Kroger, Microsoft partner on retail-as-a-service platform

The Kroger Co. is delving into the software-as-a-service (SaaS) business.

Under a new partnership, Kroger and Microsoft Corp. said Monday that they will jointly develop and market a commercial retail-as-a-service (RaaS) product for the retail industry. Plans call for the solution to be piloted at a Kroger store in Monroe, Ohio, and a QFC store in Redmond, Wash., near both companies’ headquarters.

Leveraging Microsoft’s Azure cloud platform, the RaaS offering will provide a range of front- and back-end functionality for retailers. The companies said the Kroger Technology team has developed a smart technology system — powered by Azure and connected by Internet of Things (IoT) sensors — that will allow the pilot stores to access a suite of applications in the cloud and quickly add new capabilities. Those include the ability to support key performance indicators (KPIs) and merchandising plans, gather customer insights, boost employee productivity, improve out-of-stocks, enhance the customer experience and allow for hyper-personalization using proprietary technology, such as EDGE Shelf.

“Kroger is building a seamless ecosystem driven by data and technology to provide our customers with personalized food inspiration,” Kroger Chairman and CEO Rodney McMullen said in a statement. “We are identifying partners through Restock Kroger who will help us reinvent the customer experience and create new profit streams that will also accelerate our core business growth. We are excited to collaborate with Microsoft to redefine grocery retail.”

Related:Kroger banks on burgeoning sources of revenue

Microsoft CEO Satya Nadella and Kroger CEO Rodney McMullen

For example, Kroger and Microsoft said, the stores will be able to introduce “never-before-seen shopping experiences” by using Azure to store and process the data generated in stores, near the smart shelves and on Kroger’s app. That includes the latest generation of EDGE Shelf (Enhanced Display for Grocery Environment), a shelving system that uses digital displays instead of paper tags to indicate everything from prices and promotions to nutritional and dietary information. Using Azure AI, EDGE Shelf will connect with Kroger’s Scan, Bag, Go app to create a guided shopping experience for customers. Early last year, Kroger said it planned to roll out EDGE to 200 stores.

Other capabilities to be available via the RaaS will benefit store associates. For instance, a pick-to-light productivity solution will provide visual cues to help associates find items in the store faster to reduce the time it takes to fulfill curbside pickup orders. Azure-powered video analytics also will help associates flag and address out-of-stocks so customers can locate products on their shopping list.

Kroger noted that video analytics, too, will enable more personalization of offers and advertisements based on customer demographics, allowing the company to generate new revenue by selling digital advertising space on the EDGE Shelf to consumer packaged goods (CPG) brands.

Kroger and Microsoft said future commercial products include Scan, Bag, Go; Virtual Store Manager; sensor network; and connectors to corporate systems such point-of-sale, inventory management, tag and merchandising systems.

The RaaS product is “built by a retailer for retailers” to support today’s retail environment and optimize digital and brick-and-mortar shopping experiences, the companies said.

A Kroger customers scans the EDGE digital shelf to get an online coupon.

“Our partnership brings together Kroger’s world-class expertise in the grocery industry with the power of Azure and Azure AI,” said Satya Nadella, CEO of Redmond-based Microsoft. “Together, we will redefine the shopping experience for millions of customers at both Kroger and other retailers around the world, setting a new standard for innovation in the industry.”

The first RaaS offerings — EDGE Shelf, guided shopping, personalized ads and pick-to-light — will be on display in the Microsoft booth (No. 3301) at the National Retail Federation’s NRF 2019: Retail's Big Show in Manhattan, which kicks off this weekend. McMullen is slated to deliver a keynote at the event and share details about the partnership on Sun., Jan. 13, Kroger said.

At Kroger’s annual investor conference this past fall, executives said they aim to grow alternative profit streams to help the company reach its goal of $400 million in operating profit by 2020 under the Restock Kroger initiative to redefine the customer experience.

To that end, Kroger is looking to monetize the huge, rich stores of data amassed from its position as the nation’s largest supermarket company, with 2,800 stores, vast digital properties, millions of daily transactions, and broad technology and analytics capabilities. Executives noted at the investor event that Kroger’s core grocery business — though generating the lion’s share of profits — is expected to see little growth in the coming years. Meanwhile, business through partnerships, media, CPG insights and Kroger Personal Finance has expanded at a 16% compound annual growth rate in EBIT (earnings before interest and taxes) and is projected at 28% through 2020 and 34% to 2022.