Kroger’s Panopticon: Making Criminals of Grocery Shoppers

I’ve been shopping at Kroger literally since I was a small child. My mom preferentially shopped at Kroger. I can still hum the “Let’s Go Krogering” jingle and remember Marty Brennaman and Joe Nuxhall on their commercials. I know many people at Kroger who I like and respect.

But anymore, shopping at Kroger makes me feel like a criminal. I shop at Kroger every Monday to pick up my food staples. Since 2021, the loss prevention ‘features’ at my Kroger have continued to get more onerous to the point of absurdity.

Kroger’s anti theft, anti shopper tools

About two years ago, my store was remodeled. And in this particular remodeling, they moved all of the personal care, laundry supplies, and other items that are shoplifted into a separate walled off section. So now, in order to buy groceries and toothpaste, because I’m a potential thief, I have to go through two checkout lines. Everyone loves waiting in line for checkout, so why not do it twice!

My store also makes announcements randomly like “Security check all cameras” or “Security aisle 6 for location 3.” The first time I heard it, I chuckled to myself and said, “Sucks to be the guy in aisle 6,” and then checked to make sure I wasn’t the guy in aisle 6. These announcements are just made randomly and not meant to deter a specific shoplifter. They’re no more helpful than the “top of the hour conditioning” which I never see any employees perform. These announcements make me – and everyone in the store – ask themselves if they are the criminal in aisle 6.

My store is used as a test for new security ‘features’. One test was to use an AI video detection from a company called Everseen at self check out to catch theft. I encountered numerous false positives. When I checked out, the system would flag me for having two items in my hands at once or flag me for waving my hand near my bags. Each time, the clerk would come over, review the video, clear the error, and let me continue. I averaged one false positive per checkout. Multiply this error across six kiosks and the checkout line became ungainly long. This test was ended after 2 months, but having a defective AI accuse me of shoplifting and increasing checkout times is infuriating.

Kroger also has placed cameras with video screens throughout the store. There is one at the alcohol, one at the store within a store, and each self checkout has one. So not only do I get recorded, but I get reminded that I’m a prospective criminal because I dared to buy a bottle of wine, buy dental floss, or use the self checkout.

Kroger has always had security guards at my store. I’ve noticed that the guards progressively look less like a friendly door greeter and much more like a police officer. This week while leaving, my shopping cart suddenly locked up in the atrium and I couldn’t push it. The security guards came over, moved my cart out of the door, and asked me for my receipt. The guard – very polite – reviewed my receipt perfunctorily and then let me go. So now, Kroger thinks that I’m a thief and locked my shopping cart in a crowded door, because I left the store.

Looking at the Financials: Are they effective?

All 10 regular readers of my blog know that I like to at financial statements to answer why do companies do what they do. Retail theft – often lumped in with “shrink” – is usually accounted for as part of cost of goods sold. Pulling the most recent income statement from the 10K into Excel and analyzing merchandise costs and operating profit as a percentage of sales is indicative of the situation:

Extract of Kroger's income statement

Kroger has very narrow operating profit – only about 2% – 3% of sales – which is pretty normal for retail and groceries in particular. Merchandise costs are very stable at 78-79%. These financials are pretty much to trend across the past 6 years.

When analyzing inventory costs, it’s crucial to examine the inventory cost method. Kroger’s uses LIFO – last in first out – which means that if a store buys units of inventory costing $5.00, $5.10, and $5.20 in that order, then the cost of the first unit sold will be $5.20 and the second $5.10. In an inflationary environment where the purchases exceed sales, LIFO will depress margin. So, Kroger is retaining its margins despite facing an inflationary environment.

Kroger also provides a non-GAAP measure using FIFO and some analysis of the FIFO based margins which is probably the most helpful:

“Our FIFO gross margin rate, which excludes the LIFO charge, was 22.31% in 2023, compared to 21.86% in 2022… Our FIFO gross margin rate increased 18 basis points in 2023, compared to 2022. This increase in rate was achieved while also investing in price to maintain a competitive price position and deliver greater value for our customers. This increase resulted primarily from strong Our Brands performance, our ability to effectively manage product cost through strong sourcing practices, lower transportation costs, as a percentage of sales, and the effect of our terminated agreement with Express Scripts, partially offset by increased promotional price investment and higher shrink, as a percentage of sales.”

KR 2024 10K (emphasis my own)

So Kroger is probably seeing margins stay pretty consistent year to year depending on how inflation effects are considered. Key is that they are seeing a higher shrink but does not provide numbers. I went back through previous 10Ks and noted the same language for increasing shrink for fiscal years ending in Jan 2023 and 2022, but was decreasing in Jan 2021, 2020, and 2019. Kroger’s push on theft seemed to start in 2021 – so thus far, all data that we have to date doesn’t show that it’s been particularly effective.

Aggressively Nudging

One of the core tenants of social psychology is that the environment influences the behavior of individuals. Chicago professor Richard Thaler encourages companies to “Nudge for Good” by optimizing choice architecture and environmental factors to ‘nudge’ people to better decisions. In that way, people retain their free will and decision making – but are more likely to make a better choice since there is less cognitive load in making a better choice.

Most retail stores have long maintained cameras, security staff, anti-theft tags and other loss prevention techniques. Most of these techniques were in the background though – and most shoppers were unaware of them. Kroger is changing the approach at my store. It’s not a passive watching and stopping individual, confirmed thieves – rather, Kroger is actively trying to nudge people to not commit theft.

Nudging shoppers to not commit theft seems to be for good – after all, people shouldn’t commit theft, it causes higher prices, and so on. The problem with Kroger’s nudges is that they aren’t so much a nudge, as a smack of the hand. My larger concern is also that these smacks might not just modify behavior in that moment to stop theft, but also change how shoppers see themselves. For instance, if my Kroger store identifies me as a potential thief to reduce shoplifting, do I start to identify as a thief? What does that mean for me, my identity, how I behave at Kroger, and how do I behave in the larger community?

What’s the fallout for Kroger?

It’s hard to make a conclusion with the data that is present in the 10K whether Kroger is effectively fighting theft. I also don’t know the larger impact of Kroger smacking me to tell me to not steal repeatedly. I do know that I don’t like being characterized as a thief every time I walk through the store. Kroger not only monitors shoppers, but also makes them conscious of that monitoring or even further, accuse legitimate shoppers of theft implicitly.

This pervasive monitoring and accusation leads to some tough questions:

  1. Will these anti-theft features at stores make shoppers less likely to shop at Kroger?
  2. Does Kroger use the same anti theft approach at all of its stores? And how does that correlate with store shrink rates, race, poverty, and so on?
  3. How does the very obvious anti-theft devices change Kroger shoppers perceptions of themselves? Ie – if Kroger makes it clear that it views me as a potential criminal, will that change my behavior at their stores?
  4. How should customers and communities respond given the continued challenges of food deserts and lack of access to healthy foods in communities?

I don’t have answers for these questions – hopefully, someone at Kroger has considered them – but when I hear “Let’s go Krogering,” my response is, “No, I’d rather not.”