We review Kroger’s second quarter performance and its outlook for the year.
Q2 key numbers
- Sales up 8.2% to $30.5bn, with growth up 13.9% excluding fuel
- Identical store sales increased 14.6%
- Digital sales up 127%
- Operating profit up 46.7% to $820m
Changing shopper behaviours
The impact of the pandemic continues to underpin growth at Kroger. Its position as a valued and trusted brand and strength in fresh foods have ensured its relevancy during the crisis as consumers have adapted their behaviours. The retailer has seen shoppers:
- Undertake fewer trips but build larger baskets
- Rediscover a passion for cooking
- Have an aspiration to eat more healthy foods
- Trade up to larger pack sizes
- Eat more meals at home, including breakfast
These trends have translated into strong growth for its private label ranges, with sales of Simple Truth up over 20% and Private Selection up over 17%.
Source: IGD Research
Investing to drive long-term customer loyalty
With the business expecting a more challenging economic climate ahead, it believes it is well positioned given the expectation that there will be a greater shift from food consumed away from home to food consumed at home. It continues to invest in price and promotions, including the temporary removal of its ecommerce pickup fee, helping to drive customer loyalty through delivering value during this challenging period.
Clear path to improving digital profitability
Kroger’s investments in its digital capabilities underpinned its performance in Q2. Sales increased 127%, contributing 4.4% to identical store sales growth. The business is profitable on an incremental basis, with Kroger improving profitability by reducing the cost to fulfil a pickup order during the quarter. It sees a clear path to further improve digital profitability through personalisation tools to improve the sales mix, process improvements and automation and accelerating growth in digital media revenue.
Ocado launch on-track for spring 2021
Its ecommerce operation is attracting and retaining new customers. Part of the strategy has been to adapt its mailing to treat new customers as more loyal customers, providing them with an enhanced range of digital promotions. It currently offers more than 2,100 pickup locations and 2,400 delivery locations, reaching 98% of its customers. It continues to see strong demand for its Home
Chef meal kits and will continue to expand its ecosystem, as demonstrated by the recent launch of the Kroger Ship third-party marketplace. It remains on-track to open its first two Customer Fulfillment Centres in partnership with Ocado next spring.
Elevated at-home demand set to continue
With most retailers having removed financial guidance for the year, due to the uncertainty and volatility caused by COVID-19, Kroger’s update on its financial outlook was highly welcome. The retailer expects full year identical store sales growth of at least 13%, having delivered growth of 17.1% for the year to date. While this reflects an expected moderation in demand, it also highlights the ongoing expectation that food retailers will continue to benefit from the switch to more consumption at home. Kroger expects to achieve adjusted earnings per share (EPS) growth of approximately 45% to 50%.
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