NEW YORK — At this year's National Retail Federation Big Show in New York, company leaders from Kroger and Walmart took the stage to shed light on their companies' digital transformations amid a changing grocery landscape. A theme across the talks was finding eye-catching and efficient new ways to do what supermarkets have always done: meet consumer needs.
Every dollar spent and every partnership made, executives noted, gets them one step closer to solving that puzzle.
"People will always eat, but the way people eat will always change," Rodney McMullen, CEO of Kroger, said during a keynote interview Sunday.
Walmart's strategic investments
In the 2018 fiscal year, Walmart has spent a total of $11.7 billion in technology investments, according to Chief Technology Officer Jeremy King, making it the third largest IT funder in the world behind Amazon and Alphabet. In fact, Walmart is the only retailer on that list, he said.
To fuel its digital push, Walmart is hiring 2,000 more tech employees this year, including data scientist, engineers and product managers. In addition, the retailer has added 30,000 new jobs just in its grocery sector through the addition of services like grocery click and collect and curbside pickup.
This past year, the retailer rolled out grocery delivery, expanded its free pick-up service to more than 2,000 stores, introduced a Sam's Club Now cashier-free store, three driverless delivery partnerships, floor-scrubbing robots, grocery-picking robots and much more.
So why has Walmart invested so much capital into technology?
King says Walmart is going through a digital transformation and has shifted its focus from re-platforming its e-commerce business to re-platforming across the board. This can be done through business partners and rapid iterations in supply chain, store operations, in-store merchandise and customer experience, he said.
The goal, King explained, is to give customers the digital experience they crave.
"It's no longer acceptable to have a non-digital experience when you go out there and that means we have to be integrated across the board not just in handheld devices but through customer shopping lists, pickup, and more," King said. "We're also doing this through our voice shopping partnership with Google Home. Technology is definitely changing retail. "
With more than 140 million customers walking into its stores every week, Walmart has troves of data that it can use to personalize that digital experience, King said. It can tie that collected data into its 30-year-old algorithm and help the machine dissect the data to create more proficient systems like making suggestions to customers based on past purchases.
In addition to helping the customer, the retailer's heavy investment in machine learning can also improve Walmart's efficiency. It uses artificial intelligence to learn truck routing and scheduling, which King says has taken millions of miles off of truck schedules to optimize routing. Walmart has also created a robot that slides into the back of trucks that are docked in stores, unloads and helps sort through the pallets so products can be restocked quickly.
Walmart's shelf-scanning robots, meanwhile, which the company began piloting in 2017, play a major role in keeping products stocked as well by constantly scanning shelves for out of stocks.
"Our stores now are essentially mini-warehouses and keeping products in-stock is extremely important," said King.
The retailer has also invested in automating customer service to help rapidly innovate systems like chat functions.
"As we automate and use technology to do that, we see new jobs springing out of it"
Chief Technology Officer, Walmart
"As we automate and use technology to do that, we see new jobs springing out of it," said King.
Overall, the retailer is focused on building a technology-focused store experience, King said, quoting Greg Foran, Walmart U.S. CEO. As the retailer starts to implement a faster-pace of innovation, the company will invest even more as it tries to stay ahead of retail competitors, especially Amazon, King added.
Kroger's deliberate partnerships
For Kroger, a key to future success lies in partnerships with companies that are experts in promising fields. Last year, the company forged deals with British e-grocer Ocado to build automated fulfillment warehouses for online orders. It also teamed up with Chinese e-commerce giant Alibaba to sell its store brands to Chinese consumers and in December began testing Express markets inside Walgreens locations.
The Ocado partnership, said McMullen, was a matter of saving time while also gaining crucial expertise in online fulfillment. Kroger realized that if it wanted to create automated fulfillment centers on its own, it would take the company five to 10 years to develop — and that's if the company did it right, added McMullen. But with the help of the global leader in online grocery, Kroger can cut that time span by more than half, he said.
Currently, the retailer's goal is to have 20 fulfillment warehouses running within three years of its agreement. Each 335,000-square-foot "shed" costs around $55 million to build.
"You can't do it overnight," said McMullen. "You really have to understand where is it you're trying to get to, what are the things you are better off doing on your own and what are the things you are better off partnering with others."
While Ocado is aimed at improving Kroger's e-commerce efficiency, its newly announced partnership with Microsoft creates in-store technology enhancements that can help bridge the gap between online and in-store. The deal includes bringing Kroger and Microsoft's digital shelf system, EDGE, to stores across the country. The system is currently installed in around 200 stores. Last week, the companies announced two prototype "connected stores" that feature numerous technology enhancements along with a new "guided shopping" feature that identifies shopping list items on store shelves.
A driving force behind the partnership, McMullen explained, is Microsoft's ability to change retail and to create and curate an experience for a customer. The retailer will gauge how customers react to the technology and use that data to help plan the next step.
“You can’t do it overnight. You really have to understand where is it you’re trying to get to, what are the things you are better off doing on your own and what are the things you are better off partnering with others.”
These sudden developments and partnerships from grocery retailers like Kroger came after Amazon lit a fire under the industry following its acquisition of Whole Foods. And while some may think the grocery industry isn't growth business, McMullen thinks otherwise.
"We're transitioning from a grocer to a growth company," he said.
Not everyone shares McMullen's optimism. Retail expert Jason Goldberg tweeted that growth is not a customer benefit but a side-effect of serving customers well. Kroger's ambitions are also in the very early stages, analysts have noted, and are also tempered by financial results that reveal eroding margins and growing competition.
Rodney McMullen of @kroger "we're transitioning from a Grocer to a Growth company" at #NRF19 (I don't love this positioning, growth is NOT a customer benefit, it's a side-effect of serving customers well)— Jason Goldberg (@retailgeek) January 13, 2019
While McMullen remains bullish on Kroger's future, he said consumers are wary of where the economy is headed. Holiday sales dipped for many retailers last year while ongoing trade uncertainty has many companies on edge. Regardless, said McMullen, Kroger plans to stay laser focused on innovation and creating solutions for its shoppers.
"It's fascinating right now from a customer standpoint. They feel incredibly good about the economy but very nervous about where things are headed,'' he said.