If anyone wondered how Kroger would fare now that Amazon has jumped into the grocery space, I think we can safely say that any doubts have now been put to rest. The company recently reported a $2 billion profit for its first quarter on the heels of the sale of its convenience store business, and that's just the start of it.
Aside from the $1.8 billion profit from the c-store sale, this quarter Kroger netted a $626 million profit, more than double from last year, reported Cincinnati Enquirer (June 21). Total sales rose 3.4% to $37.5 billion, while same-store sales in supermarkets excluding fuel increased 1.4% during the fiscal quarter ended May 26.
Digital sales grew by more than 66% in the first quarter. Chairman and CEO Rodney McMullen, on a first-quarter investor conference call June 21, attributed this to the ongoing expansion of ClickList, the company's delivery initiative, and identical growth.
In addition, Kroger's brands achieved another period of record growth -- 5.1% sales growth at a 3.4% unit growth -- led by another quarter of double digit growth in its Simple Truth and Simple Truth Organic lines.
To Kroger, the customer is always the biggest investment. The company has more data than any of its competitors, McMullen said on the investor call, which gives them a leg up in "deep customer knowledge and unheralded personalization."
But what's most exciting, I think, is McMullen's vision of the future of retail. Kroger's recent partnership with Ocado and the retailer's merger with Home Chef, which was completed June 22, are instrumental to that vision.
"Everything we are doing today will enhance our ability to provide everyone in America with convenience of shopping for anything, anytime, anywhere," McMullen said.
Kroger hopes its association with Ocado will help enhance its digital and robotics capabilities, and importantly, McMullen believes Ocado will give Kroger the potential to venture into the Northeast. The wheels are already in motion on identifying the first three sites for Ocado's automated warehouse facilities in the U.S.
"What we're really trying to do is to make sure that we have an overall infrastructure for digital that can support, whether it's 5% of share or 30% of share," McMullen noted. "If it ends up being 30% of share in grocery as digital, you'll have more [Ocado] sheds and they'll be used to take pressure off of the store, and the store will become more of a distribution point. So what we're really trying to design is flexibility of a system that can scale based on how the customer changes."
Kroger plans to execute its digital strategy through its core business, as well. "The households that participate in our seamless offerings, those who engage with our digital platforms and our physical stores spend more per week than households that do not. And households that purchase from us online spend even more," he said.
As for the Home Chef merger, McMullen asserts that by joining forces, they'll now be able to grow bigger together than either company could have done alone.
"What we’re really focused on is when somebody decides to eat something they can get it from us," he said.
In addition to Home Chef's meal kits, Kroger is expanding its delivery service to other markets to achieve this goal.
As the ambitious company works to ensure a powerful place for itself in retail's future, Kroger is paving the way for other retailers, as well, showing them that it's possible to thrive in a post-Amazon grocery world.
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Sarah writes for the weekly Food Institute Report and the daily news update, Today in Food. She also writes and edits the Food Institute’s annual publication The Food Industry Review and assists with The Demographics of Consumer Food Spending.
Sarah has more than 15 years of experience as a writer and editor, with a well-rounded knowledge of the food industry and business-to-business research content. Her background includes an editorial role at Convenience Store News magazine, and she has worked for Nielsen, the USA Today Network and Bauer Publishing.
Sarah is currently working on her MBA at Rutgers University. She can be reached at firstname.lastname@example.org to talk about anything food-related.
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