Kroger shows new moves in grocery delivery, to experiment with driverless vans

CINCINNATI, Aug 8 (Reuters) - Kroger Co, the nation's biggest supermarket chain, whose founder delivered groceries by horse and buggy, is using a different kind of horsepower in its race with online grocery sellers.

The 135-year-old company is experimenting with a variety of technologies as it battles Amazon.com and Walmart Inc to find a profitable formula to serve customers who want milk and eggs whisked to their doorsteps. These shoppers are a tiny but fast-growing segment of the $800-billion U.S. grocery market. Kroger must win them over to survive.

"We want to serve the customer on their terms," said Chief Executive Rodney McMullen, who for years has kept tabs on the economics of grocery delivery. "For us, every penny counts."

Kroger's driverless delivery:

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Nuro� R1 driverless delivery van is seen packed with bags from Kroger� Fry� Food Stores, which will begin a test of the vehicle in Scottsdale, Arizona, U.S., this autumn in this undated photo provided August 15, 2018. �ourtesy of Kroger/Handout via REUTERS ATTENTION EDITORS - THIS IMAGE WAS PROVIDED BY A THIRD PARTY
Nuro� R1 driverless delivery van is seen packed with bags from Kroger� Fry� Food Stores, which will begin a test of the vehicle in Scottsdale, Arizona, U.S., this autumn in this undated photo provided August 15, 2018. �ourtesy of Kroger/Handout via REUTERS ATTENTION EDITORS - THIS IMAGE WAS PROVIDED BY A THIRD PARTY
Nuro� R1 driverless delivery van is seen packed with bags from Kroger� Fry� Food Stores, which will begin a test of the vehicle in Scottsdale, Arizona, U.S., this autumn in this undated photo provided August 15, 2018. �ourtesy of Kroger/Handout via REUTERS ATTENTION EDITORS - THIS IMAGE WAS PROVIDED BY A THIRD PARTY
Kroger CEO Rodney McMullen speaks during the annual shareholders meeting in Cincinnati, Ohio, U.S., June 28, 2018. Picture taken June 28, 2018. Courtesy of Kroger/Handout via REUTERS ATTENTION EDITORS - THIS IMAGE WAS PROVIDED BY A THIRD PARTY.
The unmanned delivery vehicle, Nuro, is seen during the Kroger annual shareholders meeting in Cincinnati, Ohio, U.S., June 28, 2018. Picture taken June 28, 2018. Courtesy of Kroger/Handout via REUTERS ATTENTION EDITORS - THIS IMAGE WAS PROVIDED BY A THIRD PARTY.
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In a series of interviews with Reuters at Kroger headquarters in Cincinnati, McMullen and other executives outlined a host of experiments and initiatives. These include self-driving delivery vans, third-party delivery contractors and curbside pickup in Kroger parking lots. Most of these efforts are an attempt to leverage one of the company's most valuable assets: brick-and-mortar stores located within a mile or two of most of its current customers.

But Kroger is breaking with that familiar model for its next big push. It is betting big on giant warehouses staffed with fast robots to pack orders straight for delivery to shoppers.

In May, Kroger paid roughly $248 million for a minority stake in Ocado, a British company whose newest machines can pull together a 50-item grocery order in as little as five minutes. That technology leapfrogs what is currently in use by any retailer in the United States. It has turned Ocado into the world's No. 1 online grocer, serving 679,000 active customers in the United Kingdom without operating a single supermarket.

This year Kroger and Ocado will pick U.S. sites for the first three of 20 planned high-tech warehouses, known as "sheds," that take a couple of years to build, Kroger executives said. They declined to name locations, but said Kroger plans to break into at least one new area where it does not have existing stores.

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The most popular grocery store in every state
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The most popular grocery store in every state

ALABAMA: Publix 

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ALASKA: Safeway 

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ARIZONA: FrysFoodStores 

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ARKANSAS: Harps Food Stores

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CALIFORNIA: Trader Joe's

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COLORADO: King Soopers

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CONNECTICUT: Whole Foods Market 

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DELAWARE: Food Lion Grocery Store 

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WASHINGTON, D.C.: Whole Foods Market

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FLORIDA: Publix 

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GEORGIA: Publix 

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HAWAII: Safeway 

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IDAHO: Albertsons

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ILLINOIS: Jewel 

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INDIANA: Kroger 

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IOWA: Hy-Vee 

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KANSAS: Hy-Vee

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KENTUCKY: Kroger 

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LOUISIANA: Rouses Markets 

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MAINE: Shaw's 

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MARYLAND: Safeway 

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MASSACHUSETTS: Whole Foods Market 

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MICHIGAN: Kroger 

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MINNESOTA: Cub Foods 

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MISSISSIPPI: Kroger 

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MISSOURI: Hy-Vee 

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MONTANA: Albertsons

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NEBRASKA: Hy-Vee

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NEVADA: Albertsons

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NEW HAMPSHIRE: Shaw's 

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NEW HAMPSHIRE: Shaw's 

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NEW MEXICO: Albertsons

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NEW YORK: Whole Foods Market

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NORTH CAROLINA: Food Lion Grocery Store

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NORTH DAKOTA: Hombacher's

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OHIO: Kroger 

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OKLAHOMA: Homeland Stores

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OREGON: Safeway 

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PENNSYLVANIA: Wegmans Food Markets

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RHODE ISLAND: Shaw's

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SOUTH CAROLINA

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SOUTH DAKOTA: Hy-Vee 

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TENNESSEE: Publix

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TEXAS: H-E-B 

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UTAH: Smith's

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VERMONT: Shaw's 

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VIRGINIA: Food Lion Grocery Store 

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WASHINGTON: Safeway

Photo credit: Reuters 

WEST VIRGINIA: Food Lion Grocery Store

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WISCONSIN: Pick 'n Save 

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WYOMING: Albertsons

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Industry veterans said Kroger's partnership with Ocado was a bold move that positions the company, which posted 2017 sales of $123 billion, to grab share from younger players seen as nimbler and more innovative.

"This will be a game-changer ... and probably the most likely catalyst for grocery e-commerce in the U.S. to take off," said London-based Bernstein analyst Bruno Monteyne, a former e-commerce executive at British food seller Tesco.

Kroger executives would not say whether they will use their own drivers or outsource delivery from the sheds.

Meanwhile, the company has teamed up with Silicon Valley self-driving startup Nuro to test a driverless delivery van in Phoenix. And Kroger continues to invest in curbside pickup.

Earlier this month it launched a beefed-up online shopping service called Kroger Ship that sends packages directly from its distribution centers via United Parcel Service Inc and FedEx Corp.

But competitors are not sitting still.

Walmart, which waged a brutal price war to become the top U.S. grocery seller, recently launched its own self-driving car project. Later this year it will begin testing automated grocery picking at a supercenter in Salem, New Hampshire.

Amazon, meanwhile, already sells more non-perishable groceries online than any other retailer. It spent $13.7 billion last year to acquire the Whole Foods supermarket chain with an eye to turning those stores into distribution hubs to bolster its AmazonFresh delivery service. The company just launched curbside pickup at Whole Foods, starting with stores in Sacramento, California and Virginia Beach, Virginia.

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Competitor coupons at Publix

Did you see a coupon from a competitor instead of Publix? Bring that coupon with you! Publix posts a list of competitors at each store, allowing you to bring in a coupon you saw elsewhere and get that same deal right at Publix.

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Double coupon policy at Wegmans

Speaking of coupons, Wegmans offers a stellar deal with their double coupon policy. If you saw a coupon from a manufacturer that was less than $0.99 in value, Wegmans will not only give you that coupon but will also reward you with another $0.99 off. If the price is above $1, they will still give you the coupon’s face-value deal. Don't miss these 19 shopping tricks all frugal shoppers use.

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Return policy at Trader Joe's

Hated the recent flavor of Joe Joes? Just return them! That’s right, even after trying something, you can actually return it if you found it unbearable. Trader Joe’s will happily take it back and give you a refund.

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Combos Locos deals at H-E-B

Do you get coupons for H-E-B? If not, well, you should. H-E-B offers a coupon deal called Combos Locos where, when buying two items together, you get discounted prices. For example, a deal could include a bag of salad with a free bottle of dressing! Keep an eye out for deals on their website. Here are more sneaky ways to find great deals online.

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Bargain bins at Aldi

Nope, these bargain bins actually aren’t a rip off (like some bargain bins turn out to be). You are going to want to take advantage of the incredible deals at Aldi’s bargain bin because the low prices will actually knock your socks off.

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B1G1 and B2G3 sales at Harris Teeter

Buy-one-get-one deals, or even buy-two-get-three deals, are always a draw for people trying to buy bulk at a grocery store, But what make’s Harris Teeter special is the secret behind those deals. Instead of offering one item full price and another completely free, the items just ring up as half off. So if you only need one pound of meat and don’t have room in your freezer for another, that meat will still ring up as 50 percent off! Plus, try making these healthy food swaps that can actually save you money.

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Fuel Saver + Perks program at Hy-Vee

Loved the fuel saver program through Hy-Vee? Well, their new-and-improved program is going to have you jumping out of your seat. With this new membership, you can save big using digital deals and coupons target specifically for your shopping list, receive surprise savings, and even get the chance to win rewards! Some of those include kitchen makeovers, vacation packages and even a new car.

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The back of the store at Costco

That’s right—the back of the store is where you’re going to find all of the deals. By working your way forward, you are finding the best bang for your buck. Make sure to walk through “center court” (the savings aisles in the center of the store) and to avoid the front at all costs. The front is known as “action alley” and will rarely give you the type of deals that you crave. Check out these money-saving things you can do at Costco without a membership.

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The jobs at WinCo

Not only are WinCo deals even cheaper than Walmart most of the time, they also offer incredible employee benefits. Like being a part-owner of the store, for example. If you work at WinCo for over 500 hours in the first six months and 1,000 hours in a year, you are eligible for the Employee Stock Ownership program. They also offer incredible benefits including retirement savings and insurance.

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The app from Whole Foods

Whole Foods may sit more on the expensive side, but their app can actually help you save those dollar bills. It’s completely free and loaded with coupons and current deals, giving you a leg up on what to grab in the grocery store.

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Free Item Fridays at Fry's and Kroger

Because Fry’s is a Kroger brand, these two offer the same incredible deal every week—free item Fridays! Find out what you can get for free by downloading the coupon the day before heading to the grocery store.

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Meal deals at Winn Dixie

Every week Winn Dixie offers meal deals where they hand you not one, not two, but three items for free. The meal deal typically comes with a specifically chosen entree. Once you get the entree, you can get the chosen sides (typically a carbohydrate, a vegetable, and a dessert) for free.

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Tuesdays at Target

You may not realize it, but most department stores work off a markdown schedule in certain departments each day of the week. Although every store is different, shopping at Target’s Market (the grocery part of the store) is best for savings on Tuesday. However, there is no harm in asking a sales associate when your local Target’s specific markdown schedule is. Here are more sneaky ways to save money at Target.

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Super Coupons at ShopRite

If you still love to get coupons mailed to your home, then you better be digging for those ShopRite super coupons. These coupons will offer you deals you probably couldn’t even dream about and will make your wallet sing songs of praise. You can also check out a lot of their other coupon deals online at their Digital Coupon Center.

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The MVP kiosk at Food Lion

After signing up for the MVP Program at Food Lion, you’ll want to take advantage of their kiosk ASAP. Simply scan your MVP card when you’re in the store to see what deals are going on for that day, and even a set of personalized coupons based on your recent purchases. But be on the lookout for these 32 retail scams that trick you into spending more.

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SimpleNutrition tags at Albertsons

Just like their Everyday Low Prices and Club Card Savings, Albertsons offers deals on their healthy products by using their SimpleNutrition tags. So instead of ignoring those healthier foods because of the prices, scout Albertsons for these tags to save big and eat healthily.

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Free item codes at Meijer

Every now and then, Meijer will post codes on their Facebook and Twitter for mPerk members to get free items. They offer all sorts of items for free, and if you follow them on social media, you’ll always come across some incredible deals. Make sure you memorize the best times to buy cheap finds throughout the year.

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Cash back at Sam's Club

That’s right—they just hand it to you! For every $500 you spend, you get $10 back. That may not seem like a lot, but if you’re a faithful Sam’s Club shopper, that can seriously add up as the year progresses. Don't miss these other surprisingly simple ways to save big at the supermarket.

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SavingStar at Stop & Shop

If you have a Stop & Shop card (or a Giant card, since they are owned by the same company) you can actually earn cash back when using some of the offers. Just click the offers you want to use on the app.

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The price match policy at Walmart

Saw a cheaper price somewhere else? Bring those ads with you to Walmart! You can get the cheaper deal by showing the associate that pricing, who can then walk you through a process to get that same deal right at the store. Wherever you shop, just make sure you avoid these 50 supermarket tricks you still fall for.

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DEMAND DILEMMA

It is all largely a bet on the future.

Analysts say online grocery purchases currently account for just 1 percent to 4 percent of U.S. industry sales. Three-quarters of online shoppers surveyed said they rarely or never buy groceries that way, according to a new Reuters/Ipsos telephone poll of nearly 6,000 adults fielded from June 26 to July 11.

Investment in automation has spurred faster growth overseas. Online grocery sales account for 5.6 percent of the market in the United Kingdom and 3.8 percent in China, compared to 1 percent in the United States, according to market research firm IGD Retail.

Kroger is letting go of old models that have proven unprofitable.

Chief Financial Officer Mike Schlotman revealed for the first time that the company never made money on Home Shop, a roughly 30-year-old delivery service it shuttered in April. Kroger offered it in just 20 stores in the company's King Soopers division in the Rocky Mountain area, for prices ranging from $10.95 for an internet order to $20.90 for telephone orders. That was not enough to cover the cost of labor and the expense of operating a fleet of refrigerated trucks.

"It's highly inefficient to do that out of a store. You can't get the critical mass you need," Schlotman said.

Kroger replaced Home Shop with Instacart, one of a handful of third-party delivery firms that now serve more than 1,200 Kroger stores.

Monteyne, the supermarket analyst, said Kroger's new delivery push is a recognition of the value of online shoppers. These customers crave convenience and tend to spend more per order than those who just drop by the supermarket for a few items. The "first-mover" advantage is key to locking them in.

That is how Kroger lost Cincinnati shopper Alene Annan, 50. Tired of hauling dog food and Diet Coke up two flights of steps to her home, she switched to Meijer Inc, which was among the first stores to offer delivery in her area.

Still, she said she is open to switching back to Kroger when its new service is ready.

"They just have to make it easy," Annan said.

(Reporting by Lisa Baertlein in Los Angeles; Editing by Vanessa O'Connell and Marla Dickerson)

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