Kroger, Microsoft team up on ‘connected store’ tech

Kroger’s collaboration with tech giant Microsoft is not only a clear play against Amazon and Walmart. It’s also a revenue stream for the grocer that could help it further invest in its own innovation strategies.

Supplying technology to other retailers at a time when the industry is undergoing a digital transformation could prove to be profitable for Kroger. The company is in a unique position to develop proprietary technology that could boost its own store sales while also making money from other retailers. To make its offering all the more enticing to consumers and businesses, Kroger has forged yet another creative partnership with an expert in its chosen field.

But the platform’s success depends on if retailers actually purchase the service. It’s unlikely that Kroger’s large-scale competitors will want or need the technology, so the platform’s fate really lies with smaller, regional retailers that might need help boosting their customer experience. It’s unclear if these smaller grocers will be able to afford this platform or even want it.

Kroger is also relying on consumer packaged goods (CPG) firms to spend more trade dollars with it — a potentially risky bet, according to at least one analyst.

“To us, the challenge is how much incremental dollars can be generated from CPGs through this initiative, as these firms are already spending significant trade dollars on sponsoring end caps at Kroger stores,” Scott Mushkin, an analyst with Wolfe Research, wrote in a note to investors. “Moreover, the idea that the broader retail industry will be open to have Kroger technology in stores through a commercial RaaS product is still open for debate.”

This isn’t Kroger’s first time investing in technology and licensing it out to other businesses. Earlier this year, Kroger formed Sunrise Technologies, which commercializes the proprietary technology the company’s IT team built, including its EDGE shelf system, remote temperature control system, its employee management system called RAD, and Zooter, a camera that helps employees track merchandise and inventory.

Regardless of whether Kroger’s RaaS commercial venture pans out, the company has given its own stores another vital technology boost. Amazon and Walmart are investing in store and e-commerce enhancements that threaten to take market share from the nation’s leading grocer. Moreover, consumers are doing more shopping online and using their phones as they peruse store aisles. According to eMarketer, last year 18 million U.S. consumer used a grocery app at least once a month — a 49.6% increase over 2017.

Creating a fluid omnichannel experience is painful for Kroger’s bottom line, but it’s what the company has to do. Kroger has its sights fixed on the far horizon with investments in automated fulfillment, direct-to-consumer shipping, meal kits and store brand sales abroad. Experts and investors will follow closely whether these moves can help it stay ahead of a barrage of competitive pressures and evolving consumer demands.

 

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