Kroger Gambles Customer Service Can Save It

By Douglas A. McIntyre Published Apr 11, 6:35AM EDT

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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.

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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.

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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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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.