Retail Intimacy, Part 13: Winning at Kroger

In the cutthroat grocery business, where even the strongest chains occasionally falter, Kroger’s consistent execution is the envy of food rivals. The world’s fifth-largest retailer and leading U.S. supermarket chain with more than $100 billion in annual sales continues to outpace the industry with 46 consecutive quarters of same-store sales growth to date. Most analysts expect Kroger to build on that success in 2016, thanks to its sharp operational focus and ability to leverage its rich shopper data and evolve its marketing strategies to attract new shoppers into its loyal customer base.“Kroger is focused on maintaining store conditions and operations from one store to the next. It has solid reward programs and products that offer a balance between value and quality,” says David Livingston, a supermarket analyst who runs DJL Research in Waukesha, Wisconsin.One of Kroger’s particular strengths is that it has been able to grow organically, unlike rivals that have been hurt by ill-conceived acquisitions, says Livingston. “A lot of grocery chains have gotten into trouble by buying up stores in distressed markets. Kroger is in no hurry to do that,” he says. “It has expanded its offerings in organic and gluten-free categories to attract high-end customers, while remaining strong on the lower end with rewards programs tied to its fuel service business.”It is not easy for an organization as large as Kroger to evolve along with consumers’ changing taste preferences and shopping behaviors. (The company operates some 2,600 U.S. stores and 1,200 fuel center/c-store locations, both under its own name and those of regional banners including Ralphs, Dillons, King Soopers, Fred Meyer, Food 4 Less, QFC and Harris Teeter.) Yet that’s exactly what the retailer has done, particularly through the advancement of a multitude of digital initiatives.In the last year, Kroger stepped up expansion of its online ordering/in-store pickup service, leveraging insights from test programs at Harris Teeter stores. It also bolstered its e-commerce businesses through the acquisition of the online vitamin and supplement retailer Vitacost.com, using its technology platform and fulfillment network to launch a new natural and organic foods e-commerce site in Denver called King Soopers Live Naturally. As of the first quarter, the company had reached a milestone of 2 billion digital coupons downloaded from its various digital outlets since the program began in 2009.In stores, Kroger continues to hone its assortment and merchandising strategies, while improving customer service through more personalized interaction with shoppers and faster checkout systems. “[Kroger is] focused on creating a better overall store experience that matches the values of their shoppers and inspires them to increase their baskets,” says Steve Abdo, senior vice president at Catapult. “While Kroger understands that the digital space is an extremely important part of its future, it is also doing more than other competitors to leverage the physical store.”The Right ApproachFor brands to win at Kroger, they must approach its sprawling shopper marketing operation in the right way. Over the past year, the retailer has been dissuading manufacturers from pitching so-called “ground-up” programs that rely heavily on individual brand messages. Instead, brands are increasingly being urged to participate in Kroger-driven marketing initiatives, many of which are now built around “Total Store” events. These are broad platforms that may run over a period of several weeks and typically link multiple product categories and a variety of consumer touchpoints under a common theme, such as this year’s Red, White & Barbecue summer grilling and Game Day Greats promotions. Kroger has also been developing “Taste of” events to highlight a specific country and its regional cuisine, with featured programs including Taste of Mexico in 2014 and Taste of Italy, starting this month.Two marketers that have been participating in these programs are ConAgra Foods and Georgia-Pacific. Executives from both companies say that any successful partnership with Kroger requires the shopper marketer to enter into discussions early and with great care to identify key points of contact.“Kroger is a very big, multifaceted organization. You have to partner early and upfront with multiple stakeholders throughout its marketing and merchandising departments,” says Tammy Brumfield, vice president of shopper marketing at ConAgra. “That’s true for many retailers, but it’s particularly true at Kroger. So many of those [Total Store] events hinge on merchandising execution, and you cannot work in isolation or you will jeopardize your program’s success.”Once the conversations begin in earnest, Brumfield says, flexibility is needed in order to merge a brand’s specific marketing objectives with Kroger’s broader strategic priorities. “As a marketer, you need to know when to give up a little of your messaging and allow the retailer to ‘own’ a program,” she says. “You want to lead with your message, but always keep in mind what’s most important to Kroger and its shoppers.”Sean Bishop, senior manager of shopper marketing at Georgia-Pacific, agrees. “It’s about finding areas of intersection or overlap, and being willing to negotiate on timing and the creative aspects of program development,” he says. “Our marketing and sales teams work closely with our buyers to engage Kroger from the standpoint of: Where can we find those areas of commonalities? How can we leverage assets that have already been produced, and where do we need to supply new creative that fits within the concept that Kroger has established?”Lessons from the Front LinesToday, ConAgra is able to consistently break through with its shopper programs at Kroger. But that wasn’t always the case. The company has had to learn valuable lessons in compromise in order to achieve its mutual marketing objectives with Kroger. Two years ago, for example, ConAgra approached Kroger’s marketing and merchandising groups, along with the company’s philanthropic foundation, with ideas for how to merge its Child Hunger Ends Here charitable initiative with Kroger’s Bringing Hope to the Table cause-marketing program.Although the teams agreed on the worthiness of their respective causes, ConAgra’s platform focuses on child hunger in America while Kroger casts a wider net on the global hunger crisis. Additionally, ConAgra typically activates its hunger-related program at retailers in March, which did not fit in with Kroger’s late November to early December timeline. “We all agreed and said, ‘Let’s not prevent timing from moving forward, and let’s find a way to customize our program to fit within their larger objectives,’” says Brumfield.ConAgra worked with the retailer’s sales and merchandising teams and dug through its own sales data to identify products that would be most relevant to Kroger shoppers. The focal point of the program – four-sided custom pallets featuring nine participating ConAgra brands and dozens of different products – prominently displayed Kroger’s Bringing Hope to the Table graphics while subtly incorporating ConAgra’s push-pin logo for Child Hunger Ends Here.“We also drove donations while engaging shoppers at kroger.com, and we used our existing social media platforms to communicate facts about the broader hunger issue that Kroger is committed to,” notes Brumfield.Georgia-Pacific went through a similar process as it looked for ways to incorporate its Dixie brand into Kroger’s recent Red, White & Barbecue program. The company had previously developed a Savor Summer Flavor theme around Dixie, which it presented to Kroger’s marketing and merchandising teams during a growth summit and subsequent joint business planning meetings last year. “The Dixie brand is very relevant in that [summer] timeframe to Kroger shoppers, and we were able to participate in a magazine mailer that leveraged more of the Dixie equity under the Red, White & Barbecue umbrella,” says Bishop.However, a fair amount of negotiation and compromise was required to get to that point. The existing Dixie campaign featured a number of assets that Bishop’s teams initially hoped to include as part of a plan to customize the program for Kroger. Ultimately, these plans were dropped when it became clear the overall strategy did not align with Kroger’s vision for Red, White & Barbecue. In exchange for the company’s commitment to the program, Kroger made good on a promise to provide additional promotional leverage for Georgia-Pacific’s Dixie, Dixie Ultra and Vanity Fair brands.“It was good for our brand teams to hear that promise from their senior leaders,” recalls Bishop. “They reassured us: ‘This is the direction we’re taking, and we’ll work with you to make it happen.’”Moreover, Bishop says that the additional promotional opportunities afforded by participating in Kroger’s broad platform helped generate stronger than expected results. “In the end, we learned that it was more cost-efficient to leverage Red, White & Barbecue than try to build a Dixie-centric program for Kroger from scratch,” he says.Future GrowthOne area in which Kroger sees an opportunity for future growth is the center store. “Contrary to what some people in this industry may think, Kroger does not believe the center store is dead,” says Catapult’s Abdo. Going forward, he says, the retailer will continue to deploy themed events, digital promotions and innovative merchandising programs to leverage its advantage in categories such as coffee, yogurt, natural foods and home cleaning supplies. “Kroger knows it’s not just competing with other supermarkets. It needs to keep building excitement to win more trips and get more shoppers into the store.”Kroger is also proving that its perimeter appeal extends beyond the grocery channel. A recent survey by Chicago-based Technomic revealed that Kroger is gaining trips from QSR and fast-food restaurants, including McDonald’s. The survey asked Kroger customers where they’d go if they didn’t purchase a prepared food item from the retailer. One out of four opted for Kroger instead of a restaurant. Of those who would go to a restaurant, 23% named McDonald’s, followed by Wendy’s (11%), Applebee’s (7%), Burger King (6%) and KFC (5%).By far, Kroger believes that its biggest growth opportunities lie in digital. As the retailer continues to build its technological capabilities, brands should expect to maintain a consistent digital presence, including by engaging with shoppers at Kroger’s “Inspired Gathering” (party planning) and “Discover Fresh” (recipe idea) Web pages. And while the traditional Kroger shopper skews older, the retailer expects CPG companies to leverage its digital platforms in order to attract those active Millennial shoppers who seek value, products with functionality and a “one-stop-shop” approach.“Kroger’s e-commerce strategy is opening up a whole new avenue with which to reach younger shoppers,” says Bishop. “We’re expecting a lot of exciting opportunities around our digital programs with Kroger in 2016.”About the Sponsor Catapult is a conversion marketing agency, where branding and buying are part of a total solution. Catapult’s data-driven approach identifies the core, actionable insights that inspire brilliant creative with the power to convert consumers into shoppers, shoppers into buyers, and buyers into loyal advocates. Catapult delivers channel-agnostic solutions that are brand savvy, retailer smart, and digitally enabled. Catapult is an Epsilon brand. Visit them at www.catapultmarketing.com and on Twitter @catapultmktg.

Retail Intimacy, Part 13: Winning at Kroger

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