Will Consumers Go for Kroger's Food Hall Concept?

By Tom Ryan

Kroger, the second-largest grocer in the U.S., has opened its first food hall inside a new store in downtown Cincinnati, near its headquarters.

The Rhine Eatery, on the second floor of the 52,000-square-foot space, features five local Cincinnati restaurants: Kitchen 1883 Café and Bar, DOPE! Asian Street Far, Django Western Taco, Eli’s BBQ and Queen City Whip. The space, which can accommodate 200 customers in both indoor and outdoor seating, also includes a Kitchen 1883 Café and Bar, Kroger’s American food restaurant concept.

The first floor offers a traditional supermarket experience, including fresh fruit and vegetables, as well as grab-and-go and ready-to-heat meals, to support downtown workers and residents in addition to customers from the city’s Over-the-Rhine and West End neighborhoods. The store anchors an 18-story apartment building and is a block away from The Kroger Co. headquarters.

The urban concept further stands out for its walk-up window for beverage orders. Grocery and eventually restaurant delivery will be featured.

Kroger hasn’t operated a store in downtown Cincinnati since 1969 and has talked about doing so since acquiring the upscale, urban-focused Mariano’s chain in 2015.

“This innovative destination highlights Kroger’s food-first culture,” said Kroger’s chairman and CEO Rodney McMullen said in a statement.

Food halls, offer mini-restaurants run by artisanal and local vendors, have been expanding rapidly across the U.S. over the last decade and often support nearly retail. They are said to particularly appeal to Millennials looking for variety and authentic experiences.

Several grocers have been opening sit-down eateries over the last two decades that some describe as casual food halls selling the grocer’s ready-made foods. Some including Hy-Vee and Wegmans have added in-store restaurants that they operate themselves. Others, including Whole Foods and Mariano’s, have partnered with outside restaurants to show support for the local community. Partnering with a popular hotspot can also elevate the cachet of a grocer’s sit-down offerings.

Discussion Questions:

Are food halls a natural complement to grocers’ urban locations? What are the pros and cons for grocers around working with third-party restaurants versus developing restaurants in-house or just relying on prepared food offerings?

Comments from the RetailWire BrainTrust:

I would say that food halls are definitely a natural complement to downtown areas these days. Whether grocery stores can find enough customers there now to also be successful remains an open question.

Whole Foods has opened an urban location in Denver, and there are various food hall-like locations nearby. That Whole Foods location kind of feels like a food hall in its design, in that even for them it offers a lot more emphasis on prepared and grab and go, even restaurant style take-out.

So that part of Kroger’s strategy makes sense – you have to serve a greater range and meet the demand for “do it for me” everything, from packaging it together so I can make it at home to just making it for me and serving it to me.

As far as the potential competition goes, you have to think more about the food hall as the traffic driver, and the grocery store serving the “fill in trip” function that people go to after their meal – “Oh yeah, I forgot I need tortillas for tonight’s dinner” (or whatever it may be). No urban location is going to serve a big pantry/full shopping cart run, so you might as well embrace capturing whatever other trips you can, even if that means people fill one meal need by paying a nearby restaurant for that meal before they go shopping at your store.
Nikki Baird, VP of Retail Innovation, Aptos

Food halls absolutely complement grocers’ urban locations. They’re magnets for consumers passionate about multisensory culinary experiences. What a brilliant way to attract consumers (including Millennials with growing families) with an authentic market feel that celebrates local vendors. Adding an artisan ambiance to urban communities also differentiates Kroger from Walmart, Amazon and rival grocers.
Lisa Goller, Content Marketing Strategist

If Mariano’s and Eataly were married, this is what you’d get. And it’s a beautiful child. The minute Mariano’s food court appeared in our semi-dense with professional buildings suburb of Chicago, it was packed. The fresh food quality, variety and convenience of dine-in or take-out was exactly what the local business population wanted. But it was strictly a business hours business. Evening traffic was nil. The addition of multiple dining choices and popular local restaurants to the Kroger concept will only make this iteration more attractive. Depending on the density of nearby urban housing, it may even solve the dinner traffic problem. Great idea.
Ben Ball, Senior Vice President, Dechert-Hampe

As a foodie, I’ve gone out of my way to visit food halls around the world (much to my wife’s chagrin). Harrods in London, the Reading Terminal Market in Philadelphia and the Great Food Hall in Hong Kong are three of the best and they couldn’t be more different. Harrods is almost exclusively for the rich, with its caviar bar and $1,000+ picnic baskets. The Reading Market is utilitarian, serving great food at a great price. The Great Food Hall is smack in the middle, a mix of everyday Chinese food and luxury foreign delights.

This should be a lesson for retailers wanting to set up food halls in current or future real estate. You need to know the consumer and the market. Harrods wouldn’t work in Baltimore and the Reading Market wouldn’t work in Beverly Hills. Interestingly, an American variant of the Great Food Hall (hamburgers or pizza instead of ramen noodles) could work in most urban settings because it will have something for just about everyone and doesn’t require the build-out or the stocking cost of a Harrods-like hall.
Ron Margulis, Managing Director, RAM Communications

Food halls are a great compliment to, in particular, upscale groceries. Serving up “fresh prepared meals” meets customer requirements and encourages visits. The U.K. and Canadian grocers have been at this for some time now, and the lunch and dinner lineups probably attest to their success.
Peter Charness, SVP Americas, TXT Retail, an Aptos Company

From Darling Harbor in Sydney, to Yorktown in Toronto, to Tokyo Midtown developers have learned that people will pay extra to live in a building with grocery attached. They may not, but they could, shop in the their bedroom slippers. H-E-B in Texas developed Central Market – an upscale urban format — some 15 years ago. Thursday nights were singles night – lowered lights, wine samples and many a Texas man got in trouble for volunteering to do the family shopping on an odd Thursday night …
Paco Underhill, CEO of Envirosell Inc., Speaker, NY Times Best-Selling Author

Food halls are not only a natural extension recognizing rapidly changing consumer demographics, the business model has already been proven in urban and suburban markets across the U.S. and abroad.

Grocery leaders such as Kroger certainly recognize that looking beyond traditional competitors and even pure-play digital player threats – by setting their long-term strategic goals to be the most credible providers of fresh/farm-to-fork across the broader spectrum of “share of stomach” — this is something they could credibly own.

The real question here is, which grocer can also incorporate the right limited local assortment and fresh grab and go snacks, meals and delivery options into the adjacent store AND scale this out rapidly beyond a single, or even a handful of locations?

Beyond testing a single location, first mover (at scale) advantage also applies. In that case, Kroger certainly has an opportunity here that many traditional grocers simply don’t.
Brent Biddulph, General Manager, Retail & Consumer Goods, Cloudera

Read the entire story and RetailWire discussion at http://bit.ly/2VANfhR

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                                                                         Mid-October 2019
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