As Kroger reports its third quarter performance, we review how it’s performing against its ‘Restock Kroger’ strategic plan.
Impacting the entire business
There are four key elements to the plan, focused on redefining the customer experience, partnering for growth, developing talent and building out its environmental and social impact plan. The first two are the most critical from a commercial results and capex perspective.
Identical store sales up 1.6%
Over a three-year period, the retailer plans on investing $3.1bn in the customer experience, including its stores and online operations. In Q3, while sales decreased 0.3% to $27.7bn, reflecting the divestment of its convenience store business, identical store sales, excluding fuel were up 1.6%. Ecommerce sales were up over 60%. Its new Kroger Ship initiative contributed to this as it was rolled-out to all divisions, along with the expansion of its store pickup service and the growth of its Home Chef meal kits business.
Optimising the in-store offer across 600 locations
The retailer is also improving its stores, through both remodels and range expansion. A significant amount of space optimisation is underway, with around 600 store projects expected to be completed by the end of the year. Kroger is also redesigning its checkout areas to accommodate more self-checkouts and its Scan, Bag and Go self-scanning solution. The new Dip clothing range has been introduced into 300 stores, while it has also been extending its range of meal solutions and related services such as wine bars.
Source: IGD Research. A recently remodelled Fred Meyer hypermarket.
Building a new model for profitability
Despite the heavy investments underway in this area, they are expected to dilute the retailer’s profitability. However, it plans on growing its operating income by an additional $400m by 2020 through developing alternative profit streams. These include Kroger Personal Finance, monetising its data and insights capabilities, digital marketing initiatives and partnering for growth. Kroger Personal Finance is having a strong year and is expected to deliver record profitability while revenue through its digital marketing business, Kroger Precision Marketing, is up more than 150% year-to-date.
Strategic partnership with Walgreens
One of the most significant developments in the quarter was the formation of a new strategic partnership with Walgreens. Elements of its online and in-store offer being tested in a small number of the drugstore operator’s locations. Under the Kroger Express brand, the retailers are piloting a a curated range of 2,300 products at 13 Walgreens stores. This includes Kroger’s Simple Truth private label products and Home Chef meal its, with the latter also being introduced in 65 Chicago-area Walgreens stores. Further expansion of these programmes could offer Kroger significant scale benefits. The partnership between the two retailers could also hold some long-term implications for Kroger’s in-store pharmacy operations.
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