Kroger sells gasoline.
Actually, the No. 2 grocer in the land has been selling gas since 1998, but just think about that for a second, if you haven't already. Kroger is nearly 120 years old, and during its corporate lifetime it has spent millions of dollars branding itself as a top grocery store chain. Last month, Kroger opened its 300th “fuel center,” so now even more Krogers are starting to look a lot like convenience stores — not that there's anything wrong with convenience stores, but whatever happened to the pure grocery-store-only concept? Is it still viable? Even dollar stores are starting to stock food-related items for under a buck.
Kroger is only one of many examples of how retailers are making some giant leaps into ancillary product offerings. But its foray into new areas is no dumb-luck strategy. It is in direct response to threatened extinction, thanks to the world's largest company, Wal-Mart.
In only three short years, Wal-Mart is the nation's largest grocery retailer. How demoralizing is that to Kroger and the other grocers? According to consulting firm Retail Forward, by 2007 Wal-Mart will have more than 2,000 supercenters open, each one selling — you guessed it — groceries. And remember, Wal-Mart has a tendency to dominate just about everything it undertakes, so when it talks about getting into its own extended business lines, including used cars, financial services (aka Friendly Bank of Wal-Mart?) and home improvement, category leaders like CarMax and The Home Depot may start losing some sleep.
OK, so if you're Kroger you know a thing or two about competition, and you look for ways to differentiate yourself and create alternate revenue streams (hence the gas stations). And, there are a lot of strip center owners smiling broadly because suddenly their blacktop parking lots are revenue generators. But what about consumers, the ones out there pumping the gas? Gas is a commodity like any other and consumers are loyal only to the almighty price per gallon. Wal-Mart is a low-cost leader. Who wins here after the newness rubs off?
This battle looks set to redefine the very core of what retailing is all about. Soon there could be virtually no differentiation among retailers. Where does the trend stop? And how long can tradition hold out against an “everything for everybody” mentality?
Wal-Mart is big enough to leverage its brand into new retail categories, but it remains to be seen exactly how far consumers are willing to recognize the attributes that made a Wal-Mart a Wal-Mart. As the 900-pound gorilla, the company does control enough real estate to make things happen on the format front if it cares to.
For everyone else, it's serious identity crisis time.