Kroger’s Digital Engagement Strategy Drives Growth Amid Sluggish Sales

Despite Kroger’s third-quarter results taking a slight a dip, digital growth is still making a splash.

Kroger’s digital transformation continues to show promising results as digital sales surged by 11%, driven by strong performance in customer fulfillment centers (CFCs) and a boost in delivery sales, which grew by 18%. Kroger’s 1.2% slide in total company sales, to $33.6 billion, was attributed to the sale of its Specialty Pharmacy business and a drop in fuel sales due to lower retail gas prices.

“Digital offers are an important way we deliver savings,” CEO Rodney McMullen said Thursday (Dec. 5) during the earnings call. “The customer engagement continues to grow, with 5% more digital offer clips so far this year, and that has led to 14% more savings for Kroger customers. We are always creating additional ways for our customers to save. This quarter, we celebrated and thanked our customers with a customer appreciation week, offering new great deals — and to help our customers enjoy a memorable Thanksgiving, we lowered the price of Thanksgiving meals for the third consecutive year by creating a meal bundle that served a group of 10 people for less than $5 per person.”

This focus on savings and customer engagement reflects a larger trend in the retail industry, where consumers blend digital and in-store shopping experiences.

The PYMNTS Intelligence report, 2024 Global Digital Shopping Index: The Rise of the Click-and-Mortar Shopper and What It Means for Merchants, commissioned by Visa Acceptance Solutions and drawing from a survey of nearly 14,000 consumers across seven countries, revealed that nearly 40% of consumers are now Click-and-Mortar shoppers, engaging across digital and physical channels. According to the report, 25% are digitally assisted in-store shoppers, while 14% are pickup shoppers who buy online and collect in-store. Despite this growth in digital engagement, 87% of grocery transactions still take place in physical stores, highlighting the need to integrate digital and in-store shopping experiences.

Growth in Digital and Customer Engagement

Kroger’s efforts to strengthen its digital capabilities were evident in its customer engagement metrics, McMullen noted. The company’s commitment to creating a seamless shopping experience has driven customer loyalty, particularly through the Kroger Plus loyalty program and the company’s paid membership program, Boost, which has expanded with features like Disney streaming benefits.

Boost has also helped the company deepen its relationship with customers, offering personalized discounts and rewards based on shopping habits, McMullen explained. As a result, the company reported an increase in both total and loyal households, with more customers engaging with Kroger’s digital platforms and in-store options.

“As customers become more engaged, we gain deeper insights into customer trends, while creating the data that enables us to grow Kroger precision marketing and deliver more effective promotions and relevant product recommendations,” McMullen explained. “We are working to grow Boost, the next level of our loyalty program, through new benefits and this quarter we announced the addition of Disney+, Hulu, and ESPN+ streaming benefits. Within digital, delivery sales grew at 18% and continues to outpace other channels.”

Ecommerce Penetration a Key for Kroger

Increasing eCommerce penetration is important to Kroger’s business model, McMullen explained, “as households who shop with us digitally and are in our stores are our most loyal customers and increase retail media monetization opportunities as well. As our digital business grows, particularly in our delivery network, it continues to have a larger impact on our financial results. Improving profitability is a key priority and becoming even more important to our financial model. Over nearly a decade, we made significant investments in our digital capabilities, building out our own properties, creating distribution channels in both pickup and delivery. While each of these capabilities required significant investments, we now have a unique digital experience that our customers enjoy.”

While many consumers are financially strained, McMullen noted, “customer engagement remains strong. Customer spending habits continue to adjust to macro-economic factors. Many customers’ spending habits are more confident and returning to pre-pandemic habits more quickly. Spending from budget-conscious households remains under pressure. We expect it will take longer for these households to feel the benefits of economic improvement.”

Outlook and Merger Progress

Looking ahead, Kroger expects to see identical sales growth of 1.2% to 1.5% in the fourth quarter, with a continued focus on digital engagement and customer loyalty, Interim Chief Financial Officer Todd Foley noted. While consumer sentiment remains a challenge, the company remains confident in its ability to deliver value, especially as it ramps up its holiday promotions and digital offerings.

Kroger is awaiting a decision from a federal judge on its proposed $24.6 billion merger with Albertsons, which has been in the works for over two years. While the Federal Trade Commission initially blocked the deal, both companies presented their case in court in October, and Kroger remains optimistic about the merger’s potential benefits for customers, associates and communities.

“The food industry has always been competitive and will continue to be after this merger,” McMullen stated. “We are committed to closing this merger because bringing Kroger and Albertsons together will provide meaningful and measurable benefits — lower prices, secure jobs and expanded access to fresh, affordable food — for customers, associates and communities across the country.”

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