When The Kroger Co. formed a partnership in 2018 with Ocado Group, they knew e-grocery had a bright future. Of course, the move turned out to be far more timely than both retailers anticipated.
Kroger, the largest grocery retailer in the U.S., wanted help from Ocado, the U.K.-based grocery chain that provides fulfillment solutions to other grocery retailers worldwide, in order to handle its expansion in fulfilling online orders. “We wanted to scale and create a good customer experience, and we needed a solution provider that knew how to do retail,” said Kroger's Chief Supply Chain Officer Gabriel Arreaga on Tuesday at the National Retail Federation's Supply Chain 360 conference in Cleveland, Ohio. Together, grocers hatched a plan to open 20 automated warehouses for filling online grocery orders.
Then the pandemic hit. According to David Hardiman-Evans, senior vice president for North America at Ocado Solutions, online orders increased a hundredfold practically overnight.
In the U.K., Ocado learned that responding to a fast-moving situation often involved quick tough decisions. Customers were ordering bulky items in bulk, taking up so much delivery capacity that it was hampering Ocado’s ability to deliver other, essential products and to some geographical areas. So Hardiman-Evans took a quick decision to stop selling bottled water, which was one of the main culprits.
Fulfilling e-commerce orders during a pandemic taught many other important lessons the partners get to keep, said Arreaga. “Our challenge was getting to our customers in a safe way — how to do a great job of delivering to people’s homes. E-commerce taught us a lot about getting products to people faster.” It also presented opportunities to delight customers in new ways, such as delivery drivers handing out dog treats.
Now, the world has changed permanently, Arreaga said.
“In 2018, e-commerce was 2% of all grocery sales. Today, some leaders are talking about it reaching 20% in the next few years. We’ve reached an inflection point,” said Arreaga. “The pandemic altered the dynamics of grocery retail forever.” He said many consumers tried ordering groceries online for the first time in 2020 and 2021, and although there is a slight retreat in growth in online orders now, the habit has turned out to be “sticky.”
“But consumers are becoming more discerning, much more critical,” Arreaga said. “During the pandemic, they were happy to get a slot at any time at any price. Now, they’re much more critical. They want a wider assortment, more availability, good prices, freshness… People have learned to cook differently, discovered new products and new services.”
The new challenges come with a huge boon, all the same — oodles of useful data. “We have a lot of technology that tells us what the consumer is looking for, so we can calibrate very quickly,” said Arreaga. Hardiman-Evans said in the past, retailers were making guesses about consumer tastes based on loyalty cards and point-of-sale data. “E-commerce means you have enormous granularity of data about the consumer,” he said, adding the information is useful to suppliers to the retailers, allowing them to target the end-customer more accurately.
In Ocado’s U.K. business, the retailer runs 20 million sales forecasts per day. Among other benefits, the accuracy of predicting demand means far less food waste. “That’s a prevalent theme in the grocery industry,” said Hardiman-Evans. “Data gives us so many opportunities.”
Kroger just opened its fifth automated fulfillment facility, in Denver. “We’re at a point where we’re growing as fast as we can hire people,” said Arreaga. “Ocado told us this would not only transform our supply chain, but our customer experience too,” he continued. “And it has.”
Timely, incisive articles delivered directly to your inbox.