June/July, 2018 – It is good that this is the issue in which we highlight some of the top-ranked people who are blazing the way to success in the deli industry, because the key question is whether our teams working in deli are up to the task of dealing with a very different industry and future.
Certainly, these individuals are up to the task, and we are pleased to highlight some of these innovative executives in our cover story. Yet, we should not be sanguine that we have the firepower to lead the industry to the places it needs to go.
Think about Kroger. It was just yesterday that it was something long recognized — the largest supermarket chain in America. Sure, Kroger had been experimenting with assortment and presentation and branding — Murray’s Cheese, for example — but my family was experimenting with these things in the 1970s when we owned supermarkets in New Jersey and Puerto Rico.
Yes, Kroger’s involvement with Dunnhumby was progressive, but its purpose remained as it was a half-century before: to drive business to a store optimized to attract customers and make profits.
Yet, all of the sudden, Kroger is being transformed. Its partnership with Ocado provides a ready-made back-end platform for national, even global, expansion of delivery capabilities. Deep investments have been made to automate warehouses, set up delivery logistics and dive into artificial intelligence.
Kroger has even gone beyond the supermarket to engage with the supply chain. For example, the company partnered with some tech companies in Europe to develop new robotics to harvest apples.
Much has been made of the move to omnichannel retailing and, certainly, the Ocado deal will help Kroger to compete with Amazon and Walmart. But it is also true that it provides a path for Kroger to become a true national supermarket chain. Mike Schlotman, Kroger’s chief financial officer, explained this at a recent BMO Capital Markets Farm to Market Investor Conference, when he talked about new packing and distribution centers, or what he calls “sheds,” and explained their plans:
“We would have the expectation that these sheds will turn up in areas where we don’t have brick-and-mortar today, where the population may be more dense, and home delivery is a bigger piece of the business… and a way to get in business in parts of the country where we aren’t today, and then perhaps figure out what brick-and-mortar you may need to supplement that.”
This is a kind of “digital-first” strategy — but who is expert enough to know how to use the digital format to seduce customers to try new products or specials? Or the actual role bricks-and-mortar can play in driving online sales — or vice versa?
The path is uncertain. Amazon is going to offer Prime members an additional 10 percent off sale prices at Whole Foods market. If this is real — i.e., they don’t raise margin requirements on sale items — then it is a big thing. But Whole Foods doesn’t earn a net profit of 10 percent, so this will only work if it drives consumers into the stores and those consumers buy higher margin non-sale items or it drives Whole Foods customers to buy Amazon Prime and order online.
Analyzing these things calls for a level of sophistication different from setting the price on sliced ham. In fact, it is not even clear that we will sell the same products in the future as we have in the past. As part of the Kroger transformation, it also recently announced plans to acquire Home Chef.
Home Chef now can reach 98 percent of all U.S. households with a two-day delivery window. Kroger will probably want to pare that down to next day and add an option for picking up the product in its stores. Kroger already had its own Prep + Pared meal kits in about 500 stores.
Will an omnichannel capability be a big win here? Quite possibly. If consumers can get the exact meal kit they want, without having to worry about being committed so they are free if they have other options, they may buy a lot more meal kits. But maybe what is needed is a one-hour delivery service where the consumer can order from an app on his phone from work and the meal kit is delivered by the time he gets home to dinner.
When people are considering what to buy at the grocery store, they are thinking about the difficulty of preparation as one criteria. Maybe if a meal kit is delivered fully prepped and ready for easy use, perhaps people will want foods they previously thought too difficult to prepare.
This vision of Kroger — as a national company, as an omnichannel retailer, as creator of meals — is a vision for the whole industry.
Success will depend on the very human act of execution. What goes in that box, how shall it be marketed, where shall it be distributed?
The most robotic assembly plant in the world won’t answer these questions. Only people can. So, read this issue carefully and think about how you can raise the competency of your own teams. Tomorrow will be demanding. Are we, as an industry, up for the battles ahead? db