International analysis: Kroger chief executive reveals winning formula

While the retailer’s ‘customer first’ philosophy has been the backbone of its strategy for aeons, technology, food and people are driving the consistent results as seen in the second quarter.

The largest conventional supermarket chain in the US is increasingly becoming one of the most technologically savvy. With the Harris Teeter acquisition, Kroger gained access to its successful Express Lane click and collect service, which served as the basis for its own online ordering pilot.

Kroger also has stepped up its efforts to interact with customers online or through its mobile app, gaining household engagement at record levels during the second quarter.

But not all Kroger’s tech initiatives are customer facing. Chief executive Rodney McMullen highlighted an initiative to establish the internet of things in stores with an electronic temperature monitoring project that reduces shrinkage, reduces labour and saves energy.

Private brands a differentiator

Kroger’s multi-tiered portfolio of private brands is a huge differentiator for the retailer. In 2014, it accounted for 25.5% of sales dollars (excluding pharmacy and fuel). Kroger manufactures about 40% of its private brands, enabling faster speed to market and generating stronger margins.

One of the biggest success stories remains Simple Truth and Simple Truth Organic, which became a billion-dollar brand last December, less than two years after launch.

Private Selection, also a billion-dollar brand, continues to generate double-digit growth. Amid those successes, Kroger is set to launch another brand this month called HemisFares, an international foods brand positioned at the best tier and designed for Kroger’s ‘food curious’ customers.

Kroger is rapidly expanding its workforce to support its growth strategy, and it isn’t only at the store level. Kroger just announced a new organisational structure for its senior leadership team.

The move is a further example of how Kroger has become a more progressive organisation since McMullen assumed the chief executive mantle in January last year from David Dillon.

For the full year, expect Kroger to continue to push forward with its plan to pursue fill-in store expansion. It forecasts capital investments to be at the high end of the $3bn-$3.3bn range for the year. 

Kroger raised its guidance for net earnings per diluted share to a range of US$1.92-US$1.98 for fiscal 2015, and its expectations for comparable-store sales growth, excluding fuel, to a range of 4%-5% for fiscal 2015, up from 3.5%-4.5%.