Another quarter, another growth spurt for Kroger's private brands

Private brands dominated the news in The Kroger Co.’s third-quarter earnings, where the Cincinnati-based grocer announced sales of $28 billion versus $27.8 billion for the same period last year. Excluding fuel and dispositions, sales rose 2.7%.

Kroger said sales of its private brands, known as Our Brands, grew 3.4% in the quarter. Kroger introduced 231 new products in the quarter. Its store brands include Simple Truth, Private Selections, Kroger, HemisFares and others.

“While many grocers offer private label products, Our Brands is a real differentiator for Kroger,” Kroger Chairman and CEO Rodney McMullen said in prepared remarks referencing the third quarter. “Because customers tell us through blind taste tests that Our Brands’ quality is better than not only competitor private label products, but many leading national brands as well.”

Also on the private brands front, Kroger announced it has decided to divest its interest in Lucky’s Market, a Boulder, Colo.-based natural food retailer. In 2016, Kroger formed a strategic partnership with Lucky’s Market, making a “meaningful investment” in Lucky’s to significantly accelerate Lucky’s Market’s growth in new and existing markets. The agreement also enabled Kroger to sell its products at Lucky’s 35 stores in 11 states, including those from Kroger’s more than $2 billion Simple Truth organic and natural store brand.

“As part of a portfolio review, we made the decision to evaluate strategic alternatives in relation to our investment in Lucky’s Market,” Kroger Chief Financial Officer Gary Millerchip said. “As a result of this review, the company has decided to divest its interest in Lucky’s market and recognized an impairment charge of $238 million in the third quarter. Accounting rules require Kroger to record the gross amount in operating profit, however the real economic interest to Kroger is a pre-tax charge of $131 million.”

Kroger also said its digital sales grew 21% in the third quarter.

“We’ve expanded our digital coverage area to reach 96% of our customers,” McMullen said. “This means 96% of customers who shop Kroger in a brick-and-mortar store can also shop with us for pickup or delivery. We continue to invest in digital platforms as this is where customers are increasingly going to meet their needs.”

In the third quarter, Kroger also debuted a new logo and announced its Fresh for Everyone brand transformation effort.

Kroger also added an additional Kroger-Ocado customer fulfillment center in the third quarter, which will be located in Wisconsin. The automated warehouse will serve customers in Wisconsin, northern Illinois and northwest Indiana.

“What’s so exciting about Ocado is that its model to deliver to customers is significantly less costly than our existing model and any of the other models we’ve examined as well,” McMullen said. “So not only will these facilities accelerate our ability to provide customers with a seamless experience, they will also help us do it in a much more cost-effective way.”