Kroger is using Google and Microsoft clouds to avoid paying Amazon

Key Points
  • Kroger is splitting its cloud investments between Microsoft and Google.
  • The company joins other big traditional commerce companies that are trying to avoid AWS.
  • Kroger's CIO said there's no reason "to help grow that business for them."
Shopper loads purchases at a Kroger store.
Daniel Acker | Bloomberg | Getty Images

As Kroger moves to cloud computing, the nation's largest grocery store chain is sending millions of dollars to Microsoft and Google.

But not to Amazon.

"For obvious reasons competitively, it doesn't make sense for us to do a ton to help grow that business for them," Chris Hjelm, Kroger's chief information officer, told CNBC in an interview.

With Amazon's retail business pushing into more industries and competing more directly with a growing number of companies, Amazon Web Services is starting to experience a backlash. Kroger is joining the likes of Wal-Mart and Target in finding other vendors to handle their massive workloads for their digital and e-commerce offerings. Alphabet said in its latest earnings release that Kohl's has moved to Google's cloud.

In a blog post on Monday, venture capitalist Glenn Solomon from GGV Capital underscored how pervasive this has become. Solomon said several of his firm's portfolio companies that use AWS have been asked by retail clients to "provide a mirrored service on another cloud because they'd prefer not to have their data stored with Amazon given competitive fears."

For Kroger, that fear has become more obvious by the day. In August, Amazon bought Whole Foods for $13.7 billion and instantly cut prices at the upscale grocer. CNBC has also been reporting on Amazon's potential efforts to crack the pharmacy market, another reason for Kroger to be concerned.

Amazon's pharma strategy easier to buy than build: Credit Suisse
Amazon's pharma strategy easier to buy than build: Credit Suisse

Kroger gets about 9 percent of sales from its more than 2,200 pharmacies.

Hjelm said the company started investing heavily with Microsoft Azure and the Google Cloud late last year. With Azure, the grocer is rolling out digital shelf technology to combine the use of sensors and smartphones to alert customers about relevant deals. For e-commerce, delivery and data-focused initiatives such as smart pricing, Kroger is turning to Google. The company also uses infrastructure technology from Pivotal.

Kroger does have some projects running on AWS for businesses that the company acquired. But for any new initiatives, "that investment in growth is not going to AWS," Hjelm said. Regarding Microsoft and Google, "we feel like we're not losing anything from a competitive perspective working with those companies," he said.

If AWS is worried about Kroger representing an emerging trend, it's not showing up in the unit's financial performance or its market share.

Revenue in third quarter surged 42 percent to $4.58 billion, and AWS produced $1.17 billion in operating income for a company that's used to running with little to no profit. Nordstrom, Under Armour, Lululemon and Nisa Retail in the U.K. are a few of the retailers and consumer brands that count on AWS.

For cloud infrastructure as a whole, AWS controls 34 percent of the market, followed by Azure at 12 percent, IBM at 8 percent and Google at 5 percent.

According to AWS, retailers will continue to use its infrastructure because they care most about agility, security and performance when deciding where to run their workloads.

"AWS is the clear leader in these areas," a company spokesperson said in an e-mail. "Retailers' end users don't care about any rivalry that may exist with another retailer."

Like most big established enterprises, Kroger isn't moving everything to the public cloud. The company still has many of its core computing functions and storage in its own data centers.

But Hjelm said that in the cloud, Kroger has thousands of projects for testing and development running as well as live applications. He wouldn't specify how much the company is spending on the cloud, but he said it's in the millions of dollars and is split roughly equally between Microsoft and Google.

"Over time that balance could shift depending on who creates more value," he said.

Tariq Shaukat, a president in Google's cloud division, said in an interview that even if retailers have been reluctant to give Amazon their money, a lot of them have still historically run on AWS. Google is picking up customers now because its cloud platform finally has the services they need, he said.

"There's an increasing recognition that GCP is a viable option and a leader in areas they care about, like security, data analytics and machine learning," he said.