Kroger Opens Ghost Kitchens and Launches Grocery Delivery Technology

Kroger Opens Ghost Kitchens and Launches Grocery Delivery Technology

Kroger Opens Ghost Kitchens and Launches Grocery Delivery Technology

  • Kroger builds its own technical infrastructure, including automated warehouses for delivery orders.
  • That puts it in competition with Instacart, its longtime grocery delivery partner, analysts say.
  • Kroger’s other engineering projects include a smart shopping cart partnership and an advertising arm.

One of the largest retailers in the US is expanding its delivery fleet, adding smart shopping carts to its stores and finding food brands to advertise on its app.

But it’s not Amazon or Instacart. It’s Kroger.

The company is a silent giant in the grocery industry, hitting $138 billion in sales and accounting for about 8% of U.S. grocery store sales in 2021, more than four times Amazon’s 2%, according to data from Euromonitor. Kroger operates multiple chains in the US, including North Carolina-based Harris Teeter and Ralphs, a Southern California chain. Kroger operates a total of 2,800 stores.

But Kroger is increasingly betting on the digital realm for its future. Last week it started delivering groceries through an automated warehouse in Miami – a city where it has no physical stores.

Kroger’s e-commerce and technology initiatives have proliferated, especially in the years since Amazon bought Whole Foods in 2017.

Kroger is also an important retail partner for Instacart, but industry watchers say Kroger’s e-commerce strategy indicated it could eventually wean itself from the supermarket delivery giant.

“I don’t know if that Instacart relationship will be there forever,” Gary Hawkins, the CEO of the Center for Advancing Retail & Technology, told Insider.

Kroger ultimately wants to gain more control over the technology it uses, given “the importance they place on accessing marketing funds from brand manufacturers and the importance they place on owning that customer-shopper relationship,” Hawkins said.

Its technology investments, plus its scale and ability to keep prices low, give it an edge over Amazon, Zain Akbari, a Morningstar analyst, wrote in a research note dated April 14.

“Of traditional grocers, we believe Kroger is in a unique position to defend its returns against a competitive onslaught that should increase as Amazon, mass merchants and hard discounters price aggressively to increase volume,” Akbari wrote.

“They are transforming the food industry,” said Liza Amlani, a retail consultant. “They’ve embraced the technology.”

Kroger did not respond to a request for comment from Insider.

Here are Kroger’s biggest e-commerce and technology initiatives:

ClusterTruck

A ClusterTruck haunted kitchen in a Kroger in the Midwest.

ClusterTruck


Ghost kitchens

In December 2019, Kroger began enhancing its ready-meal offerings by partnering with ghost kitchen startup ClusterTruck. The delivery-centric haunted kitchen touts a Cheesecake Factory-inspired menu of 80 to 100 foods. In recent years, ClusterTruck has opened locations in Kroger stores in Indiana and Ohio.

But Chris Baggott, co-founder of ClusterTruck, recently told Insider that he’s pulling his concept out of Kroger stores because he’s not a fan of the pickup truck business. He wants to keep ClusterTruck as a delivery-only haunted kitchen.

Still, Kroger’s haunted kitchen playbook is diversified. In January, Kroger partnered with a larger California haunted kitchen outfit, Kitchen United.

The “store within a store” approach with Kroger will allow the haunted kitchen to boost its growth, as Kroger operates 2,800 stores under various brands, including Ralphs, King Soopers and Fred Meyer.

Monthly visits to Kroger-owned stores have fallen year-on-year since January 2022, according to analytics firm Placer.ai. But the company, which tracks where consumers shop, said Kroger stores with the haunted kitchens are seeing an increase in visits compared to neighboring Kroger branches.

“The goal is to expand this to hundreds across the country under different banners,” Kitchen United CEO Michael Montagano told Insider in January. “We like the grocery store format because it allows for a meaningful amount of takeout.”

The chain now has two Kitchen United haunted kitchens in stores in Los Angeles and Houston. A third will open soon in Dallas. Kitchen United told Insider in mid-June it has additional locations in development in Indiana and Ohio.

kroger shop sign


Stephen Zenner/Getty Images


Subscriptions

Taking a page from Instacart and food delivery apps like DoorDash and


Uber Eats

Kroger hopes to let buyers buy through their own app by rolling out a subscription program.

The Boost membership program, where customers can get unlimited free delivery on orders of $35 or more, was tested in a few markets last year. During Thursday’s earnings call, Kroger CEO William Rodney McMullen said the company will be rolling out the Boost program nationally in the coming weeks.

“This next-generation loyalty program deepens our relationships with customers as they continue to seek value and convenience,” he told investors. “What’s most important to us is that it makes that customer stick more closely to our overall ecosystem, not just on delivery.”

“Our strategy is that when a customer thinks of food, we want them to think of Kroger,” he added. “So we feel good about where we are and it’s going in the right direction.”

nuro kroger

A Nuro self-driving vehicle that Kroger uses to deliver groceries.

Kroger


High Tech Delivery Partnerships

Kroger teamed up with British grocer Ocado in 2018. In the early 2000s, Ocado built a network of automated warehouses to pack orders, turning it into a major supermarket chain in the UK.

Since then, Ocado and Kroger have opened three robotic warehouses in the US, with plans for another 13. The warehouses, which Kroger calls “sheds,” fill orders for both delivery and collection.

They’ve also given Kroger a foothold in the few remaining areas of the US where it doesn’t have stores, Hawkins told Insider.

“If Kroger is successful in doing this — and I think there’s a good chance they could be — they may feel confident enough to open stores in the Florida market after securing a beachhead through the online business,” he said.

Kroger has no physical stores in Florida, where rivals such as Publix and Winn-Dixie dominate.

“I think it will be interesting to see if they expand the same idea to some other markets in the US where they don’t have physical stores, for example in the Northeast,” Hawkins added.

Another Kroger partnership, this one with autonomous car startup Nuro, has stationed self-driving vehicles since 2018 to deliver groceries in select cities. In January, Kroger said it would use Nuro’s third-generation cars to deliver orders in Houston.

veeve kroger kar krogo

A Veeve cart at a Kroger supermarket in Avon, Indiana.

ine Cain/Insider


smart carts

In October, Instacart bought the smart-shopping-cart company Caper AI. The following year, Veeve, a competing smart cart startup, announced it was testing its own intelligent shopping carts at six Albertsons, Kroger and Safeway stores.

Hawkins said Instacart and Kroger were testing these carts for a variety of reasons, including using consumer data and having a new platform for companies to advertise in consumer packaging.

“It’s all about data. And the screen on that smart cart is also an advertising platform,” he said.

Nancy Wijnkroger

Nancy Winé, the vice president of ad sales at Kroger’s 84.51°.

Kroger


Kroger Precision Marketing

Kroger sells ads on its app and website to the brands it works with. Kroger Precision Marketing, the division that sells these ads, is part of 84.51°, the grocer’s data arm.

For the brands, such as Kraft Heinz and Chobani, it is an opportunity to grab the attention of shoppers as they look around.

For Kroger, it’s a data move and a pure revenue game to gain ad revenue from brand manufacturers, Hawkins told Insider.

“Walmart, Amazon and Kroger have all set up their own media networks to attract those digital advertising dollars from the brand manufacturers,” Hawkins said.

Retailers like Kroger can give CPG companies a better idea of ​​how their digital advertising dollars work because they can tell advertisers how many sales those ads have generated, he added.

“They can connect the dots there, and that’s really valuable to an advertiser,” Hawkins said.

Online Marketplace

There’s another way Kroger resembles Amazon or Walmart: It’s building an ecommerce marketplace.

In April, Kroger added products from Bed Bath & Beyond and Buy Buy Baby to its website, allowing customers to purchase bedding, kitchenware, strollers and other home and baby items from the same place they order their groceries.

The goal, Amlani says, is to get a bigger share of consumer spending, not just for the weekly groceries. Kroger’s marketplace is booming compared to Amazon’s, where third-party sellers make up the bulk of the company’s retail revenue.

“I believe the product strategy and the merchandising strategy will get them there,” said Amlani. “They should be a one-stop shop for their customer.”

instagram car


Thiago Prudencio/SOPA Images/LightRocket via Getty Images


Is Kroger Trying To Get Rid Of Instacart?

Kroger still offers delivery through Instacart. But increasingly, Kroger’s technology initiatives, such as partnering with Ocado for takeout and delivery orders, are doing the same things that Instacart is doing.

Instacart, meanwhile, is trying to provide grocers with technology other than delivery as it looks for new revenues.

For now, analysts say, Kroger and Instacart will continue to work together.

Morningstar’s Akbari wrote that Kroger likely “worked with Instacart on home delivery as a bridge to further develop its own capabilities”.

“The Kroger scale nurtures valuable intangibles that we think are difficult for rivals to replicate,” he wrote.

Hawkins said Kroger would stay with Instacart as long as “whatever comes to them through Instacart” remains sustainable.

“I think it works,” he said of the relationship with Instacart. “As long as Kroger thinks that’s a plus, they’re in a relationship.”

But in areas like advertising, Kroger and Instacart are more direct competitors, he said.

“They’re competing for those dollars from the brand manufacturers,” he said. “The two big points of contention between a major retailer and Instacart are who owns the data and who gets those marketing dollars.”