Kroger’s Nimble Formula Grocer Sees Success Amid Challenging Times
By Rebecca Patrick
As Henry Ford once said, “Before everything else, getting ready is the secret to success.”
To see that in practice, you have to look no further than Kroger and its progress in the Indiana market, which has grown steadily over the past two years. The preparedness shown by the retail food chain has paved the way even in the face of the current economic hardships faced by businesses across the board.
“We operate pretty lean as a company. We control costs, particularly compared to other national competitors, very effectively,” states Kroger spokesperson John Elliott. “When you hit a recessionary period where companies are looking around and trying to reduce cost, we already operate that way.”
Doing the necessary homework and paying attention to developing trends has also paid dividends. A year ago, Kroger started taking note of customer patterns that were driving growth and shifting business from one area to another. The emerging segments: the bakery, deli and service department.
“If you look back at the (store) remodels that we have done over the last several years, they have all included some enhancement of the bakery and deli areas, adding soup bars, salad bars. We also invested in wine stewards and cheese stewards with trained personnel.The growth (in these departments) accelerated as the economy entered more into a recessionary stage,” Elliott recounts.
“While the overall market for retail food business has not grown significantly in this country, or in this region, in terms of total food buying, it has grown in the sense that we have taken some business from restaurants. Kroger’s bakeries and delis have benefited where mid-priced restaurant chains and even fast food restaurants have suffered some.”
While it’s easy to say, in theory, that grocery stores have an advantage because people need to eat, it doesn’t mean food buying habits have remained the same over the past year and a half.
“We have seen reductions in the total food purchase in communities that have been particularly hard hit – where a household went from two paychecks to one, or two paychecks to none,” Elliott offers.
More frequently, however, Kroger has witnessed a change in the type of food purchased.
Amid people trying to make ends meet, the lower-priced Kroger manufactured products have seen a sales spike. The items include ones that “say Kroger on the label, from our top tier Private Selection brand, or any of dozens of other brand names,” Elliott emphasizes.
Prior to the economic crunch, he reports that these house brands accounted for roughly 25% of the food sold nationally in Kroger stores and 30% sold in the central division (that includes Indiana). Over the past year, those numbers have increased to 33% and 40%, respectively.
Elliott is quick to stress that these products are less expensive due to reduced overhead and are of high quality.
“It’s really the marketing and promotional cost that we don’t have that a national brand does. All of that money that was not spent translates to a lower cost to the customer. We have benchmarked the quality and other specifications of those products to national brands,” he says.
Having these lower-priced options is part of Kroger’s long-term strategy to have products in each price tier; it’s a strategy that has more than paid off.
“That meant that when the recession hit, Kroger was very well positioned to just change the ratio or the percentage of those products that are in the value- or lower-priced tiers,” Elliott describes.
“Others in the industry operating only in the higher price tier or only in the lower price tier cannot react as effectively to those changes. They can’t react the same way and keep the same customers in their store who are now going to the lower-priced product. They’ve temporarily (at least) lost the customer.
“In some markets, we have been taking significant market share from competitors. As customers have moved from believing they knew which retailer had the best prices or the best value to actually investing more time and effort into researching where the best pricing is, we have gained more customers,” he surmises.
Having such a flexible model is vital to virtually every industry, particularly those dealing with customers and their confidence level.
“If you are not positioned to be really nimble and keep up with, or keep ahead of, consumers you are in trouble,” Elliott asserts.
“But because we were set up to be very nimble in reacting to those changes, as consumers are more confident and the economy turns around – we can be just as nimble and react again.”
