Kroger, the nation's biggest grocery chain, is shuttering three online fulfillment centers in Texas and Florida that it opened as part of its strategy to expand into markets where it doesn't have brick-and-mortar stores.
The Cincinnati-based chain said it will be closing grocery delivery facilities at 4235 Milling Road in San Antonio and 2401 Ferguson Lane in Austin, both in the Lone Star State; and 14150 NW 56th Court in Opa Locka, Florida. That means delivery service will end in late May in the areas that those last-mile facilities serve. In the case of Florida, it will mean Kroger is discontinuing deliveries from Homestead to Port St. Lucie.
Kroger embarked on an unusual tack more than three years ago to attempt to establish a presence in areas dominated by other grocery competitors, such as Publix. It began by opening highly automated online delivery centers across the country, some in markets where it didn't have stores. The chain's goal was to expand its physical footprint and to be able to deliver groceries to customers in those areas without the expense of actually opening brick-and-mortar locations in them. For example, Kroger only has one grocery store in Florida.
The latest turn of events further demonstrates just how competitive the grocery sector is, with players that include Albertsons Cos., which Kroger is attempting to acquire, Amazon and its Whole Foods Market chain, discounters such as Walmart, Target, Aldi and Lidl, and dollar stores. The Federal Trade Commission has sued to block Kroger's $24.6 billion purchase of Albertsons.
Despite the three closings, the supermarket chain "remains committed to growing its e-commerce offerings, delivering fresh food to more communities across the U.S.,” a Kroger spokeswoman said in an email to CoStar News on Wednesday. The locations that are being shuttered were underperforming, she said.
Missing Benchmarks for Success
“Kroger’s commitment to innovation means that we test and learn quickly to identify the most effective ways to deliver fresh, affordable food to our customers," the company spokeswoman said. "Despite our best efforts, including the support from new customers, learnings from other locations and the incredible work of our associates, these facilities did not meet the benchmarks we set for success. We want to express our deepest gratitude to our associates for their hard work and are committed to providing support and resources to them during this transition."
She added that the closures in Texas and Florida don't "impact the company’s other automated [fulfillment centers] or cross-docking spoke locations."
This isn't the first time that Kroger has pulled the plug on an endeavor or sites that were underperforming. Last November, the company said it ended its partnership with Kitchen United, a deal where the grocer had placed on-demand meal pickup locations in some of its stores. Those ghost kitchens, now closed, offered food from six or more local, regional or national eateries for pickup or delivery.
Test and Move On
"You know, we test a lot of different things, and we'll go move onto the next version of it," Kroger Chairman and CEO Rodney McMullen told Wall Street analysts last fall. "We still think food-away-from-home is a huge growth opportunity for us and will continue to focus on it. The ghost kitchen, the few customers that used it loved it, but it just wasn't enough. So, it's one of those things where you move on."
Kroger will be laying off 52 employees at its warehouse in Austin, according to a Worker Adjustment and Retraining Notification, or so-called WARN, notice, it filed this week. In Florida, 109 employees at the closing warehouse in that state will be let go, Kroger said in a separate WARN notice.
The Florida and Austin facilities had only been open for about a year. The San Antonio fulfillment center has been in operation roughly two years.
Kroger posted a notice on its website for shoppers notifying them that it was closing the trio of delivery facilities.
"We do not make these decisions lightly, and we understand the impact this has on associates, customers and communities," the grocer said. "Unfortunately, there are no Kroger stores or Kroger Delivery options available to customers [after May 25] in Austin, San Antonio or South Florida."