Kroger Buys

Kroger is smart to jump on the buy-don't-build bandwagon with its acquisition of Vitacost. E-commerce capabilities are one thing but Kroger's latest deal also brings a portfolio of health-focused owned and partnered brands, a highly-desirable user base and a robust online marketplace filled with unique items (that, thanks to Kroger’s Harris Teeter acquisition, will also be picked up in Kroger stores). Given its years-long relationship with Dunnhumby, Kroger is uniquely poised to make the most of the data insights that come as part of the deal as well. This one's a winner!

If You Can’t Beat ‘Em, Eat ‘Em: Can Retailers Become Omni-Channel Omnivores?


Last week, the retail world was abuzz over speculation that Walmart might take a shine to Family Dollar, on the heels of Credit Suisse analyst Michael Exstein’s recommendation to that effect. His argument followed the traditional eat-to-grow logic that has long dominated the conversation in retail, as well as much of the action. Getting hot and bothered by the possibility of a bricks-based buy, however, seems downright regressive at a time when the two platforms that are influencing retailers the most, Amazon and Facebook, are bent on defanging potential digital competitors.

Facebook’s acquisition of mobile messaging start-up WhatsApp for the astronomical sum of $16 billion understandably inspired much skepticism, as well as a spate of highly-entertaining other-stuff-you-could-get-for-that-crazy-amount articles. Through the acquisition, Facebook will be able to grab business intelligence on WhatsApp’s 450 million active monthly users, including what types of phones they are using to access the service, troves of keyword insights, and data on popular features. This is good stuff for sure, but doesn’t seem to justify the cost over the short term, at least using traditional metrics -- revenues, operating margins and risk. Facebook’s real bang for the buck comes from keeping WhatsApp’s global texting treasure out of Google’s grasping paws and adding another people-connecting competitor to its platform before it gets too big for its britches, as it did through its acquisition of Instagram last year for the comparatively-palatable sum of $1 billion.

Amazon’s purchase of reader review site Goodreads last year marked a similar preemptive move, as it kept a potential competitor out of the clutches of rivals like Apple and Barnes & Noble. It was Amazon’s acquisition of Quidsi in 2010 that first got the blocking ball rolling. Quidsi’s proliferating stable of category-killing spin-offs including and, as well as its Amazon-in-a-bottle algorithms grew to become flies that were easier for Amazon to catch than swat.

Up to this point, digital acquisitions by traditional retailers such as Kroger, Walmart, Tesco, and others have focused exclusively on scale-building and adding complementary solutions. At the same time, future competitors are lurking in the cracks and crevices, and other digital platforms are prying them open before they become threats. Will traditional retailers soon have the confidence and foresight to do the same?

photo credit: Cathy Keifer

newmarketbuilders exclusive: Adding Fuel to the Fire

Fuel sales have become a hot spot for supermarkets and big box retailers of late, and the independent and small chain gas stations that are being pushed out of the market are not too happy about it. An independent gas station owner has filed suit against Safeway, claiming that the retailer is selling gas below cost in violation of California’s Unfair Practices Act. Meanwhile, Kroger is backing a bill that will make it a whole lot harder to bring such suits to court in the future.

If Kroger has its way, potential litigants would have to determine the price of every item that is sold in conjunction with a fuel purchase and factor in the costs involved in selling the items in order to prove that the fuel was sold at a loss. This would make it practically impossible for anyone who values their time and money to pursue a lawsuit.

A growing number of retailers, including Costco, Sam’s Club, Safeway, and Kroger, offer deals that either tie fuel purchases into those made in the main store, or link them to club and loyalty card membership. Safeway’s Club Card program, for example, offers three cents off each gallon of gas to holders of the card, and additional discounts kick in depending on grocery purchases. 

Whether wrapping fuel into value-loaded schemes or using fuel as a loss leader to lure customers to the main store, the field of fuel sales has become a battleground and now, a global retail game-changer.

In the UK, supermarkets now account for almost half of gasoline sales, with Tesco’s 15 percent share leading the pack. Brian Madderson, chairman of RMI, which represents petrol retailers, claims that unfair and predatory pricing is forcing the closure of 250 to 300 independent operators each year. Madderson is fed up with retailers using gas as a loss leader and stated in this week’s Telegraph that his organization wants “to stop supermarkets from selling petrol as if it was a can of beans.”

But why should anyone give a can of beans how retailers market gas? Protecting fuel retailers by making gas promotions off-limits for everyone else is like prohibiting Wawa, Sheetz, and other convenience retailers from promoting their food offerings lest they steal market share from grocers, or quick serve restaurants, or, these days, even drug stores.

And what about alternative fuel solutions?

A growing group of non-fuel retailers including Walgreens, Giant Eagle, Kohl’s, Ikea and, yes, Kroger, have installed electric charging stations in their locations. Walgreens plans to install them at roughly 800 locations nationwide this year, with the goal of becoming the biggest retail host of chargers nationwide. Walgreens charges for their chargers – In Florida, for example, the stations will impose a rate of about $2.49 an hour, which is more than the cost of charging up at home but still less than half the cost of gas for comparable mileage, according to the company. Kroger, on the other hand, is making its recently-announced North Texas charging stations free for the first year, and then converting to a pay system in 2013. That would seem to be the epitome of a loss leader, and yet no one is protesting.

Do you think that retailers should be able to tie gasoline prices to other purchases?