Kroger Details Investment in Personalization and AI
U.S. retailer Kroger is focusing on data analytics and artificial intelligence (AI) personalization to innovate the customer and employee experience, providing a more targeted and efficient approach, according to their recent earnings call. With comparable sales without fuel growth up by 3.5%, the retailer navigated a challenging retail landscape, including inflation and reduced SNAP benefits, through a focus on savings and value that has resonated with consumers.
Gary Millerchip, chief financial officer for Kroger, said the company clearly sees those on a constrained budget and dealing with the impact of a lower number of SNAP dollars. He said the company is, “…really focusing our marketing effort to ensure that we're personalizing offers to resonate with those customers and help them manage their budgets more effectively.”
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With advancements in AI, including generative AI and search algorithms, the number 4 top grocery retailer of 2023 relies on this technology to improve search results and substitution accuracy, simplifying the digital experience to provide accurate, personalized consumer recommendations and optimizing store operations.
“Within our 84.51 customer research team, we are already piloting several large language models to summarize customer database sets,” said Rodney McMullen, chairman, and CEO for Kroger. “By applying AI to customer surveys and customer service logs, our team can analyze and categorize them in minutes versus days before. This allows the business to react to customer feedback more quickly and accurately, and then reflect these learnings in the customer experience.”
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Advanced algorithms will also optimize store operations, streamlining essential operational tasks like store orders, reducing items from being out of stock, and improving inventory management while reducing operating expenses.
“Our rich history as a technology leader gives us confidence that we will continue to effectively use AI, including more recent innovations. We also believe robust, accurate, and diverse first-party data is critical to maximizing the impact of innovation and data science and AI,” said McMullen.
Kroger reported growth in mainstream and higher-income customer segments and saw consumers increase store trips. Digital sales, including delivery and pickup, saw increased gains, and they view digital as a critical driver moving forward. The company expects double-digital digital sales growth for the remainder of 2023.
“We saw Private Selection (a Kroger private label line) outperformed our overall sales growth during the quarter. So, there are certain customers that we're certainly using our personalization to target to drive greater loyalty, greater engagement,” said Millerchip.
Along with personalization and a seamless digital experience, the company will continue to invest in growing its other strategic priorities, including its private label brands (Our Brands) and fresh products. Using their “Fresh for Everyone” promise as a key differentiator, the company has seen sales of private label (Our Brands) increase by 4.9%, digital sales grow by 15%, 11% in pickup, and 30% in delivery services. By focusing on fresh products, the company creates a more efficient supply chain and reduces the time the product goes from farm to shelf.
“As customers' digital engagement increases, we have new and more efficient channels to present the most relevant products and the right promotions at the right times, no matter where and how customers choose to shop with us,” said McMullen.