Fred Meyer has decided to not categorize as groceries. You would need to buy a Kroger gift card from one of the other chains like QFC where they categorize as groceries. I am sure that is what others do. I think issue applies for V/MC usage as well.
It is correct that the merchant does most of the categorization assignments. Except for super large merchants (over $1 million in AmEx charges), most merchants use acquirers who handle the merchant mapping assignment via OptBlue.