Kroger has followed US grocery rival Walmart by launching its own marketplace. Retail Week analyses whether the two grocery giants really have what it takes to challenge Amazon.
- Kroger will introduce an online marketplace this autumn, following on from the launch of Walmart Marketplace
- Both US retail giants have seen online sales soar during the global pandemic and are keen to further improve their digital propositions
- Marketplaces accounted for 57% of global online sales in 2019, racking up more than $2trn (£1.5trn)
- As Amazon makes further moves in grocery, so the US grocers push their online offer
Kroger Ship will launch a marketplace this autumn, offering products from thousands of third-party sellers. The site is the result of a tie-up with French tech firm Mirakl, which already has partnerships with Gallic grocery giant Carrefour and Halfords in the UK.
It is not the first traditionally bricks-and-mortar titan in the US to square up to Amazon with the launch of an online marketplace. Walmart launched its own iteration a decade ago, although the retail behemoth put pedal to the metal with the service in 2016, following the $3bn (£2.3bn) acquisition of Jet.com.
That division has since been subsumed into Walmart Marketplace, which offers tens of millions of third-party products and is generally held up by retail analysts in America as one of the few genuine competitors to Amazon’s hegemony in this sphere.
For both Walmart and Kroger, improving their ecommerce propositions has been a key pillar of their respective strategies in recent years amid intense competition from Amazon – and that digital focus has paid off during the coronavirus crisis
For both Walmart and Kroger, improving their ecommerce propositions has been a key pillar of their respective strategies in recent years amid intense competition from Amazon – and that digital focus has paid off during the coronavirus crisis.
Walmart said earlier this week that online sales in the US surged 97% during its second quarter, while Kroger’s jumped 92% in the first quarter of its financial year.
Both businesses may be driving an increasing degree of spend online, but can either of them really take on Amazon at its own marketplace game?
Gone to market
Data from Digital Commerce 360 found that marketplaces accounted for 57% of global web sales last year, to the tune of more than $2trn (£1.5trn). The data found that combined sales at the US’ 57 online marketplaces jumped 15%, highlighting their appeal to the likes of Walmart and Kroger.
For Eagle Eye Solutions head of industry insight Miya Knights, the reason for the growing popularity of digital marketplaces is twofold: for third-party brands they offer scale and reach without the expense, while the marketplaces themselves can broaden their ranges without carrying any stock.
“Everyone has the same customer acquisition problems, so large retailers with high street stores, a well-known brand and an existing ecommerce presence tick all the boxes to attract third-party sellers who want to take advantage of their scale and brand equity,” she says.
Both Walmart and Kroger are big enough names to offer that level of pulling power for smaller third-party brands looking to achieve nationwide reach. And, in turn, Walmart and Kroger can tap into a buoyant marketplace sector that is forecast to grow further still.
The Institute for Business Ethics predicted in October last year that global marketplaces could hit annual sales in excess of $7trn (£5.3trn) by the end of 2024. These figures will likely have been distended even further by the ongoing pandemic, evidenced by sales growth at Amazon and eBay during the Covid-19 crisis thus far.
It’s not surprising then that Kroger and Walmart have assessed this potential revenue stream and decided they want a piece of the pie.
Edge by Ascential director of advisory Nick Everitt says the latest move from Kroger is in keeping with its broadening strategic focus.
“What’s really interesting about Kroger is how it has been trying to focus on alternative profit streams away from its traditional grocery base,” Everitt says.
“Clearly it sees expanding Kroger Ship into a marketplace as a means of driving new revenue opportunities and the commission they would get from third-party suppliers.”
“What Kroger can do is provide a credible alternative in categories that are already relevant and adjacent to areas in which it is already strong. It’s going to expand to natural organic produce, international foods, homewares and toys”
Nick Everitt, Edge by Ascential
Kroger says that when the marketplace launches in the autumn, it will initially carry in excess of 50,000 products. This is dwarfed by the hundreds of millions of products available on Amazon and the circa 36 million products sold through Walmart Marketplace.
Kroger will no doubt seek to rapidly expand that assortment, but Everitt doesn’t believe having a smaller range will be a hindrance to the retailer, as long as the third-party items it does offer consumers are relevant to its wider ecosystem.
“I don’t think you can take Amazon on exactly at their same game, certainly in terms of product assortment and depth of coverage. Kroger wouldn’t want to do that and shouldn’t do that, because it would fail,” Everitt says.
“What Kroger can do is provide a credible alternative in categories that are already relevant and adjacent to areas in which it is already strong. It’s going to expand to natural organic produce, international foods, homewares and toys. All of those sorts of things make a lot of sense for an enormous grocery business.”
Walmart has taken a different approach. After acquiring Jet.com in 2016, Walmart’s marketplace assortment ballooned to more than 50 million products.
While the overall assortment has been reduced since the beginning of this year, the number of third-party suppliers it works with has more than doubled to 50,000 since July 2019, boosted by the deal it signed with ecommerce platform Shopify in June.
“Amazon’s growth in grocery has only gained momentum [since 2016]. In order to match that, Walmart acquired Jet, which was more than anything an accelerant to its online ambitions”
Andy Clarke, ex-chief executive of Asda
Andy Clarke, who was chief executive of Asda when its owner Walmart acquired Jet.com, says the US titan was right to move into this space when it did.
“Amazon’s growth in grocery has only gained momentum [since 2016],” Clarke says. “In order to match that, Walmart acquired Jet, which was more than anything an accelerant to its online ambitions.”
For Clarke, Amazon’s ambitions are clear. The etail giant is moving aggressively into bricks-and-mortar grocery retail followng the purchase of Whole Foods and the launch of checkoutless Amazon Go stores. In Clarke’s words, Amazon sees itself “becoming to food what they have become to general merchandise”.
“Amazon is a phenomenal organisation and Walmart is the biggest grocer in the world, so to not have even thought about how to compete [with Amazon] would have been hugely short-sighted,” he says.
Similarly, Clarke believes that Kroger, as the second-largest grocer in the US, had no choice but to move into marketplaces in a desperate bid to keep pace.
David and Goliath
But can Kroger Ship become a global etail juggernaut in the same way that Amazon has? Everitt questions whether that’s really what the grocer wants to achieve through its strategic shift.
“I suspect they are seeing the overall growth of ecommerce and obviously Amazon, but also, maybe more importantly for them, the likes of Walmart, Albertsons and so on who are busy developing marketplaces and simply don’t want to get left behind,” he says.
“They don’t want to disadvantage their own shoppers and, of course, want to create that captive ecosystem every big retailer does where loyal shoppers essentially don’t need to shop anywhere else.”
Clarke suggests that no retailer “can afford to not be in this space” in the current retail climate.
He says: “The customer, as they say, is king, and you have to follow where they lead. It’s a fact that fewer people are walking through the doors of supermarkets and stores more generally now then they used to.
“The shape of the way people shop is changing,” he adds and, spurred by the coronavirus, he believes marketplaces will become an ever more important part of the online mix.
Yet Knights believes there is a risk for the likes of Walmart and Kroger associated with attempting to go toe-to-toe with Amazon in marketplaces, without taking their eye off their respective core businesses.
“The customer, as they say, is king, and you have to follow where they lead. It’s a fact that fewer people are walking through the doors of supermarkets and stores more generally now then they used to”
Andy Clarke, ex-chief executive of Asda
“Setting up something like a marketplace, partnering with third-party sellers, can’t just be an afterthought,” she warns. “It needs to be your organisation’s prime focus or, at the very least, a central part of your wider strategy.”
While Edge’s Everitt agrees this could pose a risk for Kroger, he suggests its partnership with Mirakl will mitigate that somewhat.
“I think that partnership is a very savvy way of outsourcing some of that capability, rather than trying to do it all in house yourself,” he says.
“That’s one way they are seeking to ensure it doesn’t become a burden or divert too much time and effort from other parts of the business internally.”
While Walmart Marketplace or Kroger Ship may never rival Amazon as the western hemisphere’s go-to marketplace, ecommerce growth has almost made such platforms a prerequisite for large retailers if they want to withstand the Amazon onslaught.