3 Ways Wal-Mart Should Be More Like Kroger

For those trying to explain Wal-Mart's recent hardships, look no further than Kroger's success.

Aug 26, 2014 at 4:56PM

In the five years prior to Aug. 21, Wal-Mart Stores' (NYSE:WMT) stock has risen by approximately 47%. Meanwhile, The Kroger Co (NYSE:KR) has seen its stock price soar 135% in the same period. Kroger's stock has clearly outperformed Wal-Mart behind a slew of fundamental and operational initiatives that have worked well for the former, some of which are changes that Wal-Mart should follow in order to boost sales and create happier customers.

KR Chart

KR data by YCharts.

1. Cut the checkout times
One of the biggest complaints among grocery and retail shoppers is long checkout times. Kroger used to be no different; but during the last few years, the company has implemented changes and strategically placed self-checkout lines to shorten checkout times, while also opening certain lanes for those with fewer items. 

In addition to those changes, Kroger has unleashed a technology called QueVision, which combines sensors, analytics, and real-time data aiming to ensure that customers have no more than one person ahead of them in a checkout line. Kroger uses the technology to direct customers to lanes with the shortest wait-times. According to Kroger, its average checkout times have been cut from more than four minutes to less than 30 seconds over the past few years.

Kroger's attempt to correct the long checkout problem with new technology has been celebrated, as the company recently earned a No. 3 ranking in InformationWeek Elite 100 for top business technology innovators for its fast-checkout changes. Meanwhile, Wal-Mart has earned no such accolades, and continues to battle criticism for the issue.

While Wal-Mart has experimented with self-checkout lines, complicated transactions with coupons, and price matching have made these efforts less effective. As a result, the company is trying a new plan called "checkout promise" to staff each cash register from the day after Thanksgiving to Christmas.

Duncan Mac Naughton, Wal-Mart's chief merchandising officer, recently said in an interview with The Wall Street Journal, "Taking the possibility of waiting in long lines off the table will attract more people into stores." Therefore, the checkout promise might boost the company's sales through the holidays, but unless Wal-Mart implements these changes permanently, boosted sales might not be sustainable. As Naughton noted in The Wall Street Journal, shorter wait times equals more business, which could help explain why Wal-Mart's same-store sales are flat while Kroger's rose 4.3% in its last quarter.

2. Give a better illusion of savings Both Kroger and Wal-Mart have their own large, highly successful generic or off-brand food and drink brands. While both companies have hit home runs in this arena, Kroger offers additional savings via membership cards.

For example, Kroger customers have Plus cards, while Ralph's stores have Rewards. Kroger doesn't provide exact numbers for membership, but memberships are free and provide extra savings on certain products.

Once customers are enrolled, Kroger then collects data, and can send coupons or deals to customers based on their purchasing habits. Consequently, customers go back to Kroger. Meanwhile, Wal-Mart touts its "always low prices" slogan, but the company's approach doesn't make the customer feel as though they're getting an additional deal, or extra savings. Essentially, the goal of these savings programs is very much like coupons: It allows Kroger to direct customers to the products that it wants them to buy, it allows Kroger to advertise specific products or brands, and it allows Kroger to buy loyalty and gain repeat customers. 

In retrospect, the Kroger Plus card may not save the consumer any more money versus Wal-Mart, as the products with additional savings differ depending on location and seasonality. However, there's something appealing about seeing "you saved $10" with the Plus card that resonates with consumers. For the company itself, the data it provides to get customers back in the store is priceless -- something Wal-Mart lacks, but desperately needs.

3. Customers need incentives
In adding to the value of a savings or membership card -- something to give the illusion of additional savings -- Kroger offers incentives to once more keep customers coming back. At Kroger-named stores, customers gain one fuel point for every $1 spent, or 50 points for a filled prescription. Then, 100 points equals $0.10 off at the pump.

As seen in the receipt below, 546 fuel points in July signals $546 worth of merchandise bought in that month, excluding any prescriptions, providing the customer with 50 cents off per gallon of gasoline. Then, Kroger also provides a nice visual for customers at the bottom of the receipt, showing their exact savings by using the Kroger Savings card, or the amount of money saved on select products where a savings card made the cost cheaper than its list/retail price.  

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Image source: author.

With that said, Wal-Mart offers no such incentive like gas savings... nothing except its always low prices; but it should.

Foolish thoughts
With today's penny-pinching consumer, the most successful retailers are those that give back the most to consumers, while at the same time offering ways to improve the customer experience in order to retain their business. In a nutshell, Kroger has done just that, while Wal-Mart has found it increasingly difficult to find growth and keep customers happy at the same time.

Kroger's superior revenue growth and traffic trends speak for themselves in saying that these factors are a key difference in separating the woes of Wal-Mart and the success of Kroger. At just 14 times next year's earnings, many see Wal-Mart as a value investment play; but at the same multiple, Kroger is a company that's just as cheap and clicking on all cylinders.

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Brian Nichols has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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