Retail

Ghost kitchens and meal kits: Kroger experiments with new ways to sell prepared food

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Key Points
  • Kroger said it is experimenting with new ways to offer customers quick, restaurant-quality meals from ghost kitchens or convenient, preassembled dinner kits.
  • It owns meal kit company Home Chef and has ghost kitchens and salad franchises in some stores.
  • The investments in prepared food could help the grocer's business — particularly as Americans grow tired of cooking or return to busier lives after getting vaccinated for Covid-19.

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Customers shop at the produce section of a Kroger Marketplace in Versailles, Kentucky, U.S., on Tuesday, Nov. 24, 2020.
Scotty Perry | Bloomberg | Getty Images

As Kroger tries to woo customers, the more than a century-old grocer is banking on an age-old question.

"A big part of our fresh strategy is helping answer the daily dilemma of 'What's for dinner?'" Chief Merchant and Marketing Officer Stuart Aitken said.

At a virtual investor day on Wednesday, Kroger said it is experimenting with new ways to offer customers quick, restaurant-quality meals from ghost kitchens or convenient, preassembled dinner kits. Those investments in prepared food could help the grocer's business — particularly as Americans grow tired of cooking or return to busier lives and fuller calendars after getting vaccinated for Covid-19.

For grocers, the pandemic has created an opportunity to expand into meal kits and prepared food, said Krishnakumar Davey, president of strategic analytics at IRI. Consumers have been trying to quickly throw together meals as they work from home. Many restaurants have permanently closed during the pandemic, giving grocers a chance to gain market share. Plus, he said, grocers can assemble meal kits from items in their existing deli and bakery departments.

The meal kit industry grew nearly 13% from 2019 to 2020 to become a $9.13 billion market, according to estimates from market research firm. The pace of growth will likely flatten this year, but it will remain a hot category as more professionals work at least part of the week remotely, Davey said.

"A few days of the week, people will be working from home and if you are working from home, you don't have time to fix up a lunch," he said.

Kroger acquired meal kit company Home Chef in 2018. Its competitor, Albertsons, owns Plated.

Kroger is the country's largest supermarket chain, with nearly 2,800 stores and numerous brands including Harris Teeter and Fred Meyer. The company's same-store sales, excluding fuel, grew 14.1% and its digital sales rose 116% in the year ended Jan. 30.

However, the Cincinnati-based grocer's forecast anticipates same-store sales will drop by 3% to 5% this year. Its leaders laid out its strategy to turn digital growth into a more profitable business and drive new revenue streams, such as through its advertising business.

One key part of that strategy will be continuing to test new ideas, Aitken said.

"Innovation is the lifeblood in fresh [foods]," he said. "We may fail with some, but when we do, we'll fail fast. That said, when we detect a home run, we'll scale it at pace that matters, that will move the needle for Kroger."

Among them, Kroger struck a deal with ghost kitchen company ClusterTruck last year. The company opened two on-premise kitchens of about 1,000 square feet inside of Kroger stores. Customers can order from more than 80 meals, which they can pick up in stores or order for delivery.

A handful of its stores in the Midwest will soon have a Saladworks inside, a fast-casual restaurant that makes customized salads and wraps.

Kroger is growing Home Chef, a meal kit company that competes with Hello Fresh and Blue Apron. Kroger has added the quick-cook solutions and an oven-ready version to some of its stores. Sales of Home Chef increased 118% in the most recent fiscal year and it is poised to become Kroger's next billion-dollar brand, Aitken said.

And he said Kroger has a new pilot that's coming soon that is focused on family meals.

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