If Kroger had a hammer: 7 ways an Ace deal would change the form of grocery
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Ace Hardware may enable Kroger to do what no amount of milk and coupons could: Build a mall inside the supermarket.
Recent reports that Kroger Co. is in talks with Ace to add store-within-store hardware concepts at select Kroger locations hint at more than mere grocery diversification. It appears to be a measured step toward a model that would better resemble a mini-mall within a store. And this could sharply upgrade the typical shopping trip.
Ace would join a number of specialty brands operating within Kroger company stores, including Fred Meyer jewelry stores (Kroger owned), Starbucks cafés, independent restaurants (including The Oyster Bar at its Mariano's chain) and Murray's Cheese kiosk shops. In addition, Kroger is rolling out clothing departments in 300 of its stores, distinguished by high partitions, curved aisles and fitting rooms. At many of these same stores, it offers housewares sections featuring a range of needs from cookware to towels.
And Kroger is looking for other alignments. In January, it was reported to be in talks with Boxed, Overstock.com and Alibaba as it seeks an online retail partner. Any such collaboration could lead to in-store digital kiosks through which shoppers could access more general merchandise.
Remodeling the shopping trip, in seven steps
For shoppers, the ability to buy cordless drills, pearl earrings and sushi in one place is akin to going to the mall, albeit in the Kroger format, a mini-mall. Maybe that's just what shoppers want, as they opt for quick trips and ordering ahead instead of hour-long shopping journeys.
So how would a mini-mall within a store change the shopper's path to purchase? Here are seven ways.
Anchored store checkouts: Picture a store with turnstile-like entry and exit ways, similar to the new Amazon Go cashier-free store. If multi-tenanted Kroger stores could operate single checkout locations (rather than requiring shoppers to pay each vendor separately), the shopper could buy her hammers, apples, coffee and socks in a single transaction. It would be even faster if Kroger enabled an app that linked all vendors.
Specialty-stored data: In time, should Kroger sync its Kroger Plus Card to shopper activities with other in-store tenants and brands, it would be able to obtain a more intricate view of customer preferences and behaviors. Specifically, the combined information would reveal how some brands influence ancillary purchases in complementary categories (a block of cheese leading to a cut of wood for a cheese board, say). Kroger could use these insights to make more on-the-money promotions across brands, to perpetuate the cycle.
Seasonal vendors: If it partners with Ace, Kroger would need to establish a protocol for housing third-party merchants. It could further customize its guidelines to suit short-term tenants, such as holiday gift wrapping and shipping services, Halloween costumes and independent chocolate shops. Determining factors would include the strength of the brand in a particular community and whether its lease structure more than offsets the sales Kroger could realize through its own costumes, candy and the like.
Temporary vacancies: Look inside any mall and you'll see dark windows. The more tenants signed, the more likely one may fail or not meet the terms of its lease agreement. If Kroger welcomes outside brands into its stores, it also invites the risks that come with leasing its space. That said, a landlord — or retailer — should be cautious about eliminating a brand based solely on its sales. Its highest-spending shoppers may be making those purchases, and even if they comprise a small percentage of the total, it might not be worth the risk of losing them.
Smart shops: This is specific to Ace Hardware but can be applied to other brands. When it comes to certain categories, such as hardware, shoppers rely on staff expertise, and Ace has a solid reputation for it. Ace loyalists would expect the same in a Kroger store so the brands would have to ensure the talent is in place to provide it. (Note that while interactive kiosks could do the trick, older Kroger/Ace shoppers would likely prefer people.)
Shopping, complex: Supermarkets like Kroger cater to a cross-section of shoppers covering all demographics, so expectations are complex. Older shoppers might eschew the in-store technologies younger shoppers prefer, such as ordering kiosks, payment apps and self-checkout. Concessions would have to be made to ensure there's room to please everyone, and that implies physical room since employees fill more space than interactive screens.
Stripped mall: Lastly, the shopping trip would likely be stripped of many complexities, though still fluid. If by the year 2020 mini-malls exist within 100,000-square-foot supermarkets and mass merchants, they would adopt fast-evolving retail practices, such as cashless (and cashierless) checkouts and online-order fulfillment. Tenants could use e-commerce to extend available inventories in small footprints, and online-only merchants could operate lower-cost physical presences where they could provide an offline brand experience, a la Warby Parker or Amazon.
Such technologies will continually shift the floorboards, regardless of whether Ace or Kroger sits upon them. Which is to say malls-within-stores would be just another phase in the ongoing retrofitting of retail, an industry ceaselessly planning for the next, best model, one project at a time.
Bryan Pearson Bryan Pearson is President and CEO of LoyaltyOne Inc. and the author of the best-selling book The Loyalty Leap: Turning Customer Information into Customer Intimacy. www