Amid rising digital sales, Kroger beat analysts’ revenue and earnings estimates for the third quarter. The grocer, which also noted growth for its Our Brands products, reported revenues of $27.67 billion and earnings of 48 cents compared to estimates of $27.56 billion and 43 cents, respectively.
In a call with analysts on Thursday (December 6), Kroger CEO Rodney McMullen said that digital sales jumped by more than 60 percent in the quarter. McMullen also noted that the company’s seamless coverage area now reaches more than 90 percent of Kroger households, which encompasses delivery and pickup. And he said that Kroger Ship, a delivery service that uses third-party providers, is now available in all of the company’s supermarket divisions.
McMullen noted that Ship customers can choose from an array of 50,000 grocery and household essentials, which is a selection that was informed by the company’s 84.51° data division. The selection includes 4,500 of Our Brands products, which McMullen said are only available from the grocer. Overall, McMullen said that company is “aggressively investing to build digital platforms because they will give our customers the ability to have anything, anytime, anywhere from Kroger, and because they are catalysts to grow our business and improve margins in the future.”
The company’s Our Brands products continue to perform “exceptionally well,” according to McMullen, with shoppers and are among the most profitable portions of the supermarket business. In quantitative terms, McMullen said that Our Brands products comprise 28.7 percent of unit sales as well as 26.6 percent of sales dollars. He added that those figures represent “record third-quarter results.”
At the same time, he said that the company’s Simple Truth and Simple Truth Organic lines are the company’s fastest growing brands, with sales again up in the “double digits” in the quarter. McMullen also highlighted Our Brands’s digital performance on the call: He noted that Our Brands account for four of the top five items sold through Kroger Pickup as well as 41 of the top 50 items sold on Kroger Ship.
The Growth Ecosystem
McMullen also said that the company is transitioning from a traditional grocer to a growth company with a strong customer ecosystem that provides “anything, anytime, anywhere” with partnerships and services that are asset-light and high-margin. One of the most successful initiatives to date, according to the executive, is Kroger Personal Finance. That part of the business delivered “record year-to-date profit and is on track for the most profitable year ever,” according to McMullen.
The company’s high-margin media business is also “strong and growing,” according to McMullen. He said that revenue for Kroger Precision Marketing, for instance, is up over 150 percent year to date. One service line allows for advertisers to have boosted results in search and gives them a say in how products show up on Kroger’s site. In the third quarter alone, McMullen noted that advertisers have had more than 700 million product impressions and that click-to-conversion rates were double or triple standards in the industry.
Kroger’s earnings call came two days after the grocer and Walgreens announced that they were expanding a previously announced test to roll out Home Chef retail meal kits and Kroger Express in Walgreens. The latter concept is a curated assortment of 2,300 products chosen with 84.51° data and insights and will be offered at the 13 Walgreens test stores in Northern Kentucky that are close to the grocer’s headquarters in Cincinnati.
In a press release announcing the expanded pilot, the two companies said the concept will offer products like dairy, meat and meal kits. Kroger Senior Vice President of Merchandising Robert Clark said in the release, “The Kroger Express concept creates easy access to our most popular Our Brands products through a fill-in grocery shopping experience for Walgreens customers, and our Home Chef Express meal kits provide customers with an on-demand solution for tonight’s dinner.”