Read original article on Forbes.
The title of this article was inspired by the globally popular book series by author Bill O’Reilly. The title is appropriate because in many ways, Kroger is a company being targeted by competitors, primarily Walmart, Amazon and Aldi, intent on killing Kroger’s ability to compete. When enough market share and customers are lost by any retailer, it has effectively been killed as a company.
I had the distinct pleasure of working for Kroger as a digital, supply chain and strategy consultant. Kroger contracted me after reading recommendations I had outlined for Kroger to implement in an article titled Amazon Acquires Whole Foods – Now What? I can attest to the professionalism of the management team and the dedication of thousands of hard-working Kroger associates.
There is a reason Kroger is the second-largest retailer in the U.S. with 2017 revenues of $123 billion generated from nearly 2,800 stores operating under such banners as Kroger, Harris Teeter, Ralphs, Fred Meyer, QFC and others. By every measure, Kroger is an exceptional company.
Based on my analysis as a consultant, however, Kroger is also a company facing significant competitive pressures that threaten Kroger’s ability to survive. Sound drastic? It isn’t.
In head-to-head competition, Kroger has been able to fend off its biggest competitors, which include Walmart, Albertsons and Aldi. Kroger is an exceptional competitor, as its latest quarterly results prove. The problem for Kroger is that the game has changed. No longer is Kroger competing head-to-head against traditional grocery retailers; Kroger must now compete against Amazon — and Amazon isn’t playing the same game.
Kroger must also compete against the resurgent German discounter Aldi, which is investing $3.4 billion to expand its U.S. store base to 2,500 stores by 2022. An unknown at this time is whether Lidl, another German discounter, will stabilize its business model and grow in the U.S. An even bigger unknown is whether the parent company of Lidl, Schwarz Gruppe, will introduce Kaufland stores into the U.S. If so, it means even more competition for Kroger.
Kroger isn’t just in a dogfight; Kroger is in a fight against a three-headed dog named Walmart, Amazon and Aldi intent on ripping Kroger’s customers and market share away. Applying my former Amazon experience, my advice to Kroger was to evolve as a retailer with a focus on three key areas: supply chain, digital, and competitive position.
To address the shortcomings that currently exist at Kroger, I provided Kroger with a series of recommendations:
- Acquire Ocado (preferred) or, at a minimum, introduce Ocado’s Customer Fulfillment Center (CFC) platform into the Kroger ecosystem. Introduce case-picking robotics into each CFC to give Kroger the ability to replenish to their stores, fulfill online grocery orders, and fulfill orders for ClickList curbside pickup. An added value to Kroger is that it can close most of its 42 legacy distribution centers and expand across the U.S., especially along the East Coast, leveraging Ocado’s platform.
- Acquire Shipt and end the relationship with Instacart and all other third-party delivery companies.
- Acquire Boxed Wholesale and integrate the technology and operations into the Kroger ecosystem.
- Acquire Overstock.com and leverage the platform to provide Kroger customers with a robust general merchandise capability specific to their needs. Kroger loses sales to Target, Walmart and Amazon because Kroger does not carry a large selection of general merchandise. Kroger’s general merchandise sales are only 4% of its total revenue, and I believe they should be closer to 20%.
- Acquire a meal-kit company. I recommended HelloFresh be acquired with Blue Apron, Chef’D, Home Chef and ICON Meals as options.
- Leverage the company’s manufacturing prowess to prepare, cook and deliver hot food direct to customers.
- Partner with AutoStore to install their best in class micro-fulfillment centers (MFC) inside select stores and in offsite locations. Ocado isn’t enough. Kroger must have a micro-fulfillment strategy and I recommend that Kroger start first with installing MFCs and then open Ocado facilities.
I also made the argument that Kroger needed to make a Big Move by seeking out a retailer for a merger or acquisition. Specifically, I stated that the following companies offer Kroger an exceptional opportunity to innovate their business model and strengthen their long-term competitive position. Either option selected by Kroger would be transformative:
- Merge with Target (I also recommended to Kroger that it consider copying what Target did in terms of its pharmacy business. I recommended to Kroger that it sell its pharmacy business to Walgreens and create a program whereby customers could order groceries from Kroger and pick them up at a Walgreens of their choice. A second option I recommended was for Kroger to acquire Rite Aid and do the same thing with groceries if Walgreens did not want to acquire Kroger’s pharmacy business.)
- Merge with Ahold Delhaize
- Be acquired by Costco
- Be acquired by Alibaba
- Be acquired by Google, Microsoft or Facebook
Over the next 15 years, the grocery landscape will change drastically. Gradually and then suddenly, Kroger will be impacted by the cumulative effect of battling Amazon, Walmart, Aldi and myriad other competitors such as Target, Albertsons and maybe Lidl. Regardless of how well Kroger can compete today, industry analysts agree that Kroger is facing significant headwinds long term.
Kroger must make a Big Move that will insulate it against Amazon by giving Kroger the ability to offer customers a better value proposition and experience — no easy task. Without a Big Move, between 2027 to 2030, Amazon will pass Kroger in terms of grocery sales. Between 2030 and 2035, Amazon will pass Walmart to become the largest grocery retailer by sales. Between 2035 and 2040, it will happen: Kroger will be killed.
Do I want this to happen? No. I think very highly of Kroger, and I want the company to thrive. Can it happen? Yes, absolutely.
