CLEAR AND PRESENT DANGER

Kroger’s just announced quarterly results should be a fresh wake-up call to retailers that the danger called out three years ago in “Will Big Data Kill All But The Biggest Retailers” (HBR  9/18/2012) is alive and well.Kroger, the largest supermarket chain in the U.S. the other day reported its 48th consecutive quarter of same store sales growth and delivered an eye-popping 5.4% sales increase. Compare that to the paltry 1.5% same stores sales increase and declining profits for independent supermarkets as reported by Peter Larkin, CEO of National Grocers Association, citing a recently released FMS (Financial Management Services) annual study.

In achieving these results, Kroger stated that increases in the volume of shoppers and trip frequency exceeded their forecasts. Kroger’s results are a testimony to the shopper-centric juggernaut Kroger has created. And that juggernaut is a clear and present danger to every retailer that competes with Kroger in markets across the country.

Kroger’s ability to strategically grow the value of shoppers using precision targeted promotions is seen in those same store sales increases. Higher spending customers are more profitable customers and Kroger has reinvested part of that margin growth in lowering prices, helping it drive market share gains. Kroger has leveraged a deep understanding of their shoppers into store specific merchandising assortment optimization, having the brands and package sizes aligned with the shoppers at each store. Getting assortment and inventory right decreases out-of-stocks, delivering more sales increases. The right assortment and inventory leads to higher inventory turn, delivering more penny profit in every category. And the mass promotions Kroger continues to run? The items chosen to appeal to the shopper segments Kroger is focused on growing.

The scariest part of what Kroger is doing? They have shifted the battle away from mass marketing to a stealth battle of personalized promotions. Competitors find their sales slowly siphoned away as Kroger silently steals shopper share of wallet, turning competing supermarkets into zombie stores.

Kroger’s latest results should be (yet another) wake-up call to independent and regional retailers. It should also be a wake-up call to the wholesalers who are failing in their marketing stewardship of the independent retailers they service. And Kroger’s results should also be a wake-up call to the large CPG brand manufacturers that the continued shift of industry marketing funds to the largest players is bifurcating the industry, creating a world of ‘haves’ and ‘have-nots’. This continuing shift of marketing funds away from the independent and mid-market sector to a handful of Tier 1 retailers risks a modern-day Robinson-Patman revolt.

To be fair, the big CPG brand manufacturers are simply investing their marketing funds where they get the best ROI - big retailers that have shopper data and are able to leverage shopper insights and analytics into strategic growth. Independent and regional retailers, along with the wholesalers that serve them, need to step up their game. And there are no excuses for retailers and wholesalers failing to do so.