Groceryshop 2023: Kroger CEO Talks Competitive Landscape, Attracting Consumers
To kickoff Groceryshop 2023 in Las Vegas on Tuesday, Kroger CEO Rodney McMullen was interviewed by CNBC retail reporter Melissa Repko and discussed the proposed merger with Albertsons, the competitive grocery landscape and more.
While announced last year, the merger between Kroger and Albertsons recently moved into a new phase following the grocers’ agreement to divest more than 400 locations in 17 states and Washington, D.C. to C&S Wholesale Grocers. The deal also includes eight distribution centers, two offices and five private label brands. At Groceryshop, McMullen said that the deal was made possible by C&S having a “clean balance sheet” and operating at scale, in addition to recognizing the labor contracts of Kroger and Albertsons workers.
“C&S committed to recognizing labor contracts day one, and that was a commitment that we had made to the union,” McMullen said. “We had talked to dozens of potential buyers, some of those were non-union players, some were union players. But one of the commitments that we had made to the union was we would sell them to somebody that recognized the labor contracts.”
On the consumer side of things, McMullen said that Kroger’s customer base has bifurcated into two categories amid high food prices: those who are under economic stress and those whose buying habits have remained fairly unchanged. For the first group of consumers, buying sale items and private label products, McMullen said, are key.
“It's people that are generally working, but their wages haven't kept track with inflation,” he said. “And you see aggressive changes from that customer base in terms of buying smaller product sizes, going to Our Brands, cooking at home more… anything they can do to stretch their budget. If you look at customers that are more upscale, that customer's continuing to buy the same as always. And for that customer, convenience would be increasingly important. So if you look at an area that we have strong growth in is cut fruit as an example… you'll see them buying the nicer wines and some of the other things."
Like many grocers, the growth of discount retailers like Walmart, Aldi and Lidl and the rise of dollar stores have hurt Kroger’s bottom line. In addition to offering a wide variety of private label products, McMullen said that promotions and a strong assortment of fresh products are key for attracting and keeping customers.
“You're doing everything you can to make sure the customer understands the value for their money,” he said. “And for us on dollar stores, we're very confident that somebody takes the time to look at cost per ounce, but in some areas what we found was customers were buying certain items because of a particular dollar point. SmartWay is a brand that we started, it's been about a year ago, and we continue to add SKUs. And for that it really is the customer looking at that entry price point at great value for the quality.”
Prior to the interview at Groceryshop, Kroger announced that it would be expanding its collection of locally-sourced products at each store by 10%. McMullen added that this initiative will help the grocer compete with regional powerhouses like H-E-B in Texas and Publix in Florida.
“It’s just one extension of something that's really been important to Albertsons and really been important to us,” he said. “How do you identify local products that the customer is going to love but they may or may not know about? So first of all, you have to give it shelf space, but then you have to figure out a way to tell the customer and then you have to figure out a way to get them to try it. And the commitment we made this morning was at least 30 incremental products for every single store.”
Groceryshop 2023 is being held Sept. 19-21 at the Mandalay Bay Convention Center.