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Kroger Sales Growth Doesn’t Match Up With Grocery Competition

Kroger announced mixed earnings in Thursdays pre-market trading and the stock opened down ten percent.

The grocery retailer reported estimate-beating earnings for the second quarter of 2018, but missed in both revenue and comparables. Same-store sales still saw an increase of 1.6 percent compared with Q2 of 2017, but the small miss from the 1.8 percent estimate, as well as competitive headwinds, was enough to send the stock tumbling in pre-market trading.

Additionally, some analysts cite Kroger’s “restore” program, launched this year to rearrange store layouts, shelving, and place an emphasis on their private label products, as a factor in driving consumers elsewhere.

While competitor Walmart saw a 40 percent increase in online sales, Kroger is stuck playing catch-up with America’s largest grocery store.

The company reiterated its 2018 earnings outlook at between $2 and $2.15, within the analyst expectation window of $2.12.

Competitive Headwinds

 

Kroger’s disappointing quarterly growth on Wednesday is made even more concerning when compared with Walmart’s stellar second quarter report from last month. The nation’s largerst grocer posted their highest domestic sales rise in a decade, and added to its four-year consecutive sales growth.

Walmart saw a same-store sales increase of 4.5 percent and an incredible online sales increase of 40 percent. Analysts cite overall economic headwinds, a website redesign, and continued focus on in-store pickup for online orders as driving factors in Walmart’s success.

U.S. Chief Executive Greg Foran specifically praised their fresh food departments, citing improved performance in meat, produce and bakery. However, the company saw their greatest overall grocery sales growth in nine years.

“We are seeing good strength in frozen foods,” said Foran on an earnings call. “We’re seeing good strength in grocery. And we continue to perform well with our private brands, whether that be the brand in fresh or Great Value or Sam’s Choice in dry. So, there is nothing that has stood out.”

Online Investments

 

In the online grocery market, Kroger is playing catch-up as Walmart and Whole Foods’ owner, Amazon, were early adopters of the concept. Amazon recently announced free shipping for Whole Foods products to Prime customers and Walmart has seen a huge increase in online ordering and continues to boast growth for their in-store pickup, online ordering model.

Kroger began a pilot program using self-driving cars last month at a single location in Scottsdale, AZ. The concept will have customers receiving curbside delivery from a fleet of autonomous Toyota Priuses, at a flat fee of $5.95.

While ambitious, this move was still a month behind Walmart Inc’s partnership with Waymo to shuttle customers to stores using self-driving cars.

In addition, Kroger has begun to offer meal kits comparable to start-up ventures Blue Apron and Hello Fresh. Rather than working on a subscription basis like the start up ventures, however, Kroger’s meal kits can be picked up in store or outside using their “Clicklist” concept.

Kroger’s most ambitious form of bridging the online-ordering gap, is their joint venture with China’s Alibaba Group to market and sell their Simple Truth, organic private label products online overseas.