How Kroger reinvented itself
The Kroger Co. realized nearly a decade ago that to survive it had to put the customer first, and permanently.
That meant larger stores with more products at cheaper prices. It meant cleaner aisles and shorter lines. It meant $4 generic prescriptions, organic food selections, Murray's Cheese counters and a 3-cent reward for using a reusable shopping bag.
It meant donating food to local food pantries, launching breast cancer awareness campaigns using local women, giving away its Deluxe ice cream to loyal Twitter followers.
"We told our shareholders our intention is to save money in places that won't matter as much to the customer, so we can pass on savings to the customer," Kroger CEO David Dillon told a packed Music Hall Ballroom crowd attending the Cincinnati USA Regional Chamber's annual luncheon Wednesday.
As the chamber recognized its accomplishments and those of six local companies in business 100 years, Dillon spoke on reinvention.
He told a tale of the 126-year-old Cincinnati-based company that grew to become the nation's largest traditional grocery store operator with stores in 31 states. Its evolution came from two lessons learned through the years: the importance of honesty and accepting feedback.
"You can't grow, change, improve if you don't recognize the need for that," Dillon said. "We were not as good as we thought we were."
A culture of change is evident throughout Kroger's history, recalled Dillon, who was named the company's CEO on June 26, 2003.
In the 1930s, Kroger was a chain of nearly 5,000 tiny stores making $200 million annually in revenue. Over time, company officials realized operating all those stores was too expensive and prevented offering a wide variety of merchandise at the lowest prices.
Today, Kroger operates 2,600 grocery stores and makes $76 billion. The grocer is known for its efficiency and ability to create economies of scale. Dillon is quick to share that Kroger has lowered prices in each of the past five years.
But it is clear that Dillon is always thinking of how to be better.
Asked in an interview after lunch about the top three things he'd improve about his stores, he spouted off lower price points on some products, improved service at the front of the store and having in stock the right products when customers want to buy them.
He pays a great deal of attention to his industry and competitors, admitting his admiration for New York-based Wegmans Food Markets, Texas-based H-E-B, Publix Super Markets in Florida, and in some ways, Walmart.
"They have learned what I'm trying to, and sometimes more quickly," he said. "Good competition makes you better, helps you improve."
Key to Kroger's customer-first strategy has been to learn about each and every one of its customers. Its joint venture with London-based market research and marketing firm dunnhumby has been lauded in the grocery industry for its analysis of shopping data from 45 million consumers using Kroger Plus cards. Kroger has used that data to merchandise individual stores in each of its 18 divisions, create advertising campaigns and provide targeted coupons to its most loyal customers.
"It gives you lots of information about purchase histories, then you really know who those special customers are. It's the classic database marketing playbook, but not that many organizations are ultimately able to pull it off," said Chris Allen, a University of Cincinnati marketing professor and associate dean in the College of Business.
Loyalty card programs can often turn a customer into someone always looking for the next deal, Allen said. But Kroger has created anticipation and excitement over savings, letting its customers experience great value, he said.
Dillon has learned from the dunnhumby relationship that even Kroger's best customers are still buying many items that the retailer sells someplace else.
To him, that translates to adding tiny details to the shopping experience, such as sending a Jif peanut butter coupon to a mom who only buys Jif or giving extra fuel rewards to families that are loyal to Kroger.
"We don't need to draw in others who don't shop with us because the biggest opportunity is with our loyal customers," he said.