Kroger pulls multiple levers to create a positive price impression but stops short of being a “price leader.” This mixture includes everyday prices, weekly specials, a three-tiered private-brand selection and the previously mentioned personal deals to create a price image capable of resonating with shoppers in good times and bad. It leans on its other key elements — the shopping experience, product variety and quality, and customer service — to command premiums, officials said.
“Kroger is all about a cocktail of different things that makes their success very hard to attribute to one particular thing or another,” Mark Heckman, a Bradenton, Fla.-based principal with Mark Heckman Consulting and a former competitor of Kroger at retailers including Marsh and Randalls, told SN. “But one thing they’ve always had is strong price imagery; they’ve been able to basically pull gross margin out of their stores and be able project a price image advantage over most all of their conventional competitors in the market. It was always difficult to maintain price parity with them [as a competitor], even when our surveys would indicate we were close.”
Kroger listens to suppliers, customers and its sales data to know when its time to adjust prices, then endeavors to make the change resonate by engaging each of its key brand elements. Such a change took place in revamped produce departments throughout the chain in recent years.
It began when sales data showed produce missing from too many shopping carts and surveys indicated low-cost providers were doing it better, officials said. In addition to lowering everyday prices on items appealing to its price-sensitive shoppers, Kroger responded to other shoppers demanding local selections and better variety with new displays and signage to highlight variety. It also trained associates to keep produce departments attractive and well-stocked. The effort resulted in double-digit tonnage increases in produce, officials said.
Customer surveys tracking the progress of Kroger’s Customer First metrics say the company is steadily improving in each of the four areas starting from a base in 2006, McMullen said. According to its most recently reported statistics, price perception was up by 20%, shopping experience improved by 10.9%, people scores improved 12.1% and product scores improved 8.5% since 2006, McMullen said.
“If you think about where we were when we started this journey, you’d go into a Kroger store and basically, they were all the same. We treated all customers the same. It didn’t matter whether you were a loyal customer spending $5,000 a year or a customer spending $50 a year: We treated you the same. We were kind of in the middle,” McMullen said. “Since then we’ve been separating away from the middle, making sure our great customers are treated like great customers and segmenting our stores and our approach to those customers based on what they tell us.”
Kroger is also applying technology to its four keys, making progress on a variety of fronts including digital coupons and checkout speed. Kroger’s IT efforts focus on basics such as building reliable data platforms and tools to help shoppers and employees but also focus on what Christopher Hjelm, the company’s chief information officer, described as “pretty innovative things that we believe can rewrite the rules for retail.”
One such project is the proprietary “scan tunnel” technology known as Advantage Checkout, which utilizes a tunnel with scanning cameras at 360 degrees that can scan items as fast as they can be placed on the belt. The custom-built technology debuted at a Kroger Marketplace store in Hebron, Ky., in 2010.
According to Hjelm, the development grew from a discussion of Kroger customers spending a lot of time struggling to properly scan things at self-checkout. “Billions of times a year, people were performing a task that doesn’t create much value,” he said.
Advantage Checkout has been improved since its debut, including the ability to scan stacked items and detect “overlabeled” items, a Kroger spokesman said. The company is now beginning to engage other retailers in the technology to benefit from the patent — and eventually, the benefits of widespread consumer acceptance.
Kroger in the meantime has used a combination of labor-scheduling technology and employee training to make a significant impact in wait times in checkout without the scan tunnel.
“The average wait time is now under 40 seconds and trending down to 30 seconds. So when you look to five or six years ago before we did anything at the front end, the customer may wait six to eight minutes to get their first item scanned, it’s now under 40 seconds. And we’ve done it without any more labor,” Schlotman said this month.
Faster checkouts — a theme Kroger is now promoting in regional television advertising campaigns — can have far-reaching effects on customer satisfaction. For example, Schlotman said, faster turnover is having the effect of making parking lots at Kroger stores bigger, because each car is in the lot for less time.
“Kroger a few years ago was pretty much in the middle of the pack on any service or operational metrics, and so any improvement they can make in those areas would be just one more element allowing the customer to say, ‘Kroger is the place where I do most of my shopping,’” Heckman said. “If it’s not the best experience — not a Fresh Market or Wegmans experience — it’s at least better than I used to have at Kroger. And often those kinds of incremental gains are enough to make the numbers move.”
Paglia of Kantar Retail said such improvements are the engine that keeps Kroger’s same-store sales momentum chugging along, noting that its eight-year streak of increased same-store sales have come without a marked increase in its number of stores.
“They’re able to leverage their existing store portfolio and increasingly ramp up the productivity with a flat to shrinking store base. To continually get existing stores to work harder and be more productive is their biggest contributor to their overall growth and it goes back to a really strong operating model running in the background.”
Kroger has recently tweaked its capital expenditure allocation so as to fund the most impactful new stores and expansions companywide first, rather than leaving such decisions to local operating divisions, Schlotman said. This will assure Kroger will build “truly outstanding stores,” he said. The company plans between 30 and 40 new projects a year and annual cap-ex spending of around $2 billion.