Kroger 2.0 Appears to Be a Success
By Rick Moss
With its financial report yesterday, Kroger capped off eleven consecutive up quarters of same-store sales growth with news of its most impressive quarterly sales growth in over
five years. Sales at stores open at least a year jumped 7.2 percent in Kroger’s first fiscal quarter, or 5.6 percent excluding fuel. Total sales were up by 8.2 percent to $19.4
In a company statement, Kroger chairman and ceo David B. Dillon proudly announced a quarterly cash dividend to shareholders “for the first time in 18 years” which he attributed
directly to “our associates’ commitment to our Customer 1st strategy.”
Kroger has battled unprecedented competition from supercenters in its numerous markets and is often thanked for its determined efforts with lackluster reviews from many industry-watchers
who regard its conservative approach as “plain vanilla” and representative of an earlier era. But latest indications are that the company is doing a lot of things right. Referring
to yesterday’s report, Mr. Dillon said, “This compares favorably with our traditional supermarket competitors, and indeed with any food retailer.” (One can safely assume that
latter refers to Wal-Mart and trendsetting Whole Foods Markets.)
Details in Kroger’s financials offer clues to their winning strategy. Management was able to pull operating, general and administrative costs as a percentage of sales down 19
basis points during the period to 18.17 percent. At the same time, capital investment is robust, totaling nearly $450 million vs. $400 million in the year ago period.
According to the Financial Times, since 2001, Kroger has managed to keep prices competitive on core SKUs by accepting a reduction in profit margins. But the chain also
credits its work with UK firm Dunnhumby in methodically editing its product mix based on local “store characteristics.”
“Increasingly the differences [between our stores] will be driven by the differences in our customers, rather than just the differences in geographies,” said Mr. Dillon.
Moderator’s Comment: Has Kroger’s perseverance paid off in a winning, “next generation” big chain supermarket formula? How will the resurgence of Kroger
and Safeway shape the supermarket landscape in coming years?
A number of aphorisms come to mind regarding Kroger’s success, including “slow and steady wins the race” and “stick to the fundamentals.” The Kroger management
team should be congratulated for “keeping their eye on the ball.” –
Rick Moss – Moderator