Kroger Ponders Selling C-Stores, Launches 'Restock Kroger' Initiative
The Kroger Co. is considering a sale of its convenience store business, following a review of assets that may be of more value outside rather than within the company.
In 2016, the business generated $1.4 billion in inside revenue, which rose to $4 billion when including fuel. The business unit has delivered 62 consecutive quarters of same-store sales growth.
Currently, Kroger’s c-store business includes 784 stores in 18 states, including 68 franchise operations. Loaf ’N Jug, KwikShop, Tom Thumb and QuickStop. Neither supermarket fuel centers nor Turkey Hill Dairy is included in the review.
“Our convenience stores are strong, successful and growing, with the potential to grow even more,” said Mike Schlotman, Kroger’s EVP and CFO. “We want to look at all options to ensure this part of the business is meeting its full potential. Considering the current premium multiples for convenience stores, we feel it is our obligation as a management team to undertake this review.”
A New Plan
The review of its c-store business is part of Kroger’s newly introduced Restock Kroger plan, intended to “redefine the food and grocery customer experience in America.” To be fueled by capital investments, cost savings and free cash flow, the plan was revealed at the Cincinnati-based grocer’s annual investor conference.
“When we serve America through food inspiration and uplift, we create value for our shareholders, customers and associates,” said Rodney McMullen, Kroger's chairman and CEO. “We understand that today’s marketplace is shifting rapidly. Kroger’s success has always depended on our ability to proactively address changes by focusing relentlessly on our customers.
Added McMullen: “We have the scale, the data, physical assets and human connection to win. Combining our food expertise and data analytics uniquely positions Kroger to create new and highly relevant customer experiences, delivered both digitally and in stores. ReStock Kroger builds on our strengths and strategically repositions Kroger to accelerate our customer-centered efforts in order to create shareholder value.”
The plan has four main drivers:
- Redefine the Food and Grocery Customer Experience: Kroger will outline how it's using shopper data to create different experiences for customers; how it's optimizing the digital experience by placing the customer at the center; how it will leverage customer science to make space-planning decisions to disrupt the shelf, optimize assortment and improve in-stocks; how it will continue investing to grow its Our Brands portfolio, which has seen 37 percent growth from 2011 to 2017; and how it will continue investing to avoid losing customers because of price.
- Expand Partnerships to Create Customer Value: Kroger will discuss its plans to use more of its capital to fund technology and infrastructure upgrades, and its intention to create alternative revenue streams. These will include redesigning the front end with more self-checkout points, including expansion of the 20-store Scan, Bag, Go pilot to 400 stores next year; expanding the Internet of Things sensor network, video analytics and machine-learning networks while complementing them with robotics and artificial intelligence; and driving media and advertising revenue.
- Develop Talent: Kroger plans to invest an incremental $500 million in human capital over the next three years, in addition to its continued efforts to rebalance pay and benefits while also focusing on certifications and performance incentives, career opportunities and training.
- Live Kroger’s Purpose: The grocer successfully launched its Zero Hunger | Zero Waste Plan in September, which aims to end hunger in communities where Kroger operates and eliminate company waste by 2025.
The Restock Kroger plan is expected to generate $400 million in incremental operating margin by 2020. Kroger will also outline how it will prioritize its estimated $9 billion in capital investments to support Restock Kroger over the next three years. The company expects to generate more than $4 billion of free cash flow over the next three years – nearly double what was generated over the previous three years.
“Our goal is to continue generating shareholder value even as we make strategic investments to grow our business,” Schlotman said.
Kroger additionally reaffirmed its 2017 guidance, including comps growth of 0.5 percent to 1 percent (excluding fuel) for the remainder of the year, and net earnings of $1.74 to $1.79 per diluted share, including an estimated 9 cents for the 53rd week.