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Kroger Recommendation
- 2. Problem Statement How should Kroger embrace online grocery industry?
- 3. Recommendation 1. Partner with in Major Urban Cities 2. Increase Kroger’s Uniqueness
- 4. The Grocery Industry Value Chain Food and Merchandise Distributors Grocery Provider Consumer Shipment Store
- 5. Customer Segments • “Time is Money” • Not Price Sensitive • Technology Savvy Urban Customers • Price Sensitive • Brand Loyal • Less Selection Non-Urban Customers
- 6. Kroger’s Current State • Testing Harris Teeter’s ExpressLane Concept • Exploring Vitacost’s potential • Growing within market, not new geographies
- 7. Industry Players Direct Competition Complementors
- 8. Approaching the Current Competition • Gain experience within the online grocery delivery service industry • Counter the competition in Urban Segments
- 9. Partnership with Instacart • Only in major Urban cities • Have a 3% to 5% increase in price • Connected to the Kroger Loyalty Program
- 10. Increase Kroger’s Uniqueness • Unique Brands • Prepared meals
- 11. Alternative Approaches Considered • Don’t react to the industry changes • Offer full online delivery services • Purchase Instacart
- 12. Future Recommendations • Remain aware of competitors movements • Be prepared to react to the online industry’s growth
- 14. Appendix
- 15. A. Future Industry Analysis Kroger Grocery Industry 2014 Total Revenue 108 Billion 500 Billion 2014 Online Grocery - 15 Billion 2014 Online Grocery % of Total Revenue 13.9% 3.3% 2023 Predicted Revenue 201.4 Billion1 773.7 Billion2 2023 Online Grocery - 85 Billion3 2023 Online Grocery % of Total Revenue - 11%
- 16. B. Total Cost Comparison Amazon Fresh Instacart at Ralphs - Prices higher than in store Instacart at Smart & Final - Prices same as in-store Amazon Prime Now 3% Price Increase 5% Price Increase Chicken Breast (LB) $7.99 $4.99 $2.19 $3.99 $2.26 $2.30 Bottled Water (24 Count) $4.99 $4.89 $4.99 $4.99 $5.14 $5.24 Bacon $5.76 $7.99 $3.99 $5.99 $4.11 $4.19 Diet Coke (12 cans) $4.99 $6.09 $5.49 $4.99 $5.65 $5.76 Fuji Apples (lb) $1.33 $1.99 $1.20 $1.50 $1.24 $1.26 Breyers Ice Cream $4.49 $7.29 $4.39 $4.49 $4.52 $4.61 Stacy's Pita Chips $3.69 $6.49 $2.99 $2.79 $3.08 $3.14 Colgate Toothpaste $3.39 $5.49 $3.79 $3.69 $3.90 $3.98 Honey Nut Cheerios $5.49 $6.29 $4.99 $5.49 $5.14 $5.24 Gallon of Milk (Alta Dena) $4.99 $6.69 $4.39 $4.99 $4.52 $4.61 Shredded Cheese (Mexican) $3.49 $4.89 $3.99 $3.99 $4.11 $4.19 Can of Black beans $1.35 $2.19 $0.99 $0.99 $1.02 $1.04 Orange Juice (Simply Orange) $4.47 $5.49 $3.89 $3.99 $4.01 $4.08 Dozen Eggs $4.29 $6.49 $4.19 $5.59 $4.32 $4.40 Subtotal $60.71 $77.26 $51.47 $57.47 $53.01 $54.04 Delivery Fee $7.99 $3.99 $3.99 $1.00 $3.99 $3.99 Tip $- $7.73 $5.15 $5.75 $5.30 $5.40 Total $68.70 $88.98 $60.61 $64.22 $62.31 $63.44 Delivery Time Within 8 hours Under 2 hours Under 2 hours Under 2 hours Under 2 hours Under 2 hours
- 17. C. Industry Competitors Amazon Fresh Amazon Prime Now Amazon Prime Pantry Instacart Google Express Merchandise Focus Large Selection of Groceries Medium Selection of Groceries and many items from all categories on Amazon.com Non-perishable items Almost anything you can get at a Grocery Store Non-perishable items at Costco, Target, Wholefoods, Kohls, Barnes and Noble, and many more Pricing Most items are close to Grocery store prices or better Same as store with partnered stores, prices from Amazon are very competitive with Grocery Store Very competitive prices on most items Half the stores are same as in-store, half are 10-15% higher Same prices as in-store Delivery Turnaround Within 8 hours Within two hours Within a few days Within 2 hours Depends on Demand, usually within 6 hours Minimum Order $50 $30 None None, but delivery fee is different 'at $35 $15 per store Delivery Fees $7.99 per order with $99 Prime Membership or Free with $299 Amazon Fresh Membership Free delivery within 2 hours, one hour is $7.99 $5.99 per box Over $35: Two hours start at $3.99, one hour is $5.99; Under $35: Two hours starts at $7.99, within an hour $9.99. Instacart Express Members ($99 per year) get free delivery None Membership Fees Option 1: $299 per year for Amazon Fresh and Free Delivery; Option 2: $99 for Amazon Prime, but pay $7.99 per order Included in Amazon Prime Benefits, which costs $99 per year Included in Amazon Prime Benefits, which costs $99 per year $99 per year, which gets members free delivery $10 per month or $95 per year Suggested tipping None 10% None 10-15% None Deliver Alcohol? Stopped in Early 2015 Only Certain Markets No Yes In certain markets Other notes: Raised Prices Starting to Partner with Grocery Stores Once you fill up box, you have to purchase another box if you want more. "Busy Pricing" may apply during high demand times. Similar to Uber's high demand pricing. Starting grocery delivery in select markets in addition to alcohol delivery
- 18. Sources • Amazon Annual Financial report: http://phx.corporate- ir.net/External.File?item=UGFyZW50SUQ9MjgxMzI2fENoaWxkSUQ9LTF8VHl wZT0z&t=1 • Kroger Annual Financial report: http://ir.kroger.com/Cache/1500072008.PDF?O=PDF&T=&Y=&D=&FID= 1500072008&iid=4004136 • Kroger acquires Vitacost & Harris Teeter: http://www.wsj.com/articles/kroger- plans-to-buy-online-vitamin-seller-vitacost-1404300842 • Inside Packaging Magazine: http://www.nridigital.com/inside-pacakaging- magazine/market-focus-issue-1.html
Editor's Notes
- Our overall recommendation to front the competition at hand is to partner with Instacart in major urban cities and increase Kroger’s uniqueness directly through the products offered. We made this recommendation based on analysis of the industry and its current players.
- Our overall recommendation to front the competition at hand is to partner with Instacart in major urban cities and increase Kroger’s uniqueness directly through the products offered. We made this recommendation based on analysis of the industry and its current players.
- The grocery industry is a 500 billion dollar industry. Go through the flow chart describing grocery industry value chain 3.3% of this 500 billion dollar industry is online grocery or 15 billion total. Bloomberg Business published in 2014 that the online grocery business would reach 85 billion by 2023.
- Two consumer segments: Urban and Non-urban. Urban customers are … and are going to be mainly targeted by the online grocery services because of their characteristics. Non-urban customers on the other hand are going to be … and mainly targeted by large grocery stores like Kroger.
- Through your purchase of Harris Teeter in 2013, you also acquired their online order and pick up service called “ExpressLane”. According to your Annual Report you are exploring this concept and we support this movement. You also purchased vitacost, an online delivery vitamin store. Since your acquisition, you have expanded their services into non-perishable food items and we encourage this. Finally, we recognize that you are aiming to solely grow within your selected markets and not into new geographies. We considered this throughout our recommendation process.
- We’ve also considered other competitors at the time, but feel that amazon is the largest competitor at the time. Amazon is directly challenging the grocery stores because they purchase from the food and merchandise manufacturers and therefore circumventing the grocery stores within the value chain whereas other competitors purchase from grocery stores and are therefore complimentors.
- Staying abreast of the online grocery development will provide you with necessary expertise and insights to launch a full frontal assault when the industry picks up pace. Sticking with urban segments will keep costs minimal and deliver to a segment that wants those services
- Only partner with Instacart in major urban cities for now. Amazon is competing in major cities like Atlanta, Chicago, and 9 more. Kroger could compete in all of these markets in addition to more. Have a 3% to 5% increase in price through Instacart. The profit margins of Kroger are only 1.5% currently therefore Kroger cannot afford to include a commission in the price of goods through Instacart. With a 3% to 5% increase in price through Instacart, profits would still be seen by Kroger and the overall price of a typical order of groceries would still be less than the same groceries purchased through Amazon. Finally it would be connected to the Kroger Loyalty Program. The loyalty program is very important to Kroger and it’s ability to predict the merchandise it wants to put on the shelf. This is very pertinent to Kroger’s long term strategy and therefore must be maintained.
- In order to make Kroger’s online delivery attractive offer products that appeal to urban audience. Source: http://www.nridigital.com/inside-pacakaging-magazine/market-focus-issue-1.html
- 1. Don’t react to the industry changes. You’ve had a 7.17% growth rate over the past five years and the online grocery industry is only 3.3% of the grocery industry. Although in the short term this doesn’t seem to be a large make-up, the online industry will continue to grow with the new generations aging and will eventually be an approximately 85 billion dollar industry. 2. Offer full online delivery services nation wide to compete directly with amazon and the services they offer. It could be intelligent for you to directly front the full online delivery services offered by amazon, but financially this could be both difficult and capital prohibitive. Amazon is most likely not making any money on this service, but by their business strategy, staying within the industry for the long haul essentially waiting for the other competition to exit. 3. Purchase Instacart. Purchasing instacart would allow you full access to full online delivery services for your customers. Again this is unfortunately most likely capital prohibitive as Instacart is a private company and currently worth approximately 2 billion. In addition, with the uncertainty of the growth of the online business it isn’t in your best interest to completely invest right now.
- 1: CIS Market states Kroger has a growth rate of 7.17% per year 2: CIS Market states the grocery industry has a growth rate of 4.97% per year 3: Bloomberg Business predicted the 2023 Online Grocery will be 11% of the total Grocery Industry Revenue