Kroger looking to expand its footprint into new markets, both physical and digital

CINCINNATI — Over the course of a day-long investor conference Tuesday, Kroger outlined its future growth strategy. Across its physical store base, Kroger plans to enter one or two as-yet-to-be-named new markets along with boosting presence in existing markets. But Kroger also has significant designs on the multichannel consumer, and outlined for analysts the grocer's plan to grow its marketshare across the digital landscape as well.

Kroger is presently in 42 major markets, defined as where Kroger fields nine or more supermarkets. According to the company, 71% of Kroger's volume comes out of those 42 markets. In 38 of those major markets, Kroger ranks No. 1 or No. 2 in market share with its greatest competitor being Walmart. 

"We plan to look at fill-in markets, places where we have the opportunity to grow, [and] in these markets that are not as fully developed now, we see big opportunity," David Dillon, Kroger chairman and CEO told analysts. "Second, we plan to identify new markets, not something you've heard us talk about much in the past, … but our intention is to identify new markets and to make plans and to expand the footprint of the company."

"It's been a long time since we've entered a new market," said Rodney McMullen, Kroger president and COO. "We're in the early planning stages of that," he said. "We've actually started on it a few months ago, just identifying markets where we think there's an opportunity both from a competitive standpoint and the way a competitor connects with their customer."

That connectivity with the customer represents another crucial growth opportunity for Kroger. "We've done a lot of research making sure we understand how well in these new markets would our future competitors be connecting with customers in that market, and what type of opportunities does that create for us in terms of what type of store we operate," McMullen said. "Because we're finding more and more, as we have improved our experience, there's more and more competitors that aren't delivering at that same level of performance for customers."

"Our customers tell us that they love the communications that we have used, particularly in the personalization area. We've been doing that for years, but our customers are moving more and more into the digital arena, and so we are targeting to spend greater energy and some capex in the digital area," Dillon said. 

Almost a decade ago, Kroger created a joint venture with Dunnhumby, called DunnhumbyUSA, on the Kroger Plus Card. "The Dunnhumby data not only tells us within a store what's happening and what customer combinations are there, but [also] within households what's going on in these households and what they like to buy over a long period of time," Dillon said. "It's one thing to look at a basket of goods and see what they buy together at one moment, but we can see what they buy over long periods [of] time. [With] the work we do and other data pieces in the market, we're able to see not only what they buy at Kroger but also what they buy in other places too."

"If you think about the digital world, we're going to know where you browse, we're going to know what you watch, we're going to know where you are," noted Michael Donnelly, Kroger SVP merchandising. "If we can do the things that we think we can do, using big data and coupling it with our insights, we think this is going to be a competitive advantage," he said. "It's really bringing big data in what we do to a personal level." Donnelly outlined a future scenario where a Kroger customer will walk into a store with an app-generated shopping list at their fingertips. 

"One of the things we find is not every customer wants to be connected with digitally," McMullen said. "So what we're really working on is having a customer [be able to] connect with us the way a customer wants to connect with us, not the way we tell them you have to connect with us," he added. That theme — allowing the customer to dictate how a retailer goes to market — is becoming commonplace among retailers with strong loyalty programs. 

McMullen noted that Kroger's shopping app is downloaded once every 30 seconds, which translates into two opportunities to better connect with a valuable consumer every minute. "What we find is when a customer engages with us, through an app and other methods, they produce better. They give us more of their share of market," he said. "If you look at a typical customers' spend, when they connect multiple ways, we get a higher share of that customer's basket."

Kroger also spoke to the importance a strong health, wellness and pharmacy position going forward, including its partnership with retail clinic operator Little Clinic. "The reason why we created that partnership [with Little Clinic] three or four years ago is we believe there's a long-term trend in health care, and we don't think the current healthcare system provides [for that trend]," noted Michael Scholtman, Kroger CFO and SVP. "We just think it's a wonderful opportunity, and it fits so much into our model in terms of convenience and the things that we already offer."