Kroger Co. (NYSE:KR), the largest operator of traditional grocery stores in the United States and the second largest food retailer in the United States after Wal-Mart, reported better than analyst expectations for the full year 2008. They had same store sales growth at 4.7% in the third quarter of 2008, which inched up to 5% in the last quarter of 2008. Kroger’s sales rose 8% to $76 billion for the full year 2008 as shoppers’ increasingly bypassed restaurants, going to the grocery more often and loading their carts with store brands at record rates. Strong sales buoyed the stock price 10% up.
Kroger sells food and other consumer goods in about 2,500 supermarkets under 24 store brand names, including Kroger, Fred Meyer, Dillons, Food 4 Less, and Fry's. Kroger's diversified operations also include 782 convenience stores and 394 jewelry stores. The company operates stores in the following formats: combo stores, which are the local neighborhood supermarkets; multi-department stores, which are larger than combo stores and have a similar offering to a store such as Wal-Mart; (WMT) and price warehouses, which are one stop shops for low priced goods in a warehouse setting. The company also operates fuel centers. The firm has three tiers of private label items: Private Selection, meant to meet or beat the gourmet brands, “banner brands”, which attempt to be equal or better to the national brand and Kroger value, designed to deliver goods at affordable prices for the consumers. Their strong portfolio of private label goods will continue to benefit them in 2009 as one of the emerging trends in Consumer Staples.
Over the last few decades, the supermarket industry has undergone a tremendous transformation in the United States. Twenty years ago, 90% of food shopping was conducted in traditional grocery stores. Today, just 45% of food shopping is done at traditional grocery stores. As a large retail grocer, Kroger faces competition from similar chains, local stores, and niche stores, such as Whole Foods Market (WFMI) and Safeway (SWY). Wal-Mart (WMT), however, represents the most significant long term threat to the firm's continued growth. Wal-Mart (WMT) sells a wide variety of goods ranging from apparel to groceries. Because of its tremendous scale, the retailer is often able to offer below-market prices to its customers. In order to compete, Kroger has focused on making its stores a one-stop solution for customers' daily needs. To this end, Kroger has greatly expanded its product offerings, introducing gas stations, jewelry stores, and even financial services to its primary supermarket outlets.
Kroger has withstood the economic downturn and has benefited greatly from consumers deciding to eat at home. The consumers also love the value brands that their stores offer, particularly their private label items, which have seen strong growth during the economic slowdown.
