Kroger store brands, digital drive Q2 earnings

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Kroger store brands, digital drive Q2 earnings

By Dan Ochwat - 09/11/2020

Kroger’s Our Brands and its digital business saw big gains in the second quarter, as COVID-19 continues to impact grocery sales, with more households eating from home across breakfast, lunch and dinner.

CEO Rodney McMullen said during the Kroger earnings call that its premium store brand Private Selection saw a sales increase of 17% during the period, Simple Truth sales were up 20%, and store brand larger pack sizes were up by 50% as customers looked to stock up more.

McMullen said its private brands are a major driver for the retailer, benefitting from shoppers looking to eat more at home and looking to eat healthier.

In fact, McMullen shouted out a third-party study it conducted that named Simple Truth “the most loved” natural and organic brand in the U.S., leading the study on strength of brand and willingness to recommend.

Our results continue to show that Kroger is a trusted brand and our customers choose to shop with us because they value the product quality and freshness, convenience, and digital offerings that we provide.
Rodney McMullen, CEO and chairman, Kroger

The store brands helped Kroger overall see same-store sales (sans fuel) grow by 14.6% for the quarter ended Aug. 15. Total company sales in the second quarter reached $30.5 billion, compared to $28.2 billion for the same period a year ago.

During the call, McMullen said the company has seen a trend for customers rediscovering its passion for cooking at home and they’re more aspirational around eating healthy foods. He said with kids mostly doing school at home, families are looking to cook breakfast at home and lunch for their children. With many offices still managing work-from-home situations, consumers are eating more at home, too. He said they see this trend continuing.

Another key highlight for the quarter was a huge leap in digital, registering a rise in digital sales by 127%. McMullen said even before the coronavirus, the company’s digital business was a tailwind. Kroger’s digital infrastructure for delivery and pickup had been put in place a few years ago and it now serves 98% of its customers today.

“Customers are at the center of everything we do and, as a result, we are growing market share. Kroger's strong digital business is a key contributor to this growth, as the investments made to expand our digital ecosystem are resonating with customers,” McMullen said. “Our results continue to show that Kroger is a trusted brand and our customers choose to shop with us because they value the product quality and freshness, convenience, and digital offerings that we provide.”

Adding to its digital profits, Kroger said it expects to see more growth from its Kroger Ship third-party seller marketplace and its Home Chef deliverable meals, which had an “incredible quarter” in sales and profits, per Gary Millerchip, Kroger CFO, during the call.

Overall, Kroger said the second quarter results were better than predicted. “We delivered extremely strong results in the second quarter and expect to deliver consistently attractive total shareholder returns,” McMullen said. “We are more certain than ever that the strategic choices and investments made through Restock Kroger to execute against our competitive moats — Fresh, Our Brands, Personalization and Seamless — have positioned Kroger to meet the moment, especially as customers are rediscovering their passion for food at home."