Retail and grocery industry observers might think Kroger’s Vitacost purchase plans don’t add up. But Kroger leaders CFO Mike Schlotman and President and COO Mike Ellis made clear during the announcement that the deal is small in financial terms yet transformational for the grocery store chain.
Here are three reasons the move makes Kroger one of the most progressive grocery companies today.
1. Kroger is focusing on health and wellness products and shoppers.
Kroger has made major moves into natural and organic as it has expanded these selections on its shelves and committed to growing its Simple Truth and Simple Truth Organic private label brands.
While Schlotman and Ellis weren’t willing to address what percent of sales natural and organic make up, they did say it is among the strongest growth categories today.
Industry data has shown natural products sales continue to outpace conventional. Natural Foods Merchandiser’s Market Overview found 2013 natural and organic products sales grew 10 percent. Food sales measured at a 11.7 percent clip. Comparable conventional sales experienced a 3 percent growth.
“We feel with strong conviction that the healthy living lifestyle is something that’s going to continue to increase,” Ellis said.
And loyalty card data show their customers are choosing healthier lifestyles. The Vitacost acquisition is a place “to start to develop this business.”
Though it is fair to say Kroger has set the foundation.
2. The retailer is digging into data.
“Together (Vitacost and Kroger) are a powerful combination, blending the art of retailing and deep customer insights with a superb online experience,” Schlotman said when announcing the purchase agreement.
Kroger has developed data analysis as part of its joint venture “customer science” company dunnhumbyUSA. Schlotman and Ellis didn’t expound upon direction its data will take the two retailers, but suffice it to say: Kroger has led the way in this area. Combine the retailer chain's 8 million daily customers and Vitacost's 2.3 million active users, and the potential for mining is immense.
Slicing and dicing the data means operational, marketing, merchandising and supply chain understanding, too. Don’t underestimate the value of data.
3. The brick-and-mortar grocery is advancing toward an omnichannel retail offering.
Kroger intends to integrate and expand digital platforms, Schlotman and Ellis said during the acquisition announcement.
Today’s customers carry the world in their pockets. They are seamlessly attached to their smartphones and they expect business to align too. Blurring lines and giving consistent customer experience at every touchpoint—phone, tablet, computer, store—is essential.
“Consumers have heightened shopping expectations in the era of omnichannel; 71 percent expect to view in-store inventory online, while 50 percent expect to buy online and pick up in-store,” Forrester reported earlier this year in its Customer Desires Vs. Retailer Capabilities: Minding The Omni-Channel Commerce Gap report. “However, only a third of retailers have operationalized even the basics such as store pickup, cross-channel inventory visibility, and store based fulfillment.”
The Vitamin Shoppe has made this a major focus and celebrated great strides so far. Whole Foods Market, which has been slow to move into grocery delivery and online, adopted a common POS system last autumn; and co-CEO Walter Robb has talked about the importance of this technology in the future.
Kroger's relatively small $280 million purchase allows the national retailer immense opportunity to get into the ecommerce business while avoiding the startup expenses of developing its own online capabilities.