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06/17/2021

Kroger launched 253 new store brand products in Q1

The private brands were part of its “leading with fresh” and summer cooking strategy that resulted in a strong first quarter and a raised 2021 guidance.
Dan Ochwat
Executive Editor
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Kroger’s private brands added to a strong first quarter for the year, launching 253 items during the quarter including seasonal fresh produce and products around summer cooking.

The grocer said during its earnings call that internal research found consumers enjoying cooking at home more — or the same — as during the pandemic, prompting the retailer to drive a strategy that leads with fresh items and accelerates through digital.

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Kroger CEO Rodney McMullen said during the earnings call that the company’s produce metrics continue to improve and its Go Fresh and Local Supplier Accelerator program has been a start to get more regional and local suppliers to partner up and buyers to find new suppliers toward its “fresh for everyone” commitment. The company saw more than 1,000 applicants already through the program.

McMullen said the company improved capacity by 15% to focus on fresh, and he called out the impact of having new customer fulfillment centers through the partnership with Ocado, such as the opening of a Florida facility. The retailer’s private brand strategy for the quarter also added to a seasonal fresh produce and summer cooking strategy.

As for “accelerating through digital,” the company has seen triple-digit growth since 2019. The digital sales for the quarter grew 16% and increased 108% on a two-year stack. Tied to its digital sales growth, Kroger CFO Gary Millerchip said during the call that retail media revenue in digital shopping showed "exceptional growth" in the quarter and will reach a goal of $100-150 million in incremental profits by end of 2021.

While the retailer reported same-store sales declined 4.1% for the quarter ending May 22, it had an increase of nearly 15% on a two-year stack basis, as pandemic shopping swings skewed the numbers. Nevertheless, the company increased its 2021 guidance.

"Based on the momentum within our business, we are raising our full year guidance. We now expect our two-year identical sales stack to be in the range of 10.1% to 11.6%. We expect our adjusted net earnings per diluted share to be in the range of $2.95 to $3.10,” said Millerchip.

Total company sales were $41.3 billion in the first quarter, compared to $41.5 billion for the same period last year. Excluding fuel, sales decreased 4% compared to the same period last year.

Gross margin was 22.6% of sales for the first quarter. The FIFO gross margin rate, excluding fuel, decreased 65 basis points compared to the same period last year. The decrease was primarily related to sales deleverage, higher shrink, continued price investments, and charges related to COVID-19, partially offset by sourcing benefits and record growth in alternative profits, such as its retail media division.

"We are raising our guidance based on the strength of our results and we remain confident in our ability to deliver consistently attractive total shareholder return,” said Rodney McMullen, CEO of Kroger. "Kroger's strong execution delivered identical sales results in the first quarter that exceeded our original expectations. Customers are responding to the investments we have made in digital, as evidenced by our triple-digit growth in digital sales since the beginning of 2019,” he added. “We were disciplined in driving costs out of the business and we achieved record growth in Kroger's alternative profit business, demonstrating the power and attractiveness of our long-term model.”