business news in context, analysis with attitude

On Friday, MNB reported that Kroger 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.

I commented, in part:

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.

One MNB reader wrote:

I have lived in Kroger Markets (Columbus and So. Cal), and I have lived in non-Kroger markets (MN, RI, NJ, PA).

Not once when living in a non-Kroger market have I wished for something I could only get from Kroger.  Not once.  Kroger must think they can be cheaper – because they certainly are not different.  Walmart will burn the furniture to stay cheapest.  Kroger management is a hell of a lot smarter than me – but I do not see the winning play here.

Which is why I wrote:

Having infrastructure is not the same thing as delivering service.

To expand on that … I also commented on Friday that:

Competition does not know geography, nor borders, nor inherent limitations.  Market share and trade-area-analyses may take on very different meanings going forward.

Just having stores, or just having an e-presence, is not enough.  You have to have a compelling and differentiated offering.  Those are the pieces of the puzzle that Kroger has to put in places, especially if your observations are common and consistent among other shoppers.

MNB reader Andy Casey wrote:

Kroger has tried on more than one occasion to enter the Florida market with stores, retreating each time as Publix roared back. This time is clearly different.

I don’t have any specific knowledge of the economics involved but if you consider the effective trade area of a single store in a suburban area filled with supermarket options (like Tampa) is maybe 8-10 miles while that of an automated warehouse has to be closer to 80-100 miles (the one serving Tampa is in Groveland which is closer to Orlando) it is pretty clear this investment makes sense. I gave them a try out of curiosity (and a free delivery intro) but have been using them regularly since late summer, diverting some dollars previously spent at Publix and others. I’m still shopping elsewhere but definitely admit the appeal of having someone bring your groceries to the front door is seductive. 

And from another reader:

I think these are brilliant moves by Kroger. I've lived in Kroger markets for the last 40 years, so as a shopper I am used to their selection and programs, and I'm loyal to several of their private label products. If I moved to a market without a Kroger store, I'd love to have the option of continuing to shop them as an eCom pure-play. I have to believe there are a lot of consumers out there who feel the same way, which creates instant market share for Kroger in these new cities.

I used to think Kroger would offer to buy Raleys or SaveMart to get into Northern California (and similarly, other regional operators to enter other markets.) Now it's clear that Kroger doesn't have to have stores in a market in order to claim revenue and market share there. Faster, and less expensive, than buying or building stores. Brilliant.

We had a story on Friday about Dollar Tree/Family Dollar growth plans, and I couldn't help myself - I went back to the reports about thousands of dead rodents in one of its distribution facilities.

I commented that it seems likely that management was not …

prioritizing basic sanitation and food safety.  That's what happens when the bottom line is measured in dollars, and not in more important concerns that matter to shoppers and customers.  Makes me wonder how they define "stakeholders."

I know they're facing regulatory examination and lawsuits over this, but I don't how management at this company - "leadership" would be the wrong word to use here - are keeping their jobs.

MNB reader Andy Szabo responded:

Been in the meat business almost all of my life and visited hundreds of processing plants across the US.

If you think this is an isolated incident, you are totally naïve!!!!

I witness paint chips falling from the ceilings in Ohio Plants into bologna and hot dog mixing tubs.

I couldn’t eat a hot dog for a year.

Also google the 2019 CNN report.” Bugs, rodent hair and poop: How much is legally allowed in the food you eat every day? “

But do NOT read Before Breakfast ! ha ha

Not making me feel better, I must admit.