Kroger's 4 pillars of ecommerce growth

Kroger’s ecommerce pillars

Coming out of the pandemic, Kroger is continuing to expand ecommerce as part of an omnichannel offering that crosses both stores and online channels. Over the next three years, CEO Rodney McMullen told analysts during an earning call Thursday that the company is expecting digital sales growth to continue to reside in the double digits, and outpace overall sales growth.

“Despite the easing of pandemic-related shopping behaviors that led to a significant increase in online shopping, more and more customers are incorporating ecommerce into their daily permanent routines, recognizing the value and convenience online shopping offers,” McMullen said.

In ecommerce, Kroger is focused on four key areas to continue to drive growth:

A digital destination. When shoppers visit the grocer's online marketplace, Kroger’s ecommerce shopping experience must deliver “value, personalization and freshness in a single, easy-to-use online experience," McMullen said.

Delivery. Kroger leverages a store network that has proximity to many customers, and fulfillment centers where large orders can be prepared. It recently added to the fulfillment network with a new center in the Denver area. Delivery customers spend more with Kroger overall, so excelling in this area drives the entire business.

"If you look, what we find is a customer, when they move online, they actually after a year engage with us more in store than before,” McMullen said. “So what we're really focused on is having an ecosystem where the customer thinks food, they think Kroger. And what we're finding is the customer routinely moves back and forth between the different channels.”

New customers and more orders. With delivery, Kroger sees opportunity to grow the share of wallet that customers spend. This can come through increasing the number of orders that customers place. This is why 30-minute delivery service Kroger Delivery Now is an important part of the equation.

Profitability. Kroger is looking to drive down its costs for ecommerce, and made progress in the fourth quarter. It was the best-ever quarter for the cost-to-serve a digital order as the company seeks to lower fulfillment costs and build more density in demand and last-mile routing. The company is also growing retail media through Kroger Precision Marketing and 84.51, which brings a profitable revenue stream. Alongside the profit listed above, the amount of media revenue Kroger generates per digital transaction is also growing.

The Kroger flywheel

All of this makes up a flywheel of mutually reinforcing elements that Kroger is looking to spin faster. The pending acquisition of Albertsons only figures to help, as Kroger will add that grocer's fulfillment capabilities and customer data to its media network. Here’s how CFO Gary Millerchip summed it up:

“Over recent years, we have invested significantly in our people, our customers and technology to create a leading omnichannel position in food retail. By executing our go-to-market strategy, we win customers in our core supermarket business, including health and fuel and drive significant customer traffic and data into our ecosystem. This, in turn, allows us to deploy our investments in technology and 84.51 to deliver even greater value for customers and create new high-growth, high-margin alternative profit businesses. The value generated from these businesses enables us to reinvest back into our supermarkets and drive further store and digital traffic, creating a flywheel effect.”