US grocery retailer Kroger attributed its accelerating same-store sales to momentum gained through its “Customer 1st” service strategy.
Speaking to analysts after Kroger published its second-quarter results yesterday (14 September), the company’s chairman and CEO David Dillon said the 2.7% rise in same-store sales was due to the “consistent successful execution of all aspects of our strategy, not simply a single factor”.
However, Dillon highlighted the role played by Kroger’s Customer 1st strategy, which he said “continues to deliver results through improvements in all four key areas that we target; our people, our products, the shopping experience in our stores, and the prices”.
Kroger’s president and COO Rodney McMullen said that, while the total number of households the retailer serves continued to grow in the quarter, the number of “loyal households” grew at a faster rate, which he attributed squarely to the impact of the Customer 1st strategy.
“This is a very important trend,” McMullen said. “We believe this is a reflection of our Customer 1st strategy, which is designed to reward our loyal customers and not cherry pickers who simply shop various outlets based on the lowest available price.”
Highlighting the success of the company’s relationship with dunnhumby, the same loyalty and customer data provider Tesco uses in the UK, McMullen said: “Our strong partnership with dunnhumby allows us to use shopping behaviour data from our loyalty cards to create specific offers and savings for individual households. This enables Kroger and our family of stores to reward our best customers for their increased loyalty.”
However, the economy, food prices and the competitive environment continue to influence the retailer’s strategey. “Customers are uneasy in this economy and the variability of the spending behaviour continues to reflect their concerns about the job market, cost of living and healthcare expenses,” said Dillon.
Dillon said changing food costs are also impacting Kroger’s bottom line. During the quarter most of the retailer’s perishable departments experienced higher product costs compared to the same period last year, while deflation continued in the centre of the store.
Across all departments, excluding fuel, McMullen estimates that second-quarter cost inflation was roughly 1%. However, he said product cost deflation persisted in the grocery department, excluding milk; McMullen estimated that the grocery department experienced product cost deflation of approximately 1.6% against 1.8% in the first quarter.
The company maintained its financial guidance for the year, saying it continues to expect identical supermarket sales growth, excluding fuel of 2 to 3%, while net earnings are expected to range from US$1.60 to $1.80 per diluted share for the year.
When asked why the retailer did not raise its expectations for the year, given the strong performance in the second quarter, CFO Michael Schlotman said: “We’ve told the world we are striving to achieve results in the upper half of our guidance range, and given the uncertainty that’s out there, with the economy, the pace of the recovery, consumer confidence and the other factors influencing consumers today, we just thought it was prudent to keep the range of $1.60 to $1.80, because we are right on top of what we expected to deliver in the first half.”
Shares in the company rose yesterday by 1.05% to US21.26 per share at the close of the NYSE.