Grocery Chain Kroger and Microsoft Partner Up to Take on Amazon

Kroger is tapping Microsoft to help create grocery stores of the future, and keep up with Amazon and Walmart.

The two companies announced a partnership on Monday that will bring digital shelves, price tags, and advertisements to two pilot stores in Ohio and Washington State, near each company’s headquarters.

The stores are designed to make it easier for customers and workers to navigate the stores, saving shoppers time and Kroger money.

Kroger has been partnering with companies such as Nuro, Ocado, and Walgreens as it aims to speed up grocery delivery and pickup, and experiment with digital tools to support its network of physical stores.

The grocery chain is trying to give shoppers—who are increasingly browsing and buying everything from consumer electronics to breakfast cereal online—more reasons to visit physical stores.

Under the latest partnership, customers can first build a shopping list using Kroger’s Scan, Bag, Go self-checkout app.

Then, the app works with cloud-based software and sensors in the store to guide them around as they check off items on their list. For example, if a customer is looking for pasta, the app will direct the customer to the correct aisle. As the customer nears the aisle and approaches the type of pasta they chose, a personal avatar — like a banana or an avocado —will light up that directs them to the right one. They’ll scan the item to check out, and the system will route the customer to the next item on their list.

“The notion of Kroger having to figure out what digital looks like in store for a grocery shopper is super important,” said Jason Goldberg, head of the commerce practice at digital agency SapientRazorfish. He believes the tech could appeal to customers who want more information about the food they’re buying, where it comes from, and how to store it in their homes.

Shelves at the two tech-enhanced stores will also look much different than traditional stores.

Instead of paper tags for prices and promotions, they will be digital. That creates room for Kroger to sell advertising space to brands, which could provide a new profit stream in the low-margin grocery business.

Switching will help Kroger quickly change prices on products and create deals, instead of an employee manually making the changes. Kroger said it will boost workers’ productivity, since employees will be able to quickly locate products for customers’ curbside grocery pickup orders.

Kroger’s (KR) move is a play to keep pace with rivals investing heavily in AI and cashier-less technology to reduce long lines at stores, a frequent pain point for customers.

Amazon (AMZNreportedly plans to have as many as 3,000 cashier-less Go stores by 2021. Walmart’s (WMT) Sam’s Club recently opened up a Sam’s Club Now in Dallas, Texas, that has shoppers pay with their phones and use them to find products in the store. Walmart has also added detailed digital store maps to its mobile app to guide shoppers to aisles and products.

Kroger will try to sell the new technology with Microsoft (MSFT) to retailers in the United States and around the world.

“I’m a little skeptical of it,” Goldberg said. “If I’m Albertsons or Walmart, do I want to buy a digital merchandising solution that was invented by Kroger?”

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