Kroger continues to separate itself from the pack. The US grocer’s 4.6% gain in identical store sales in the first quarter put to shame the 0.1% decline turned in by Walmart US.
Kroger’s comps also outpaced those most recently reported by typically high-performing peers Publix and Whole Foods. A ‘1-2 punch’ – low prices coupled with a traffic-driving and margin-enhancing assortment – remains a key component of Kroger’s success.
The business posted near double-digit sales growth (+9.9%) for the first quarter ended May 24. This rise was partly a result of the first-time inclusion of the acquired Harris Teeter business. But growth was also driven by a 4.6% gain in identical supermarket sales, excluding fuel. This marks the retailer’s 42nd consecutive quarter of positive same-store sales growth. That is a remarkable feat – particularly since some larger retailers (e.g. Walmart and Target) struggled through the quarter.
The strong pace in the first quarter has led Kroger to raise its guidance for the 2014 fiscal year. The company now expects identical store sales growth for the year to be in the 3% to 4% range. Previous guidance was 2.5% to 3.5%.
In addition to a more aggressive growth course – including entry into several new markets courtesy of the Harris Teeter acquisition – Kroger remains intently focused on driving sales and productivity increases in its core business. Low prices and spot-on assortments are vital to keeping Kroger shoppers returning to stores time and time again.
Kroger invests heavily in price to sustain its competitive positioning vis-à-vis other grocers, including Walmart and value retailers (i.e. dollar stores). Last year, it embarked on a multi-million-dollar price investment in which it discontinued doubling coupons to instead lower prices of about 3,500 items.
Chain-wide, lowering prices has become a reality because of an operating model that simply ‘just works’ for Kroger. Growing operating margin year-on-year is a key measure of success for Kroger. It allows the retailer to generate free cash flow, despite slim margins inherent in the supermarket model. Capital is then invested back in the business (e.g. in the form of lower prices, private label expansion, store remodels) or distributed to shareholders.
Investment in product goes in tandem with price. Kroger continues to expand in the organics/natural space with the ongoing roll-out and enhancement of its Simple Truth and Simple Truth Organic private brands. Launched in 2011, the labels added 100 new items last year alone, and Kroger reports that the range continues to over-deliver against internal sales goals. In fact, Kroger anticipates the brand will reach $1bn (£587m) in sales, representing roughly 1% of company net sales, by the end of the 2014 fiscal year. But Kroger is also busy expanding and enhancing other categories throughout its stores with a focus on traffic-driving and margin-enhancing premium products (e.g. ‘good-for-you’ ranges, premium pet products and limited-time World Food promotions).
The ‘1-2 punch’ of lower prices and expanded assortment continues to make Kroger a formidable force to be reckoned with.