Inside This Issue - Opinion
Kroger builds arsenal with eye toward future
July 14th, 2014
by Jeffrey Woldt
Anyone who thinks that conventional supermarkets are a spent force, consigned to see their market share steadily eroded by more nimble and innovative members of other trade classes, should stop and take a look at Kroger Co.
The nation’s largest operator of traditional grocery stores, the company has earned a reputation for meeting the needs of customers and delivering solid financial results for shareholders.
Sometimes overlooked is Kroger’s willingness to innovate. The latest evidence of that tendency is the decision to purchase Vitacost.com, an e-commerce company that specializes in vitamins, minerals, herbs, sports nutrition products, natural and organic food, and beauty care merchandise. Although relatively small in scale (Kroger, which this year will generate sales in excess of $100 billion is paying $280 million for Vitacost.com), the deal has outsized importance for what it represents — a supermarket operator with its eyes fixed firmly on the future.
"Vitacost.com’s talented team has built an exceptional online retail destination, with an enviable technology and fulfillment infrastructure," says Kroger chief executive officer Rodney McMullen. "This merger is in line with our growth strategy to enter new markets and new channels."
The acquisition will immediately extend Kroger’s reach, giving it the ability to ship products to homes in all 50 states, well beyond the 34 where it currently has brick-and-mortar stores, as well as internationally. In addition, Vitacost.com’s expertise is expected to mesh seamlessly with the online order and pick-up service developed by Harris Teeter, the grocery chain in the Southeast that Kroger paid $2.5 billion for earlier this year, and help pave the way for home delivery of all the products available in-store.
Kroger understands that the rules of the game in mass market retailing are changing. While brick-and-mortar stores are not going to disappear any time soon, the ease of online shopping — especially for consumer packaged goods, if not for such items as meat and produce — will make e-commerce a bigger part of the grocery business in coming years. To remain competitive, supermarkets and other retailers must effectively respond to customers’ desire to shop whenever, wherever and however they chose. As the purchase of Vitacost.com makes clear, Kroger is determined to give them those options.