Years ago, when Joseph Pichler announced he was leaving the University of Kansas Business School to join Kroger, Dave Dillon — a University of Kansas graduate himself—wrote him a welcoming letter. “Dear Joe,” he recalls writing, “I am so pleased you are going to be here, and we will hopefully learn this business together.”
When Dillon shared this story in a recent Supermarket News article, it revealed a man who valued loyalty in friendship and in work as a hallmark of his career. It’s that kind of loyalty that has led Kroger to impressive growth.
Every key retailer has its own unique go-to-market strategy, and that strategy is often rooted in the history and lore of the retailer itself. Dave Dillon’s story goes to the heart of how Kroger values loyalty from its shoppers. Loyalty is an important measure for many retailers, but each creates loyalty in its own unique way. Kroger, with its “customer first” rallying cry, have built real, sustainable loyalty with its customers.
Kroger is successful by most measures: They are the largest grocery chain in the United States; the largest flower reseller in the United States; and the fifth largest pharmacy operator in the United States. You get the picture. But it isn’t just Kroger’s scale that makes them successful.
They are growing consistently. Kroger has achieved 31 consecutive quarters of identical supermarket sales growth through the second quarter of 2011. In the most recent quarter, Kroger reported 5.3 percent sales growth — impressive results in light of the negative sales many retailers experienced during this economically challenging era.
So, why is Kroger continually growing? According to Dillon, Kroger’s growth “is the outcome of our consistent approach to managing the business and executing our customer-first strategy. Our ongoing investments in the four keys — our people, products, prices and the shopping experience — continued to enhance our connection with customers and drive positive identical sales growth.”
For those unfamiliar with Kroger’s customer-first strategy, it’s their promise to “consistently meet the needs of customers” through four key areas: 1) great Kroger associates; 2) products shoppers want, plus a little extra; 3) a shopping experience that keeps them coming back; and 4) consistently good prices.
Creating loyalty is the heart and embodiment of Kroger’s strategy and shoppers see it every day. We know it works, we know it grows sales, but what does Kroger actually do to increase loyalty?
The Dunnhumby Partnership. Kroger definitely isn’t the first or only user of Dunnhumby’s data services, but they’ve certainly perfected it. Kroger’s loyalty cards are in roughly 50 million households. That’s 85 percent of Kroger shoppers and 40 percent of US households. Every time a card is scanned at a Kroger store, purchase data is captured and analyzed, generating real insights down to the household level.
This makes it immediately more than a “buy stuff, scan card, save money” transaction. Dunnhumby’s data analysis helps Kroger determine the right products for the right stores, the right offers for the right households, and the right prices for the right products.
Kroger’s Dunnhumby execution may be best known for direct-mail programs, where shoppers regularly get the best product and category offers specific to their shopping behavior. Not content to rely on traditional in-home communications, Dunnhumby and Kroger continuously analyze what their offers are and how they communicate them with shoppers.
Their sights are set even higher: Currently, they are investigating and introducing email, digital, mobile and social delivery vehicles, as well as linking loyalty cards with additional shopper values like instant savings and fuel rewards.
Since Kroger began its partnership with Dunnhumby in 2003, sales have increased an average of 5 percent and sales per-square-foot have risen 20 percent.
Fuel Centers & Fuel Rewards. Without fuel centers, Kroger would still have achieved an impressive 31 consecutive quarters of same-store sales growth. However, fuel centers have certainly helped over-drive (no pun intended) this number. Same-store sales excluding fuel centers have grown 2.8 percent through the 2010 fiscal year, while growth including fuel is 5.1 percent.
More important, fuel centers and the fuel-rewards program is another important driver of Kroger’s loyalty strategy. Today, more than 1,000 Kroger stores include a fuel center. A strategic partnership with Shell has also added more than 200 locations where fuel rewards are accepted.
Store Brands. Kroger considers its store brands to be one of the key drivers of its customer-first strategy; the vision is to “build lifetime loyal customers with our exclusive, preferred brands.” Similar to the Dunnhumby work, Kroger has focused on delivering what’s best for its consumers in this area. They offer three tiers of store brand products (good, better and best) and roll out unique offerings in additional categories. Not only has Kroger refined its name-brand Kroger products, it has recently launched or repositioned store-brand products in the health/beauty (Mirra), baby (Comforts) and pet (Pet Pride) categories, among others. At the end of Kroger’s fiscal 2010, store brands accounted for 27 percent of dollar sales and 35 percent of unit sales and continue to be on an upward trend.
These certainly aren’t Kroger’s only means for adding value and driving customer loyalty. Good prices, great customer service, pharmacy operations, alternative store and department formats, and community outreach are all part of the customer-first strategy, keeping their impressive record of sales growth going strong.
Kroger has demonstrated that focusing on the customer is key to achieving strong loyalty. Through its Dunnhumby partnership, Kroger is able to track how shoppers evolve and change over time, enabling a unique ability to intimately understand shoppers.
Using this knowledge to create the assortment and environment their shoppers want allows Kroger to focus on the customer first. And, about that long-lasting relationship between Dave Dillon and Joseph Pichler? In 2003, Pichler retired as CEO of Kroger and handed over the CEO reins to Dillon. Clearly, loyalty can really pay dividends.