Crowning KingFebruary 23, 2018
Store Brands | February 23, 2018 – You’ll never catch Gil Phipps muttering to himself during the workday that it’s 5 o’clock somewhere. Phipps, the Kroger Co.’s vice president of Our Brands, enjoys his job too much for that kind of contrary thinking.
For Phipps the fun begins every morning around 8 o’clock when he shows up for work at the supermarket chain’s skyscraper headquarters in downtown Cincinnati. The inventive and enterprising Phipps gets down to business on concepts and strategies for Kroger’s Our Brands, the grocer’s impressive store brands program.
“It’s the most fun thing you could do,” Phipps says of his role, which he has held for nearly six years.
There’s pressure, but it comes with the territory of leading one of the nation’s largest grocery programs in private brands. But the pressure is a motivator; Phipps feeds on it like he would a bowl of Kroger-made Private Selection Pecan Pie Ice Cream.
The enthusiasm that Phipps brings to his job is contagious and has caught on with other members of the Our Brands team. Phipps and his team are determined to bring not just the best store brands possible to the Kroger customer base, but store brands that customers can’t find anywhere else.
“From a consumer standpoint, we want to improve people’s lives,” Phipps says. “If that’s our driving principle, people will embrace what we do.”
Signs point to people doing just that. In Kroger’s 2017 third quarter, Our Brands made up 28.2 percent of unit sales and 25.6 percent of sales dollars, figures that exceed the national average. From 2011 to 2017, Kroger’s Our Brands grew from $15 billion to $20.5 billion in annual sales.
In October, Kroger announced Restock Kroger, a plan to “redefine the food and grocery customer experience.” Restock Kroger will be fueled by capital investments, cost savings and free cash flow. The plan calls for Our Brands to play a pivotal role in the strategy. That was evident in January when Kroger said it was launching its largest-ever Our Brands customer-sales promotion.
Behind Phipps, Kroger has achieved one of the top private brands programs in the country — the reason Kroger is our 2018 Retailer of the Year.
KROGER IS THE nation’s largest supermarket chain and second-largest retailer behind Walmart with annual sales of $115.37 billion. Kroger operates about 2,800 stores in 35 states and Washington, D.C. Kroger-owned supermarket banners also include Matthews, N.C.-based Harris Teeter, Milwaukee-based Roundy’s and Compton, Calif.-based Ralphs. Kroger also owns 38 manufacturing plants, where it makes 40 percent of the products that comprise Our Brands (see sidebar on page 24).
Kroger was founded in 1883 by Bernard “Barney” Kroger, who also began the retailer’s private brands. Barney made his own products such as bread, coffee and peanut butter and sold them from his store in downtown Cincinnati. His marching order for achieving the best customer experience was simple: “Be particular. Never sell anything you would not want yourself,” he said.
That thinking is not lost upon Phipps, who has expanded on Barney’s motto. “It’s about creating a lasting emotional connection with our customers through innovation rooted in empathy,” Phipps says.
Kroger’s Our Brands cover several tiers. The Kroger brand is the retailer’s mainstream and largest store brand line with about $13 billion in annual sales. In fact, it’s the largest brand sold in Kroger stores by eight times the next largest consumer packaged goods brand. The Kroger line consists of products across various categories, including grocery, meat, coffee, produce, deli, bakery, household essentials and personal care. Many mainstream private brand lines are billed as brand knockoffs, but Phipps wants none of that thinking.
“Instead of having knockoffs of existing products, we want to have knockout versions of those products,” he says.
Private Selection, a premium line featuring gourmet and artisan offerings, has annual sales of about $2 billion. Products include breads, cakes, cookies, beverages, dairy products, meats, sauces, pastas, spices and seasonings, rubs, hummus and other products. With Private Selection, Kroger aims to take premium tastes to the next level.
‘We know that people like eating foods from around the world,” Phipps says. “But there are more international flavors than just sriracha. We have introduced harissa (a Maghrebi spice), peri peri (an African bird’s eye chili spice) and aji amarillo (a Peruvian spice) in several of our products. So our customers go from not knowing what peri peri is to knowing what it is and then to loving its flavor.”
Simple Truth and Simple Truth Organic comprise Kroger’s free- from and organic line. Introduced in the fourth quarter of 2012, Simple Truth features more than 1,400 products across multiple categories. Kroger recently announced that Simple Truth had achieved $2 billion in annual sales.
“Here’s Simple Truth in a nutshell: natural and organic foods that are affordable,” Phipps says.
The success of Simple Truth and Simple Truth Organic has impressed Carl Jorgensen, director of global thought leadership/wellness for Stamford, Conn.-based Daymon, a provider of retail strategies and services to help retailers grow their private brands. Jorgensen calls Simple Truth the most successful private brand launch in the history of the grocery industry.
“The success of Simple Truth and Kroger’s other private brand programs is a testament to the fact that Kroger is thinking in a new way about private brands and treating them as actual brands,” Jorgensen says.
Kroger’s HemisFares line is classified as an ultra-premium private brand. Created by Phipps and introduced in 2015, HemisFares is billed as “a journey of epicurean proportions.” The brand, which offers “a guided tour of the best tastes on Earth,” features authentic finds from Spain, Italy, Jamaica and Japan.
Phipps and his team, including Brad Studer, brand and marketing director for Our Brands, have traveled abroad and searched like the raiders of the lost ark for those tastes. One of their finds came from Japan — a double-brewed soy sauce made by the same family using the same method for more than 1,500 years.
Another product in the HemisFares line is Spanish Cornicabra Extra Virgin Olive Oil. “There are two places you can get cornicabra olive oil,” Phipps says. “There is a woman in Spain who owns all of the cornicabra olive trees. You can knock on her door and maybe she will give you some. Or you can get it at our stores.”
Considering the due diligence Phipps and his team must conduct to secure the products, HemisFares only has about 40 SKUs. But it’s growing.
WHILE LEADING A TOUR of the Our Brand offices on the 15th floor of the Kroger building, Phipps points to photographs of Kroger stores from another era. Phipps, Studer and the rest of the Our Brands team, totaling about 35 people, have not only transformed Kroger’s private brands to the present era, but they are already gearing up for the next era by leveraging customer insights provided by 84.51°, a wholly owned subsidiary of Kroger. 84.51° brings together customer data, predictive analytics and marketing strategy to drive sales growth and customer loyalty. Through 84.51°, Kroger can navigate complex data to reveal relevant customer trends so it can offer more personalized products and services. With 84.51°, Kroger wants to take innovation to another level.
“Many companies use innovation in a very broad sense,” Studer says. “But the true definition of it in our model is to create something that has never been created before … something that will change people’s lives. To innovate to that level is extremely challenging, but we are doing it.”
While 84.51° is a tremendous asset, Phipps is not afraid to develop a product because he has or someone on his team has a “gut feeling” that it will succeed.
“There’s a trend across the country toward Nashville hot chicken,” Phipps relates. “So what if we made a potato chip that tasted like fried chicken with Nashville hot seasoning on it?”
Phipps and his team had a gut feeling the chip would succeed as a store brand, so they developed Nashville Style Kettle Cooked Hot Chicken Potato Chips under the Kroger brand. The chips debuted late last year.
“We tasted them and said, yep, this will be a winner,” Phipps says. “People are looking for flavors they aren’t getting anywhere else.”
Phipps instructs his team to not be risk-averse. So he’s OK if a product introduction sometimes doesn’t succeed.
“I’ll take some misses if we are trying things that nobody has ever tried before,” Phipps says. “If you expect everyone to know the answer of everything, everyone will know the answer of everything. I would rather people experiment and explore.”
Studer says: “It’s the art and science of food, and we are playing with it. What I’ve found is you must have diverse thinking and be comfortable with it.”
Kroger is also investing in other areas of private brands such as apparel and floral. In October, Kroger opened its own restaurant, Kitchen 1883, which features a fresh take on new American comfort food.
There are also the intangible store brands, which can help any retailer better its image through the customer experience. Kroger offers home delivery and curbside pickup. This year, Kroger will roll out its Scan, Bag, Go technology to 400 stores, allowing shoppers the convenience to scan and pay for their purchases without traditional checkout lanes. Last year, Kroger unveiled Zero Hunger/Zero Waste, aimed at ending hunger in the communities it calls home and eliminating waste in the company by 2025. Kroger didn’t introduce Zero Hunger/Zero Waste for good public relations, but consumers who learn of it will be impressed by Kroger’s altruism.
“MASSIVE.” THAT’S THE WORD that Kroger CEO Rodney McMullen uses to describe the potential of Kroger’s Our Brands. Grocery pundits won’t argue with McMullen, considering Kroger’s track record with its private brands. But just like other retailers, Kroger faces challenges with its store brands in the market place. Competition is fiercer than ever and some retailers are driving down price, using their private brands as leverage.
McMullen says Kroger won’t lose on price, but it also won’t try to lead the market down on price. He also says Kroger views anyone who sells food as competitors.
Phipps is aware of the challenges and the role that Kroger’s private brands play in combatting them, but he’s a bring-it-on type of guy. So Phipps will keep showing up for work at 8 o’clock every morning to do what he does best — working with his team to take Kroger’s Our Brands to another level and then to another level after that.
And he’ll have plenty of fun doing it.
‘Planted’ in private brands
The Kroger Co. owns 38 plants that manufacture approximately 40 percent of its private brands, including about 60 percent of its center-store items. Nineteen plants are dairy, 10 are bakery (including two that also manufacture deli products) and the remaining make grocery items. The plants are strategically spread across the country and located near Kroger’s divisions. Kroger operates all of the plants except two meat plants — one in Colorado and one in Southern California, both of which it owns but outsources operations.
Manufacturing its own private brands is a competitive advantage for Kroger for several reasons, one being that it provides the company with “incredible sourcing power,” says Erin Sharp, Kroger’s group vice president of manufacturing. The bigger the buy, the better leverage the company has.
“By manufacturing our own products, we lower our costs and pass the savings on to our customers,” Sharp says. “We constantly monitor our costs to ensure we are delivering high-quality products at a competitive price.”
All the dairy plants are 100 percent vertically integrated, which allows Kroger to be faster to market with products.
“We put a huge emphasis on the freshness of our products, particularly in dairy,” Sharp says, noting that the dairy plants continue to invest in processing technology to improve shelf life. “We guarantee our customers 10 days of milk freshness, which is nearly a 40 percent increase in the last 10 years.”
When Sharp joined Kroger about six years ago, she says all plants operated in “several siloes,” something she wanted to change. Her goal was to get the plants operating as one network. Sharp implemented a set of management practices called HPWS (high performance work system) across all plants to create an environment where employees have greater involvement and responsibility.
It has been a cultural transformation, but Kroger’s 8,000 plant employees, whom Sharp calls “associates,” are now well-connected to the manufacturing goals, and Sharp empowers them to be more involved in operations.
“I challenge our plant leaders to walk a store with their teams and look at what we are not producing and could be producing,” Sharp says. “It’s all about making us more competitive and relevant for the future.”
Kroger outsources 60 percent of its private brands for manufacturing, including all items for non-food private brands. One of Kroger’s suppliers is Ontario, Calif.-based Niagara Water, which manufactures 90 percent of Kroger’s bottled water. Niagara has plants across the country and can aptly serve Kroger’s distribution centers. In addition, Niagara is constantly improving its plant technology in the sector, Sharp says.
“It just made sense for us to partner with them,” she adds.
In determining potential suppliers, Kroger studies the players in the particular product landscape and decides if it will need one or multiple partners, and if they can effectively deliver to Kroger’s distribution centers. Food safety and quality are the most important steps in the vetting process, which Sharp calls rigorous.
“They don’t even get in the mix if they don’t meet certain food safety standards,” Sharp says.
Improving sustainability is a constant goal for all plants. Thirty-three of the 36 plants that Kroger operates are now zero waste to landfill, and Sharp expects that number to climb to 35 by the end of the year.
A reduction in packaging material is another goal. Last year, Kroger launched a new lightweight gallon milk jug that uses less plastic. While the new jug is made of the same 100 percent recyclable high-density polyethylene as the old jugs, its unique design allows Kroger to use about 10 percent less plastic. The new jugs will soon be used in 17 of Kroger’s 19 dairy plants.
Sharp’s team works closely with Gil Phipps, Kroger’s vice president of Our Brands, and his team. “They develop the strategy, and we are the enabler either through our manufacturing or with our sourcing team,” Sharp says.