Fourteen months ago, Amazon announced its acquisition of Whole Foods. According to many analysts and pundits, traditional grocers were going to be in big trouble. The online retailing giant would be a fierce price competitor with better technology and a history of destroying margins in the market segments it attacked.
Grocery stocks plummeted on the news, with Kroger leading the way lower falling almost 10% on the day of the Amazon/Whole Foods merger announcement.
Kroger is fighting back
Since the Amazon merger with Whole Foods, Kroger has defended its status as America’s largest grocery chain by investing precisely in the areas that most analysts thought would give Amazon/Whole Foods a big advantage:
“Organic” Growth — Before the merger was even announced, Whole Foods was losing organic food shoppers to Kroger at an alarming rate. By investing in growing its organic offerings, Kroger has undercut one of Whole Foods most compelling competitive advantages. In fact, earlier this year, Kroger announced that it is now generating over $1 billion of annual revenue in its organic produce business alone.
Want to publish your own articles on DistilINFO Publications?
Send us an email, we will get in touch with you.
Technology — Obviously, Amazon is a technology and online retail behemoth. Injecting that DNA into a grocery chain like Whole Foods is sure to improve both the in-store and online ordering experience for consumers. But Kroger is not just sitting idly, waiting to be passed by.
To see how consumers are reacting to ClickList, we looked at LikeFolio consumer data for the brand and compared it to the total number of people talking about online grocery shopping:
As you can see, Kroger’s ClickList service is growing quickly and consistently. Creating this online-ordering habit via its own stores prior to any major technological transformations by Whole Foods will help Kroger retain its existing customer base.
Private label goods — Amazon is known for driving down profit margins on retail goods, and the grocery business is already notorious for having extremely tight margins. By shifting its focus (and shelf-space) to private-label brands that it owns, Kroger is able to capture more profit per item sold while maintaining competitive prices.
Earlier this year, Kroger announced that its Simple Truth brand had surpassed $2 billion in annual revenue, which would rank it as the 138th largest company on the Fortune 500 if it were a standalone company. While private label won’t completely neutralize the threat of Whole Foods’ pricing power, it gives Kroger a powerful lever to pull in any future price wars.
Delivery — For many industry analysts, the end-game of the Amazon/Whole Foods merger was a massive expansion of Amazon’s Prime offering, allowing the company to deliver pretty much everything consumers want, now including groceries, directly to their door. But Kroger may be beating Whole Foods to the punch.
Earlier this month, Kroger announced its new grocery delivery service, Kroger Ship, which has already launched in four test markets. Delivery is free for orders over $35, which will help Kroger compete with Amazon’s famous Prime delivery service. The company has even announced plans to explore driverless grocery delivery. With nearly 5x the number of stores, Kroger is primed to make grocery delivery a reality for more customers faster than Amazon can.
How are consumers reacting to these Kroger initiatives?
To find out if Kroger is actually gaining ground with all of these investments, we turn to LikeFolio Purchase Intent data, which quantifies the amount of chatter on social media specifically around shopping at or spending money with Kroger and its subsidiaries.
As you can see, Kroger is now at an all-time high in purchase intent mentions, indicating that more people than ever are shopping (and spending money) with the grocery chain.
While Kroger still has a massive battle ahead of it in the fight against Amazon/Whole Foods, it is clear that in the early stages, the company is going to invest and fight to retain its top position among U.S. grocers. And so far, it seems consumers are more than willing to go along for the ride.
Date: August 16, 2018