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Kroger, Microsoft Partner for Connected Store Pilot Program

Zacks Equity Research

The Kroger Co, Inc. KR has partnered with Microsoft MSFT to enhance customers’ shopping experience through data driven technology. In doing so, the company will use Microsoft Azure that serves as its most preferred cloud platform for Retail as a Service (RaaS), which is a Kroger solution.

With this deal, both the companies will come together to test a connected store experience, and jointly market the commercial RaaS product. This move is in response to the rising dominance of Amazon AMZN in the online retail war.

Kroger’s technological system, backed by Microsoft Azure and connected by IoT sensors, will first pilot in two stores in Monroe, OH and Redmond, WA, which are both close to each company’s headquarters. The pilot stores leverage RaaS to provide a more personalized experience through insights and improved productivity of store personnel.

Kroger will introduce a new feature -- EDGE Shelf (Enhanced Display for Grocery Environment), – digital shelf displays with prices, promotions, nutrition and dietary information. This digital shelf will also feature ads related to consumer goods packaged brands that will fetch additional revenues to Kroger.

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Per sources, the company might use these revenues in achieving the targets of Restock Kroger program, including investments in space optimization, store remodels and technology advancements. With such well-chalked efforts, the company expects to generate $400 million in incremental operating margin and more than $4 billion of free cash flow (or $6.5 billion before dividends) by 2020 from this program.

This program will also help identify partners with whom the company will be able to redefine customers’ shopping experience. This will also enable the company to invent new profit channels to boost its core business growth.

Moving on, Kroger’s pick to light technology will help store associates locate products for customers by providing visual light up displays beside the items. This additional feature will reduce store associates’ time needed for curbside pick-up orders. Further, with the use of Microsoft Azure store, associates will be able to track out-of-stock products and help customers locate products in their shopping list.

As part of its omni-channel endeavors, Kroger earlier introduced new items, digital coupons, order online pick up in store initiative and smart shopping lists to gain market share. The company has also launched natural and organic e-commerce website KingSoopers.com/LiveNaturally. The company expanded ClickList to more than 1,000 locations. We note that digital sales surged more than 60% during the third quarter of fiscal 2018.

With technology playing a key role as focus shifts to online shopping, the company partnered with British online grocery delivery company, Ocado that reinforces its position in the online ordering, automated fulfillment and home delivery space. The company’s latest deal with Nuro, the maker of driverless road vehicles to deliver groceries at customers’ door steps using autonomous vehicles, is just another game plan to take on rivals.

In order to further strengthen its digital operations, Kroger joined hands with Alibaba BABA to launch "Our Brands" through the latter’s Tmall platform. Also, the company has entered into a partnership with Walgreens WBA to explore new ways to reach consumers. The company will now sell around 2,300 products at 13 Walgreens locations via Kroger Express, a store-in-a-store concept.

We note that this Zacks Rank #3 (Hold) company has gained 2.4% in a year’s time, against the industry’s decline of 3%. You can see the complete list of today’s Zacks #1 Rank stocks here.

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