Today more than 40% of all US households (has) one of our shopper’s cards. As a result, Kroger has one of the largest retail consumer databases in America.
Our partnership with dunnhumby USA gives us valuable insight into our customer’s shopping habits. Through this insight we’re able to use our customer loyalty data to benefit our customers and increase their engagement with our stores. Our work with dunnhumby also allows us to segment our store base to offer customers in each store the right mix products and services. The store segmentation strategy and Kroger’s multiple formats allows us to meet the specific needs of various consumer segments.”
As the firm continues to operate they will continue to compile data based on macroeconomic conditions, as well as conditions in local markets, which should allow them to respond even faster to changing consumer needs well into the future.
Strong Sales Growth: Even in this Economy!
It is no secret that Kroger has performed well in this market. They had same store sales growth at 4.7% for their last quarter, with this quarters growth trending at 5%. Much like Wal-Mart (WMT: 58.40, 0.00 (0.00%)), Kroger has withstood the economic downturn and has benefited greatly from consumers deciding not go to restaurants and eat at home. Not just that, but the consumers love the value brands that their stores offer, particularly their private label items, which have seen strong growth during the economic slowdown. Kroger also holds the #1 or #2 position in market share in 39 of their 43 markets. This is due to a combination of their customer loyalty initiatives as well their low prices. They also benefit from having fuel centers at many of the stores. Many customers are taking advantage of the fact that Kroger can serve as their one stop shop for all the goods that they need (both food and gas) to operate on a day to day basis. With the recent pullback in commodities, particularly oil, you can probably expect to see margins improve a little bit, at least in their fuel division.
Risks
There are two main risks I see when considering an investment in Kroger: large amount of debt and labor relations.
- Large Amount of Debt - KR has about $7.6 billion in debt outstanding as of the end of their Q208. While this number has decreased from the beginning of the year, it still poses a threat if the firm needs to raise more capital. It could also be a problem if they want to refinance their maturing debt, which could cause them to use substantial cash flow to make payments on their it.
