What role could store brands play in Kroger’s possible branding overhaul?

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What role could store brands play in Kroger’s possible branding overhaul?

By Lawrence Aylward - 10/31/2019
Inside Kroger's test kitchen, where private branded products are tested and created.

The Kroger Co. has one of the most successful store brands programs in the country — if not the most successful. It’s program, known as Our Brands, includes popular lines such as Simple Truth, Private Selection, HemisFares and Kroger. Kroger’s Our Brands achieved more than 30% of unit sales this year, a figure that is expected to grow larger.

During the second quarter alone, Kroger’s Our Brands sales grew 3.1%. Retail and unit share growth led to the highest second quarter share in Our Brands history. Kroger also introduced 203 new Our Brands items during the second quarter.

So a report by Business Insider this week that Kroger is gearing up to announce a “major branding overhaul” makes one wonder if the Cincinnati-based grocer plans to emphasize its Our Brands even more in consumer packaged goods and fresh? Or could the retailer even be looking to scale back some of its private label lines or combine them under one name? Kroger, which operates more than 2,700 retail food stores under a variety of banner names, offers several private label lines — some well known, like those mentioned above, and some maybe not as well known.

Business Insider said it obtained an internal memo stating that Kroger’s "old approaches aren't working.” The memo noted an announcement on Wednesday, Nov. 6, in which "all will be revealed." Kroger is holding an investor conference at the New York Stock Exchange on Tuesday, Nov. 5, where Kroger executives will address investors.

According to Business Insider, an online financial news source, the memo also stated: "It's been long proven that strong brands drive business. But today, customers don't know what to make of the Kroger brand. We're trying to be everything to everyone — saying too many things in a fragmented way. And it shows. We're a Fortune #17 company that doesn't break the top 100 in brand value ranking."

Kroger, the second largest grocery retailer in the U.S. behind Walmart, has never been more tested by its competition, especially when it comes to its competitors cutting prices. Batavia, Ill.-based ALDI, which offers more than a 90% assortment of private brands, has rattled the entire grocery industry with its ongoing expansion and increased offering of quality products at value prices. Walmart, too, has lowered prices and has placed an increased emphasis on private brands. The competition has grown fierce enough that Kroger decided to cut hundreds of management jobs across the country.

The internal memo also stated: “Core equities that drive strong grocery brands, including quality, freshness, making life easier and saving money, are now what our competitors are known for.”

In October 2017, Kroger introduced a strategy called Restock Kroger to transform the customer shopping experience. At the time, Kroger Chairman and CEO Rodney McMullen said: “We know that when we serve America through food inspiration and uplift, we create value for our shareholders, customers and associates. We understand that today’s marketplace is shifting rapidly. Kroger’s success has always depended on our ability to proactively address changes by focusing relentlessly on our customers. We have the scale, the data, physical assets and human connection to win. Combining our food expertise and data analytics uniquely positions Kroger to create new and highly relevant customer experiences, delivered both digitally and in stores."

According to Retail Leader, Store Brands' sister brand, Kroger's second-quarter sales increase of 2.2% was a positive sign, but Wall Street didn’t get the answers it wanted from executives after the company pulled its long-term profit guidance. McMullen and Chief Financial Officer Gary Millerchip confirmed the company’s full-year forecast then injected uncertainty into the longer-term outlook by not reconfirming earlier guidance provided when the Restock Kroger plan was introduced in the fall of 2017. That three-year plan called for a $400 million incremental increase in operating profit.

As analysts pressed McMullen and Millerchip for insight into the guidance suspension, they were repeatedly told to stay tuned for the upcoming investor meeting.

“November 5th is the appropriate forum to be deliberate and to allow the experts on our team to spend the proper amount of time with our financial stakeholders to explain how we are thinking about Kroger's business model and how to measure the shareholder value created by Restock Kroger," McMullen said.

We shall soon find out what impact Restock Kroger will have on this potential major overhaul, among other things.

 

 

 

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