Form, function, feeling: How Kroger's approach to Downtown retail is evolving

CFO: Not just a grocery store. It's an experience

CINCINNATI - The Kroger Co. shed some new light Wednesday on its latest thinking about urban-format retail, a development that could have major implications for a downtown Cincinnati store.

In comments to Wall Street analysts, Kroger Chief Financial Officer Mike Schlotman said the Cincinnati-based retailer was eager to learn about the ways in which Mariano’s approached urban retail in Chicago. Kroger announced the $800 million purchase of Mariano’s parent company, Milwaukee-based Roundy’s Inc., citing its Chicago presence as a major factor in its willingness to pursue the deal.

"In some of their coffee shops, they have a local roaster come in and run the coffee shop that’s the same guy that people see down the street,” Schlotman said. “So, they have a big focus on finding that local feel inside the store. It’s more than just a grocery store. It’s an experience of other opportunities that are in and around the neighborhoods.”

The comments reflect an evolution in Kroger’s approach to Downtown retail, said Frank Russell, director of the University of Cincinnati Community Design Center and the Niehoff Urban Studio. The center has been working with Kroger for more than a decade on concepts for urban-format stores.

Russell has noticed a gradual shift from a functional approach – where to build it, how to park cars and move shopping carts -- to “creating a place brand” that focuses on the shopping experience. It’s a shift that could make a Downtown Kroger more successful, Russell said, if and when Kroger deploys it in Cincinnati.

“New urban residents are very picky,” Russell said. “They like authenticity and uniqueness and things that are hard to find. Kroger doesn’t fit any of those categories. So, the store would have to transform itself into something that was other than, you know, your father’s Oldsmobile. I think they’re working on that. That’s what they’ve been experimenting with.”

You can see the evolution of Kroger’s approach in public comments on Downtown retail, made by various Kroger executives since 2013: 

In the conference call with analysts Wednesday, Schlotman said Kroger is learning from Harris Teeter’s urban-format stores and experimenting with new retail concepts in Lexington and Indianapolis. A Kroger store near downtown Columbus has a Tap Room that resembles a sports bar, hosting after-work happy hours and tailgate parties for Ohio State football games.

“There’s one in Lexington where we have almost a food truck kind of feel inside the store,” Schlotman told analysts. “Local merchants have a section of the store where they have their product available for purchase by our customer … We have the opportunity to take that to another level.”

Schlotman said Kroger will mine Mariano’s for ideas that can be applied in other cities.

“I look at a market like Cincinnati where the urban core is growing in a big way. We really don’t have a store in the urban center that would be the kind of store these folks would want to shop in. There’s a great store a couple miles away but these folks … would prefer to walk down the street to their store” when they decide at 3 p.m. they want to eat at home that night, Schlotman explained. “I think a lot of these learnings (from Mariano’s) will help us understand how to satisfy those kind of customers.”

Although he hasn’t worked directly with Kroger for several years, Russell has watched UC students interact with Kroger designers on various projects – including a Corryville store that’s now under construction and a “satellite store” concept that would fit into snug urban spaces. He has no idea where it will lead, but applauds the exploration.

“The reality is there are not enough rooftops in Downtown to support a large-format supermarket,” he said. “But they may be wanting to drop a much smaller footprint model so they can get into play and be a presence in the Downtown development scene.”

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