Kroger is likely to report sales results that on an underlying basis, excluding pharmacy, are similar to last quarter’s. Observed traffic (+2.3%) for the Kroger banner was nearly identical to the FQ1 period. The traffic figures are likely slightly higher than -transactions due to curbside, 3P delivery, and other distortions. Traffic and transactions are also likely ahead of consumption because less-affluent households are shopping for deals (coupon clipping) and keeping the basket size low to manage the paycheck cash-cycle. Like what we saw with the dollar stores, the run-up in gas prices in May and July increased the relative attractiveness of shorter drive times and convenience, and that was a likely boost to Kroger’s traffic relative to big box discounters. Late July and early August were the strongest period of Kroger’s traffic growth.
- Comp-sales will likely be less than FQ1’s +1.0% due to more pharmacy (RX) deflation. Walmart and Albertsons also experienced that downshift. Our understanding of Albertsons’ comments is that RX was -150bs QoQ headwind. (Albertsons’ grocery comp-sales decline was -1.8%.) It’s not clear what’s in store +/- for Kroger. FAH inflation* was +2.4% for the period; however, Kroger has been pricing below inflation, and customers are switching to Kroger’s brands from national brands, which becomes a negative mix impact on comp sales.
- Units per transaction (UPT) and volume have been headwinds to the conventional industry for some time, and are two of the most scrutinized metrics by investors. We don’t have direct data on them; however, for June and July, average visit length increased 3-4%, which means shoppers are spending more time in the aisles (both 1P shoppers and 3P pickers) and the increase should yield a QoQ improvement in UPT and volume. That +3.4% is much improved from the prior quarter’s +1% and it suggests that CEO Greg Foran’s priorities to improve store conditions, in-stocks, produce freshness / quality, and value are showing early signs of progress. Unfortunately, the cyclospora outbreak is also going to create noise in the results, as some volume will move from produce to other categories of consumption.
- We also focus on mid-week trips vs. the total, because if Kroger’s convenience attributes begin to have less hold on households, watch out below. Moreover, this is the purchase occasion that Amazon same-day perishables, Walmart delivery, Costco delivery, etc. are after. On this front, there was slippage, with the mid-week visit trend softer than the total-week trend, and the opposite of FQ1’s relative dynamics. And so, in terms of the earnings call, it is this dynamic that our ears will be most attuned to.
‘*FAH – Bureau of Economic Analysis PCE Food-at-Home
See our recent stories on the results of Kroger, Costco, Walmart, and Albertsons.
