Kroger's Q1 same store sales were up 19% (excl fuel) compared to last year, driven in part by the effects of the COVID-19 pandemic.
Demand for groceries increased in response to the pandemic, with shoppers stocking up on goods and increasing the size of their shops. The closure of restaurants and other 'non-essential' businesses also gave grocery retailers an opportunity to capture some of this spend and Kroger was able to provide shoppers with alternatives for their usual out of home food spend. Kroger's Q1 sales were $42bn, with operating profit up 47.2% to $1.3bn. During the period, Kroger spent an additional $830m to safeguard stores, customers and workers. Its Restock Kroger strategic plan remains relevant and whilst certain cost saving programs were put on hold during the peak of the pandemic, these are slowly being introduced now that the market has settled slightly.
Digital sales up 92%
Kroger's ecommerce sales have accelerated rapidly during the pandemic, building on the strong foundations that it already had in place. Pickup and delivery have both seen sales increase significantly during the quarter, and new initiatives have been introduced to make the services more convenient for shoppers, such as contactless payment on delivery.
Kroger recently announced three more locations for its CFC's with Ocado. This brings the total confirmed locations to nine and the first of these is expected to open in early 2021. The majority of the sites will be around 300,000sqft, however two of the locations are expected to be 150,000sqft and 200,000sqft, demonstrating flexibility to best meet the needs of each area and provide the appropriate capacity.
Due to the uncertainty surrounding the long-term effects of the pandemic, Kroger is not providing full year sales guidance. However, it has reiterated that it expects to exceed its initial outlook which was same store growth of 2.25% (excl fuel) and operating profit of $3bn-$3.1bn. It is likely that the country, as well as many others around the world, will enter a recession and the depth and length of this are difficult to predict.
Changes in shopper behaviour are also likely to continue, with social distancing measures likely to remain in place for some time. So far this has led to an increase in bigger shops, as consumers try to minimise the number of visits to stores. For the short-term, this is likely to continue, however over time shoppers may or may not revert back to their previous shopping habits and Kroger believes it is well positioned to adapt accordingly.
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