The Kroger Co. — which operates under 20-plus banners, including Harris Teeter, Ralphs and Fred Meyer — reigns as one of America’s largest grocery retailers. In fiscal year 2023, it boasted $150 billion in sales and more than 11 million customers per day nationwide. The Cincinnati, Ohio-based company operates more than 2,700 stores and 35 food production and manufacturing facilities. Nearly half a million employees span 35 states.
Aside from a single Harris Teeter in Fernandina Beach, Kroger (NYSE: KR) has no storefronts in Florida. Instead, the company inched into the state in 2021 with its cutting-edge customer fulfillment center in Groveland, a town of nearly 19,000 about 30 miles west of Orlando.
The 375,000-sq.-ft., three-story facility houses up to 40,000 products for online customers to choose from. Robots orchestrate each order — sorting, storing and summoning products with a whir — which all eventually diffuse across Florida via state-of-the-art refrigerated delivery vans. The company employs 1,600 associates in the state.
Florida will be home to a projected 26 million people by 2030, making it an obvious pick for grocery retail growth. Even so, Kroger has some behemoth competition: Winter Haven-born Publix has more than 870 stores across the state. Walmart sports 385 retail units. Winn-Dixie locations number more than 400. There are even rumblings of Amazon Fresh stores making inroads, complementing the e-commerce company’s grocery delivery service from the state’s 30-something Whole Foods locations.
Kroger is among the newest contenders to enter Florida’s notoriously competitive grocery scene — and it has already suffered growing pains from the sector’s razor-thin margins. With its high-tech tools and blooming community presence, though, the company isn’t planning on giving up just yet.
“Kroger was going down this road even before COVID was a thing,” says Andrea Colby, the Groveland facility’s customer communications manager. “It was good fortune on our part to be able to show the world that grocery delivery really is a thing that can work.”
Inside the ‘hive’
Instead of shoppers wandering down grocery store aisles, each Kroger order starts on the company’s app. Users can digitally search through thousands of products and hundreds of coupons to add to their virtual shopping carts. Offerings include Kroger brands, such as Simple Truth and Private Selection, local products and other namebrand items found at traditional grocery stores.
After crossing the last item off their grocery lists, customers schedule a delivery time. Kroger does the rest.
At its Groveland customer fulfillment center, workers inspect, label and scan products as they enter the facility via semitrailers. Most produce is washed, weighed and bagged in-house along with prepared goods like cut fruit platters and fresh salsa. Products are then loaded into what’s called the “hive” — the robotic storage system of the fulfillment center, split into a room-temperature side and a 34-degree refrigerated side. White “totes,” or plastic baskets that hold products, stack up 21 tall within the hive.
The brains behind the operation are the cube-shaped robots that whiz across the facility’s third floor. Atop the grid nearing the size of eight football fields, zooming like cars on a superhighway, they scoop up white totes, hold them in their mechanical bellies and transport them as needed. They’re responsible for organizing stock based on customer purchasing habits. (For example, totes with common purchases like bread, milk and butter are often grouped together for efficiency’s sake.) And, most importantly, they’re key to quickly fulfilling online orders.
Each order starts on the facility’s bottom floor, where workers secure plastic bags in red totes and send them into the hive.
They materialize at picking stations on the second floor, each manned by a Kroger staffer in a bright orange vest. A computer screen flashes a photo of an item from a customer order. Simultaneously, a robot recalls the product from storage and whisks it to the station from above, the white tote descending in an elevator-like chute. The staffer inspects the item and loads the appropriate amount into the correct red tote. Then, with a click of a button, they send the white tote back into the hive and move on to the next product.
The average customer order is pulled together this way within 2.5 minutes. “We are combining the use of technology with people power,” Colby says.
Nearby, a worker emerges from a minus-10-degree freezer, ice coating his facial hair. He has a blue tote — one designated for orders’ frozen items, which he must handpick since the facility’s robots don’t hold up in the cold. The tote is insulated and packed with dry ice “to ensure that ice cream shows up looking like ice cream in Florida heat,” Colby says. That tote is then placed into the hive.
The ambient, chilled and freezer totes for each customer order merge together on the hive’s first floor, all tracked using meticulous scanning at every step of the process. From there, to the soundtrack of beeping pallet jacks, they’re loaded into vehicles.
If orders are going to a “spoke location” — or, a smaller warehouse where orders are transferred between vehicles — they board one of Kroger’s semis. If they’re local deliveries, they ride on company delivery vans that are refrigerated to 34 degrees — a novelty among American food delivery services, and another perk that sets Kroger’s offerings apart from competitors, Colby says.
Orders fan out in a 1.5-hour radius from the Groveland fulfillment center, covering Central Florida coast to coast. The company can also accommodate West Florida and Northeast customers with spoke locations in Tampa and Jacksonville. Drivers can service up to 25 customers in one route, offering contactless drop-off, face-to-face deliveries or assistance bringing groceries inside.
England-based grocery tech company Ocado Group supplies all the automation powering the customer fulfillment center, from forecasting stock demand and availability to mapping efficient delivery routes using artificial intelligence. It works with more than a dozen grocery retailers around the world. Since 2018, Kroger has been its exclusive U.S partner and its largest.
In July, Kroger ordered a range of new Ocado products for existing and future customer fulfillment centers. The upgrades include retrofitting hives with robotic arms and automating the loading of customer totes for delivery.
“There are millions of calculations going on in the background to work out what the most efficient combination of all those things is,” says Leo Fields, the Ocado Group’s senior director of partner growth in North America. “We’re continuously evolving it with the aim of making it more efficient, delivering groceries to people’s houses in the shortest amount of time possible.”
Grocery gauntlet
Kroger entered Florida’s grocery scene as pandemic-era inflation started to soar, creeping up a record 9.1% by June 2022. That year, food prices increased by 9.9% — faster than in any year since 1979, according to the U.S. Department of Agriculture.
Although inflation and food prices are leveling off, a 2024 Pew Research Center survey found that 74% of Americans still say they’re very concerned about the price of food and consumer goods. One-stop shopping is a thing of the past, with many customers hopping between stores to hunt for the best deals. That could give new competitors — like Kroger — an opening in Florida’s saturated grocery market. The company claims it has created $5 billion in customer savings since 2003 by lowering prices.
Among its American peers, Kroger has led the charge on automating its systems. It announced its partnership with Ocado in 2018 and opened its first customer fulfillment center in Ohio in 2021. The partnership invested at least $125 million in the Groveland facility, its second customer fulfillment center. It has since opened six more and plans to roll out 20 across the country in total, from large to microfulfillment centers.
Despite the upfront investment and continued maintenance fees to Ocado, Kroger is likely saving money in the long run with its automated fulfillment centers, says Guanyi Lu, an associate professor specializing in operations management and supply chains at Florida State University.
Machines generally make fewer mistakes than people when replenishing supplies, accurately labeling items, or completing transactions. That conserves some dollars in Kroger’s pocket. Without brick-and-mortar stores, the company is also dialing back its labor costs. Picture this, Lu says: Assume an average grocery store employs 100 people with $40,000 salaries. That’s a $4-million price tag per year. Now multiply that cost for a major grocery chain like Publix, with around 870 stores in Florida, and it surpasses $3 billion — spelling big savings for Kroger.
Those savings can translate to lower prices for its products. Kroger says it also saves its customers money by sourcing directly from its own manufacturing facilities. And, thanks to its novel business model and smaller current customer base, it can likely put up a valiant fight in price wars with existing chains in Florida, Lu says. (For example, Kroger may offer $1 off per bag of chips. It may sell 500 bags a day. A competing Publix location, which may sell 1,000 bags a day, would take a bigger loss with the same sale.)
“When Kroger shifted from a brick-and-mortar setting to this purely online-only fulfillment center, they totally changed their business model. They are acting like a logistics company, only doing the last mile delivery versus a traditional retailing company,” Lu says. “It’s very sustainable, and it will be very difficult for the brick-and-mortar settings to attack them. ... If we’re just looking at the staple foods, I think definitely Kroger has a big advantage over the local retailers.”
Has that innovation been enough for Kroger to substantially crack the Florida grocery market? From the outside, it’s unclear. The company is tightlipped about how many customers it has added to its pocketbooks since it arrived in the state.
There are some clues, though. For one, this summer, its Groveland site was only using four modules — or the separate order-picking areas in the center’s fulfillment system — of its seven-module capacity.
A starker indicator may be the company’s announcement this year: In May, after less than two years of service, it closed its 60,000-sq.-ft. spoke location in Opa-locka. The facility served South Floridians from Homestead to Port St. Lucie and employed around 90 associates. It was closed in conjunction with Kroger’s delivery services in Austin and San Antonio in Texas.
“Benchmarks weren’t being met, so unfortunately, it was a corporate decision to close,” Colby says about the South Florida rollback. The company has been ambiguous about what those benchmarks for success are.
Grocery e-commerce sales generally surged in 2020, when Kroger’s digital sales grew 116%. Sean Snaith, director of the University of Central Florida’s Institute for Economic Forecasting, speculates Kroger’s setback in South Florida may align with the ebb of the COVID-19 pandemic.
Customers can now safely return to stores and pick their own products, which they may not trust delivery services to do. Every lost patron is a slight for the grocery retail industry’s 1% to 3% margins. (The average business sees margins between 8% and 10%, Snaith says.) On top of that, retailers are also battling higher expenses and workforce shortages.
“That’s an ongoing challenge,” Snaith says. “There are very low margins, so you have to make up for that in volume. I think (Kroger) is running into some roadblocks on that front.”
Future in Florida
To build its clientele, Kroger is trying to get its offerings in front of as many eyes as possible — and enticing potential customers with deals.
As of press time, it offered $25 off customers’ first two deliveries. It also promotes its Boost membership — where participants can get unlimited free delivery from 5 a.m. to 11 p.m. every day except for Thanksgiving and Christmas — at $59 a year. Additional discounts are offered intermittently in hopes of swaying resident loyalty from existing brands.
Such promotions have been the driving force behind the country’s growing digital grocery market, which generated $9.9 billion in monthly sales in August, according to grocery retail analytics firm Brick Meets Click.
“Achieving growth will only get more challenging for grocers that don’t have a competitive offering or ways to offset the discounts,” said David Bishop, a partner at Brick Meets Click, in an August press release.
In its first few years in the Sunshine State, Kroger has sought publicity through partnerships with local chambers of commerce and big-name companies like Disney. It makes appearances at events like ZooTampa’s Kids Fun Run, Jacksonville’s Super Girl Surf Pro Series and the Space Coast Pride Festival. The Groveland facility offers group tours for seniors, students, businesses and communities to learn more about the system. And, of course, its hundreds of iconic blue trucks act as mobile billboards as they crisscross the state with deliveries.
Even with the setback in South Florida, staffers at Kroger’s Groveland location are optimistic about the company’s opportunities here. Time will tell how successful the brand will be wrestling away market shares from long-standing chains in the Sunshine State.
“We have a couple locations right now where we’re looking at property” for additional spoke locations in Florida, says Stacey Dark, general manager of the Groveland fulfillment center. “We are planning on growing.”
Groveland’s Catalyst
Kroger chose Groveland for its customer fulfillment center because of its central location in the state, says Andrea Colby, the Groveland fulfillment center’s customer communications manager. It’s at the crossroads of State Roads 50, 19 and 33, and Florida’s Turnpike, I-75 and I-4 all wind through the area.
Groveland also enticed Kroger to come to town with a package that included an 80% property tax abatement, a perk that decreases by 10% each year in operation. The city has paid more than $640,000 in Kroger’s permit and impact fees, which are one-time charges to set up infrastructure and services like sewer, water and fire protection for new developments.
Kroger has also qualified for $104,000 in job growth incentive awards so far. Most of the facility’s staffers — about 1,100 of them — come from Groveland’s population of around 19,000. They are paid a flat rate but can also earn extra based on how quickly they work.
The customer fulfillment center marked the first business in Groveland’s Christopher C. Ford Commerce Park. Since its arrival in 2021, other industrial giants have claimed a stake in the park, including Amazon, Domino’s, Dunkin’ and other distribution facilities.
Altogether, Groveland has received more than $660,000 in net tax revenue since Kroger came to town.
“It’s really been a catalyst for growth in the community and bringing in more businesses. Since then, we’ve been experiencing a lot of development and job growth, specifically in our historic downtown area,” says Jennifer Clutts, Groveland’s communications director. “We have Kroger and those businesses to thank for that. ... They’ve made a huge investment in our area, and it’s working out.”
Merger on the Rocks
In October 2022, Kroger announced its plan to purchase Albertsons — a Boise, Idaho-based grocery retailer that operates more than 2,200 stores across 34 states — for $24.6 billion.
Kroger and Albertsons currently operate around 5,000 stores, 2,000 fuel centers and 4,000 retail pharmacies and employ nearly 710,000 employees across 48 states. If the merger is completed, it would mark the biggest supermarket union in American history — but, as of press time, it’s facing several legal challenges on the state and federal levels, including antitrust cases in Colorado and Washington.
Earlier this year, the Federal Trade Commission and nine attorneys general sued to block the merger, alleging that the deal would eliminate competition between Kroger and Albertsons and lead to higher product prices and lower quality items. It also alleged that the proposed acquisition would curtail competition for workers, threatening the ability of employees to secure higher wages, better benefits and improved working conditions.
In September, both companies made their final arguments before a U.S. District Court judge in response to the commission’s request to block the merger. Kroger and Albertsons argue that the deal will lead to lower prices and better service, citing planned investments in price reductions, wages and expanded customer choices. They also plan to sell 579 stores to New Hampshire-based C&S Wholesale Grocers to ease monopoly concerns.
If the merger continues as planned, it won’t negatively impact Kroger’s business in Florida, says Andrea Colby, the Groveland fulfillment center’s customer communications manager. “It just makes us better able to pass along savings to our customers,” she says.