Following A Strong Q3, Kroger Focused On Future Our Brands Growth
Kroger’s Our Brands assortment had a strong third quarter, outpacing national brand products and giving the grocer’s profit margins a boost, according to company officials.
Notable in the gains of private brand products at Kroger, which could signal yet another shift in consumer attitudes toward store branded items, is the mid-single-digit growth of Private Selection, Kroger’s premium own brand.
“Customers continue to demand premium products but, at the same time, are looking for value,” said Todd Foley, the company’s interim chief financial officer. “Our Private Selection brand is a perfect solution by offering our customers premium quality at an attractive price.”
Premiumization of private label products is a growing topic across retail. As consumer attitudes toward store brands continue to improve, retailers are sensing opportunities to enhance their assortments and selectively add products at the “best” level while also staying focused on providing shoppers a good value for their dollar.
Also, the continued sales growth of private brand products appears to be having an impact on the relationship between national brand product suppliers and retailers such as Kroger.
During the grocer’s investor conference call to discuss third quarter results, Rodney McMullen, chairman and CEO of Kroger, said CPG suppliers are likely not satisfied with their current levels of tonnage growth at a time when a wider selection of private brand products find their way onto store shelves.
Rodney McMullen, Kroger chairman & CEO…
"The profitability of Our Brands is several hundred basis points higher than national brands. And if the CPGs are willing to continue to give up share to Our Brands, we're OK with that because what we find is once a customer tries Our Brands, the repeat rate of customers coming back is incredibly high."
“I believe that (CPG) trade dollars and being more aggressive on partnering with us…is good long term for the customer, (and a) long-term benefit for both of us on tonnage,” he said. “The profitability of Our Brands is several hundred basis points higher than national brands. And if the CPGs are willing to continue to give up share to Our Brands, we're OK with that because what we find is once a customer tries Our Brands, the repeat rate of customers coming back is incredibly high because what they find is there's no compromise on quality and they have great value for the money.”
McMullen continued, “At the end of the day, the customer wins when they buy Our Brands. But we try to run a business where the customer decides what they want to buy as opposed to forcing them to buy something.”
Kroger’s CEO also highlighted the impact of the grocer’s investments in its Our Brand products in recent years, and how those investments are delivering value to its customers.
“For years, the grocery industry offered private label products with the primary goal of creating products at lower pricepoints,” he said. “Several years ago, we recognized an untapped opportunity for growth in these products and envisioned a future where our private label products would match or exceed the innovation, quality, and recognition of national brands, which is why we coined the phrase Our Brands. Guided by that vision, our teams built distinct and recognizable brands that our customers want and love, providing more value and meeting unique product needs that national brands cannot fill.”
In addition to its high-end Private Selection own brand, Kroger also added its opening pricepoint Smart Way brand that has played a key role in allowing the grocer to offer alternatives to national brand at every price level.
This past summer, Kroger also launched its Field & Vine brand, a fresh produce line grown by farmers in California, Florida, Georgia, Michigan, New Jersey, North Carolina, Oregon, and Washington. The brand initially included blueberries, blackberries, raspberries and strawberries.
The brand was positioned as a limited-time, annual best-of-season experience, promising optimal freshness. Through local sourcing, Kroger said it decreased transit time delivering enhanced freshness and quality.
The next step for Kroger’s Our Brands, McMullen said, is refreshing designs and packaging, enhancing brand equity, and reinforcing quality and improving the shopability. As an example, the grocer will look to reinforce its long-standing guarantee of quality and freshness by placing guarantees on labels across its Kroger-branded products.
“Innovation remains a driving force for Our Brands' growth,” he said. “We utilize our data and insights to understand customer trends and meet increasing demands by consistently introducing new items to our portfolio, with a focus on growth areas, including free-from, organic, and multicultural. This innovation enables us to differentiate ourselves from both national brands and other private label brands, creating destination items that help build customer loyalty.”