Private Brands, Personalization Driving Kroger Transformation

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Private Brands, Personalization Driving Kroger Transformation

By Gina Acosta - 03/05/2020
Private Brands, Personalization Driving Kroger Transformation
Kroger said fresh continues to be an important driver of sales, and that fresh drives trips, loyalty and gross margin.

Kroger reported increases in sales and profit in the fourth quarter thanks in part to a record number of shoppers ordering private brand barbecue sauce online.

In fact, Kroger's Our Brands division, which includes such highly differentiated and popular products as Private Selection brand Kentucky Bourbon Craft Barbecue Sauce, achieved its best year ever, exceeding $23.1 billion in sales.

"We introduced 758 new Our Brands items in 2019, which helped drive strong year-over-year sales lift across our portfolio of brands," said CEO Rodney McMullen. "Since its launch in 2013, Simple Truth has become the leading natural and organic brand in the country, with annual sales exceeding $2.5 billion in 2019. The Private Selection brand eclipsed $2 billion in sales for the first time. The Kroger brand exceeded $13.7 billion in sales, capitalizing on product development around key customer trends like global and regional flavors."

And it wasn't just private brands that helped Kroger drive growth in the fourth quarter and in 2019. Digital sales, including personalized services such as Pickup and Delivery, were up 22% year over year.

"Kroger continues to invest in digital as we build a seamless ecosystem that combines the best of the physical store experience with the digital customer experience for our customers," McMullen said. "We know our customers value the greater convenience this provides, and our data shows it's an essential component of driving overall loyalty. Digitally engaged customers not only drive growth through our digital modalities, they also help drive brick and mortar sales growth and share of wallet. Providing our customers with the ability to have anything, anywhere, anytime from Kroger sets us apart from a large segment of our competitors and will drive loyalty, as well as our long-term growth and margin expansion."

Kroger has been making steady progress since it launched its Restock Kroger transformation plan in 2017. Restock Kroger has four main drivers: redefine the grocery customer experience, partner for customer value, develop talent and live our purpose. 

"To drive sustainable sales growth, we continue to invest in areas of the business that are important to our customers. This includes ongoing investments in talent, price, digital and store experience – with an even greater emphasis on our competitive moats: Fresh, Our Brands and Personalization – plus the moat we are in the process of building … our seamless ecosystem," said COO Gary Millerchip.

For fiscal 2019, Kroger delivered on its commitments for same-store sales, adjusted FIFO operating profit, cost savings and more than $100 million of incremental operating profit through alternative profit streams in 2019. 

Full year same-store sales without fuel grew 2% at Kroger. Digital sales grew 29%. Adjusted EPS for fiscal 2019 was $2.19. Profit increased to $327 million, or 40 cents a share, from $259 million, or 32 cents a share, the year earlier. Total sales edged up to $28.89 billion from $28.29 billion the year earlier.

During an earnings call, Kroger said sales have increased for coronavirus staples such as hand sanitizer, hand soap and paper towels. The company is limiting how many such products shoppers can buy in stores and online.

“From a financial standpoint, it is too early to tell the effect on our business. It is not included in our guidance and, while it is obviously very early for this public health event in the United States, we are not seeing anything so far that would cause us to change our guidance. From a business preparedness standpoint, we have established an internal task force that has activated our pandemic preparedness plan with a focus on our customers, associates and supply chain. We generally believe that we will have limited supply chain exposure in China as the majority of the product we source is domestic,” McMullen said during the call.

Kroger reported $28.89 billion in sales for its fourth quarter that ended Feb. 1, up from $28.29 billion the year earlier and ahead of the $28.87 billion that analysts polled by FactSet expected. Same-store sales, or those from locations open for at least 15 months, rose 2% in the latest quarter, excluding fuel sales. The Cincinnati-based company said profit rose to $327 million, or 40 cents a share, from $259 million, or 32 cents a share, the year earlier.

Excluding impairment charges and some other costs, Kroger reported an adjusted profit for the latest quarter of 57 cents, two cents more than forecasts from analysts.

Kroger employs nearly half a million associates who serve more than 11 million customers daily through a seamless shopping experience under a variety of banner names. The company is No. 2 on PG’s 2019 Super 50 list of the top grocers in the United States.