Adapting Strategies: Navigating the Impact of Macro-Environment Factors on Kroger's Marketing Approach

Question

How is Kroger strategically responding to the changing macro-environment factors, particularly the shift in consumer behavior, to maintain its competitive edge in the grocery retail industry?

Answer

Introduction

The purpose of the report is to analyse the impact of changes in macro-environment factors on the marketing strategies and activities of Kroger. The Kroger Co. has emerged as one of the largest retailers in the US as per annual sales (Kroger, 2023a). It is headquartered in Cincinnati, Ohio and operates 2750 grocery retail stores under different banner names.

Change in MACRO Environment Forces

Social factor of changing consumer habits has been playing a significant role in the macro-environment. Here, US consumers are preferring online grocery shopping as it saves time, despite returning back to physical stores (Business Insider, 2022). Areas like payments, shopping convenience and safety and experience have become important factors for the grocery consumers. 51% surveyed US customers responded that they were looking for sale items and 38% said that were buying store brand items (Ozbun, 2022). US consumers have further decided to decrease their grocery spending with the rising inflation. They have become more aware about spending money on groceries because of increased prices. They are also shifting towards less expensive alternatives and seeking for sales and promotions to purchase from their favourite brands of grocery (Riley, 2022). Thus, this changing consumer behaviour has become a significant macro-environment factor affecting marketing strategies of Kroger.

Potential Impact on Marketing Strategies

Competitive Advantage

In the competitive business environment, acquiring sustainable competitive advantage has become essential for ensuring success and survival in the long run. In this regard, marketing perspective shows that firms should focus on various external factors to develop strategies for gaining competitive advantage in the market (Aghazadeh, 2015). It has already been displayed how social factor of changing consumer behaviours is evident in the current business environment. This makes it essential for Kroger to devise effective marketing strategies and enhancing its marketing capabilities for facing intense competition. Thus, sustainable competitive advantage can help in obtaining superior performance of firms by formulating best marketing strategies for addressing the external factor (Aghazadeh, 2015).

Digital Marketing Strategies

Kroger has been undertaking intelligent marketing strategies for identifying its customers’ needs, creating value for them, enhancing their satisfaction and developing mutual, beneficial and long-term relationships. It has introduced “accelerating with digital” marketing strategy for catering to consumers’ growing preference towards online shopping (Kroger, 2021). This has been beneficial for developing a seamless ecosystem for offering customers value, freshness and convenience. This strategy has been contributing towards its long-term competitive advantages. Kroger has been experiencing rapid digital sales growth since the pandemic. It focused on customers’ demand by accelerating its online grocery service where products are delivered anytime and anywhere irrespective of channel like delivery, pickup or shipping (Redman, 2021). This has further helped in retaining its customers. Moreover, Kroger also offers “ClickList” service to its customers that involves ordering through its own retail stores without undertaking any major technological transformations (Swan, 2018). This has been beneficial in catering to increased online shopping demand and retaining existing customer base

Fig 1: Leading supermarkets in the U.S. 2021, based on retail sales

Changing Pricing Strategy

Kroger has also been changing its pricing strategy as customers are shifting towards less expensive items. It uses artificial intelligence (AI) in the store sensors that detect customers visiting the retail outlets and activating their mobile app (Pearson, 2021). This further enables the company in sending personalised item suggestions to the visitors based on prices to provide them with additional insights. Kroger already ensures to keep its product prices lower than the competitors. Its large-scale store distribution network has also been helpful for negotiating reduced prices with suppliers, thereby helping customers during inflation (Kumar, 2022). Thus, it has been attracting these inflation-weary customers to its stores by taking aware market share from other speciality grocers and small independent stores. Moreover, Kroger has also been working with its manufacturers to reduce costs for customers under financial strain with the rising inflation (Genovese, 2023). This makes the products more affordable and accessible for them. In addition, its merger with Albertsons has also been a potential strategy for cutting down costs and reduce product prices for customers.

Private Label Products

US customers have also been showing a trend of buying store-brand items. Kroger has been offering affordable in-store options through prioritising availability and variety of its store brands (Shoup, 2022). These brands have become an important distinct feature for customers, thereby providing advantage to Kroger over rivals. The firm’s strategy has also been to driving customer loyalty through affordable items by ensuring personalised products and prices. Kroger has also been introducing its own brand products for enhancing its private label selection and catering to customers’ demand of store brand items and less expensive products (Guthrie, 2022). These are competitively prices private label options helping customers to fulfil their requirements. Thus, the firm has changed its pricing, product, distribution strategies for responding to the social factor and gained sustainable competitive advantage in the market.

Segmentation, Targeting and Positioning (STP)

STP includes various strategic marketing techniques and strategies for reaching target customers and creating positive brand perceptions in their minds (Kalam & Kalam, 2020). This STP strategy helps in expanding product and service offerings of the brands. It is often used by firms for developing marketing plans to expand into foreign countries. STP strategy is essential for identifying and reaching target customers by dividing the market into different homogeneous segments to develop a unique marketing mix strategy (Kalam & Kalam, 2020). It can also be beneficial for firms in avoiding redundant marketing and advertising expenses. Thus, it helps in enhancing the effectiveness of the pricing, product, promotion and distribution strategies under marketing

Fig 2: People who regularly shopped at Kroger in the U.S. 2023, by age

Segmentation

Kroger uses various geographic, demographic, behavioural and psychographic variables for segmenting the consumer market. These variables are used for identifying small homogeneous groups having similar characteristics or needs (Andaleeb, 2016). Here, the main goal is to identify these groups of customers as they probably respond to marketing efforts. Kroger also uses age as an important variable for segmenting the customer market. It has been observed from a Statista survey that 25% of customers between 30-49 years regularly shopped at Kroger, 21% of 18-29 years customers and 23% of 50-64 years aged individuals (Kunst, 2023).

The firm also segments its combination stores into mainstream, value and upscale categories for catering to different groups of customers. Value stores attract customers focusing mostly on price, mainstream stores cater to customers looking for less expensive or affordable items and upscale stores are for customers prioritising customer service and looking for extra products (Credit Suisse, 2018). This has helped Kroger in better understanding needs and expectations of the customers. Moreover, the firm not only relies on demographics but also focused on understanding individual customers by using loyalty cards and working with customer data specialists (Groenfeldt, 2013).

Targeting

Kroger’s target market consists of shoppers who are married suburbans and Baby Boomers with having college education and annual income of above $80,000. They also belong to two-person households and have the probability of equally being Black or white (Reuter, 2023). A typical Kroger customer also visits at least once a week or 53 trips in a year and purchase around 12 products with total approximate cost of $46.95 per trip. These target customers also prefer buying from private label brands of Kroger and display high customer loyalty with return purchases.

Positioning

Fig 3: Positioning Map

Kroger positions itself as the grocery chain selling all fresh items to the customers. This positioning strategy has been to portray itself as committing towards being inclusive and uplifting everyone with its high-quality and fresh products and services (Dumont, 2019). From the above positioning map, it is evident that while Kroger prices might be slightly higher than its competitors, it focuses on enhancing its brand as selling better quality and fresher grocery items to everyone in the market.

Branding

Branding refers to the process of creating a positive and distinct perception of the brand in the minds of the target customers. The fundamental aim of branding strategy is to make the customers easily understand about what a firm is offering to them through effective positioning (Baker, 2017). It includes various ways through which companies try to enhance the brand image amongst the target audience.

Three R’s of Branding

Brand Resonance: Kroger uses various brand elements for building brand resonance. With the changing consumer behaviour, Kroger has enhanced its branding strategy to focus on enabling customers to gain access to its fresh, affordable and delicious products. Its strong and food-rich heritage is displayed through its iconic “K” and “G” letters in the logo (Kroger, 2023b). Its tagline “Fresh for Everyone” clearly displays its uniqueness as a egalitarian American brand to provide everyone access to its products and services. Its primary brand colour signifies heritage, safety and trust while the secondary colour palette symbolises fun and inclusion.

Brand relevance: Kroger has uses data analytics for delivering relevant advertising strategies to the customers and focuses on localised advertising through various channels (Berthiaume, 2021). Alongside, its rebranding strategy is also focused on offering seamless shopping experience to customers by developing relationships with them by using advanced technologies. It has helped in creating a positive perception in the customers’ minds.

Brand relationships: The company has also introduced Smart Way, which is a budget-friendly and private label brand (Food Business Africa, 2022). This branding is focused on budget-conscious shoppers facing high grocery prices, thus, addressing their preference of affordable items as a revised store brand strategy. Moreover, its ‘accelerating with digital’ brand strategy has also been helpful for catering to the increased online shopping behaviour of customers (Watkins, 2021). Thus, changing its brand strategy for responding to the social factor of changing consumer behaviour has been helpful in enhancing brand, brand loyalty and popularity of Kroger.

Specific Growth Opportunities

Technology

Grocery retail industry has been experiencing disruptions with the rising technological applications across several parts of the value chain including user experience, order preparation and delivery. Technological advancements are lowering operational costs in the online grocery as compared to physical grocery (Simmons, et al., 2022). This is because grocery firms can offer lower prices to the customers. In addition, technology has also increased personalised products and services to be offered in this grocery retail industry. However, there exist security and safety risks to customers’ data confidentiality with technology use. This has to be addressed while introducing it in the retail industry.

Store Experience

            In-store shopping has returned with the pandemic taking a backseat in 2022. In the grocery industry, this in-store shopping enables customers to physically visit stores and check the quality and freshness of the items (Grocery Dive, 2023). This has made it essential for grocers to refocus on updating their fresh departments and centre store aisles. However, with the rising online shopping, in-store shopping can also see a potential decrease in its sales. Despite this, consumers’ preference towards it makes it a potential growth opportunity.

Recommended Actions for Kroger

            Kroger has already been using various advanced technologies for enhancing shopping experience of the customers. It can continue to use technologies for focusing on e-commerce grocery shopping behaviour of the customers. Here, technologies can be used for ensuring a seamless and convenient online shopping experience. Artificial intelligence (AI) can be used for removing potential barriers across the buying journey of the customers. These technologies can also be leveraged for gathering real-time data about consumers’ tastes and preferences and their buying patterns. This can be helpful for Kroger to focus on areas that can further make customer experience better and convenient. Moreover, automated warehouses, robots and others can also be used for delivering products to customers’ doors.

            Kroger should further focus on enhancing in-store experience as customers are increasingly buying at the retail outlets with the pandemic being over. Here, ordering kiosks, smart carts, checkout free stores and app-friendly functions can be introduced at the stores, which can help in improving offline shopping experience of customers. Here, fresh departments can also be put to the focus with a farm-to-table approach. This can be appealing to customers as they would be able to support local brands and businesses alongside having fresh grocery items.    

Conclusion

The report analysed how the impact of social factor like changing consumer behaviour has been influencing the marketing strategies of Kroger. It was observed that the grocery retail firm has been successfully catering to such changing patterns by focusing on competitive advantage, STP strategy and branding.