Kroger's McMullen Describes 2015 Highlights: 'What A Year!'

"Wow…what a year!"

And so began comments to investors by Rodney McMullen, chairman and CEO of The Kroger Co., shortly after the nation's largest food retailer released its fourth quarter and full 2015 financial performance.

While investors were less enthusiastic following the call – as evidenced by Kroger's 8 percent stock plunge in mid-day trading as a result of sales missing expectations on both an overall and same-store basis – McMullen told investors he was "delighted to report that Kroger executed on our growth plan and delivered on our financial performance commitments in 2015. We delivered our 49th consecutive quarter of positive identical supermarket sales growth without fuel, and our 11th consecutive year of market share growth," while also meeting its goal to amp up capital investments while simultaneously improving capital ROI.

Giving a special shout-out to the retailer's 431,000 associates who "make it all happen," McMullen said he's especially pleased with the company's proven abilities to "continue to deliver for our customers and our shareholders with remarkable consistency," as well as its integration of Roundy's, which he said, "is well underway."

Another bright spot on the retailer's aggressive agenda, according to McMullen, is the successful expansion of "new technologies that Harris Teeter and Vitacost.com brought to Kroger, which provide an even better shopping experience for our customers. We developed ClickList – our shop online, pickup at the store service – based on what we learned from Harris Teeter’s Express Lane." Having expanded from one to seven markets, "We continue to improve the offering and our customers and associates both are providing very positive feedback,"

Main & Vine Making Waves

The chain is also testing Vitacost.com’s technology and ship-to-home infrastructure in Denver through a pilot with its King Soopers division, as well as piloting a related "Endless Aisle experience" in its new concept Main & Vine store that opened last month in Gig Harbor, Wash., which McMullen described as highly promising and off to a great start with "very positive" customer feedback.

"We are very excited about this new community-focused grocery store concept," which he said "mixes local, specialty and everyday products all at affordable prices. It reimagines the modern grocery shopping experience…placing in the middle of the store fresh produce and bulk items, along with an event center where shoppers can enjoy cooking demonstrations, food and beverage tastings, and find new recipe ideas. "

Another big gainer for Kroger during 2015, per McMullen, was its corporate brands portfolio, which he said accounted for more than $20 billion of total revenue. During Q4 alone, Kroger's corporate brands "represented approximately 29 percent of total units sold, and 26.2 percent of sales dollars, excluding fuel and pharmacy."

Its Simple Truth line reached $1.5 billion in revenue for the year and "continues to grow at an incredible rate, setting sales records quarter after quarter," McMullen told investors. In 2016, the line further "expanded to be a true lifestyle brand, with the introduction of Simple Truth household, personal care and baby products. "We expect 2016 to be an exciting year of continued innovation throughout our corporate brands portfolio," he said.

'Culture of Innovation, Opportunity'

Noting "there is a lot going on at Kroger," McMullen prioritized the efforts Kroger is making toward the creation of "a seamless experience for our customers. Whether experimenting with new formats, driving digital engagement or launching new corporate brand products, we believe that combining Kroger’s culture of innovation with our culture of opportunity will continue to support our growth."

Another of the retailer's foremost assets is what McMullen said is "an incredibly strong management team and a deep bench of leaders throughout our business. We are incrementally investing in leadership development and training for all of our associates, including high-volume store managers and future senior leaders."

Having created 9,000 new jobs last year at all levels, McMullen said "even more opportunities" exist for current associates to grow and advance, particularly in its newly created Dallas operating division, which "created dozens of new leadership opportunities."

Among the notable highlights of 2015, he continued, was "relatively steady" customer sentiment vs. previous years of more volatile attitudes. The past few months, said McMullen, have sparked a shift of the "top economic concerns…from rising health care costs to the stock market. Customers have more disposable income as a result of significantly lower fuel prices. Yet, economic uncertainty remains, which typically causes people to cut back on discretionary spending."

Nevertheless, "Our customers continue to spend with us. If you look at some of our high quality offerings such as Murray’s Cheese, Private Selection, Starbucks and Boar’s Head, or at the strength of our wine and craft beer business, it is clear that customers across all demographics want a great food experience. Because Kroger is doing a better job of offering high quality food at affordable prices," he summed, "we continue to win with our customers even as they remain cautious about their overall spending."