retail news in context, analysis with attitude

The Cincinnati Enquirer reports that Kroger CEO Rodney McMullen, speaking at the company's annual shareholder meeting this week, would not address the possibility that Kroger could make a competitive bid to acquire Whole Foods as a way of stopping Amazon from completing its proposed $13.7 billion purchase of the organic food retailer.

"I won't get into that," McMullen told the Enquirer after the meeting.

During the meeting, McMullen expressed optimism about Kroger's ability to compete with Amazon, despite the fact that the company's shares are down 25 percent in the wake of the Amazon-Whole Foods news.

The Enquirer writes, "Kroger typically avoids fixer-upper acquisitions; it tries to buy competitors that excel in areas where the company wants to improve ... Kroger acquired Roundy's in 2015 in part because of its impressive Mariano's urban store format. A key reason Kroger acquired Harris Teeter in 2014 was for its buy-online-pickup-at-the-store technology, which was the template for Kroger's now nearly 700 stores with ClickList.

"Kroger could afford to buy Whole Foods, which is not mired in debt, but it would have to pay a significantly higher multiple than it has for recent acquisitions. Amazon is already paying a nearly 50 percent premium for Whole Foods compared to the multiple Kroger paid for both Roundy's and Harris Teeter."

It remains possible - in the eyes of some, probable - that Kroger will take the "approach they used to halt the seemingly inevitable Walmart takeover of the world in 2003. Back then Kroger, cut prices enough to neutralize Walmart's price appeal while ramping up product variety and customer service."

Meanwhile, the Cincinnati Business Courier reports on Kroger CFO Mike Schotman's appearance at the Oppenheimer Consumer Conference in Boston, where he said that he "doesn’t envision grocery shopping evolving to the point that people order everything online and wait for groceries to be delivered to their homes."

Schotman said, "“Part of me refuses to believe that everybody is just going to sit at home and everything is going to be brought to their doorstep and nobody is ever going to leave home to do anything again. I mean, humans are social animals and we thrive on interaction with one another. The good news is food is one of the things that’s at the center of social interaction today.”

During his appearance, Schotman described as "phenomenal" his company's doubling of market share gains in the first quarter, compared to the fourth quarter, saying that it is remarkable "when everybody thinks brick-and-mortar isn’t relevant or traditional groceries aren’t relevant. Those households continue to spend more with us, come more frequently and continue to grow.”

“We’ve been around for 134 years,” Schotman said. “We’ve pivoted and transitioned a lot through those 134 years. There’s been a lot of things that were going to put us out of business. But yet, here we are with growing loyal households and 8.5 million customers today. Probably today, it’s another pivot point in the industry. We think we’re well-prepared."
KC's View:
I think that Kroger has good reason to be proud of 134 years of pivoting and transitioning, but I also believe that to be successful long-term, they have to accept that every one of those 134 years are in the past ... and that it may be necessary to move faster and be more nimble about how they pivot and innovate in the future.

With all due respect, I have a problem with Schotman's comments about not believing in grocery delivery being pervasive because "humans are social animals and we thrive on interaction with one another." That may be true, but the supermarket may not be the optimal place to experience such interactions. Me, I'd rather get my groceries delivered if it gives me time to play with my kids, hang with my wife, take the dog for a walk, read a book, go to a movie, or do any one of a dozen other things. That doesn't mean I'll always prefer delivery...because there are lot of ways that the store can make itself a relevant and compelling part of the human experience.

But I'd argue that far too many retailers don't do that. They're about the transaction, not about being shopper-centric.