As part of a broader strategy to improve procurement costs, enhance visibility into its supply chain and gain greater control of the flow of its products, Kroger is ramping up its efforts to buy directly from producers and lessen its reliance on middlemen.
We want to increase direct sourcing to over 10% of our purchases,” Executive Vise President and Chief Financial Officer David Kennerley said at the company’s analyst and investor day conference Oct. 20. Today’s share is still below 1 %, which leaves a lot of room for growth.
The strategy is meant to give Kroger more control over purchasing economics while bringing the retailer closer to the suppliers that make its goods. To facilitate this transition, the company is developing an international sourcing network built on regional hubs and local sourcing operations.
“We are seeing good progress with the launch of South America and Asia hubs with spokes in key sourcing locations to help enable better sourcing, with the goal of a fully owned import distribution model over time”, said Kennerley.
Kroger has already placed its first international employee in South America. The retailer meanwhile is building infrastructure it needs to expand its sourcing capabilities to Asia in 2027.
Bypass the middlemen to improve procurement economics
The expansion of direct sourcing is one element of a bigger transformation that includes Kroger’s logistics operations, its procurement teams, its workforce and its payment capabilities. The objective is to develop closer relationships with producers and remove unnecessary layers in the supply chain.
This is a direction CEO Greg Foran had announced earlier this year. In June, he told analysts that Kroger was relying more on negotiations with suppliers and direct buying efforts to lower the cost of goods.
One example, Kennerley said, was a partnership with a grape producer in Peru. Kroger has already secured about 40% of its fruit needs for the November 2026 season directly from growers in the country.
Previously, the retailer would have had to go through an intermediary between itself and the producer, paying an extra margin along the way. By managing the relationship directly, Kroger can use its purchasing scale to negotiate more effectively, reduce costs and increase access to available supplies.
Kennerley also pointed to non-pricing benefits such as the opportunity to build deeper relationships with growers and have more direct access to product innovation.
The project is not only about grapes. Kroger also is looking at direct procurement opportunities in several other product categories, including citrus, shrimp and frozen vegetables.
Better data to help suppliers decide.
Kroger is also trying to shorten procurement channels and is investing in better data capabilities to improve purchasing decisions and supplier management.
The retailer wants its buyers to better understand purchasing volumes, demand patterns, supplier performance and alternative sourcing options. More access to this information should help teams better assess supplier relationships and identify opportunities to improve procurement conditions.
Kennerley said Kroger also is working closely with suppliers to maintain price stability.
The CFO said the company was moving forward with these initiatives, and its current focus was on scaling successful sourcing practices and integrating them more broadly into daily procurement operations.
The strategy ultimately is a step toward more ownership of its international supply chain, Kroger said. The retailer is trying to build direct relationships with producers, beef up its logistics infrastructure and get better access to purchasing data to cut out the middlemen, get more reliable supplies and build a more controlled import and distribution network.
