Kroger Gambles Customer Service Can Save It

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Kroger Co. (NYSE: KR) has announced it will add 11,000 new workers. Most of the additions are to improve customer service at the store level. Whether this is what customers want is the major gamble Kroger is taking, beyond the cost of the new employees.

Kroger management commented:

The Kroger Co. announced that its family of stores is hiring to fill an estimated 11,000 positions in its supermarket divisions, including nearly 2,000 management positions.

The new workers will be a relatively small addition to Kroger’s employee base of over 440,000. However, it is still significant for a company that works on very modest margins. Last year, Kroger had an operating profit of $2.1 billion on total revenue of $122.7 billion, a margin of 1.7%. Thus, the additional of employees may put pressure on Kroger’s ability to make money.

There is no evidence that better store service and local management increases sales, but that is the theory behind the added workers. Kroger has no details about with whom Amazon staffs its grocery business or its newly acquired Whole Foods stores. Kroger management cannot measure the staff levels at Walmart’s grocery sections. Groceries are among Walmart’s largest sales segment.

Kroger must realize that people shop for groceries based as much on price as local service. For Kroger to compete on price would also tighten margins.

Will having more people in its stores help Kroger grow in an ultra-competitive environment? The jury is still out.

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