Expert Column: Kroger’s Vitacost.com Acquisition – What Does it Mean?
Last week Kroger agreed to buy Vitacost.com in a deal valued at $280 million. And while this deal is a relatively small acquisition (financially speaking) for a company that grosses over $100 billion in annual sales, it’s quite a big step forward toward the future of how consumers want to shop.
Sure, Kroger will benefit from Vitacost.com’s ecommerce and home delivery expertise, but that’s just the beginning. The bigger growth opportunity for Kroger is strengthening its insights and participation in a fundamental shift in consumer engagement online and how this translates to the in-store shopping experience.
When consumers are shopping online at Vitacost.com, there are a number of things the company knows about you based on your buying habits. They know what offers and promotions you have participated in; products you’ve considered, but not purchased; what advertising ultimately drove you to their website; and other nuanced data-driven insights.
Brick-and-mortar Loyalty Programs
Contrast that with Kroger’s in-store loyalty program today. When you walk into one of Kroger’s stores, what do they truly know about you? At a corporate level, the answer is virtually nothing until you check out, and by then it’s already too late to influence your current shopping experience. Kroger is not alone. Fundamentally, most of today’s grocery loyalty programs have missed their intended objectives. Instead of segmenting customers, influencing and rewarding desired behaviors, today’s loyalty programs primarily serve to aggregate various price discounts and keep track of the total savings by using the card.
Is this really all that valuable? This perceived savings may help consumers feel good about their overall purchase decisions, but it does little (if anything) to deepen the long-term loyalty that Kroger would like to instill in its customers, nor does it influence the pre-sale activities Kroger would prefer to exert. So how can Vitacost.com help change that?
For one thing, Vitacost.com has grown its ecommerce business by analyzing shopping habits, repeat purchases and evaluating the pre-check-out decisions its diverse customers are making. This has allowed Vitacost.com to more effectively segment its customer base and analyze their purchase decisions. It can also cheaply and effectively conduct offer and promotional tests that are simply not practical in the physical retail world. However, these outcomes and key lessons learned are, in fact, applicable and can (and should) influence future growth opportunities for Kroger.
You also have the power of Big Data analytics to layer over these experiences, profiles and shopping habits to dig deeper into the different customer profiles so that you can find similar top-tier customers who are not currently shopping with you. And then by tweaking offers, promotions, usability and various paths to purchase, Vitacost.com can truly influence and reward the desired behaviors they are looking to achieve – especially with their best customers.
Accomplishing these insights and recommended activities through the in-store shopping experience is where Kroger’s mobile app and Beacons come into play. For more insights on what’s possible with beacons, see my related article, "Mobile Proximity Marketing on a Shoestring Budget" and our Beacons Whitepaper.
Kroger's Ecommerce Strategy
Kroger has made some headway here to be sure. Both Kroger’s website and mobile app allows their shoppers to load digital coupons to their Plus Card. This certainly provides some purchase intent data around Kroger’s weekly specials and can, to some extent, influence price-based purchase behavior. With the acquisition of Vitacost.com, however, Kroger should begin to have a much better understanding of what its shoppers are interested in prior to ever walking through the door.
From last week’s Wall Street Journal article, it seems that the financial analysts are most excited by the prospect of America’s second-largest food retailer acquiring a platform for fulfilling home delivery of online orders to compete with companies like Amazon.com and FreshDirect. And while home delivery seems to be growing in importance, there’s so much more at stake for today’s grocery retailers than home delivery logistics.
In fact, it wouldn’t be all that surprising for Amazon.com to open up its home delivery platform to grocery retailers in the same way it opened up its Amazon Web Services. Ultimately, Amazon wants cheaper ways to deliver goods to consumers on a more regular basis; home delivery of grocery items is not the end, but rather the means to achieve that goal.
For Kroger, the bigger opportunity is consumer engagement online and how this translates to the in-store shopping experience. Online consumer engagement and digital shopping best practices are where Amazon has been leading the ecommerce revolution and the thing that Kroger should be aspiring to better understand and translate to the in-store experience.
As consumers rely on their mobile phones for access to information during their shopping visits, the future of grocery shopping will be influenced by more than technology platforms; it will require deeper insights into how, what, when and why we buy – this is what Internet retailers have been studying for many years. And this is where Vitacost.com can help Kroger better understand where its future growth will be coming from.
Successful digital integration with in-store customer engagement will require more than powerful mobile apps and the implementation of Beacons technology – it will require a true understanding of what today’s shoppers want and need from their grocery stores. Beyond an investment in technology, companies like Kroger need digital partners like Vitacost.com who can help them better understand what insights and customer engagement strategies they’ve been missing and how best to fill these gaps.