Kroger makes sense of consumer contradictions

Discussion
Photo: Kroger
Dec 03, 2021

Kroger CEO Rodney McMullen said earlier this year that no other retailer “has the customer data and the insights” that his company has. He’s once again pointing to his company’s understanding of its customers to explain its ability to continue growing sales and earnings, even when matching up against 2020’s pandemic-fueled comps.

The retailer posted a 3.1 percent gain in same-store sales, excluding fuel, for the third quarter. Adjusted earnings per share came in at 78 cents. Both figures were above Wall Street’s expectations.

Mr. McMullen, speaking on Kroger’s earnings call yesterday with analysts, said his company continues to benefit from the eat-at-home trend that began last year. He said that cooking home meals is “more affordable, convenient, and healthier” than other options and has the additional benefit of bringing families together. Kroger saw clear evidence of this at Thanksgiving.

“Customers engaged in larger celebrations with friends and family compared to last year. We also saw them continuing to cook at home, leading up to and during the holiday, and select more premium products to elevate the food experience,” said Mr. McMullen.

Kroger’s CEO said the company’s consumer insights clearly point to the need for flexibility if it is going to continue growing its share of the market. He pointed to research showing 70 percent of consumers planned to do more of their holiday shopping in stores.

“At the same time, 84 percent of consumers said that they will continue to shop online the same amount or more in the future,” he said. “These seemingly contradictory behaviors are exactly what Kroger’s seamless ecosystem was designed to accommodate.”

Kroger’s third quarter digital sales were up 103 percent compared to the same period in 2019 as the company remains committed to doubling its online revenues to $10 billion by 2023.

Mr. McMullen said customers are feeling the effects of rising prices and the company is using its data and financial resources to help them stretch their budgets.

“We deliver value when customers need it the most with personalized promotions, big packs and dynamic holiday offerings. Our brands also offer our customers flexibility within their spending without compromising, thanks to the wide variety of incredibly high-quality and innovative products at various price points.”

DISCUSSION QUESTIONS: What do you see as the most important factors driving consumers’ grocery shopping behaviors at this time? What operational boxes must grocers check off to stay aligned with how Americans want to shop for food?

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"Quality, variety, convenience and trust shape our grocery shopping. "

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8 Comments on "Kroger makes sense of consumer contradictions"


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Neil Saunders
BrainTrust

Elevated dining at home, more people cooking and baking, bigger family celebrations, consumers treating themselves to good food during stressful times, and inflation pushing prices higher are all helping the grocery sector as a whole. However the spoils are not evenly divided. Kroger and Walmart seem to be cashing in on these trends. Whereas stores like Dollar General are seeing much weaker results as some consumers who used it for convenience last year are now drifting back to big box stores. Of course the biggest challenge for grocery players isn’t necessarily driving sales, it’s protecting margins.

Liza Amlani
BrainTrust

The most important trend driving customer shopping behaviors is the state of the pandemic and work from home models.

If people are at home, they are spending more on at home experiences like cooking and baking. Governments and businesses are still navigating how to manage travel and work with the new virus strain and there are still safety concerns for consumers.

We have also gotten used to a digital first shopping journey and online grocery is definitely not going away. Which means more data driven insights to drive smarter marketing and product decisions.

Lisa Goller
BrainTrust

Quality, variety, convenience and trust shape our grocery shopping.

Both value for money and premium indulgences also drive grocery. As inflation rises, many consumers seek deals yet others have made affordable luxuries part of their pandemic habits. E-grocery is still maturing, as questionable selections and substitutes and out-of-stocks can hamper online shopper loyalty.

Operational essentials in grocery include omnichannel options, reliable quality and product availability.

Melissa Minkow
BrainTrust

Self-reported data is often contradictory or not accurately reflective of actual behaviors. It’s great Kroger cares so much about consumer insights, but receipts and search data will often be more useful than self-reported numbers.

Grocery shoppers value fair prices, consistent supply, and convenient fulfillment methods. Winning strategy in grocery keeps the experience as easy, reliable, and affordable in the face of supply chain struggles, labor shortages, and inflation.

Gene Detroyer
BrainTrust

The pandemic has accelerated many trends. Eating at home is not one of them. How many decades has the trend been going in the opposite direction? The question is if (or when) that behavior will return to the trend line. Even with the pandemic, still more than a third of all meals are out-of-home.

By no means does that mean that Kroger isn’t doing a good job in reading the consumer. But let’s remember the references to McMullan’s comments are from an earnings call, which are always filled with puffery.

Gene Detroyer
BrainTrust

A tangential comment to the Kroger discussion. Kroger posted an increase of same-store sales of 3.1 percent. How could that be good in an era of 5 percent inflation?

As we approach the end of the year, retailers will start reporting their comps. Is a 2 percent, 3 percent, or even 4 percent gain something to get excited about with projected inflation of 4 percent plus?

Ryan Mathews
BrainTrust
There are no “consumers” there are just individuals who consume. What do I mean? The drivers of “consumer behavior” in, say the Hamptons or on Rodeo Drive are quite different from those of a single mother with two children and a high school education who is only able to work part-time. It’s way past time that we stop thinking about “consumers” as some monolithic block of humanity which responds with the precise predictability and uniformity of residents of an ant hill. So, this year, for some the “most important” driver is economics, making a dollar stretch as far as it can. For others it is the desire to return to some kind of pre-pandemic sense of family and community. For still others supply chain concerns will encourage them to get as much of their holiday shopping done early as they can. And so on, and so on, etc. As for the operational boxes grocers should “check off” I believe that once you offer a service – even one that is seen as a value add… Read more »
Patricia Vekich Waldron
Staff

While consumer behavior continues to bifurcate, and grocers must serve value shoppers and high-end gourmands, everyone wants convenience and flexibility. This means grocers must balance profitability with physical and digital investments in order to keep market share. Kroger and Walmart seem to be doing the best job at this.

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Braintrust
"Quality, variety, convenience and trust shape our grocery shopping. "

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