Kroger “Leaning In” on Natural, Organic Beverages

As the largest supermarket chain in the country, Kroger is used to meeting the needs of millions of customers on a daily basis. But it’s also facing competition on all sides – the treasure seekers of Costco, which recently passed Kroger as the country’s second-largest retailer, and the big-basket shoppers frequenting Wal-Mart, the country’s biggest retail chain.

Mary Ellen Adcock, Kroger's VP of Natural Foods

Perched just below all three companies, however, are Whole Foods and Trader Joe’s — perhaps not in terms of size or store count, but in attracting the highly desirable group of natural and specialty consumers.

It’s those consumers, who will spend more for food that fits with a lifestyle vision, that Kroger, Costco and Wal-Mart are targeting; for several years, Wal-Mart has emphasized an organics program, while Costco has also increased the number of organic offerings it has while focusing on trend-seeking consumers.

Now, however, Kroger, the country’s largest collection of grocery stores, is ramping up its own efforts to put the shine on the organic apple. The company has formed a strong internal strategy under VP of Natural Foods Mary Ellen Adcock to try to remake itself in the minds of natural and organic consumers as a place where they can go to discover new, on-trend drinks and other products. It is also increasing its own private label natural and organic offerings.

“As a company, our strength to this point has been leveraging our size and scale for the established mainstream grocery piece,” Adcock told BevNET. “We want to enhance our leverage with emerging brands and be more first-to-market with innovation.”

On the beverage end, the company has entered an agreement with product incubation company L.A. Libations to act as its “category captain” for the emerging beverage category.

As such, the group, which does business with a broad swath of emerging brands, from Coke/VEB offerings Zico and Illy to independent players HiBall, Just Chill, and FRS, to its own brand, Aloe Gloe, will be assisting the grocery giant with strategic space and merchandising allocations for the category. LA Libations will also have a set of coolers called “Taste of Tomorrow” in more than 80 stores under the Kroger-owned Ralph’s banner, offering consumers a grab-and-go look at some emerging beverage categories.

The partnership between the two companies began when L.A. Libations offered an assessment of the emerging beverage category to Kroger brass last year – at the time, the company broke the nascent beverage world down into five parts: chia, healthy energy, aloe, relaxation and probiotics. The larger coconut water category wasn’t included because, as co-founder Danny Stepper said, “that category has already emerged.”

The new beverages curated by L.A. Libations are expected to help buttress Kroger’s own in-house “Simple Truth” private label organic and all-natural lines. While there are just a few beverage offerings in that group, including natural sparkling drinks and teas, the brand’s “Free from 101”guideline, which is a list of 101 artificial preservatives and ingredients that its products don’t include, will serve as the basis for new branded product additions as well. It’s a list that Adcock said compares favorably with Whole Foods’ own list of unacceptable ingredients.

“Our list is more robust,” she said.

Consumers have responded, according to Kroger, which said recently that Simple Truth sales had been 33 percent higher than their original target.

With more than 2,400 grocery stores and almost 800 more convenience stores under its corporate umbrella, the push across all Kroger-owned groceries to increase natural and organic products is going to have to be coordinated through several different grocery formats: in some stores, there are natural store-within-a-store segregated sets, while in others natural or organic alternatives sit on-shelf next to conventional versions of the same products. But it will be pervasive, because the competition is aiming for the same group of consumers.

“From our standpoint, customers have told us it works both ways,” Adcock said. “But what they’ve really done is tell us they like what we have, and they want more.”

On the beverage front, a lot of the “more” that consumers want may, in the long term, flow through L.A. Libations. While the plan is to start with the Ralph’s stores in the Los Angeles area, the intent is to eventually scale through all of Ralph’s and, finally, larger geographic regions, Stepper said.

It’s a unique arrangement: in helping set up the emerging beverage category for Kroger, L.A. Libations is the only outside firm helping to run Kroger’s push for natural and organic innovation. The company will continue to build across all product types, Adcock said, but beverage is a key introduction point for the company.

“Sales are increasing across all categories, but we’re really leaning in through beverage,” she said. “We are looking at categories where there’s the most innovation and that are growing categories – some are more accelerated than others, like beverage – dairy is another, snack is another – but the demand for the whole set of offerings is definitely increasing.”