Foot traffic to some of the Kroger Company’s biggest brands may be lagging slightly, but the success of the company’s prepared foods expansion and recently rolled out ghost kitchen collaboration hints at the supermarket giant’s growth potential.
Kroger Brands YoY & Yo3Y Performance
Following its strong pandemic performance, the grocery sector’s offline visit growth slowed in recent months as inflation and high gas prices continued to strain many consumers’ budgets. Still, nationwide year-over-year (YoY) grocery foot traffic was positive every month between January and May 2022 while year-over-three-years (Yo3Y) foot traffic remained close to pre-pandemic visit levels.
The Kroger Company operates several supermarket banners including Fred Meyer in the northwest, Harris Teeter in the south Atlantic, Kroger in the midwest and Ralphs in California. Of the four brands, Ralphs posted the strongest visitation trends, with year-over-year (YoY) visits outperforming the wider category average almost every month this year. Meanwhile, Kroger, Fred Meyer, and Harris Teeter saw YoY and Yo3Y visit gaps over the past couple of months, with May 2022 visits to the three brands down by 5.0%, 6.7%, and 2.1% relative to May 2021.
Still, despite their subdued foot traffic performance, the Kroger Company seems to have a not-so-secret weapon up its sleeve that could bring customers back to its supermarkets.
Is Home Chef’s Success Driving Kroger Cross-Dining Down?
Over the past couple of years, Kroger has invested in a variety of partnerships and acquisitions to expand and improve its prepared foods offering. For customers looking to simplify their home cooking, Kroger acquired Chicago-based meal solutions brand Home Chef in 2018 and rolled out the meal kits at select stores later that year. By October 2021, Home Chef products could be purchased at over 2,200 stores under Kroger’s various grocery banners.
The chart below shows cross-dining data (the share of Kroger customers who also visited dining chains) for four of Kroger customers’ favorite dining chains between January and May 2019 and 2022. In all four cases, cross-dining numbers fell between 2019 and 2022, indicating that fewer Kroger customers visited McDonald’s, Chick-fil-A, Wendy’s, and Starbucks between January and May 2022 compared to the equivalent timeframe in 2019.
Many factors are likely contributing to these trends, including consumers’ efforts to cut back on restaurant visits in the face of high inflation and gas prices. Still, at least some of the drop in cross-dining may be attributed to Kroger’s investment in its prepared foods selection. Kroger visitors can now pick up a Starbucks coffee and a variety of meal solutions ranging from ingredient-based kits to “heat and eat” dishes right at the grocery store. At least some customers are likely substituting their previous fast-food runs with Kroger’s prepared foods offerings, which could explain some of the drop in cross-dining.
Kroger’s Ghost Kitchen Partnerships
For customers looking for freshly prepared meals, Kroger has partnered with Kitchen United and ClusterTruck under two different collaboration models that provide diverse takeout and delivery options directly from the supermarket. Both models involve building on-premise ghost kitchens inside Kroger store. But while ClusterTruck offers a range of items under one brand, Kitchen United draws multiple restaurants – similar to a food court model, but without the on-premise dining.
In our May 2022 Grocery Deep Dive, we looked at Kroger’s ClusterTruck partnerships in Indiana and Ohio and found that the locations with the ClusterTruck ghost kitchen were seeing stronger visit recoveries than neighboring Kroger branches. Foot traffic data indicates that the Kroger-Kitchen United partnerships are showing similar promise.
Kroger’s First Kitchen United Location - Los Angeles, CA
The first Kroger-Kitchen United collaboration opened in a Los Angeles Ralphs store in early January 2022. Since then, visits to the location have skyrocketed, while foot traffic to nearby Ralphs stores as well as city and statewide Ralphs foot traffic patterns have remained relatively stable.
Kroger’s Second Kitchen United Location - Houston, TX
In February 2022, Kroger opened its second Kitchen United ghost kitchen in a Houston Kroger-branded supermarket. Looking at the change in monthly visits since January 2022 shows that, since its opening, visits to the Houston Kroger with a Kitchen United ghost kitchen have outpaced nearby Krogers and both Houston-wide and Texas-wide Kroger foot traffic averages.
So far, the ClusterTruck and Kitchen United ghost kitchens only operate in a tiny fraction of Kroger’s massive and nationally distributed store fleet, but foot traffic data from locations with ghost kitchens are already demonstrating the significant gains that come from this concept.
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