Kroger Needs to Differentiate on Customer Experience Amid Burgeoning Grocery Sector Competition

Five days ago, Kroger−the largest U.S. supermarket chain by revenue and the second-largest retailer (behind Walmart)−saw its stock tumble to its largest one-day loss since 1999 after its same-store sales dropped for the second consecutive quarter.

The interesting point here is the decline comes after seven straight years of continuous growth, and Kroger’s performance the past two quarters comes amid heated price competition in the grocery industry, including German-based Aldi and its rival Lidl.

Walmart, Whole Foods, and Sprouts Farmers Market are involved in the price-cutting competition. Kroger officials have said they will not “lose on price.”

Customer experience, exemplified by Ottawa-based Eastern Ontario regional supermarket chain Farm Boy, is especially critical at this juncture for companies embroiled in the grocery industry competition. Officials at Farm Boy refer to their differentiated customer experience as a “fresh food experience.”

What’s more, online behemoth Amazon last week acquired Whole Foods for $13.7 billion, which is sure to turn the already competitive grocery industry on its head.

Besides a differentiated customer experience, Kroger’s recent woes bring to light what competitors need to do to rise above the fray, stressing consistency, focus, and avoiding an all-out price-cutting contest.

“Kroger’s decline in same-store sales is a strong indicator of how competitive this market segment has become,” Stellar Loyalty CEO Kevin Nix told Loyalty360. “With last week’s announcement of Amazon’s intent to acquire Whole Foods, traditional grocery is under siege. It’s now more imperative than ever for grocery chains to re-evaluate the consumer’s digital experience and optimize for speed and convenience.”

Michela Baxter, senior director of loyalty strategy at HelloWorld, told Loyalty360 that the dynamics we’re seeing in grocery sector present a prime example of why establishing brand-to-customer interactions above and beyond transactional tactics is a critical component of a retailer’s success.

“Retailers that find a way to add value to their customers beyond race-to-the-bottom discounts are better insulated against the fleeting nature of transactional relationships,” Baxter explained. “Those who differentiate through the shopping experience, a loyalty program that rewards both purchase and interactions, or killer customer service will make customers think twice before visiting a competitor to save a few cents on milk.”

Evan Magliocca, brand marketing manager for Baesman Insights & Marketing, told Loyalty360 that the price war we’re seeing in the grocery world is reminiscent of the promotional wars we saw in apparel retail some years ago. 

“We’re seeing that aftermath play out now and it doesn’t bode well,” Magliocca explained. “Grocery chains can look to those mistakes as a case study to avoid some of the blunders and bankruptcies. One area that holds true across any segment of retail is that if you can’t win on price. You have to win on experience, quality, and customer value alignment. Kroger is currently in a tenuous situation similar to Macy’s, Sears, and Nordstrom. Kroger isn’t ‘luxury’ in this case, high-end organic product, yet it isn’t discount like Aldi or Walmart. Kroger needs to do whatever it can right now to move out of that position to avoid losing customers. Cutting prices on eggs and milk simply isn’t going to be enough.”   

Jill Goldworn, president of The First Club, told Loyalty360 that the key for Kroger is product choice is not enough of a differentiator.

“If that is how it markets itself, Kroger has become simply a commodity player,” she explained. “Kroger must create a value proposition to inspire repeat purchasers either through loyalty or personalization and communicate it clearly and back it up with the best customer experience. Its high-value shoppers will stay when they feel recognized and acknowledged.”

Bill McCoy, founder and CEO of Imagine Experience, told Loyalty360 that Kroger and other big box retailers are being forced to look at the experience provided to customers to maintain their market share and stay competitive.

“New businesses that are easier to use with better pricing models like Thrive Market and Blue Apron make it simple for customers to buy from their mobile devices,” McCoy said. “That ease-of-use, combined with pricing, is a big interest point for their customers.”

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