Charging a fee for grocery pickup and delivery is working for The Kroger Co., but the company is open to lowering those costs, one of its executives said Oct. 30.
Speaking at Kroger's annual investor conference in Cincinnati, Group Vice President and Chief Digital Officer Yael Cosset said "the vast majority" of pickup and delivery transactions at the grocer involve customers paying a fee. Kroger customers can order groceries online and either pick them up at a Kroger store or have them delivered through startup Instacart, which partners with grocers around the U.S.
But Kroger regularly revisits what it charges for order fulfillment and delivery, the executive said, and the grocer anticipates making changes to the cost for consumers.
"We're not wanting to build a model that only works if you maintain that high fee structure," Cosset said. Kroger wants the flexibility to change its delivery fee structure "so that as the customer evolves, we can adjust as well."
Cosset's remarks come as Kroger develops its grocery order fulfillment options in the face of similar moves by Amazon.com Inc. through Whole Foods Market Inc.
Amazon has expanded its free delivery service for Prime members at Whole Foods in recent months. In late October the Seattle-based retail and technology giant added same-day delivery to several U.S. cities, including Boise, Idaho, and Stamford, Conn. A new Prime membership, which includes other benefits such as expedited shipping on Amazon.com orders, costs $12.99 per month or $119 for one year.
Traditional grocers have faced questions about their own delivery operations from analysts, including whether the companies plan to eventually make their own services free. Kroger offers three free orders for customers new to its pickup service and charges $4.95 per order afterward in many major metropolitan areas, although the fee can vary based on the market. The company also offers delivery on nonperishable products through Kroger Ship, which costs $4.99 for orders under $35 and is free for orders above that amount.
Third-party provider Instacart charges customers a flat fee — $5.99 in many locations — as well as a 5% service fee.
Asked by an analyst Oct. 30 about Kroger's plans regarding fees, Cosset said the company has made some merchandise available only through online orders, a move he said is helping to justify the fees that Kroger charges.
The company is also expanding its delivery options through a partnership with British grocery delivery startup Ocado Group PLC. Under the agreement announced in May, Ocado will build up to 20 order fulfillment warehouses in the U.S. over three years.
In early October, Kroger also unveiled a pilot program with retail pharmacy chain Walgreens Boots Alliance Inc. that will allow Kroger customers to pick up grocery orders at some Walgreens stores near Kroger's Cincinnati headquarters.
Kroger is counting on such partnerships to grow its grocery delivery abilities as it reaches the limits of its own store network. Kroger's slate of supermarket-based pickup and delivery options reached about 80% of the grocer's customers as of September, Chairman and CEO Rodney McMullen said during a Sept. 13 earnings call.
"The Ocado partnership and the partnership with Walgreens is helping us increase [delivery] coverage without necessarily relying on physical stores to be opened for pickup," Cosset told analysts Oct. 30.