How Kroger is 'redefining the grocery customer experience'

by Monica Watrous
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Kroger grocery store
Net earnings attributable to Kroger in the third quarter ended Nov. 4 rose to $397 million.
 

CINCINNATI — The Kroger Co. is expanding its grocery delivery service in the year ahead amid increasing competition across the retail landscape. The supermarket company in the most recent quarter saw a bump in sales, helped in part by initiatives to evolve with changing customer tastes.

Rodney McMullen, Kroger
Rodney McMullen, chairman and c.e.o. of Kroger

“In the past, we have defined our market as share among traditional grocery stores,” said W. Rodney McMullen, chairman and chief executive officer, during a Nov. 30 earnings call. “Today, we’ve redefined our market as share of stomach.

“This sharpens our focus when we look at our industry and our customers. We see anyone who sells food as competitors, which doubles the size of our market to $1.5 trillion. If you’re eating, we want to serve you that meal. The fact that Kroger is trusted by more than 60 million households is an incredible competitive advantage.”

Net earnings attributable to Kroger in the third quarter ended Nov. 4 rose to $397 million, equal to 44c per share on the common stock, from $391 million, or 41c per share, in the year-ago period. Sales increased to $27,749 million from $26,557 million.

J. Michael Schlotman, Kroger
Michael Schlotman, executive vice-president and c.f.o. of Kroger

Identical supermarket sales without fuel increased 1.1% in the quarter, with strong results in fresh produce and meat and double-digit growth in natural foods, said J. Michael Schlotman, executive vice-president and chief financial officer. Kroger’s store brands, including natural and organic brand Simple Truth, delivered continued growth, accounting for more than 28% of unit sales and more than 25% of sales dollars, excluding fuel and pharmacy, during the quarter.

“Simple Truth continues to resonate in a big way with our customers with sales growing 19% in the third quarter,” Mr. McMullen said.

In the coming months, the company plans to build its home delivery offering through partnerships with several service providers, including Uber and Instacart, Mr. McMullen said, adding, “We’ve gone from zero to more than 300 locations offering home delivery in the span of a little over a year.”

Kroger Instacart grocery delivery partnership
Kroger plans to build its home delivery offering through partnerships with Uber and Instacart.

Kroger also will expand its ClickList click-and-collect model, which drove 109% digital revenue growth in the third quarter, Mr. McMullen said.

“By year’s end, we will be serving customers at more than 1,000 click-and-collect locations,” he said.

Executives also highlighted early progress in the recently announced Restock Kroger plan, which is expected to deliver $400 million in incremental operating margin and more than $4 billion in free cash flow by 2020.

“Restock Kroger has four main drivers: Redefine the grocery customer experience, expand partnerships to create customer value, develop talent and live our purpose,” Mr. McMullen said. “These pillars combined will create shareholder value.”

Kroger ClickList
Kroger is expanding its ClickList click-and-collect model to more locations.

As part of these efforts, Kroger is focused on creating a seamless experience for customers who shop in-store and on-line.

“Our efforts are all about making things easier for our customers and providing personalized, affordable and exclusive options that fit their needs,” Mr. McMullen said. “Seamless will play a major role in redefining the grocery customer experience. Our hypothesis has always been that our customers will want to have options on how they engage with us. This hypothesis shaped our strategy, and we’ve been executing that strategy by accelerating Kroger’s digital and e-commerce efforts for the last several years.” 
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