{"id":7902,"date":"2018-04-09T15:47:00","date_gmt":"2018-04-09T19:47:00","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-digit\/submission\/kroger-doubling-down-on-data-in-the-face-of-hungry-competition\/"},"modified":"2018-04-09T15:47:00","modified_gmt":"2018-04-09T19:47:00","slug":"kroger-doubling-down-on-data-in-the-face-of-hungry-competition","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-digit\/submission\/kroger-doubling-down-on-data-in-the-face-of-hungry-competition\/","title":{"rendered":"Kroger: Doubling down on data in the face of hungry competition"},"content":{"rendered":"

June 2017 was a challenging month for Kroger, the world\u2019s third largest retail chain. The company reported decreased profitability for the quarter and, a day later, Amazon shook the industry with its announcement of its intention to acquire Whole Foods. The result: Kroger\u2019s stock fell 22%. By early 2018, Kroger\u2019s stock had rebounded, before falling once again, reflecting the continued uncertainty facing the company and industry at large. For years, Kroger has been an active investor in data analytics to differentiate itself in an increasingly competitive and margin compressed industry. Data is a key component of Kroger\u2019s customer-focused strategy and has only become more pervasive after Amazon, one of the world\u2019s most data-driven organizations, intensified its commitment to the grocery space.<\/p>\n

Kroger wholly owns 84.51, a data analytics firm that helps the grocer and its biggest CPG suppliers understand the 60 million households that shop at Kroger and design solutions to better serve them. 84.51 operates as a stand-alone unit, with a highly entrepreneurial culture, and its own modern office space, enabling it to attract data scientists and analysts that may not otherwise be interested in working for the 135-year old grocer.<\/p>\n

Examples of data-driven initiatives<\/strong><\/p>\n

Together, Kroger and 84.51 have launched a number of initiatives using data to create a better customer experience and improve the grocer\u2019s operations.<\/p>\n

Personalized customer offers and tailored pricing. <\/em>Kroger collects more food purchase data than any other organization in the U.S. Kroger leverages this data through its MyMagazine service to provide customers with personalized content (e.g., recipes) based on their past shopping behaviours and interests. The grocer also provides customer-specific pricing through e-coupons and mobile app offers (e.g., Best Customer Bonuses, Free Friday Downloads).<\/p>\n

The value creation and capture implications are quite clear. Customers benefit from discounts on their favourite products while also discovering new products through highly customized recommendations. Kroger, on the other hand, benefits from increased purchases and deeper customer loyalty (some Kroger coupons have a redemption rate of 65% compared with a national average of 5%). Additionally, the more customers who use the mobile app and other offerings, the more data that is captured and the smarter the service ultimately becomes.<\/p>\n

Exhibit 1:<\/span> Personalized offers through the Kroger mobile application<\/p>\n

\"\"<\/a><\/p>\n

Operations.\u00a0<\/em>Kroger is leveraging data in various ways to improve operating decisions. For example, data showed that Kroger\u2019s private label pasta brands were significantly out-selling name-brand competitors, so the company revamped aisles to display its own pasta products more prominently. Assortment decisions like this are made at a store-level to ensure changes are tailored to particular markets. Kroger is also using data to optimize temperatures in refrigerators to eliminate spoilage. Several other data-driven solutions are under development, including a tool that will enable store managers to use augmented reality to see sales trends as they walk through aisles, and infrared sensors that monitor the number of customers in a store and automatically deploy staff to checkouts as necessary. These data-driven initiatives have enabled Kroger to reduce expenses by improving operating efficiencies while also providing a better experience for customers.<\/p>\n

Exhibit 2:<\/span> Kroger employee stocking shelves<\/p>\n

\"\"<\/a><\/p>\n

Grocery is an extremely low-margin industry and building and maintaining a leading data analytics capability requires significant investment. As a result, Kroger\u2019s profits have recently underperformed, which continues to weigh on its stock. The threats posed by traditional competitors (e.g., Wal-Mart, Aldi) and emerging competitors (e.g., Amazon) are formidable, but Kroger\u2019s aggressive investments in data are a valiant effort to prepare for an increasingly uncertain future.<\/p>\n

 <\/p>\n

 <\/p>\n

Sources<\/u><\/em><\/p>\n

CGT Staff, \u201cKroger Using Data, Technology to \u2018Restock\u2019 for the Future,\u201d Consumer Goods Technology,<\/em> https:\/\/consumergoods.com\/kroger-using-data-technology-restock-future<\/a>, accessed April 2018.<\/p>\n

Dan Orlando, \u201cKroger CIO: Data Collection is Our Present and Future,\u201d Supermarket News,<\/em> http:\/\/www.supermarketnews.com\/retail-financial\/kroger-cio-data-collection-our-present-and-future<\/a>, accessed April 2018.<\/p>\n

Heather Haddon, \u201cThe Future of Grocery Shopping is all About Data,\u201d The Wall Street Journal<\/em>, https:\/\/www.marketwatch.com\/story\/the-future-of-grocery-shopping-is-all-about-data-2017-10-24<\/a>, accessed April 2018.<\/p>\n

PYMNTS, \u201cKroger\u2019s Secret Ingredient In 2018: Data,\u201d PYMENTS, <\/em>https:\/\/www.pymnts.com\/restaurant-technology\/2017\/restock-kroger-invests-in-data-driven-grocery-retail\/<\/a>, accessed April 2018.<\/p>\n

Sandy Skrovan, \u201cKroger\u2019s Analytics and Personalized Pricing Keep it a Step Ahead of its Competitors,\u201d FoodDive, <\/em>https:\/\/www.fooddive.com\/news\/grocery–krogers-analytics-and-personalized-pricing-keep-it-a-step-ahead-of-its-comp\/446685\/<\/a>, accessed April 2018.<\/p>\n

Tim Denman, \u201cKroger\u2019s Analytic Prowess Powers its Personalization Efforts\u201d, https:\/\/risnews.com\/krogers-analytic-prowess-powers-its-personalization-efforts<\/a>, Retail Info Systems<\/em>, accessed April 2018.<\/p>\n","protected":false},"excerpt":{"rendered":"

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