Tech magnet: How Kroger (KR) is helping to build Cincinnati's IT economy

Kroger CIO Chris Hjelm: They get here, they stay

CINCINNATI - In an unmarked building on Creek Road in Blue Ash, the Kroger Co. is developing its store of the future in bytes and pieces.

Ceiling-mounted cameras, wireless transmitters, heat sensors, motion detectors, digital price-tag displays, high-speed price scanners, intelligent shopping carts, they all get tested in this retail laboratory with no name on the door, a bland brick building that requires an escort with a security badge to buzz visitors through two locked doors.

But that just scratches the surface of Kroger’s ten-year technology crusade, which is not only building sales and profit growth at Cincinnati’s largest company. It is also helping to build Cincinnati’s high-tech economy.

In fact, Kroger’s total tech employment in Cincinnati – those hired by Kroger, its contractors and its joint ventures, Dunnhumby USA and Koncert IT – now stands at more than 2,100. That’s more than 7 percent of the region’s total employment in computer and mathematical occupations, the Labor Department employment designation that includes most IT professions.

Kroger is helping to build Cincinnati’s information technology cluster by deploying cutting-edge products, forming innovative consulting partnerships and taking leadership roles in regional initiatives to grow Cincinnati’s tech labor pool.

“It’s an amazing place to practice IT,” said Chris Hjelm, senior vice president and chief information officer for Kroger. “We’re in the manufacturing business. We do logisitics. We’re obviously huge in retail. We have our Kroger Personal Finance business. We have the relationship with Dunnhumby. We have a really broad portfolio of technology that we can expose people to from a business perspective.”

Some of its initiatives are well known. Kroger received lots of recent attention for Que-Vision, which uses heat sensors and algorithms to reduce checkout lines. Another innovation, its 2003 joint venture with Dunnhumby, is widely credited with making customers more loyal and Kroger marketing campaigns more effective.

But just like that nondescript store of the future in Blue Ash, there is a lot happening inside Kroger’s tech team that isn’t widely known.

How much of this did you know?

·      In the last three years, Kroger was awarded ten patents for innovations that track inventory, improve logistics, manage customer rewards and enable online shopping.

·      Kroger was named a finalist in January for the prestigious Franz Edelman Award for Achievement in Operations Research and the Management Sciences. The honor was bestowed for its computer-enabled pharmacy management system, which reduced out-of-stock incidents by 1.5 million and generated $70 million in additional revenue.

·      In 2012, Kroger launched a massive data-gathering initiative called Project Mercury. It is working with vendors and trade groups to collect thousands of “product attributes” – including data on ingredients and health risks - on each of the roughly 14,000 items it sells in Kroger stores.

·      At the Blue Ash Technical Center on Grooms Road in Blue Ash, about 1,000 employees and contractors are working on more than 200 active technology projects.

Technology has become so important to Kroger that in 2007, it started disclosing it as a “risk factor” in its annual report to shareholders. Securities law requires companies to reveal any business risk that could impair shareholder value.

“Our business is increasingly dependent on information technology systems that are complex and vital to continuing operations,” Kroger told shareholders in April. “If we were to experience difficulties maintaining existing systems or implementing new systems, we could incur significant losses due to disruptions in our operations.”

 

Local observers don’t see much risk of such disruptions at Kroger, not with Chris Hjelm (pronounced Jelm) at the helm.

“I think they’re state of the art,” said Jeffrey Camm, director of the Center for Business Analytics at the University of Cincinnati. “They’re breaking away from the pack in that traditional grocery sector.”

Just as Walmart emerged as a world leader in logistics in the 1990s, Camm said Kroger is helping Cincinnati define itself – and Cincinnati - as a global leader in analyzing consumer-marketing data.

“Certainly having a company in town like Kroger has helped us recruit students,” said Camm, a UC professor whose masters program in analytics swelled to record numbers in recent years, as companies looked for new ways to deploy big data. Camm said Kroger hires 15 to 20 UC interns and co-op students annually, a number he often shares with prospective students.

“You have Kroger, P&G, Dunnhumby,” Camm said. “All those folks are doing cutting edge stuff with data and IT. All those companies pulling together can really lift the profile of Cincinnati. I don’t think Kroger can do it alone, but they’re a big player for sure.”

Kroger is a major player in the development of the region’s high-tech labor pool. That is important because Cincinnati has about 2,000

unfilled IT jobs among the city’s largest technology employers, including Kroger, Procter & Gamble, General Electric and Toyota.

“The university-related programs … are only producing about 400 to 500 graduates a year. We’ve got to do things differently to attract more talent,” said Geoff Smith, co-chairman of the CIO Roundtable, a group of 28 local technology executives.

The group is working on training programs and an IT cluster study to build up local tech talent. Kroger is a big supporter of both efforts, along with the InterAlliance of Greater Cincinnati, whose annual TechOlympics event aims to get high school students interested in technology careers.

“Chris has been very active in the IT community,” said Smith, a former IT director at P&G.  “His direct reports are serving on advisory boards for the various university programs. They’ve been a huge proponent and sponsor of InterAlliance. If we could waive a magic wand and bring in hundreds of (job candidates) he’d be one of the leading hirers.”

Hjelm has used joint ventures and consulting arrangements to expand the impact of its in-house talent, said Mahendra Vora, founder and CEO of Vora Ventures, a cluster 13 tech-related companies with 2,100 employees. Among those companies is Koncert IT, a joint venture through which Kroger manages relationships with 15 to 20 of its contractors.

“This model allows Kroger to be more efficient in terms of their spending and reinvest their savings into innovation,” Vora said. “We started in 2009 with two employees. We have over 300 consultants now. We’re part of every major project inside Kroger …  reducing costs, managing projects better than before.”

Vora said Koncert IT has reached the point where it could now begin marketing its services outside of Kroger, in much the same way that Dunnhumby has grown by taking on work from Macy’s, P&G, Kraft and Coca Cola.

“Innovation does not have to be limited to new products,” Vora said. “We’ve done some amazing stuff from the savings of Koncert.”

Hjelm is a Colorado State University graduate who held top technology posts at Federal Express, eBay and Orbitz before coming to Kroger in 2005. In an interview with WCPO Digital, Hjelm said his goal upon arrival was to make Kroger the region’s top choice for tech talent.

“We’re not going to pull many people from the west coast or the east coast. We tend to pull our talent from this region,” he said. “Once they get here, they stay. They find anything they’re looking for here at Kroger.”

Hjelm implemented aggressive pay-for-performance policies and encouraged employees to work on projects requiring multiple IT disciplines. He beefed up management training programs because “the most common reason people leave is their supervisor.” If employees leave for more money, Hjelm allows them to return to Kroger, but adds, “They don’t get to do it twice.” Hjelm said Kroger’s turnover rate is about five percent, about half the industry norm.

Hjelm said Kroger has about 80 IT vacancies at any given time. It uses internships, consulting relationships and employee retention strategies to cope with the region’s shortage of tech talent. He’s encouraged by the efforts of InterAlliance and the CIO roundtable to build up the region’s high-tech labor pool.

But ultimately, Hjelm thinks the biggest contribution Kroger can make to the shortage is to keep innovating.

“When people see what we’ve done with Que-Vision, I mean, pretty much every retailer like us in the world would love to have that system,” he said. “So, when people come in here (and see) the depth and breadth of technology and a fairly complex rich business environment. Then, we have this innovation, which a lot of times people just wouldn’t expect. Once they hear the story, then they get really excited.”

 

 

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