Hey, at least inflation is good for someone! That someone here is Kroger, the beloved Ohio-based grocery chain. More customers are buying their groceries at Kroger, and customers are spending more when they do their regular shopping, according to the company’s second quarter earnings report.
Identical sales are up 5.8 percent in the latest quarter. (These are sales to retail customers, from all departments at identical supermarket locations, excluding fuel. Kroger defines a supermarket as “identical” when it has “been in operation without expansion or relocation for five full quarters.”) Digital sales have grown by 8 percent, and sales of Kroger’s lower-priced store brands are up by 10.2 percent. The company also said that coupon downloads are at a record high, and on a call with analysts, a representative promised that its app growth “is showing promising results.” All these positive reports add up to $731 million in profits for the three months ending in August, up from $467 million the year before.
Kroger attributes these successes to a mix of innovations, plus an economy that has left customers far more cost-conscious. As an example of both these points, Kroger has pared down its dozens of private-label lines to just two—Heritage Farm for fresh foods and dairy products, and Smart Way for nonperishables. Smart Way launched in September with about 150 products, with more expected to follow.
Kroger also said it is focusing on becoming more efficient in the procurement and distribution of groceries, such as by maximizing its trucking capacity. In detail, “Our consistent performance underscores the resiliency and flexibility of our business model, which enables Kroger to thrive in many different operating environments,” it assert, in what seems to be a bit of an understatement. The company also expressed commitments to affordable wages for employees, and investing in “zero hunger, zero waste communities because when we do those things well, we deliver attractive and sustainable shareholder returns.” It all sounds pretty delicious.
Discussion Questions:
- Do you think it’s a smart move for Kroger to consolidate its in-house brands? Why or why not?
- Why would investing in employee wages and zero hunger, zero waste communities lead to better returns to shareholders?
- Can you think of other types of businesses that might thrive in a time of high inflation?
Sources: Tom Ryan, “Kroger Simplifies Its Budget Private Labels,” RetailWire, September 12, 2022; Jaewon Kang and Will Feuer, “Kroger’s Sales, Profits Grow as U.S. Shoppers Prioritize Essentials,” The Wall Street Journal, September 9, 2022; “Kroger Reports Second Quarter 2022 Results and Raises Full-Year Guidance,” ir.kroger.com, September 9, 2022; “Kroger Q1 2022 Earnings Release,” static.seekingalpha.com, June 16, 2022