Kroger story illustrates how investing in Digital Transformation isn’t enough, outperformers do it better

Summary

Despite investing hundreds of millions of dollars in the years leading up to the pandemic, a WSJ piece posits that the largest grocer in America still wasn’t prepared to fully capitalize on the dramatic digital shift as well as some competitors. Despite investments in things ranging from remote fulfillment centers and self-driving robot delivery, Kroger wasn’t able to meet the spike in online grocery demands from customers.

Profit increased yoy by 57% and digital sales doubled from 2019, but competitors like Albertson’s and Target quadrupled and tripled digital sales respectively. Investors have called for additional investments in technology as a result.

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Analysis

The Kroger story illustrates how even companies that were executing on Digital Transformation (DT) strategies prior to the pandemic have still struggled to fully capitalize on the dramatic shift in consumer behavior. Though Kroger is in a far stronger position than other bricks and mortar retailers that have fallen much further behind peers or out of business altogether, it appears to not yet be best-in-class.

This dynamic underscores why companies that have executed well on digital transformation are vastly outperforming peers that have not. It also highlights the degree to which digital disruption has accelerated across every sector.

A grocers’ ability to deliver greater growth in digital sales is now fundamental to future financial and market performance. As a result, questions from investors have pivoted from “are you investing in digital?” to “how are your digital investments translating to margin and profit growth, what initiatives are not delivering and why?”

Just as digital transformation is no longer a binary issue dividing companies in to ‘those that do it and those that don’t’, neither is security — a core part of the larger DT picture. As we see through the case of Pitney Bowes, companies that have focused on digital transformation can see any realized gains from investments erased in days if cyber risks are not well managed. The dominant role of DT and cybersecurity as drivers (and destroyers) of value are key reasons why our cyber governance ratings are accurately predicting winners and losers within every sector even more dramatically since the onset of COVID-19.

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Denis Bolshakov

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