Rebuilding Place in the Urban Space

"A community’s physical form, rather than its land uses, is its most intrinsic and enduring characteristic." [Katz, EPA] This blog focuses on place and placemaking and all that makes it work--historic preservation, urban design, transportation, asset-based community development, arts & cultural development, commercial district revitalization, tourism & destination development, and quality of life advocacy--along with doses of civic engagement and good governance watchdogging.

Monday, October 16, 2017

Problem solvers vs. possibility thinkers (and Kroger)

RetailWire is a website/e-letter on retail.  Monday-Friday the site puts together articles on three topics of the day, and practice experts typically comment and provide additional insights.

KrogerA Friday article, "Is Kroger in denial about the magnitude of its challenges?,"  is about Kroger, the nation's second largest "supermarket" chain, and whether or not they are positioned and positioning to remain relevant as the market for food buying, preparation, and consumption continues to change and morph away from being dominated by the consumption of meals prepared and cooked "at home"--the market for which supermarkets long dominated.

I was struck by the comment by Ian Percy, President of the Ian Percy Corporation which seems particularly relevant to all matters of "problem solving" and consideration of transformation, regardless of setting, definitely not limited to the world of supermarkets, very much relevant to urban revitalization.

In the article "Is Kroger in denial about the magnitude of its challenges?," Ian Percy comments:
We can be problem solvers, in which case we are doomed to focus on the past. Or we can be possibility thinkers in which case we are focused on the future. It’s not quite a binary choice, but most “leaders” seem unable to get away from the past and problem solving. The thing is … solve every problem you have and all you are is caught up.

There are three levels of possibilities. There are adjacent possibilities, the incremental changes (aka best practices) everyone makes in the “me too” retail world. Free shipping. Digital marketing. Local sourcing. Low prices.

There are non-adjacent possibilities which are the innovations and ideas that make everyone nervous because it usually means leading the pack which, contrary to a common myth, very few leaders actually want to do.

Then there are transformational possibilities … those possibilities few others will ever see. Transformational possibilities are those that totally redefine a specific world. Think Amazon, Apple, Facebook, the first heart transplant. This requires inspired leadership who have tapped into the secrets of the universe.

Unfortunately, non-adjacent and transformational thinkers don’t last long in a typical bureaucracy stuck in legacy thinking. That’s why they usually need to start with a clean sheet and build their own enterprise.

So on what level does Kroger think? You can pick. Here’s the thing: you CANNOT discover transformational possibilities by copying a transformational organization any more than you become an artist by doing paint-by-numbers. See what Amazon and Apple have yet to see and you will own the world. As John Sculley said: “The future belongs to those who see possibilities before they become obvious.”

Most of us, I think Kroger included, are too afraid to do so.
Separately, Ian is working to apply "possibilities thinking" to community revitalization, which is something he and I are aiming to talk about.

Possibilities thinking and urban planning.   Possibilities thinking is in line with a number of my writings outlining a more visionary approach to urban planning:
Back to Kroger.  Interestingly, Kroger could be thought of as either problem solving or acting at a basic level of possibilities thinking. 

For a "supermarket" chain they are innovative and focused on their competition.  Unlike others, especially Safeway, they have acquired chains and not destroyed what made those companies unique. 

This particular graphic hasn't been updated with the stores in the Roundy's Supermarket group, which Kroger acquired a couple years ago, including Mariano's in Chicago.

Kroger has adopted and transmitted best practices from such stores to other banners across their portfolio. 

They are an early adopter of big data and loyalty programs, but then, don't conceptualize loyalty the same way that Dorothy Lane Markets does ("Dorothy Lane Loves Its Customers," Fast Company).

Kroger is a major force in organic foods ("Kroger now sells $11 billion of natural and organic food," Fortune Magazine), have leading eco- and sustainability initiatives and treat their workers reasonably well (although they prefer not to work with unions, they still do). 

The company has two hard discount initiatives.  Ruler Foods operates in six Midwestern states ("Kroger to build 10 Ruler Foods stores," Supermarket News).  Food4Less is larger, mostly in California but also present in Illinois, Indiana, and Ohio.

Supercenters.  The Pacific Northwest firm Fred Meyer (which they acquired) has the same format as a Walmart Supercenter with food and hard and soft goods but the company long predates Walmart. 

Kroger has taken the Fred Meyer concept and created the "Marketplace" format which adds the hard and soft goods side of a "supercenter" to supermarkets across their portfolio, such as Smith's in Utah, Fry's in Arizona and Kroger-branded divisions across the country ("Kroger has a plan to to take down Walmart," Business Insider).

You can think of it as innovative or merely as a way to potentially box out the opening of Walmarts and Targets in various store retail trade areas.  (Note that in the 1960s, many supermarket chains experimented with discount store concepts selling hard and soft goods.  For some firms, these store groups lasted to the 1980s and later.)

From Fred Meyer though, they also sell jewelry, and have created a separate stand-alone chain, not limited to operating in the Pacific Northwest.

Private brand.  Kroger has a massive private brand presence and food manufacturing operation.  Turkey Hill Dairy products are a Kroger brand and sold in many non-Kroger stores.  But are their private brands out of sight in terms of flavor profile, quality, and price?, not always. 

But they aren't standing still.  In response to Whole Foods cutting back on local food presence in their stores, Kroger has reached out to the artisanal food industry ("Kroger Launches Local-Sourcing Site, Pursues Foodies," MediaPost).  Certain divisions are ahead of others in the way they bring locally-produced items to mainline stores.

By contrast, Associated Food Stores, a supermarket business cooperative in the Intermountain region, knocked my socks off with their Red Button Creamery private brand ice cream and that group has received national recognition for its baked goods ("A Utah grocery-store chain decided to make its desserts better — and now its winning national awards," Salt Lake Tribune).

... I've eaten baked goods from Harris-Teeter (a Kroger division that pretty much operates on its own) that pale compared to my own baking efforts, and I complained to the company about the sub-ordinary organoleptic characteristics of the H-T brand frozen yogurt.

Kroger is a big player in convenience stores.  They use knowledge and experience from the convenience store division to create "fuel station" convenience stores within their supermarket divisions. 

That being said Kroger convenience stores are old-style stores--gas stations with some stuff, while chains like Wawa or Sheetz are more innovative and stronger in quick service meals ("Sheetz and Wawa Divide Pit-Stop Partisans," New York Times).

Kroger convenience stores under various banners are nothing like Giant-Eagle's GetGo or Market District focused convenience stores.  Wawa recently announced an urban store initiative starting in DC ("DC Wawa will have a variety of food & an 'urban feel'," WTOP-radio).

Kroger just announced they are considering selling the stand-alone chains, but keeping the "fuel stations" affiliated with supermarkets.

Experiments in small formats.  In Washington State, Kroger is experimenting with a small store one-off called Main and Vine, which might be a format that could compete with the 365 by Whole Foods concept or Royal Ahold's bfresh. 

Separately, Kroger has invested in Lucky's Market, a small scale "farmers market/natural foods" store concept ("Boulder-based Lucky's Market forges deal with Kroger Co.," Boulder Daily Camera) which is opening stores in various markets. Recently they purchased Murray's Cheese, a well-known specialty store in New York City, after working with that company to create specialty cheese sub-stores within their supermarkets.

Kroger dipping its toe into a restaurant offering with Kitchen 1883.  Iowa-based Hy-Vee is known for including restaurants in its stores (Walgreens used to have a restaurant division) and recently inked a deal with Wahlburger's.  Wegman's has restaurants in each of its new stores.  Whole Foods has made its salad bar function like a café by providing seating, and many stores, especially flagship stores, offer a variety of prepared food concepts, from seafood to health to Mexican.

Kroger is about to open a restaurant, its first, in its headquarters region of Cincinnati ("Here's your first look at Kroger's new restaurant concept, Kitchen 1883," WCPO-TV). Although the name could probably be sexier.

No upscale format for their mainline banners.  While Kroger has the Marketplace format, unlike HEB's Central Market ("HEB testing new ideas at expanded Central Market," Houston Chronicle) and Giant-Eagle's Market District, they don't have an upscale food-focused format better placed to compete with Wegman's.  In fact, as Wegmans and Publix enter Southern Virginia trade areas, Kroger is dialing back on expansion.  And Harris-Teeter stores don't function at that level, although they are nice stores.

HEB and Giant-Eagle have used their upscale formats as a driver into the entry of new markets like Dallas for HEB or Indianapolis for Giant-Eagle ("Giant Eagle's remodeled Waterworks Market District leads the way for Indiana," Pittsburgh Post-Gazette) without bringing their mainline format to those markets.  Giant-Eagle is also experimenting with smaller Market District urban-scaled stores in Cleveland and Columbus (I thought they should have used this format in Downtown Baltimore; Giant-Eagle, but not Market District operates in Frederick.)

But Kroger has purchased Roundys, which owns the upscale Mariano's chain in Chicago, and they may have plans to adapt the best of Mariano's as an upscale format portable to various Kroger divisions, just as they created the Marketplace format out of Fred Meyer.

Urban stores.  Kroger has many stores in cities, and was one of the first companies over the past 20 years to put a supermarket on the ground floor of a mixed use building in a center city location, in Atlanta, but they've never developed a true urban flagship format comparable to Fresh Grocer in Philadelphia.

Separately, a few years ago Kroger acquired Harris-Teeter, a Mid-Atlantic chain based in the Carolinas that is marching up the coast (but skipped Richmond) operating as far north as Baltimore and H-T has a big portfolio in urban locations alongside the traditional suburban focus of supermarket chains, with somewhat smaller stores, many on the ground floor in mixed use developments, with a wide array of prepared food offerings that are quite popular ("How Cary Judd Led Harris Teeter From Obscurity To DC Dominance," Bisnow).

Their city stores in places like Savannah (a Kroger in the historic district) or Salt Lake (Smith's) are great, but they are not smaller format.  They are huge, big suburban stores that are parking fronted and plunked down on big sites.  But many urban communities don't have that kind of available footprint.

One Kroger division has a great name that is exportable to city stores, "City Market," a banner in Colorado.

Note that I didn't know about the Kroger Fresh Fare concept in Texas ("Food fight: Kroger opens a new store near downtown Dallas on Friday," Dallas Morning News), which is focused on urban neighborhoods, but the concept hasn't grown much nor has it been exported to other divisions.  And the stores aren't small, about the size of a regular store at 60,000 to 75,000 s.f. 

Like the Marketplace format being used to thwart the opening of Walmarts and Targets, perhaps Fresh Fare is more about discouraging HEB from entering the Dallas market, outside of its Central Market concept ("Maple Avenue's New Kroger Fresh Fare Store Channels HEB," Dallas Observer).

It might be merely that Kroger never had an anti-city bias in the same way as typical supermarket chains and they are fine with urban locations, so long as they can accommodate a large store, rather than Kroger having to take the time to "right-size" a store in space-challenged settings.

Online/delivery.  Kroger banners have a bunch of delivery ventures but haven't developed a functional brand for delivery comparable to Peapod, which was created by Royal Ahold for their brands, and also operates on a stand-alone basis in Chicago.  A few years ago Kroger acquired Vitacost, an online seller of natural and organic foods, vitamins, and health items ("Kroger buys Vitacost to expand into online grocery shopping," Los Angeles Times). But unlike Walmart's acquisition of, it doesn't seem as if the Vitacost acquisition has been utilized as a device for broader corporate transformation.

Kroger has developed meal kits (so has Wegman's and other chains) but hasn't developed it into a pan-store brand comparable to Hello Fresh or Blue Apron.  Albertson's recently acquired a meal kit company and now analysts are suggesting Kroger should do the same ("Albertsons buys meal kit company Plated," CNBC).

Conclusion.  Kroger has all the pieces to be an even bigger, better, and more competitive company.  They have plenty of innovative practice operating within various divisions, although that knowledge and practice doesn't appear to be integrated and taken to the next level, such as through the development and implementation of powerful brands functioning across the corporation's various divisions.

I think the issue with Kroger and problem solving vs. possibilities thinking is the velocity of change, disruptive innovation and competition, the difficulty of scaling and moving transformation forward across a large company with (according to Wikipedia):
2,778 supermarkets and multi-department stores; 786 convenience stores; 326 jewelry stores; 37 food processing or manufacturing facilities; 1,360 supermarket fuel centers and 2,122 pharmacies.
I think it's fair to say that the company is reasonably innovative, but not quite transformational, although they seem transformational compared to their supermarket competition. And that may well come down to the difference between problem solving and possibilities thinking.

It's all relative.  To be competitive with all the various entrants and segments of the market, not just supermarket chains, Kroger needs to be more focused on the possibilities they have.  Clearly, they have plenty and the tools and knowledge to execute, but the knowledge and practice isn't fully harnessed in visible and effective ways.

And that failure to fully execute -- problem-solving vs. possibilities thinking -- is common, especially with local governments and various government agencies, where all too often people are satisfied with getting something done, rather than getting the right thing done, or striving to constantly improve ("New Year's Post #5: DC City Council committees and striving to be a world-class city," 2011) a la the writings of Charles Landry ("Global cities don't just take, they give," which in part is a reprint of an Urbanophile entry in 2013, sparked by a back and forth conversation with Aaron Renn).

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At 8:03 AM, Anonymous Charlie said...

Very tough for Kroger to change; they have an excellent management team and their grocery execution is flawless in a corporate sense. Of course, their food is crap but...

Great turn on the possibility thinking; although like competitive analysis (Japanese consumer electronics) it can lead you down a dark hole.

(Which is why I admire execution).

Can’t find the link but WFM announced they are killing the local foods program and Austin will do the programming there.

Also saw a good piece on 13D that the retail problems is income, not amazon; basically you cell phone+cable TV+internet+Netflix is eating out all your spare money.

At 1:58 PM, Blogger Richard Layman said...

Interesting point about $. Definitely true that paying for all that digital access is a burden and has shifted people's "wallet" and shape of spending.

That's why urban living and not having to "own" a car is key. That releases a nice tranche of disposable income able to be spent on something else.

2. I agree about Kroger. It says a lot that they've survived and grown vis a vis Walmart, when many other companies have bit the dust.

This last trip to Salt Lake, I could really see a difference on price execution at Smith's... and the stores are great, but _huge_. Wouldn't fit in the DC setting. Too big.

But they cover the core of Salt Lake very well, and depending on where you live, are even walkable.


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