Alert to Kroger Co.: The first step to fixing a problem is acknowledging you have one.
An investor presentation on Wednesday was an opportunity for Kroger executives to change a calcifying perception that the grocery giant won’t be able to hold its own against a Whole Foods Market now owned by Amazon.com Inc.
Kroger put forth a new strategic plan, and investors perked up a bit, thanks to an announcement the company is exploring a sale of its convenience-store business.But the presentation reflected a curious lack of awareness by Kroger of how serious the threats are to its core grocery business.
Executives sought to put this framework around the grocer’s current rough patch: Kroger is a 134-year-old company, and retail undergoes shifts every 12 to 15 years. It often takes three to four years to work through those changes, and Kroger is simply in the middle of that work.
But the shift to e-commerce is not like the other marketplace ebbs and flows Kroger has weathered over the years. It is a dramatically different business model, with a new set of competitors, logistical hurdles and profitability impediments.
If Kroger can’t even recognize that challenge, then I struggle to see how it will work its way out of it.
Other aspects of the presentation, too, gave me pause about how well-equipped Kroger is to win the food fight. Executives spent a good bit of time talking about how they were going unlock the power of data science to build personalized recommendations and experiences for shoppers.
As I’ve noted before, personalization is a genuinely good idea for retailers. But the industry has really struggled to implement it in a way that lives up to its promises. Nothing Kroger said on Wednesday gave me confidence it will be among the first to break that pattern.
When executives proudly discussed achievements like knowing their shoppers’ hobbies or whether they use an iPhone or an Android device, all I could think was: Isn’t this simply the standard now that we’re many years into the era of Big Data? What retailer isn’t doing something like this, or at least trying to?
Executives talked about using such data to tailor merchandise assortments and shelf displays for individual stores. Again, that’s a solid idea, but competitors such as Target Corp. have been localizing their offerings for a while now. How is this going to vault Kroger past its competitors?
Given the uphill battle ahead, it is good that Kroger is looking to unload its convenience-store business, which accounts for $4 billion in annual sales and includes a vast portfolio of stores under names such as Loaf ‘N Jug, KwikShop, Tom Thumb and QuickStop.
A sale could unlock value for shareholders and let the company concentrate even more on the core supermarket business. (This is also why I think Kroger should ditch its experiment with a restaurant concept, which seems like little more than a distraction.)
But getting rid of convenience stores alone isn’t a long-term plan to win in grocery. And I’m not convinced the one Kroger outlined on Wednesday is enough.