Editor's blog: Embattled Kroger to leverage its store brands

The Kroger Co. stock has taken it on the chin recently. It is down more than 25 percent in five days. But Rodney McMullen, chairman and CEO of Kroger, said the company’s brass will continue to run the business with an eye toward where the consumer is going — with the Cincinnati-based supermarket chain’s private brands playing a key role.

Kroger’s stock tanked last week after it announced a same store sales decline for the first quarter, the company's second consecutive decline in comps following an amazing 13-year growth streak. The company cited an increasing competitive environment and deflation for the decline. The next day, the stock dove further when Amazon announced it was purchasing Whole Foods Market. But Kroger’s stock wasn’t the only retail stock that spiraled after Amazon’s announcement.

“As we all know, there is a lot of change in the food retail industry — both in terms of the operating environment and competitive landscape,” McMullen said in a conference call with investors. “The best thing that we can do is to stay on the offense by continuing to focus on our customers — what they want and need today and what we anticipate they will want and need tomorrow — and executing our strategy.”

McMullen said Kroger’s store brands are one of the “primary means” the retailer will use to differentiate itself from its competitors.

“Last year, we commissioned an independent third party to conduct research that would give us an objective view of how our customers view bur brands,” McMullen said. “This included blind taste tests with national brands and other private label foods. Our research showed that the most-loved brands sold in our stores are our brands … above even the national brands. And in the blind taste tests, our brands outperformed competitive national brand and other private label products almost 100 percent of the time.”

Indeed, those statistics make sense for Kroger to pump up its private brands even more to differentiate itself. So is exclusivity, which McMullen also cites.

“Our journey is never done so our customers will continue to see rising quality and better value on our [private brands] in the future,” McMullen said. “By having brands our customers love that are only available from us, we gain loyalty and advocacy from [them].”

McMullen said Kroger’s store brands represented about 28 percent of total units sold and 25.6 percent of sales dollars, excluding fuel and pharmacy, during the first quarter. That’s above the averages.

McMullen also said Kroger is making “meaningful investments” in its digital and online venues.

“We believe that customers of the future will want to shop with us for anything, anytime, and anywhere,” McMullen added. “In the first quarter, we saw more than 30 percent growth in new digital customers and a more than 30 percent increase in digital visits, with faster growth in mobile compared to last year.”

McMullen is well aware of the price war going on in grocery led by Aldi, Walmart and now Lidl, which is rumored to land in Cincinnati soon.

“Too often, American consumers have to make a choice between low prices and a great experience, compromising one for the other,” he said. “Kroger is uniquely situated to eliminate the need for that compromise.”

The price war, which some industry people say is a race to the bottom, isn’t going away anytime soon. McMullen saying that Kroger is “uniquely situated to eliminate the need for that compromise” is a bit vague. But it is clear that Kroger plans to utilize its private brands, including its popular Simple Truth line, to capture the all-important exclusive factor in grocery.