The CEO of Kroger, America's largest supermarket chain, explains why the company's merger with the country's 6th favorite grocer puts them in the perfect position to take on Amazon and Whole Foods (KR)

Kroger CEO Rodney McMullen

Kroger CEO Rodney McMullen spoke about his company's omnichannel strategy at the National Retail Federation's 2019 Big Show.
In an interview with CNBC anchor Sara Eisen, McMullen discussed how Kroger's merger with grocery chain Harris Teeter spurred a digital expansion.
The Kroger CEO and chairman said that the 2014 merger was a response to the belief that Amazon would eventually acquire or create a physical grocery chain.
In 2017, Amazon confirmed those suspicions by acquiring Whole Foods.

NEW YORK — Amazon's acquisition of Whole Foods didn't come as much of a surprise to Kroger CEO Rodney McMullen.

"We assumed that at some point, Amazon was going to do something in the physical world," McMullen told CNBC anchor Sara Eisen at the National Retail Federation's 2019 Big Show.

He said that his company, which currently has a $22.39 billion market cap, has worked for years under the assumption that the online retail giant would either establish their own grocery business or acquire a retail chain. The latter happened in 2017 when Amazon gobbled up Whole Foods.

According to McMullen, that longstanding prediction propelled Kroger Co. to "accelerate" its ecommerce capabilities over the past several years, even before Amazon's acquisition went through. McMullen singled out his company's 2014 merger with North Carolina-based grocer Harris Teeter as a major step. Harris Teeter was ranked America's sixth favorite grocer in Market Watch's 2018 rankings. Kroger took the 12th spot.

McMullen said that the merger was "driven by what we assumed others would do, not what they actually did."

The CEO added that Kroger was able to "leverage" Harris Teeter's existing technology and tech team in order to "accelerate" its own digital position. In 2018, Kroger Co.'s digital sales were a $5 billion business. And the grocer is predicting that that number could nearly double in 2019.

But the team-up with Harris Teeter isn't the only move Kroger has made in the battle to gain ground in the ever-shifting retail environment. The grocer has also embarked on tech-centric partnership with Microsoft and Ocado, and even launched a number of pilot stores with Walgreens.

In a move that directly pits Kroger against Amazon's Whole Foods, the grocer is also doubling down on its Simple Truth brand. The organic brand first launched in 2012. Simple Truth products are billed as being free of artificial preservatives, GMOs, and, generally, unnatural ingredients "you can't pronounce."

"It's over a $2 billion brand today, growing in double digits," McMullen said.

Eisen asked McMullen if the Simple Truth was Kroger's solution to Whole Foods. He demurred, but said that "This was our solution to customers telling us that they don't want to have to look at the labels to understand what's in the product. They love it. The quality is outstanding."

In response to Eisen's question about whether Amazon, Walmart, and Kroger would be the three main figures dominating the grocery business 10 years from now, McMullen said that he believed that Kroger would certainly be "one of the players."

"It's such a big industry," he said. "Fortunately people will always eat. It's a $1.5 trillion industry, so I think there's plenty of room for a lot of players."

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