then fumble around entering your ID into the machine, then walk 3 more minutes to get out. You go to that tower and it spits out your order in a few seconds and you are out the door. Adding more self checkouts there is an improvement because their front end service was always inefficient and terrible. They seem to be trying harder on the quality and freshness of their produce, meat, and bakery than before too and those departments in most Wal Marts I go into look noticeably better than they did before (they've gone from unacceptable to somewhat acceptable).

Compare this to Kroger. Kroger spent the past decade until a couple years ago, improving its front ends; "fast checkout" 2 in line rule, adding more registers, technology program to track movement through the store to predict how many registers to have open at a given time and a given future time, a huge focus on front end efficiency which from my observation went really well. What has Kroger been doing in the past couple years? "Scan Bag and Go" technology that hardly anyone uses, as a justification for removing checkstands so now many recently remodeled stores have only 5 checkstands and 15+ self checkouts (a few of which of which are usually closed or inexplicably broken) and even on a busy weekend now in stores with this set up lines are 4-5 customers long now going into the aisles. Kroger spent the past decade until a couple years ago cutting its prices to levels very close to Wal Mart and running a number of flat price hot ad specials which made for some great endcaps. A couple years ago something changed and their pricing started rising on many (not all...) items and the hot ad specials always - every single time- had some kind of hoop - "digital coupon" "2 day sale" "3 day sale" "buy 5 or buy 10 to save" etc. I don't know what they are doing with their endcaps but there is never anything on them I want anymore and half of the time I go in for one of their "hoop" specials it is out of stock. Their policy on many of the "hoop" specials is while supplies last (that seems to be about Noon on the first day of the sale) in some cases but the local store does to its credit always give a raincheck. Another thing Kroger had going for it was better fresh departments. than Wal Mart. Again what I have been noticing in the past couple years is Kroger fresh departments have stayed the same (at best) and Wal Mart's have improved. Another example is employee uniforms. Kroger employees in some divisions in many departments are wearing street clothes and no uniforms as Kroger stopped having employee uniform shirts. This has very mixed results as far as how professional it looks. It is difficult to tell if someone is even an employee. Wal Mart has made its employee uniform requirements more strict than in the past and overall the employees there have a far more professional appearance than they did 5-10 years ago.

I cannot even believe how far Kroger's quality of operation has declined. I guess I just got too used to them steadily getting better and better since about 2008 and these past couple years as things have fallen off have been very noticeable and frustrating to see after how good they were doing for so long. And I cannot believe I am speaking more positively of Wal Mart's operation... but I really do think that has been getting better.

To further pile it on, one of those Ocado warehouses just burnt down overseas and Ocado itself is bleeding cash. https://www.independent.co.uk/news/busi ... 29301.html

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