Pardon the Disruption is a column that looks at the forces shaping food retail.
Rodney McMullen’s sudden resignation as the CEO of Kroger is shocking, to say the least. And it comes during a pivotal period for the supermarket chain as it labors to connect with price-sensitive shoppers, navigate omnichannel demand and altogether regain its balance after failing to combine with rival Albertsons.
The news, which followed an ethics investigation by Kroger’s board, also comes amid a period of significant C-suite turnover for the company. Its chief merchant, Stuart Aitken, left the company late last year, while new CFO David Kennerley came on board nearly a year after Gary Millerchip left for Costco.
Despite all this, Kroger is a strong retailer that’s built to operate at a high level no matter who is at the helm. Its core grocery business fuels several alternative streams that power profitability for the company, and its digital business, private label lineup and supply chain operations are industry leading.
But the grocer is also looking ahead to an uncertain future that will require strong, innovative leadership to navigate. Supermarket chains are growing increasingly out of favor with shoppers, many of whom are defecting to discount competitors. Kroger also needs to figure out how it’s going to distinguish itself in the evolving realm of omnichannel shopping — including figuring out what to do with a proprietary online service that has faltered.
Ultimately, a new chief executive has a major challenge on their hands, but also an opportunity to write a new chapter in the story of the country’s largest supermarket chain.
What McMullen did for Kroger
It’s unclear at this point what led to McMullen’s decision to resign, and I certainly won’t speculate. But it’s important to note that his exit brings an abrupt end to what was otherwise a highly impactful tenure at the helm of Kroger.
His backstory with the company was a familiar David Copperfield narrative that’s common among many leaders in the industry. What set him — and by extension, Kroger — apart during his years of leadership was a spirit of innovation and assertiveness.
Kroger grew significantly during the more than ten years McMullen sat in the CEO chair. It acquired supermarket chains Roundy’s, Mariano’s and Harris Teeter — chains that added not just hundreds of stores but also valuable assets which helped flesh out Kroger’s grocery business. Harris Teeter’s “Express Lane” e-commerce service, for one, helped set the foundation for Kroger’s “ClickList” online business.
Kroger’s 2018 acquisition of Home Chef, similarly, was about more than just scooping up a popular meal kit company; it was about acquiring a culinary brand that would eventually become a major private label line of prepared foods.
The supermarket chain’s real power, however, comes from its flywheel of businesses fueled by its grocery operation. Under McMullen, alternative profit streams like consumer data collection, personal finance services and retail media contributed more than $1 billion in operating profit annually.
This alternative business model isn’t anything revolutionary when stacked against the likes of Amazon, which pioneered this approach. But in the grocery industry, Kroger stands out as an innovator in finding ways to generate revenue outside of the traditionally low margins facing the grocery industry.
The need to hire an innovator
The worst thing Kroger could do is hire someone who will keep things business as usual. There are simply too many challenges facing the company to do that.
Kroger hoped that by combining with Albertsons, which announced its own CEO transition on Monday, it would pull itself up to eye level with industry giants like Amazon and Walmart. The fact that it wasn’t able to push that deal through means it will have to work double time to stay ahead of the disruption that these major retailers and other rivals are causing.
Mass merchandisers like Walmart provide vast selection and value. Discount chains like Aldi and Grocery Outlet have bargain prices and a curated shopping experience. Specialty chains like Whole Foods Market and Sprouts Farmers Market feature unique products and services for health-focused shoppers. And Costco offers a stock-up, treasure hunt shopping experience.
What about Kroger? Its tagline is “Fresh for everyone,” but freshness is no longer a differentiator. Neither are markdowns or one-stop shopping or large parking lots or any of the other advantages supermarkets have had in the past. Even Kroger’s leading private label business is facing stiffer competition as companies across the industry step up their store brand investments. The conventional grocery model needs a shot in the arm, and the next CEO of the nation’s largest supermarket chain should be the one to try to administer it.
Refining its digital business would help address this problem. When it partnered with tech firm Ocado in 2018, Kroger envisioned operating a nationwide network of automated warehouses and spoke facilities powering a leading-edge proprietary e-commerce service. Seven years in, however, Kroger has rolled out less than half of the 20 customer fulfillment centers (CFCs) it initially committed to, and hasn’t opened a network facility since 2023, when it announced it would pause new rollouts as it determined a “clear path” forward, according to McMullen. Its next CFCs aren’t due until sometime next year, and Ocado’s leadership has had to soothe jittery investors about the future of its deal with the grocer.
Running pricey automated warehouses doesn’t look like the smartest way forward in e-commerce right now, especially when so many other retailers are utilizing their stores for fulfillment and price-sensitive consumers are picky about paying additional fees.
And yet, Kroger needs to do something to stand out in digital as Walmart and Amazon continue to invest in services like in-home delivery and cross-brand shopping to draw in new customers. As more and more people seek out retailers that offer seamless shopping from their homes to the store aisles, Kroger and its next CEO will need to find compelling ways to meet omnichannel demand.
While its transformative Albertsons acquisition didn’t pan out, Kroger should eventually get back to acquiring regional grocery chains. Its first stop will probably be in the Northeast, the only region of the country where it doesn’t operate any stores. Other opportunities may arise with distressed supermarket chains that can’t keep up with the rapidly evolving industry and its constellation of formidable competitors.
All of this will help Kroger continue to build the critical scale that will fuel everything from its on-shelf discounts to retail media negotiations. But Kroger needs to do more than just get bigger — it needs to get better.
