CINCINNATI - Fuel, pharmacy, health clinics, restaurants and meal kits aren’t enough side businesses for the nation’s largest grocery chain. So now Kroger is a media company too.
“We have incredible assets, including a large audience,” Kroger Group Vice President Stuart Aitken told Wall Street analysts in Cincinnati Tuesday. “We're at 11 million transactions a day. Think about that. Let's pretend you have a TV show and every night you get 11 million people watching your TV show, you think you could sell some advertising?”
Kroger Precision Marketing is an offshoot of the company’s data-analytics firm, 84.51. It sells advertising to consumer product companies that want to target customers who are searching Kroger aisles and online sites for certain products.
“When you search for something, you will see sponsored ads,” Aitken said. “And we have suppliers bidding against one another for key words, key categories and key customers in real time life today.”
This is the first time Kroger has revealed details on its advertising products. It offered the insights because it’s trying to convince investors it can grow profits dependably in the next two years.
Kroger didn’t provide revenue or profit projections on its new media business. But Aitken said alternative profit streams like advertising are growing faster than 20 percent and will become “a bigger component of overall profit” by 2020, allowing the company to boost its operating margin by $400 million annually.
“There’s hundreds of customers using it,” Kroger CEO Rodney McMullen told WCPO. “It’s a meaningful part” of the company’s broader strategy to boost profits, he added.
Wolfe Research Analyst Scott Mushkin is skeptical that Kroger can generate incremental revenue from its advertising strategy because vendors might pay for new ads by cutting promotional spending elsewhere in the store. It also faces bigger rivals like Walmart and Amazon, who are also offering marketing deals.
“Will Kroger have some kind of advantage over Walmart because of their data analytic capabilities theoretically being superior? It’s hard to envision that honestly. So I think that’s the challenge,” Mushkin said.
Aitken said Kroger’s data from loyalty cards will let advertisers target consumers precisely and measure the impact of their ad campaigns in ways no other media company can match.
“Today's advertisers measure significant portion of their digital media against recall and consideration surveys,” he said. “We measure exposure all the way through to purchase and provide that visibility back to the clients who are investing with us. (Kroger is) the most transparent company out there.”
One wild card in the Kroger advertising strategy is the “digital shelf edge” technology that the company has been testing in Cincinnati. Kroger just completed an expansion of the video display screens on the end caps of local store aisles. The technology is now available in 86 Cincinnati-area stores.
Kroger Chief Technology Officer Chris Hjelm said the displays have demonstrated a sales lift for products featured on the screens, although he wouldn’t provide details.
“If all goes well, this is something we’re confident could become a national offering at Kroger,” Hjelm said. “We’ve got to prove the business case … but so far the trend is a good one.”