Grocery giant Kroger reports quarterly earnings this morning. Analysts will be listening for updates about its latest method of expansion: opening in new markets without opening new stores. Kroger started up grocery delivery in Florida earlier this year, powered by refrigerated warehouses, robots and drivers.
The delivery-only strategy is a gamble for grocers.
Florida is an untapped market for Kroger. But lots of residents know the brand because they moved there from somewhere else. Residents like Jen Moore of Tampa, who knows Kroger from living in Texas and Georgia.
“I’ve shopped there for years,” she said.
Now Moore gets Kroger deliveries about twice a week, buying fresh produce for herself and her pet rabbit, J-Hop.
“I’ll usually give her three leaves off the lettuce head. And then a little handful of cilantro,” she said.
Moore found that a head of lettuce delivered from Kroger was $1 cheaper than other places, so she was willing to pay the delivery fee.
“I’ve noticed enough of those types of savings that I’m like, “This is definitely worth it,'” she said.
That’s one happy customer in Florida, but Kroger’s new venture needs a lot more.
“Kroger is entering a really, really competitive category,” said Sucharita Kodali, an analyst with Forrester. She said that on one hand, Kroger could save a lot.
“They don’t have a physical store infrastructure that is hindering them or holding back their profitability,” she said. On the other hand, delivery is expensive: refrigeration, gas, drivers.
“They may have ice cream in their orders, or … raw chicken,” she said. “You just can’t go deliver it at three in the afternoon or 2 a.m., when it may suit you as a carrier.”
And in Florida, there’s a lot of loyalty to grocers that are not Kroger. Like Publix.
“Yeah, I love Publix,” said Samantha Ampel, who shops at Publix in Georgia. “It’s bright, it’s friendly. I have always been able to find everything.”
It’s that kind of Publix brand loyalty that Kroger is up against, said David Livingston at DJL Research. He said if customers are into grocery delivery, there’s Instacart and Walmart already in Florida.
“I just don’t see Kroger having any kind of compelling advantage over any other retailers,” he said, adding that it’s still not a bad strategy to elbow into a new market without the high upfront costs of stores.