Kroger’s CEO Gregory Foran wants to simplify the company’s discounting system. That’s going to take time, and it won’t always mean lower prices, but his goal is clearly presented value, not being the cheapest grocery offering.
In reality, most grocery chains can’t compete with Walmart and Costco when it comes to overall pricing. That’s something Consumer Reports showed in an extensive study that used Walmart as the benchmark and found that only Costco, Aldi, Lidl, BJ’s Wholesale, H-E-B, and WinCo had lower prices than the retail giant.
That’s something my wife and I have also experienced in recent weeks researching price check stories for TheStreet.
We don’t have Kroger here in South Florida, but Publix, our regional grocery chain, was consistently higher on everyday prices. It does, however, offer buy-one-get-one (BOGO) deals that help bring our overall cart total closer to what we might spend at Walmart or Costco.
Speaking at a recent Kroger Investor Day, Foran promised to overhaul his company’s value promise and promotional offerings. In some cases, that means lower prices, but “simpler” will not always translate to cheaper.
Kroger shares its pricing plan
Foran shared that his overall goal is building “America’s favorite grocer,” and doing that, he said, “requires winning the customer in-store and online.”
“Value is where we start. That means sharper everyday prices and simpler promotions. Now we will pace this new customer value plan against the savings that fund it. And I can tell you that early customer response has reinforced our confidence in this approach. We’ll improve the customer experience,” he said.
Chief Marketing Officer Mary Adcock explained how the company plans to execute on its value plan.
She said that the chain’s first focus is “making value visible, lowering our everyday prices and making our promotions more simple and less complex.”
Adcock noted that approximately 95% of Kroger’s sales are tied to its loyalty customers.
“And through our proprietary analytics, we know what customers buy,” she added.
“Our data shows us three key things that are changing about the customer that inform the changes that I’m discussing with you today. First, customers respond to lower prices and simplified promotions. Second, customers are looking for more fresh offerings and more Kroger Our Brands. And third, customers want a connected experience across the store and e-commerce,” she shared.
Kroger wants to make pricing simple
Kroger isn’t promising to offer the lowest prices. Instead, the chain is pledging to put operational savings into lower prices while also making it easier for customers to understand its value proposition.
“Today, not enough of our customers understand the value Kroger offers. Just a few weeks ago, we got an e-mail from a customer that clearly outlined the complexity with three price points in one offer, clearly too complex, especially if you’re a customer that only wants to buy one item or doesn’t want to download the app. Now this is just one example,” Adcock said.
In many cases, she added, it wasn’t that Kroger wasn’t offering value, it’s that customers were not seeing it.
“More broadly, our customers have a point. When we’re on promotion, our items are very competitive, but our promotions are complex. And when we’re not on promotion, our everyday prices appear too high. So this is why we’re fundamentally changing our approach to make value more visible,” she added.
Kroger plans to keep some promotions, but that’s not the chain’s core plan when it comes to pricing.
“Going forward, we will reallocate value from the promotions into everyday shelf prices across the store and online. And we expect this to strengthen our relationship with our customers, which starts out with first more trips, then growing a larger share of our customers’ basket and then over time, growing new households to support our top line sales growth,” she shared.
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Kroger faces a Walmart and Costco problem
Parade.com’s Senior Food Editor Ni’Kesia Pannell is confident that Kroger can offer value while not being the cheapest option.
“As the largest traditional supermarket, Kroger’s attempt to become the top alternative seems like the right move especially with folks trying to cut back on as much as possible. Traditionally, Kroger isn’t the cheapest, but with this move, it can take over a space that has long been dominated by Walmart,” she told TheStreet.
She believes that Kroger can win by following Costco’s strategy of delivering value through house brands.
“Kroger has a number of private-label brands as well that range from cost-effective, everyday options to a premium tier as well as an organic line (the latter also serves as the largest organic and natural brand in the country). With all of that in mind as well as their multi-year pricing plan — and hopefully more brick and mortar storefronts across the nation, I can absolutely see them being the place shoppers flock to,” she added, albeit with a caveat.
“The one thing I don’t see, however, is it being able to be a replacement for Costco. Costco sells by bulk and offers top tier meats and more at relatively unbeatable prices. It would have to really get smarter about what it offers to become the option to choose over Costco,” she said.
RTM Nexus CEO Dominick Miserandino thinks that Kroger doesn’t need to be the cheapest to win.
“Kroger doesn’t have to beat Walmart, Costco, or Aldi on every price. It needs to be close enough that customers don’t feel they’re being penalized for shopping there. People will pay a little more for convenience, better selection and fresh food, but there’s a limit to how much more,” he told TheStreet.
Most Kroger customers won’t see major changes quickly.
“In aggregate, we expect to be able to invest $5 billion in value for our customers, which will be realized by 2029,” Adcock shared.
The pricing rollout has already been tested in some markets, but full adoption won’t happen across all banners and stores until 2029.
Related: Safeway supermarket chain closes underperforming stores