Kroger sees growing consumer confidence

by Monica Watrous
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More Kroger shoppers are adding natural and organic products to their baskets.

CINCINNATI — Executives at the Kroger Co. shared two observations about its shopper base during a Sept. 11 earnings call with analysts: They are spending money more confidently, and they are buying more natural and organic products than ever before.

“We continue to see positive indicators in customer shopping behavior, both what our customers tell us and what their actual shopping behavior says,” said Rodney McMullen, chief executive officer. “Kroger’s data suggests some greater confidence in the economy and less caution in spending, consistent with what we saw in the first quarter.”

One indication of rebounding consumer confidence is an uptick in sales of upscale and discretionary items.

“So if you think about Starbucks, or Boar’s Head, some of our cheeses, some of our upscale items, customers continue to engage in a much more positive way than before,” Mr. McMullen said. “And that’s performance that’s year on year. …And then we also survey our customers on their perception, and customers are continuing to tell us they feel the economy’s a little bit better, but they continue to be nervous in terms of their outlook on things. So, it’s cautious optimism, I think, is probably the best way to put it.”

As employment and income levels slowly recover, a segment of Kroger’s shoppers still struggle. To connect with these value-oriented customers, Kroger said it continually lowers prices and introduces more entry price-point items.

“And we continue to pursue our strategy of connecting meaningfully with all customers, wherever they are in the economic spectrum,” Mr. McMullen said. “We have loyal customers in every segment of the customer spectrum, from value customers to upscale shoppers and everywhere in between. We continue to see our loyal households grow at a faster rate than total households.”

Across Kroger’s consumer base, an increasing number are buying more natural and organic products. The company’s Simple Truth and Simple Truth Organic product lines generated double-digit growth during the second quarter, underscoring a deeper engagement in the channel. Organic produce also shows strong continued growth, the company noted.

“It appears to us that the natural/organic customer is changing and growing in numbers,” said Mike Ellis, president and chief operating officer. “And those that shop the grocery store are also crossing over, and the blurring of grocery and natural foods is becoming more and more difficult when you look around the store and you can see organic items on the regular grocery shelves.

“So it seems that the customer base is getting much larger for these types of products. I don’t know where the end is. It might be a lifestyle change for our customers, that they’re just deciding to eat better and make different choices for their families, but we love the growth. And we’re going to continue to make sure that we have the products are customers looking for.”

Only a small number of Kroger’s customers shop strictly organic. Most shop the whole store, adding natural and organic products to the basket as more innovation pervades the space.

“So, some of the customers may be buying products there because of the innovation, not necessarily because of organic or natural,” Mr. McMullen said. “It’s just because it’s a new item and it tastes good.”
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