Published on: March 4, 2022
Kroger this morning announced that it plans to bring its hub-and-spoke approach to an pure-play e-grocery model to three new markets - Austin and San Antonio, Texas, and Birmingham, Alabama.
"As a continuation of Kroger's successful entry into Florida in 2021 without physical stores, the new Texas and Alabama facilities will serve as new geographies for the organization, bringing innovation and modern e-commerce to the cities and extending the grocer's reach and ability to provide customers anything, anytime, anywhere," the announcement said.
Kroger said that "the 70,000-square-foot spoke facility in northeast Austin, pending finalization of lease negotiation, will collaborate with the hub in Dallas, TX, serving as a last-mile cross-dock location … The 67,000-square-foot spoke facility in northeast San Antonio, pending finalization of lease negotiation, will also collaborate with the hub in Dallas, TX, serving as a last-mile cross-dock location." In Birmingham, "the 50,000-square-foot spoke facility … (will) collaborate with the hub in Forest Park, GA (Atlanta), serving as a last-mile cross-dock location."
All three facilities are expected to be operational later this year, Kroger said.
In a prepared statement, Kroger CEO Rodney McMullen said, "We continue to feel great about the momentum we're experiencing with Kroger Delivery and our partnership with Ocado, supporting Kroger in strategically leveraging our unique assets to expand in existing regions, including Atlanta, Cincinnati and Dallas, as well as enter into new geographies like Austin, Birmingham, Cleveland, Oklahoma City, Orlando, San Antonio, South Florida, and the Northeast through a flexible network of differently sized, high-tech facilities operated by friendly and knowledgeable associates."
Some context from the announcement:
"The delivery network relies on highly automated fulfillment centers. At the hub sites, more than 1,000 bots whizz around giant 3D grids, orchestrated by proprietary air-traffic control systems in the unlicensed spectrum. The grid, known as The Hive, contains totes with products and ready-to-deliver customer orders.
"As customers' orders near their delivery times, the bots retrieve products from The Hive and are presented at pick stations for items to be sorted for delivery, a process governed by algorithms that ensures items are intelligently packed. For example, fragile items are placed on top, bags are evenly weighted, and each order is optimized to fit into the lowest number of bags, reducing plastic use."
- KC's View:
If memory serves - and this is both the irony and the implicative power of this announcement - two of the markets - Birmingham and San Antonio - are places Kroger used to serve decades ago but pulled out of for various reasons. (Not Austin, where the letters H-E-B tend to serve as a cautionary note to all potential competitors.)
It seems to me that what we are watching here is the creation of a new competitive reality that will affect every retailer, and give some enormous advantages - the battle will be played out not just in stores and on websites, but, increasingly, also in the various permutations of distribution centers that are positioned to provide differential advantages in terms of speed and efficiency.
It is much cheaper for Kroger to serve these markets with a pure-play e-grocery model than it would be to build stores; it has a highly recognizable brand name, and its longtime investment in data-centric technology developed (and more important, effectively implemented) by dunnhumby and its successor US company, 84.51°, that allows it to effectively target and serve customers.
The enormous investment in this infrastructure cannot help but ramp up the pressure on Kroger's competitors, big and small, to respond. And it certainly has the potential for raising the bar on consumer expectations.
Let's be clear. Having infrastructure is not the same thing as delivering service. Kroger is establishing an expanded value proposition and is making brand promises that it needs to keep.
But this is a 21st century competitive map with tons of potential and, almost certainly, more than a few potholes around which Kroger will have to navigate.
It also underlines a reality that Amazon began creating more than two decades ago, and that companies like Kroger and Walmart seem to be embracing - competition does not know geography, nor borders, nor inherent limitations. Market share and trade-area-analyses may take on very different meanings going forward.
The author Philip K. Dick once wrote, "“Reality is that which, when you stop believing in it, doesn't go away.”