Dive Brief:

• Kroger will soon launch a direct-to-consumer service that offers more than 50,000 grocery items along with 4,500 private label products. Kroger Ship will kick off in four cities where Kroger has a strong presence — Houston, Nashville, Louisville and Cincinnati — with plans to grow quickly into new markets.
• Delivery will be free on orders over $35 and $4.99 for any that fall below that amount. Customers can get their orders as soon as the next day. During the launch period, customers can use a promo code that offers free shipping and 15% off their order.
• Kroger will utilize resources it gained with its purchase of Vitacost.com, an online healthy and natural foods marketplace, in 2014. The company expects to expand its Ship service quickly, offering more products and eventually pushing into perishable categories.

Dive Insight:

Kroger continues to show it has no intention of watching from the sidelines as Amazon and Walmart dominate online grocery shopping.

With the launch of a direct-to-consumer service, the nation’s largest grocer has established another way to reach shoppers in their homes. The company offers same-day delivery in a growing number of markets, and with Kroger Ship it seeks to widen its coverage and build the sort of repeat purchases that have become Amazon’s specialty. Kroger says it will offer set-and-save subscription options for products purchased through the site.

The move will allow Kroger to reach regions where its store presence is thin, including the Northeast, and could eventually leverage the automated fulfillment centers it plans to build in concert with Ocado. The two companies signed a deal earlier this year giving Kroger exclusive rights in the U.S. to run the British e-grocers fast, efficient — but also very costly — warehouses.

Kroger will have a tough time getting shoppers to buy from its online marketplace instead of Walmart or Amazon, which sold $650 million worth of packaged groceries from its site in this year’s second quarter, according to One Click Retail — up 40% from the same period one year ago. Amazon and Walmart are also quickly expanding grocery delivery from their stores — Whole Foods, in Amazon’s case — with major cities like New York and Los Angeles now in play.

In-store promotions and signage will be crucial, and Kroger will also have to nudge shoppers online with frequent promotions. On the plus side, the company’s private label selections have become very popular, accounting for more than a quarter of total sales, and will serve as a unique draw for the new marketplace.

Kroger can also count on rapidly accelerating demand for online groceries. According to a new report from consultancy Brick Meets Click, e-commerce now accounts for 46% of weekly grocery spending from regular online shoppers, up from 28% a year ago.  

Other grocers have launched or announced efforts similar to Kroger Ship. Last year, Costco launched Costco Grocery, which offers two-day shipping on shelf-stable products and free delivery on any orders over $75. Albertsons, meanwhile, plans to launch an online marketplace for niche brands.

Kroger faces an uphill battle in online grocery, but it has made decisive moves recently — including its deal with Ocado, acquisition of meal kit maker Home Chef and the launch of an autonomous vehicle delivery pilot — that address key parts of the industry. It all adds up to a company that’s determined to meet consumer demand beyond its physical stores.