“Customer is the King.” This premise is the very basis of any business and is followed to the T by the Cincinnati-based grocer, Kroger (KR, Financial). The company posted its first quarter results which, although they failed to meet Wall Street expectations, made investors happy sending shares surging 4%. Let’s understand what worked for the company.
Making good moves
With the strategy of attracting customers by mailing discount coupons to the loyal ones selected on the basis of history of purchases, the company experienced a revenue increase of 5.8% to $29.1 billion. The retailer asked for feedback from its customers and implemented it so as to increase traffic in its stores. For the quarter, it witnessed small purchases in greater frequencies by customers, helping revenue jump.
However, a very important point to note is in such a tough environment with economic headwinds lingering all over and peers such as Safeway (SWY, Financial) and Supervalu (SVU, Financial) struggling to attract customers and fight cost inflation at the same time, Kroger proved to be the winner. The credit goes to the grocer’s efforts to make customers’ experience even better by cutting down costs in unimportant aspects and using it in more important aspects. It tried to reduce its administration costs in order to invest the savings in giving discounts to its regular customers through coupon mailings.
This has hurt the company’s margins but ultimately it could increase customer visits winning over its competitors’ market share. Along with an ease off in its income tax expense, another driver of increased profits was lower outstanding share count compared to year ago period.
A closer look at the drivers
Kroger’s store brand is more profitable than other brands that grew well in the quarter, constituting 26% of the retailer’s department sales. Moreover, along with the growth of identical store sales the company witnessed growth in identical gallons growth in its fuel operations. But the star performing segment for the Cincinnati-based company was its pharmacy operations. The segment performed well overall, and the addition of new Express Scripts business added to the pharmacy business’ growth.
Along with the customer centric strategies in place, the company has recently launched new snack chips in different innovative flavors which is expected to drive revenue further in the coming months.
Conclusion
Though Kroger did not meet the Street’s expectations, it managed to attract crowds to its stores compared to its competitors who are not able to end their sorrow of declining volumes. With its philosophy of the customer being the most important and pleasing them being the utmost priority, it has won customers’ hearts making them loyal to its stores. Further, its cost-cutting measures would result in better margins moving on. I believe the company has a long way to go with its smart moves working for it.
