How Kroger Plans to Beat Publix: EXCLUSIVE PHOTOS

Kroger has debuted a new model for grocery retailing in Florida, and now we know exactly how it’s going to work.

America’s largest grocery chain, which has no physical stores in Florida, entered the Sunshine State last month – digitally – when it started accepting online orders and delivering groceries to homes in Tampa Bay (Kroger-owned Harris Teeter operates a store in North Florida).

The groceries being delivered in Tampa Bay originate from a 375,000-square-foot robotic customer fulfillment center (CFC) in rural Groveland, Fla., about 70 miles east of Tampa. From there, Kroger has leased smaller “spoke” warehouses, including in Tampa Bay and Jacksonville, where groceries will be transferred into refrigerated trucks and then go out for delivery to homes. Fulfillment from Kroger’s CFCs extends up to 90 miles, with the spoke warehouses enabling delivery beyond that. Progressive Grocer has obtained exclusive photos of the Kroger spoke warehouse in Tampa (see image gallery below).

“Kroger is uniquely positioned to transform grocery e-commerce in Florida because of our differentiated offering that brings high-quality fresh groceries directly to our customers’ doorstep. The service features fresh food, adult beverage, and personal care products, affordable prices and promotions, and a best-in-class fuel rewards loyalty program,” said Bill Bennett, Kroger’s VP of e-commerce. “This innovative, customer-centric offering is delivered by our professionally trained and friendly Kroger Delivery associates, providing our customers with anything, anytime, anywhere and broadening our reach and products to new geographies.”

THE TAMPA SPOKE

On a recent weekday, Kroger delivery trucks (each staffed with two employees) could be seen entering and exiting the spoke warehouse in Tampa. According to Kroger, the spoke locations will each employ nearly 180 associates.

Back at Kroger’s robotic CFC in Groveland, more than 1,000 bots whizz around giant 3D grids, orchestrated by proprietary air-traffic control systems in the unlicensed spectrum. The grid, known as The Hive, contains totes with products and ready-to-deliver customer orders. As customers’ orders near their delivery times, the bots retrieve products from The Hive which are presented at stations for items to be sorted for delivery, a process governed by algorithms that ensures items are intelligently sorted. For example, fragile items are placed on top, bags are evenly weighted, and each order is optimized to fit into the fewest number of bags, reducing plastic use. Once completed, orders are loaded into a temperature-controlled Kroger Delivery van, which can store up to 20 orders. Powerful machine learning algorithms dynamically optimize delivery routes, considering factors like road conditions and optimal fuel efficiency.

At every CFC, on-site associates support delivery operations and help process, package and load orders. The Groveland CFC employs nearly 400 associates, with roles focusing on customer service and engagement, engineering, operations, inventory and quality management and transportation.

“We are excited to bring Kroger’s exclusive brands, including Simple Truth, the country’s largest natural and organic private label, and Private Selection to Florida,” said Brandon McBurney, Kroger’s general manager of the Groveland Customer Fulfillment Center. “Kroger Delivery provides reliably fresh food in a convenient, innovative way. Kroger Delivery will introduce Kroger to new audiences, accelerate our e-commerce capabilities, focus on outstanding customer experiences, and create hundreds of new career opportunities.”

While news of Kroger’s grocery delivery from Ocado-powered CFCs is not new (11 Ocado “sheds” are expected to come online by 2023), the strategy the grocer is employing in Florida is, in two ways: First, it shows that Kroger believes it doesn’t need physical stores or a vast real estate portfolio to compete successfully in new markets. And second, it shows that Kroger has a completely different (and elevated) definition of what it means to deliver groceries.

In Florida, Kroger’s CFC allows the company to service the fast-growing populations of Tampa, Orlando and Jacksonville without a corner store advantage. While Publix Supermarkets enjoys most-favored status in the state, and competition from other food retailers is fierce, Kroger enjoys brand loyalty from the people who are pouring into Florida from states where Kroger is the dominant grocer. During the company’s annual shareholders meeting in April, CEO Rodney McMullen said Kroger has 55% brand awareness in Florida.

“When you look at overall high recognition in certain parts of the state, it’s even higher, because an awful lot of people from Florida moved from the Midwest to Florida,” McMullen said.

For many of these new Floridians, Kroger was the neighborhood grocer. And now, they can still have their neighborhood grocer, this time at their Florida address. It’s likely that Kroger will extrapolate this strategy to other states where it also does not operate stores.

The other innovation coming from Kroger in Florida is the service: This is not your Grandma’s grocery delivery.

GROCERY DELIVERY ELEVATED

After receiving a promotional flyer in the mail (and seeing friends and family rave about Kroger’s service on social media), I placed an order for Kroger grocery delivery in Florida on May 28 (A $9.95 delivery fee was waived for first-time customers). I received constant updates via text about my order, and Kroger comped five items (including perishables) as part of its promotional strategy in the area.

About 10 a.m. on Memorial Day, a colorful truck emblazoned with the Kroger logo showed up and parked neatly on the street. Two uniformed Kroger associates emerged from the truck, gathered my groceries, put them on a dolly, and both of them walked to my front door. They offered to bring the bags of groceries inside, but I was fine with having them dropped at the door. I was expecting the guys to leave immediately (as most delivery people do); instead, they engaged me in conversation.

“How was your experience today? You saved $18.06 by shopping with Kroger! You now have 189 rewards points. Is there anything else we can do to help with your order?”

According to Kroger, the delivery drivers are tasked with providing “industry-leading customer service, including ensuring order freshness and satisfaction, managing order changes, and informing customers of loyalty membership benefits like earned fuel points through a partnership with Shell and digital coupon savings.”

This is not hyperbole, at least based on my experience.

Compared to other grocery delivery services, the Kroger experience seemed dreamy, with employees offering to manage order changes, answer questions and let me know about my loyalty membership benefits. I wanted to tip these two guys for their excellent service, but they both said no tips are allowed; McMullen has said that pay for delivery drivers starts at $18.45 an hour, above average delivery wages in Florida. The Kroger delivery experience is clearly designed to impress and be a showcase for the grocer’s fast, fresh and friendly value proposition.

Upon inspecting my haul, I noticed all of my cold items were ice cold. Unlike my experiences ordering perishables from crowdsourced or other grocery delivery services, my Kroger branded ice cream had not melted. My cheese, my lettuce, and my butter felt as if they had come straight from the cold case. That Kroger truck makes a huge difference in the perceived freshness of delivered cold and frozen foods, another differentiator for the company. Some problems I encountered with my order included website glitches with missing products, one of the items I ordered was wrong (they delivered Impossible Burger ground meat instead of patties), and it did take a long time to access customer service on the Kroger website.

But there’s no doubt that Kroger’s entry into Florida has created a new model for grocery retailing, offering lessons for food retailers on the relevance of physical stores and customer service in the digital age. What remains to be seen is whether Kroger’s new grocery ecosystem will have staying power in an industry that is evolving at record speed.

Cincinnati-based Kroger employs nearly half a million associates who serve 9 million-plus customers daily through a seamless digital shopping experience and 2,800 retail food stores under a variety of banner names. The company is No. 3 on The PG 100, Progressive Grocer’s 2021 list of the top food and consumables retailers in North America.