Kroger’s fourth-quarter earnings were a mixed bag. While the grocer’s earnings fell in line with analysts’ estimates, its projected 2018 earnings disappointed investors, who sent the stock tumbling more than 10 percent.
After all, analysts expected $2.15 per share in earnings for fiscal 2018. But Kroger projected earnings from $1.95 to $2.15 per share.
Kroger operates nearly 2,800 supermarket chains nationwide, including Ralphs, Harris Teeter, Food 4 Less and its namesake Kroger stores. It’s currently seeking to reinvent its business through Restock Kroger, an initiative it undertook six months ago and which will get a boost from recently enacted tax cuts.
Seamless Shopping
In the fourth quarter, Kroger introduced a “seamless digital shopping experience” to integrate the company’s ClickList service — the grocer’s order online/pickup in-store option — into its other digital offerings, such as coupons, recipes and rewards, among others. The experience has seen a positive reception, according Kroger’s Chairman and Chief Executive Officer Rodney McMullen.
“After just a couple of months, we already know our customers love it,” McMullen said in prepared remarks. “Customers are making purchases on the site at a higher frequency than before and [are] spending more per online order.”
“Households that participate in our seamless offerings — those who engage with our digital platforms and with our physical stores — spend more per week than households that do not,” McMullen added. “And households that transact with us online spend even more.”
According to McMullen, more than two-thirds of Kroger customers — or over 40 million shoppers — have pickup and/or delivery available in their area. Already, the grocer has more than 1,000 pickup locations and close to 900 delivery locations in the U.S.
Going forward, the company plans to extend its digital coverage and expand upon its digital shopping experience. Kroger has been amping up its technology game over the last several years, expanding its omnicommerce offerings as it seeks to remain competitive in a crowded market.
In 2015, Kroger announced the launch of 84.51° — its data analytics arm focused on creating better consumer engagement strategies. The name is a nod to the location of Kroger’s Cincinnati headquarters and is, by design, unusual, according to 84.51° CEO Stuart Aitken.
“84.51° is founded on the principle that building the bottom line should be a result, not the primary objective,” Aitken has said. “We want everything we do — every decision we make — to be about the customer and what that person wants. To do that, our associates navigate the complex data landscape to reveal relevant customer patterns.”
Reaching out to embrace those “relevant patterns” has led Kroger to rapidly reset its consumer-facing offerings quicker than its competition.
Grocery Delivery
In addition to digital innovations, Kroger has dramatically upped its home delivery from virtually no stores — more than a year ago — to close to 900 stores today. It’s an important omnichannel offering, according to McMullen.
“What we find is some customers like delivery,” McMullen said in the earnings call, according to a Seeking Alpha transcript. “Some customers like pickup, and some customers like to go in-store. And probably the most common thing is we find customers actually do all three.”
As a result, Kroger plans to continue on its path of serving customers digitally and through the grocer’s mobile app. “And we’ll continue to make investments in those areas,” McMullen said.
McMullen’s comments come as Amazon is launching free two-hour delivery of Whole Foods groceries in Atlanta and San Francisco through Prime Now. The service launched last month in four cities, and the company plans to expand the service this year, the company said in an announcement.
Prime members who order more than $35 of items can receive two-hour delivery for free, while one-hour delivery will cost them $7.99. Customers in San Francisco can order “select alcohol” for delivery as well.
After launching the service last month in Austin, Cincinnati, Dallas and Virginia Beach, Amazon plans to expand the delivery option across the U.S. throughout 2018. Customers can shop via the company’s Prime Now website or through its app, which is available for iOS and Android devices.
Offer for Boxed
Kroger’s earnings come as news surfaced that Boxed, which has a valuation of $470 million, reportedly turned down Kroger’s $400 million acquisition offer, opting to seek a new funding round to stay private, Bloomberg reported.
The wholesale retailer’s board voted to turn down the offer last week, according to a person close to the matter. While the startup engaged in early talks with Amazon, Target and Costco, only Kroger offered a bid.
Consequently, Boxed will follow the original strategy of Chieh Huang, its chief executive, who wanted the company to stay private and then go public in the future, a move which leaves Kroger lacking a potentially important acquisition.
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