E-COMMERCE AND KROEGER – OVERHAULING THE GROCERY BUSINESS

Kroeger is the largest U.S. supermarket chain and it is instructive to observe their recent attempts to gain traction in the e-commerce business.

Not since the 1980’s when Walmart pushed into groceries have traditional supermarket chains faced so much pressure to transform their operations.  Or, in the words of an investor, “Does anyone’s blood pulse through their veins with an entrepreneurial bent?” (ref WSJ). He’s accurate in that assessment, because that’s what it will take to bring off this transformation.  E-commerce is forcing already cash-strapped companies to revamp their operations and invest heavily into technology and talent in order to hang onto their customers who want to avoid the stores.  Otherwise, there’s always Amazon to lure them away.  Kroeger made the typical “change management” mistake of not taking the new wave of e-commerce seriously, and they avoided addressing the need for change for much longer than other of their merchant competitors.  Thus, trying to make the push to catch up has been particularly difficult for the firm, made more so by large contingents of the grocer’s culture who oppose the decision to embrace e-commerce.  Rodney McMullen, CEO of the company, has been with Kroeger since he started as a bagger while in college.  McMullen knows that this is a pivotal moment for the Kroeger operation and recently said that, “We’ve got to get our butts in gear – there was no doubt that we were behind.”  He indicates that he believes that Kroeger’s leadership team have devised a plan to help it grow again.  Keorger joins a long line of American retailers who have struggled with the online transition – including Walmart and Target in earlier days.  Even though on-line ordering has been around for decades, it didn’t catch up with the food sector until recently, pushed to a certain extent by Millennials forming families and choosing to order online, pick up in the store.  Even though online purchases account for only 5% of the roughly $1 trillion food industry, online sales continue to grow, expanding by 40% annually.  In-store sales remain flat.  McMullen says that the changes are “incredibly exciting, but there’s a lot going on and it’s going on fast.”  Change has a way of happening that way- that’s the reason that companies need to be always vigilant about keeping up.  Part of the problem at Kroeger’s in years past has been the tendency to dabble in digital projects without any real commitment to carry them through.  Kroeger managers tended to focus on their stores, where sales determined their compensation and chances for advancement.  Expanding the online, they believed, would create extra work and prevent the company from maximizing store revenues. . . until those store revenues stopped growing and there was a dawning realization that embracing digital would be the answer for the future.  Last year, a Kroeger supplier informed the technology director that Kroeger’s was still falling short of getting digital orders to customers as fast as its competitors.  Thus, the chief digital officer has set an ambitious agenda for opening online-pickup locations other goals to make that happen.  The company is also keeping focus on the company’s stores so that the traditional customer isn’t neglected.  Certainly, a challenge.  As all change is, but starting far back in the line-up always makes those change efforts that much more difficult.  It’s why we always admonish our corporate clients to keep a sharp eye on the ongoing changes in their industries.

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