Kroger looks to new product innovation with second natural foods summit
- More than 50 suppliers participated in Kroger’s second Natural Foods Innovation Summit last week, according to a news release. This is up from more than 40 who came to the first summit in October. The event was conducted in partnership with Kroger’s shopper insights and data analytics arm, 84.51°.
- Among the categories represented were snacks, beverages, yogurts, vitamins and supplements, and protein bars and powders. Kroger, which like many other grocers emphasizes local sourcing, said the suppliers represented different regions of the U.S.
- These summits, along with Kroger's new online portal that allows suppliers to directly apply to company buyers, are seen by many as a response to Whole Foods' recent sourcing revisions. That company, now owned by Amazon, has focused more of its buying out of its Austin, Texas headquarters, and according to reports, has begun increasing merchandising fees and cutting ties with many local and regional manufacturers.
Any retail buyer will affirm that new products are the lifeblood of category growth. And while major brands have dominated store shelves for years, research shows emerging suppliers are driving growth in the industry across categories. Between 2011 and 2015, according to IRI data, large companies dropped more than $18 billion in sales.
Locally sourced products, meanwhile, continue to be in high demand. Packaged Facts estimated that local food sales grew from $5 billion to $12 billion between 2008 and 2014. They are projected to hit $20 billion by next year. That drives retail executives to major trade shows, and prompts big retail organizations like Kroger to hold events such as its semi-annual Natural Foods Innovation Summit.
Not only is this a business opportunity for Kroger — it's a pointed response to one of its fiercest competitors. Last week, the Wall Street Journal reported that Amazon-owned Whole Foods is increasing the fee companies pay for placement in high-traffic areas with prominent visibility by $25,000, and asking for bigger discounts to get that space. It has also mandated that vendors with more than $300,000 in annual sales discount their products 3% for groceries and 5% for health and beauty.
These changes were planned before Amazon acquired the specialty grocer, but they are very much in keeping with the e-tailer's focus on streamlining operations. Certainly, Whole Foods needed to bring down its cost of doing business, and some natural and organic companies told the Wall Street Journal that the changes have made merchandising and in-store demos more organized and efficient.
But could driving out niche suppliers ultimately hurt Whole Foods? The specialty grocer made its name by offering hard-to-find products, and charging a premium for them. These products made operations expensive for Whole Foods, but they also differentiated the company in a very crowded market. Will Amazon be able to maintain Whole Foods' appeal with new and existing customers as it makes the grocer a more nimble, tech-focused competitor? Some observers have their doubts, though others point to Amazon's ability to revolutionize grocery e-commerce as its true differentiator. Last week, the e-commerce giant began offering home delivery from Whole Foods stores in four major markets.
Suppliers that have recently lost contracts with Whole Foods aren't happy, and they're taking their products to Kroger and other competitors. Kroger is welcoming them with open arms. As Robert Clark, senior vice president of merchandising, told Journal, “We definitely don’t have a fee menu that would be a barrier to entry.”