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Kroger’s Fresh, Digital Strategies Boost Q4, FY23 Sales

National retailer is increasing customer visits, growing loyal households
Marian Zboraj, Progressive Grocer
Kroger storefront
Kroger introduced more than 700 new Our Brands items in 2023, including expansion of Mercado and Smart Way lines.

The Kroger Co. is reporting strong 2023 results, in line with its long-term growth model and built upon three consecutive years of historic growth.

“As customers manage macroeconomic pressures, we are lowering prices and offering even more ways to save with personalized promotions and rewards,” said Chairman and CEO Rodney McMullen. “Our unique seamless shopping experience provides customers the products they want, when and how they want them, with zero compromise on quality, convenience and selection.”

For its fourth quarter 2023 ended Feb. 3, Kroger’s total company sales were $37.1 billion, including $2.7 billion from the 53rd week, compared with $34.8 billion for the same period last year. Excluding fuel and the 53rd week, sales decreased 0.5% versus the same period last year.

Gross margin was 22.7% of sales for the fourth quarter. The FIFO gross-margin rate, excluding fuel and the 53rd week, increased 13 basis points compared with the same period last year. The improvement in rate was primarily attributable to strong Our Brands performance, sourcing benefits and lower supply chain costs, partly offset by increased price investments and higher shrink.

[RELATED: Kroger Says It Will Lower Prices After Albertsons Merger]

During Q4, the food retailer made several improvements in the area of fresh. For example, it launched its new Murray's Cheese monthly subscription club. According to the Kroger-owned cheese retailer, customers can choose from five programs to get unique cheeses sent to their homes.

Kroger also innovated to make customer favorites even better with reinvented deli and bakery items. The grocer reformulated some of its popular store brands in these departments, including products such as Private Selection cinnamon rolls and Home Chef fried chicken.

Kroger also made great strides in digital during Q4, growing the digital business to $12 billion in annual sales. It increased delivery sales by 24% over last year, excluding the 53rd week, led by Kroger Boost and customer fulfillment centers. Kroger also increased digitally engaged households by 18% compared with last year.

The operating, general and administrative rate rose 40 basis points, excluding fuel, the 53rd week and adjustment items, compared with last year. This increase was driven by planned investments in associate wages, an adjustment for self-insurance expenses and the decision to contribute an additional $40 million to multiemployer pension plans, partly offset by continued execution of cost savings initiatives and lower incentive plan costs.

“Over the last five years, we've made historic investments in associate wages, benefits and career development opportunities, including significant investments to help stabilize associates' future pension benefits,” noted McMullen.    

For FY23, total company sales were $150.0 billion, including $2.7 billion from the 53rd week, compared with $148.3 billion for the same period last year. Excluding fuel and the 53rd week, sales increased 1.1% versus the same period last year.

Gross margin was 22.2% of sales for 2023. The FIFO gross margin rate, excluding fuel and the 53rd week, rose 18 basis points compared with last year. Again, this improvement was driven by strong performance in store brands. Kroger introduced more than 700 new Our Brands items in 2023, including expansion of its Mercado and Smart Way lines. 

According to a recent report, Kroger was “the nation’s most-visited grocery banner in 2023,” capturing almost 19% of annual foot traffic among the country’s 10 most frequented grocery chains. 

“We are increasing customer visits and growing loyal households through the strength of our retail business, which positions Kroger for more ways to drive sustainable future growth,” said McMullen.  

The retailer also invested approximately $500 million in incremental wages in 2023, for a total of $2.4 billion in incremental investments since 2018.

Kroger's net total-debt-to-adjusted-EBITDA ratio is 1.33, excluding the 53rd week, compared with 1.56 a year ago. The company's net total-debt-to-adjusted-EBITDA ratio target range is 2.30 to 2.50. 

"Kroger's 2023 results provide another proof point of the strength and resilience of our value creation model, which supported another year of strong free cash flow and net earnings growth,” said interim CFO Todd Foley.

The national grocer also released its full-year 2024 guidance, which includes 0.25%-1.75% identical sales without fuel. Adjusted FIFO operating profit is predicted to be $4.6 billion-$4.8 billion, while adjusted net earnings per diluted share is expected to be $4.30-$4.50. Kroger anticipates adjusted free cash flow of $2.5 billion-$2.7 billion and capital expenditures of $3.4 billion-$3.6 billion.

“In 2024, we expect to grow revenue by delivering value for customers and enhancing our seamless shopping experience. We plan to balance investments in our business, including lowering prices and increasing associate wages, with productivity and cost savings initiatives, improvement on long-term initiatives in gross margin, and growth in our alternative-profit businesses,” said Foley.

Serving more than 11 million customers daily through a digital shopping experience and a variety of banner names, Cincinnati-based Kroger is No. 4 on The PG 100, Progressive Grocer’s 2023 list of the top food and consumables retailers in North America. PG also named the company to its Retailers of the Century list. 

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