In the world of finance, Kroger (KR, Financial) comes across as a name synonymous with the archetypical unsung hero, who remains on the sidelines, and heads forward with steady performance when looked into. The chain of supermarkets has recently posted sales of $108.5 billion, with 45 straight weeks of increased same-store sales (5.2% exactly), across the entire network. Profit margins have gone up to $1.7 billion for 2014, which is a 13.8% growth year-on-year. A lot of this has been helped by acquiring the Harris Teeter chain (for $2 billion), which is seen as the main factor driving up the numbers for Kroger. Recently, the stock market reacted with a great push for Kroger, rallying prices to $74.97 a share, which by itself is a new all-time high for the company. Chief Executive Rodney McMullen was also excited about the fact that the company created 25,000 jobs last year.
Why is Kroger making gains?
- Kroger posted earnings of $1.04 per diluted share in the 4th quarter and $3.49 for the entire fiscal year ending January 31. During the last 3 months of 2014, the company earned $518 million on the total sales of $25.2 billion. This exceeded Wall Street estimates, which pegged earnings at $443 million on same sales revenue.
- Private labeling is helping the retailer go a long way in boosting earnings and set the cash registers ringing. According to consulting form Conlumino, Kroger’s private label accounts for a little over 25% of its earnings, as it sells the product range at a more competitive and value-for-money pricing.
- According to Maritz Loyalty Marketing from New York, Kroger has the highest rated loyalty program in the U.S. Every purchase made with the ‘Kroger Plus Card’ makes its customers eligible for discounts, such as $1 off every gallon purchased at Kroger gas stations, and 10 cents off if refueled at Shell gas stations. Plus, the Kroger application keeps close track of consumer behavior, often customizing according to their specific behavior.
- JP Morgan (JPM, Financial) reveals that Kroger has 35,000 products for its organic food section ‘The Simple Truth’. This also makes them the top seller of organic and natural foods in the country, and pricing is better than competitors like Whole Foods (WFM, Financial), Meijer, and Trader Joe’s.
The fact that this retail chain is minting money is actually no surprise, considering the talent pool it has in terms of people working for them. The average wage is $14 an hour, which is perhaps the highest in the retail industry. This helps them retain a lot of their people for long durations of time.
Competitor Analysis
As a competitor to Kroger, the only name which stands out is Whole Foods (WFM, Financial). In the category or natural and organic foods, it still remains a step ahead of Kroger but it won’t be long before that position is lost. Some estimates say that it can be as soon as 2 years, when Kroger overtakes Whole Foods as the biggest seller of organic food in the US. Last year, especially the last quarter of 2014, has seen Whole Foods face one hurdle after another when it comes to garnering satisfied customers. Other than the pricing, some of the foods like quinoa were hard to find in stock which became a point of contention. In fact, Walmart (WMT, Financial) which has been struggling of late had introduced a cheaper line of organic foods which is hurting the position of Whole Foods.
However, the first quarter of 2015 has been a respite for the food retailer. The company revealed $4.7 billion in sales revenue, and has also seen the traffic in stores pick up in recent times. Looking further, they have seen a 4.5% increment in sales amongst stores which have been open for minimum 57 weeks and on the EPS has been a tad bit higher at $0.46, whereas analysts estimated the figure at $0.45.
Final Thoughts
If there has to be any competition to the way Kroger is growing, it has to be all-round effort by beating economies in terms of value for money products, expansion of organic food lines, remodeling of customer care services, and well-oiled functioning supply chain. The reason why growth figures for Kroger will continue to grow higher is the strong footprint that they are looking to building on, even with fixed assets like the Cincinnati-based Newark store expansion from an 85,551 sqft. facility to a 124,000 sqft. facility. Though they were questioned on relocation, but it is said that current campus expansion is the way they want to go. Strategies which calculated risks make highly exciting for 2015, as the growth will again be steady, and medium returns need to be looked at.
