Kroger has revealed that its digital sales increased 15 percent in the first quarter of 2023 as it stepped up its focus on digital transformation initiatives.
Rodney McMullen, Chairman and Chief Executive Officer of Kroger, said digital will continue to be an important growth driver, adding double-digit sales increases will continue for the remainder of 2023.
Yael Cosset is the Chief Information Officer (CIO) of Kroger, responsible for leading Kroger’s digital strategy, focused on building Kroger’s presence in the marketplace in digital channels, personalization and ecommerce.
Kroger’s annual digital sales have already touched more than $10 billion.
Kroger’s 15 percent growth in online sales in the first quarter of 2023 is significantly higher as against increase of 4 percent in 2022 and decrease of 3 percent in 2021. Kroger said digital sales growth for 2022 was led by strength in Delivery solutions, which grew by 25 percent in 2022.
Kroger’s total sales were $45.2 billion in the first quarter, compared to $44.6 billion for the same period last year. Gross margin of Kroger was 22.3 percent of sales for the first quarter.
Kroger’s investment in digital transformation
Kroger is planning capital expenditures of $3.4 – $3.6 billion for 2023. This include its investment in digital transformation. Kroger does not reveal its IT spending plan for the year 2023.
According to Kroger’s annual report for 2022, the retail store chain invested a total of $3.3 billion in capital in 2022 and $3.2 billion in 2021. In comparison to previous years, Kroger increased its allocation of capital investments toward digital and technology. The company expects these investments to fuel growth in digital sales and enhance operational efficiency by reducing costs and waste.
Kroger’s investments encompass various initiatives aimed at improving the customer experience in stores, optimizing process efficiency, and enhancing digital capabilities through technological advancements.
The company has developed a digital platform that provides a seamless shopping experience, allowing customers to effortlessly switch between in-store shopping, pickup, and delivery options. In 2022, Kroger witnessed an increase in delivery sales, expanded its customer fulfillment centers, grew its digitally engaged customer base, and fostered loyalty through personalized coupons and fuel rewards.
Driven by delivery solutions such as Kroger Boost and Customer Fulfillment Centers, Kroger achieved a 30 percent increase in delivery sales compared to the previous year. Additionally, Kroger announced a collaboration between Disney and Kroger Precision Marketing on connected TV. The company also witnessed a 13 percent rise in digitally engaged households compared to the previous year.
With nearly half a million associates, Kroger caters to over 11 million customers daily, providing them with a seamless digital shopping experience and a wide range of retail food stores. During the first quarter, Kroger experienced approximately a 380 basis point increase in sales made on promotion and redeemed 180 million digital coupons.
Kroger has leveraged data and analytics, including artificial intelligence, to enhance the customer and associate experience. By utilizing data and AI-driven personalization, the company aims to gain a deeper understanding of customer preferences and deliver targeted and effective experiences. Kroger employs more efficient channels to present relevant products and promotions at the right moments. The company plans to further integrate advanced AI throughout its operations and explore potential use cases.
Rodney McMullen, during an analyst call in Q1 2023, expressed Kroger’s commitment to simplifying the digital experience for customers and offering more accurate personalized recommendations. The company’s teams are actively collaborating with search algorithms and generative AI to improve accuracy in product substitution and search results.
Additionally, within the 84.51 customer research team, Kroger is piloting large language models to summarize customer database sets. By utilizing AI in customer surveys and service logs, the team can rapidly analyze and categorize data in minutes instead of days.
Even customers who solely shop in-store initiate their shopping journeys through Kroger’s mobile app or website, where they clip coupons and create personalized shopping lists. These increasing interactions contributed to a 13 percent growth in digitally engaged households during the quarter.
Kroger values this behavior as digitally engaged households demonstrate higher loyalty, spend nearly three times more, and support the growth of alternative profit businesses such as Kroger Precision Marketing. Rodney McMullen emphasized that Kroger’s associates continue to provide exceptional full, fresh, and friendly experiences to customers.
Through investments in talent and technology, as well as by exercising greater control over product movement across their network, Kroger has improved the efficiency of its supply chain. As a result, associates have achieved higher in-stock rates, leading to increased sales. Kroger’s end-to-end fresh initiative aims to streamline the supply chain, minimizing the time from farm to shelf.