Kroger Credits Store Brands for Q2 Growth

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September 13, 2011

Cincinnati-based Kroger's customers are spending less on groceries but giving a larger share of those dollars to store brands. The supermarket chain reported higher sales and earnings for the second quarter of this year, thanks to growth in private label.

"In the second quarter, corporate brands share grew more than national brands," said Rodney McMullen, Kroger's president and COO. "Corporate brands represented approximately 27 percent of grocery department sales dollars and 34 percent of the grocery department units sold." This compares to 26 percent and 34 percent, respectively, for the second quarter last year. "When you look at these trends compared to our first quarter results, corporate brand dollars and total units each increased by 100 basis points."

Shoppers continue to be stressed by economic conditions and for the first time cited volatility in the financial markets as cause for concern, said David Dillon, Kroger’s chairman and CEO.

The retailer is reducing operational costs internally and passing along higher food prices to customers to maintain margins and profitability. And,of course, it is promoting and expanding private label.

"Our multibillion dollar corporate brand portfolio is a competitive advantage because it gives our customers more choices and variety and value to complement the broad assortment of national brand products we offer," said McMullen. "This is particularly important today as many shoppers continue to watch expenses and look for quality items at affordable prices."

Big K Expansion
Kroger is expanding its selection of Big K brands soda with several new flavors based on customer feedback including apple, pineapple, passion fruit, watermelon, kiwi, blackberry, citrus and mandarin. The retailer is also extending its reach with Hispanic shoppers by launching its first bilingual website, comfortsforbaby.com. "The website provides parents a choice, a place to discover the high-quality products offered under the Comforts [baby care store] brand, and the Spanish language version of the site even includes content specifically tailored to Hispanic parents," McMullen said.

Total sales, including fuel, increased 11.5 percent to $20.9 billion in the second quarter of fiscal 2011; excluding fuel sales increased 5.2 percent. Same-store sales, without fuel, increased 5.3 percent, marking 31 consecutive quarters of comp store gains for Kroger. Profits climbed more than 7 percent to $280.8 million for the period.

Expect Kroger to continue growing its value-priced store brands based on internal consumer research. "Customers are even more value conscious when they shop, are buying smaller baskets and are selecting some lower cost items, including our corporate brand products," said McMullen. "This has made the value we offer our customers through lower every day prices, weekly promotions and personalized rewards to loyal households even more compelling. We will continue to pass along product cost increases from suppliers. At the same time, we will continue to invest for the future in pricing, people, products and customer shopping experience."

SBD Views:  The beat goes on with Kroger's continued improvement of their store brands results. The numerous initiatives they have executed against over the last 18 months are clearly paying dividends. -- John Failla for Store Brands Decisions

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