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 the CNBC anchor Sara Eisen, McMullen discussed how Kroger's merger with the grocery chain Harris Teeter had spurred a digital expansion.
The Kroger CEO and chairman said 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 CITY — 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 the CNBC anchor Sara Eisen at the National Retail Federation's 2019 Big Show in Manhattan.

He said his company, which has a $22.39 billion market cap, had worked for years under the assumption that the online retail giant would either establish its 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 to "accelerate" its e-commerce capabilities over the past several years, even before Amazon's acquisition went through. McMullen singled out his company's 2014 merger with the 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 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 technology and tech team to "accelerate" its own digital position. In 2018, Kroger's digital sales were a $5 billion business. And the grocer is predicting that the number could nearly double in 2019.

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But the deal 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 it even launched numerous 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 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 whether Simple Truth was Kroger's solution to Whole Foods. He demurred but said: "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 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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