At supermarket operator Kroger and hotelier Marriott International, the choice to adapt old ways of doing business was no choice; it was adapt to the digital world or get left behind.
At the Strategic CFO Forum conference, hosted by StrategicCFO360 on Monday, CFOs Leeny Oberg of Marriott and Gary Millerchip of Kroger — speaking live via videoconference — recounted lessons (so far) from the digitalization of their customer-facing operations, which in both instances were triggered by greater competition and the COVID-19 pandemic.
“Technology is no longer an enabler; it's a core business strategy for almost all companies,” said Oberg in describing Marriott International’s new mindset. “And in that regard, it [has] become part of pretty much every conversation in every discipline around our company.”
After the shock of the pandemic to the hotel industry, combined with competition from hotel alternatives like Airbnb, Marriott launched a large digitalization project to drive greater customer loyalty and personalization.
“We are about one year into [a project] that will entirely transform the way that you communicate with us online,” said Oberg, “Whether you’re searching for a variety of travel options, booking and planning a trip, or finishing your travel, all of those will be completely transformed over the next few years.”
At Marriott properties, employees will have an entirely new technology system that will tie together “in a very effective, customer-friendly way,” said Oberg.
“It’s very tempting to want to make a brand new transformational system across 8,700 worldwide hotels be perfect for everybody everywhere.”
CFO, Marriott International
While Oberg does not oversee IT, finance is involved in how technology is funded, how it's executed, and the strategies for delivering the technology. Oberg’s advice to attendees undergoing massive digital transformation was not to let perfection be the enemy of the good.
“It’s very tempting to want to make a brand new transformational system across 8,700 worldwide hotels be perfect for everybody everywhere,” Oberg said. “The reality is you have to get it done and move forward,” she said. That means leaving some capabilities or features out because they would delay progress.
“That’s been our biggest learning in the first year of this — knowing that there are some things we’ll have to wait to do later,” she said.
The Value of Data
The galvanizing event for Kroger’s digital transformation came in 2017 when Amazon bought Whole Foods Market, said CFO Millerchip. Since then, the company has constructed a digital business that generates more than $10 billion in revenue. It built a front-end for customers and a back-end set of processes to support digital sales. The digital business doubled overnight when the COVID-19 pandemic drove consumers into their homes.
But Millerchip told the 70-plus finance executives in attendance that Kroger avoids identifying itself as a “technology company” — in other words, another Amazon.
“It’s easy to say that, and the danger is [technology] becomes a bottomless pit of investment without delivering real returns.”
Kroger, said Millerchip, focuses on long-term strategy and value delivery for customers and its workers and then “thinks about how technology will be an accelerator of that plan.”
“On an individual basis, these projects make sense. ... But how do they show up in the way the company delivers value? That’s not always easy to see.”
CFO, The Kroger Co.
While Kroger maximizes the use of data to measure how technology is driving the customer experience, Millerchip looks at investment returns from the top down, too. “On an individual basis, these projects make sense,” said Millerchip. “But how do they show up in the way the company delivers value? That’s not always easy to see.”
Kroger has removed $1 billion of costs each of the last five years partly through automation and using data and machine learning to optimize its end-to-end supply chain.
But the jewel in the crown is the data that digital grocery sales generate, which Kroger can leverage to increase long-term customer loyalty and spending. If regulators approve Kroger’s pending merger with Albertsons, the resulting organization will have information on 145 million households.
In fact, it’s the data on consumers, Kroger realized years ago, not the razor-thin margins selling groceries, that has attracted competitors to the space, said Millerchip.
Leveraging customer data has helped Kroger find new revenue streams — it has built a digital media and a financial services business.
The whole experience has Kroger’s planning groups now regularly asking the question, “What are the factors that are changing the way the business looks?” Recognizing business is shifting more quickly, Millerchip said, the company has changed how long it looks at capital return over different time horizons.