Kroger Sees Significant Store Brands Growth

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December 6, 2011

The largest U.S. supermarket chain credits store brands for contributing to a 5 percent quarterly sales jump, with more to come by year-end.

Rodney McMullen

“In the third quarter, more customers chose our exclusive items, which grew Kroger's corporate brand share and sales more than national brands,” said Kroger President and COO W. Rodney McMullen during a conference call with analysts.

Store brands now represent approximately 27 percent of grocery department sales dollars and 35 percent of the units sold. That’s a 1 percent increase in both areas compared to the third quarter last year, and management expects the growth to continue.

“Considering the consistent share growth of Kroger's corporate brand products for several years, it is obvious that after customers try them for the first time, they continue to choose them for their great value, both in terms of quality and low price points,” said McMullen.

During the quarter, Kroger launched several new private label items including a 99-percent natural, zero-calorie baking sweetener that measures cup for cup like sugar, in addition to seven new items in its namesake private label line. It also consolidated all its natural food items under the Simple Truth banner, eliminating the Naturally Preferred and Private Selection Organic store brands.

Kroger has been revamping its store brands throughout the year. In June, the premium Private Selection brand was expanded with a variety of frozen pizzas, lasagna and artisan breads, as well as fresh meats and seafood. It also reformulated or rebranded the products in its Home Sense private label household line while the store’s namesake brand – nearly 5,000 SKUs across 276 categories -- got new packaging. In some cases, packaging was made smaller. Shoppers are buying smaller pack sizes and fewer items per trip and many of the packaging changes were done to address these shifts, said McMullen.

“Customers are shifting what and how they are buying groceries and consumables,” he said. We saw significant growth in sales in our corporate brand items. Some customers are buying smaller pack sizes for items in certain categories.”

It’s a reaction to stagnant wages, high unemployment and lingering economic pressure, McMullen said. “This is one of the reasons we embarked upon the strategy we did several years ago.”

The effort is paying off. Total sales, excluding fuel, increased 5.1 percent for the third quarter ended Nov. 5 over the same period last year. Same store sales, without fuel, increased 5 percent during the quarter, marking 32 consecutive quarters of identical supermarket sales increases for Kroger.

Based on this momentum, management raised total earnings guidance and same store sales expectations for the year by a half percentage point.

SBD Views: The good news on Kroger’s store brands growth is no surprise based on the incredible level of activity that has taken place in the store brands unit over the past 24 months. As their entire store brands portfolio is essentially in the process of being reinvented, we project continued growth in share and revenue for Kroger store brands. We also believe that good news from store brands will play a growing role in quarterly announcements at Kroger and other publicly traded retailers. -- John Failla for Store Brands Decisions

Read These Related Articles:

• Winn-Dixie Boosts Store Brand Penetration by 20 Points
• Safeway Private Label Grows Faster than National Brands
• Kroger Store Brands Tally Double-Digit Sales Increases
• Supervalu Grows on Private Label
• Store Brands Gain Share in Significant Categories

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