- Kroger’s underlying grocery results outperformed $-consumption and management noted that the volume trend improved. We also see evidence that Kroger is doing surprisingly well in younger customer segments.
- The new CEO’s message was quite similar to his start as CEO of Walmart US (focus on produce), but he did set expectations for a step up in store expansion in the years ahead. We suspect that the expansion includes markets where population growth is stronger and is in response to Aldi, TJ, and club. (Why leave it to them?)
- Should you want to talk about any of this, send me an e-mail.
Kroger reported an increase in comp-store sales (+1.0%) and store traffic (ND). Our read of the commentary puts the comp increase at +2.7% when excluding pharmacy. Grocery volume was “less bad,” but it is still negative. Advan’s observedtraffic was +2.0% for the Kroger brand. (We fear that SNAP reductions are creating some noise in external numbers, including ours.) Food-at-home consumer expenditure (industry-wide) was +2.2% during the Feb-Apr period per the BEA, demonstrating that Kroger gained $-share.
Incoming CEO Greg Foran has lots of plans, but they mainly focus on ways to consistently stock fresher & higher quality produce, in a fast & friendly manner, and at great value. With the latter meaning a move away from high-low and towards EDLP. The message was consistent with the prior quarter’s and his strategy as CEO of Walmart US. On the call, Foran said, “And today, the gap between our best stores and the rest of the fleet needs to improve.”In terms of “the gap,” we used Claude+Advan to examine Kroger’s store performance in Ohio (201 locations) vs. Walmart (140) and Giant Eagle (97). Wow! Kroger does have quite a large right-hand skew.
Looking at the changes in Kroger’s customer mix (psychographic), we see outperformance in four younger customer clusters* with substantial gains in its 13th (out of 80) most important cluster – Rising Professionals. This is a cluster that Aldi is also growing (#13 and +23bps YoY in Ohio) and Krogerheld its own. Like for all grocers, Aldi is a competitor of focus and last week the FT did a story on them, which Foran referenced during the call’s Q&A. (It’s also a story that cites our work; thank you, FT).
In terms of the new road to be traveled by Kroger, not much of what Foran said surprised us (we covered his time at Walmart), but what did surprise us was the statement, “On top of that, we've not been opening enoughstores.” That is a change from Kroger’s long-term positioning (and its more recent “moderate expansion” stance). He went on to say, “Our existing footprint is one of our strongest assets, but standing still in store growth means standing still in market share. The good news is we've started to ramp our pipeline thoughtfully…”Foran didn’t share which markets they were considering; however, given all the considerations, we expect adjacent markets that can be plugged into their supply chain and where strong existing store managers can be incentivized to transition over from. We asked Claude+Advan, and it wrote back, “The Carolinas are the clearest near-term bet. Kroger is using Harris Teeter as a beachhead rather than the Kroger banner, which is smart — HT already has brand equity in affluent Southeast markets. The Charlotte metro spillover into South Carolina suburbs (Fort Mill, Lake Wylie) is a classic adjacency play. Five new Harris Teeter stores are confirmed in Jacksonville FL, Kannapolis NC, and three South Carolina locations over the next couple of years.”
Finally, preceding the new initiative of store expansion was the decision to discontinue the Ocado CFC expansion and close three CFCs. The remaining five’s activity (trucks + shifts worked) are broadly running flat YoY. Kroger reported +19% e-commerce growth**; we suspect that was largely from 3P-store delivery and its RMN.
See our last stories on Costco and Kroger.
‘* Advan + Spatial.ai segments visitors into 80 psychographic cohorts for any given period of time. Looking at changes in the cohorts between time periods allows one to see which cohorts are growing / holding flat / declining.“** Adjusted for the closure of the CFCs.
