Can Kroger's private label products succeed in China?

Dive Brief:

Kroger will begin selling private label products and dietary supplements on Alibaba’s Tmall online marketplace, according to a news release. The company will start by selling products under its Simple Truth line of natural and organic products.
In an interview with The Wall Street Journal, chief digital officer Yael Cosset declined to discuss financial terms of the deal, but said Kroger had evaluated several international partners before signing on with Alibaba. Reports earlier this year linked the two companies, prompting speculation that the online retailer might acquire the grocer.
Alibaba launched Tmall back in 2014 and it has quickly become the largest business-to-consumer online marketplace in China. Costco, Starbucks, Mondelez, McCormick and H&M have all established e-commerce sites through Tmall.

Dive Insight:

It’s been a whirlwind year for Kroger, which is looking to new industries and distant horizons in an effort to grow its business.

In just three months’ time, the grocer has bought a meal kit company, launched an online shipping platform, kicked off driverless delivery and signed on with British e-grocer Ocado to build automated warehouses. Now, it’s looking to the world’s fastest-growing online economy to further boost sales. According to investment firm Bernstein, just over 10% of China’s grocery sales happen online.

Big names like Starbucks, Mondelez, McCormick and Macy's have launched online markets through Alibaba’s Tmall. According to Bain & Company consultants writing in The Harvard Business Review, retailers use Tmall as an access point into the Chinese market, or as a way to test new initiatives for consumers in the country of more than one billion people. Last year, H&M expanded its relationship with Tmall at the same time that it was closing U.S. stores.

Kroger will no doubt be looking to grow its partnership with Alibaba, which likes to integrate successful brands throughout its massive network. In 2015, Starbucks launched an online marketplace with Tmall. Then just this month, the two companies announced a partnership offering coffee delivery to consumers. Under their so-called “new retail” agreement, Starbucks will also launch a virtual store and stock its coffee inside Alibaba’s futuristic Hema supermarket.

Kroger probably also looked at Costco and liked what its saw. The club retailer signed on with Tmall Global in 2015 and began offering a limited assortment of goods. It now offers close to 800 SKUs — everything from mixed nuts to electronics and wine — and was one of Tmall’s top 10 retailers during Alibaba’s blockbuster “Singles Day” event last November. Now Costco is moving into physical retail in China, with plans to open its first store in Shanghai next summer.

Kroger has good reason to feel confident in its Simple Truth products that will lead the charge on Tmall. The brand now accounts for more than $2 billion in annual sales and has become a household name for many Americans. But can that success translate abroad? Reports note that China’s burgeoning middle class is looking for healthy products and solutions. Organic products, however, haven’t gone over so well, primarily because of a lack of education. According to FoodNavigator-Asia.com, China accounts for just 6% of the world’s $82 billion organic market.

Whether Simple Truth soars or flops, Kroger is determined to grow its international footprint. In a recent interview with The Wall Street Journal, according to the newspaper, CEO Rodney McMullen said Kroger is looking to forge even more international partnerships. Company executives have traveled to Japan, India and Europe in recent months researching technology and consumer habits.

With this, Kroger joins the growing ranks of American retailers making a push into China and elsewhere abroad. Moreover, it marks yet another ambitious venture for a company that’s resolutely focused on the future.

“This initiative is a natural progression in Kroger’s strategic transformation to compete on all fronts and not only in its traditional brick and mortar comfort zone," Moody’s Vice President Mickey Chadha said in a statement emailed to Food Dive.