Kroger's New E-Commerce Unit – Smart Move or Eventual Disaster?

Summary

Omni Talk Retail: Episode Summary

Episode Title: Kroger's New E-Commerce Unit – Smart Move or Eventual Disaster?
Release Date: March 21, 2025
Hosts: Chris Walton and Anne Mezzenga
Guests: Carl (Guest Speaker)

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Introduction

In this episode of Omni Talk Retail, host Chris Walton delves into Kroger's recent strategic move to establish a standalone e-commerce business unit. Joined by guest Carl, the discussion critically examines whether this decision is a forward-thinking strategy or a potential pitfall for the retail giant. The conversation explores organizational structure, strategic priorities, and the broader implications for Kroger's omnichannel approach.

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Kroger's New E-Commerce Unit

Kroger's Strategic Shift: Kroger has announced the creation of a dedicated e-commerce business unit, signaling a significant pivot towards enhancing its online operations. Yale Cosset, Kroger's Chief Information Officer, has been promoted to lead this new division as Executive Vice President and Chief Digital Officer. Kroger's Chairman and newly appointed CEO, Ron Sargent, emphasized the importance of accelerating e-commerce growth, stating:

“Accelerating Kroger's e-commerce growth is a top priority. As the architect of Kroger's digital strategy, Yale will continue to make it easier for customers to shop our fresh, affordable food.”
— Ron Sargent [00:54]

This move consolidates various online customer experience facets under a singular leadership, aiming to streamline operations and enhance the digital shopping experience.

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Host and Guest Perspectives

Chris Walton's Overview

Chris introduces the topic by outlining Kroger's organizational changes and sets the stage for an in-depth analysis. He poses two critical questions to Carl:

1. Agreement with Kroger's Decision: Does creating a standalone e-commerce unit align with effective retail strategy?
2. Leadership Choice: What are the implications of appointing a Chief Information Officer, rather than an operational leader, to head this unit?

“Do you agree with Kroger's decision to create a standalone e-commerce unit? And... what do you think this says?”
— Chris Walton [00:46]

Carl's Critique

Carl responds vehemently, expressing strong disagreement with Kroger's decision. He argues that the move contradicts the principles of omnichannel or unified commerce, which integrate all retail channels into a cohesive strategy.

“I don't like this move at all... I fundamentally disagree with the organizational approach.”
— Carl [01:27]

Key Points from Carl:

1. Contradiction to Unified Commerce: Carl emphasizes that separating e-commerce into its own unit disrupts the seamless integration of online and offline channels, a strategy proven successful by retailers like Target and Walmart.

   “It just does, as you know. And this is coming from someone who piloted an Omni Channel organization structure at Target...”
   — Carl [02:00]

2. Sunk Cost Trap with Ocado: Carl suggests that Kroger's move may indicate a reluctance to abandon the struggling Ocado partnership, potentially leading to further financial strain.

   “They made the big Ocado investment. They don't appear to have gotten the return that they wanted... It's a classic case... of what not to do.”
   — Carl [02:39]

3. Leadership Concerns: Appointing a digital-focused leader like Yale Cosset, rather than someone with operational expertise, may limit the effectiveness of addressing broader, multifaceted challenges within Kroger's retail ecosystem.

   “How much can a digital guy fix what is essentially a piece, that being Ocado, of a much larger puzzle...”
   — Carl [02:39]

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Organizational and Strategic Analysis

Disjointed Priorities and Turf Battles: Carl highlights the risk of creating competing priorities within the organization, which can lead to internal conflicts and inefficiencies.

“You start getting turf battles, everything. So strategically, I just fundamentally disagree...”
— Carl [02:37]

Overburdened Leadership: Chris concurs, pointing out that Yale Cosset is already responsible for multiple critical areas, including retail media, insights and content, financial services, and personal finance. This extensive scope may hinder his ability to effectively manage and prioritize the new e-commerce unit.

“It just seems like way too many competing priorities. And I don't know how you set Yale up here for success...”
— Chris Walton [04:01]

Impact on Omnichannel Strategy: Both hosts agree that separating e-commerce undermines the unified customer experience that modern consumers expect, where online and in-store interactions are seamlessly integrated.

“The total experience and the success of any of these grocery businesses depends on a strategy that's focused on meeting the customer at all these touch points.”
— Chris Walton [04:01]

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Concerns About Kroger's Future Direction

Leadership Instability: Recent leadership changes, including the departure of the CEO and failed merger attempts with Albertsons, contribute to uncertainty about Kroger's strategic direction.

“Given, you know, coming out of all of the news that's happened to Kroger, with the CEO leaving, the failed merger with Albertsons...”
— Chris Walton [04:55]

Potential for Organizational Failure: Carl warns of a possible "dumpster fire" scenario if Kroger continues down this path, suggesting that the company's current strategy could lead to significant operational and financial challenges.

“It seems like this could be the start of a dumpster fire. To be honest.”
— Carl [03:46]

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Conclusion

Both Chris and Carl express skepticism about Kroger's decision to establish a standalone e-commerce unit. They argue that this move contradicts the principles of unified commerce, risks internal conflicts due to competing priorities, and places undue pressure on leadership. The discussion underscores concerns about Kroger's ability to effectively integrate its digital and physical retail operations amidst recent strategic missteps and leadership changes.

“Good luck to you, Kroger team. I don't know what else to say at this point.”
— Chris Walton [07:17]

“They got to get somebody in there quick now because this could just blow up in their face here over time.”
— Carl [07:24]

The episode serves as a critical examination of Kroger's strategic choices, urging the retailer to reconsider its approach to ensure alignment with modern retail practices and consumer expectations.

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Notable Quotes with Timestamps:

• Ron Sargent [00:54]: “Accelerating Kroger's e-commerce growth is a top priority...”
• Chris Walton [00:46]: “Do you agree with Kroger's decision to create a standalone e-commerce unit?...”
• Carl [01:27]: “I don't like this move at all... I fundamentally disagree with the organizational approach.”
• Carl [02:37]: “You start getting turf battles, everything...”
• Chris Walton [04:01]: “It just seems like way too many competing priorities...”
• Chris Walton [07:17]: “Good luck to you, Kroger team...”
• Carl [07:24]: “They got to get somebody in there quick now because this could just blow up in their face...”

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This episode of Omni Talk Retail offers a thorough and critical perspective on Kroger's latest strategic initiative, providing valuable insights for industry professionals and enthusiasts alike.

Transcript

[Chris]

Kroger is launching a standalone e commerce business unit. You heard it right. According to Grocery Dive, Kroger has formed a business unit centered on its online operations and promoted its Chief information officer to head the new team. The supermarket chain announced. The group brings together the personnel, quote, contributing to every aspect of the online customer experience. End quote. For Kroger. Yale Cosset, who previously served as the company's Chief Digital officer before becoming Senior vice president and CIO of Kroger in 2019, will lead the e commerce unit as Executive Vice President and Chief Digital officer. Kroger Chairman and newly appointed CEO Ron Sargent said in a statement, quote, accelerating Kroger's e commerce growth is a top priority. As the architect of Kroger's digital strategy, Yale will continue to make it easier for customers to shop our fresh, affordable food. End quote. Chris, I got a two parter double header for you. Two parter Number one, do you agree with Kroger's decision to create a standalone e commerce unit? And number two, you're getting the A and M put you on the spot question, which is, oh, it seems like this formal organization of Kroger's e comm business is long overdue, especially with the ocado struggles. What do you think this says? That they put their chief information officer atop it versus an operational leader? Please. All right. Dazzling.

[Carl]

Nice delivery on that one too. And get this show started off right. All right, man, I, I'm going to come out hot on this one. And I think my Buddy Carl on LinkedIn who messaged me about this story, you know, I have two friends named Carl on, you know that with KS2, which is just random Carl. But anyway, I'm coming out hot. I'm coming out of the gates hot on this one. And first off, I, I don't like this move at all. And secondly, to get to the A and M question, I don't agree. I don't agree that the premise of this move is long overdue. I don't agree with the premise that this move is long overdue either.

[Chris]

Really?

[Carl]

Okay, Yeah, I do, 100%. I say that for a couple of reasons. So one, this flies in the face of whatever you want to call it, good omnichannel, unified commerce, whatever the heck the buzzword is harmonized retail shout out to Steve Dennis. It flies in the face of that. It just does, as you know. And this is coming from someone who piloted an Omni Channel organization structure at Target to help them develop their omnichannel approach, an approach that others Sense like Walmart have adopted. So I can tell you firsthand, this is really the only way to go. Because doing it, doing it the opposite way with a standalone division creates all kinds of disjointed problems in the organization. So just.

[Chris]

And priorities.

[Carl]

Yeah, yes, right.

[Chris]

Everything.

[Carl]

Priorities, Everything. Like, yes, focus. You start getting turf battles, everything. So strategically, I just fundamentally disagree with the organizational approach. But second, I think there's another big issue here and that it's that I worry that Kroger is falling into what I call what what many would call the sunk cost trap. They made the big Ocado investment. They don't appear to have gotten the return that they wanted. So now they're throwing good money after bad and good people after bad. So it's a classic case from the first year of business school of what not to do because you're doubling down on trying to fix the mistakes of your past. Which also explains why they're putting someone that they trust with a good track record to try to fix it. But to A and M's question, how much. How much can a digital guy fix what is essentially a piece, that being Ocado, of a much larger puzzle for how Kroger gives its consumers what they want. So this move, you know, net. Net, particularly in the absence of a former CEO or the absence, there's, you know, they just had to get rid of their CEO, so guy in place.

[Chris]

Right.

[Carl]

It seems like, I mean, this seems like it could be the start of a dumpster fire. To be honest. I just don't get this at all. And, But I don't know. What do you think? Talk me off the leg.

[Chris]

No, I'm not going to talk you off the. Chris.

[Carl]

No. Because you're not going to be my balance. No.

[Chris]

Because this to me felt like a move that you would make in 1999. Like the, the real problem for me in this, in this whole story is every aspect of the online customer experience. Like, yeah, that's the problem here. It should. I don't think we can think in channels like this anymore. I mean, that's the whole point of this move towards unified commerce. Like people aren't just doing. No, no consumer of Kroger is just shopping online or just shopping in store. It's about the total experience and the success of any of these grocery businesses depends on a strategy that's focused on, you know, meeting the customer at all these touch points. So I think it's. It just seems strange. The other thing that I would add is Yale has been in this role at Kroger. He's done a tremendous job, but look at all the stuff that he has underneath him, too. Oh, go ahead.

[Carl]

No, no, you keep going. No, you got. No, I'm right with you. You keep going.

[Chris]

Yeah, like, he's in charge of retail media, 8451, insights and content, financial services, personal finance. Like, how I get that you have to ladder up and there's people that are underneath him. But again, this just seems like way too many competing priorities. And especially when you throw things like retail media and like, insights and content and financial services into the mix, like, those are huge sources of revenue for Kroger and for any future that Kroger has. And so I feel like this is, this is just asking too much of one person. And in a way that just exactly like you said, Chris, like, there's too many competing interests, priorities. And I don't know how you set Yale up here for success, but it just, it seems like the, the totally wrong way to be thinking about it. And especially given, you know, coming out of all of the news that's happened to Kroger, with the CEO leaving, the failed merger with Albertsons, like, it just feels like a place where they're, they're just like, putting all their faith in Yale and not setting them up for success.

[Carl]

Yeah. And what I was going to say, what you got me thinking about too, is like, I actually, there's a little bit from this story that actually makes me question how well Yale is actually done in his job too. Because if you think about, if you think about meeting the needs of the omnichannel consumer, right? There's the front end side of it and there's the back end side of it. The back inside of it clearly hasn't been working. But you're saddled with a big investment that you made where the infrastructure is the infrastructure. So there's only so much you can do about that. So then you get, then you start to say to yourself, okay, was it not working because they haven't marketed right, or they don't have the experience, right. To, to get the volume they need to make the investment pay off in the way that they want. So, so it's one of those, you know, it's one of those two things. And so like, if it's the, if it's the latter, then you're like, well, wait a second, is this the guy, the right guy to run it? If they haven't been able to figure out the marketing and the front end experience of this to make it work and to get it in the consumer, because they've tried these online only plays in markets, and they've had to shut those down. They've had to close facilities. So for some reason, they're not getting. Even though they're talking about how much their digital volume is growing, it's not growing to the extent that they actually want to make this, the Cardo investment, pay off in the way that they want in the right areas of the country. So. So there's just so much going on here, which makes this story so bizarre to me.

[Chris]

Yeah, I totally agree. Yeah. I mean. Oh, good luck to you, Kroger team. I don't know what else to say at this point.

[Carl]

Yeah, it sounds like, I mean, God, they got to get somebody in there quick now because this could just blow up in their face here over time.