Kroger’s new differentiation strategy
LAS VEGAS — Retail innovation is usually associated with seamless checkout, last-mile delivery and personalization. But for The Kroger Co., staying ahead of competitors means keeping a laser focus on private brands, and the next phase of that strategy is all about sustainability and Fair Trade Certification.
In a sign of just how far traditional grocers have evolved amid evolving consumers and competitors, Gil Phipps, Kroger’s vice president of Our Brands, told attendees at the Shoptalk retail conference on Monday about the grocer’s sustainability efforts in the Philippines, Rwanda and Egypt. According to Phipps, Kroger believes that having a premium and exclusive product is no longer enough. It must also have a degree of social responsibility built in.
“We develop our private brand products by taste profile, but we are definitely finding that different generations resonate differently with different brands,” Phipps said. “And what we're finding with millennials and how they react with a brand like Simple Truth is, 80 percent of millennials say their decision on what to purchase is driven not only by the products that make them happy but by products that are also socially responsible.”
Phipps said more and more consumers are shopping based on how they can improve and change the world by what they're buying.
“Simple Truth is the largest brand for Fair Trade. Last year we went to the Philippines and made a series of short documentaries taking consumers on that journey,” he said. “It allowed customers to realize, ‘I can make a big difference, I can effectively change the world by purchasing this product.' "
Kroger’s Simple Truth brand — the largest natural and organic product line in the country — reached $2 billion in annual sales in 2018. Simple Truth’s current portfolio of Fair Trade products spans multiple commodities, including coffee, cocoa, coconut, tea, sugar and agave, and leads the private label grocery industry in Fair Trade offerings.
To earn the Fair Trade Certification, farms must meet and adhere to a rigorous set of social, environmental and economic standards. Once certified, farmers and workers earn a premium on top of every sale which goes into a community-managed bank account. These funds are then used on projects in areas like health care, education, water and food security to foster advancement in the community.
At Shoptalk, Phipps spoke in detail about the company’s sourcing decisions on its private brand coconut products. Cincinnati-based Kroger is sourcing only Fair Trade Certified organic coconuts for its own brand products. The next stop on the grocer’s Fair Trade journey? Egypt and Rwanda.
“We just got back from Egypt and Rwanda. We're doing another documentary series. Consumers want to know the story, they want to where it's grown, how it's selected, that they're getting the best product and that it's really improving people's lives,” Phipps says.
Around 92 percent of Kroger customers shop its private brands, Phipps said, and the reasons for that are increasingly not just about product quality or even store experience.
“We are really going to lean in to Fair Trade. Our Brands is how we differentiate, and why someone would drive by a competitor, either physically or online, and shop at our stores,” Phipps said. “And private brands are only going to keep growing. I can't give you the [Kroger] 2018 numbers because they'll be announced next week, but Simple Truth growth is unbelievable.”
Acosta is managing editor of Store Brands.