Kroger makes gains in the grocery wars
Chain is growing in metro areas
Is Kroger winning the grocery wars? Battered by a two-year price war and waging an expensive battle for superior home delivery, Kroger’s profits have taken a hit. But it has steadily increased sales even as it cuts prices.
New market share data show Kroger getting traction in several of America’s largest metro areas over the past two years, according to industry tracker Chain Store Guide.
Kroger is the nation’s largest supermarket chain. Besides Kroger stores, the grocer operates several regional supermarket chains in 35 states, including Fred Meyer, Harris Teeter, Ralphs, Mariano’s, Fry’s, Smith’s, King
Soopers and QFC.
The data provide a before-and-after look of the grocery industry in the aftermath of Amazon’s 2017 takeover of Whole Foods for $13.7 billion, which intensified already cutthroat competition.
Kroger competes against different sets of major players in the largest metro markets, but the Cincinnati-based grocer has mostly eked out gains.
Some of the metro areas nabbing extra sales are where Kroger has added stores, such as Dallas where it increased its share 1.2%, and Phoenix, where it gained 3.9% market share. In Los Angeles, where Kroger has trimmed a few stores, it gained 2.3%.
Each of these gains marks slightly bigger pieces of astronomically large pies, with tens and sometimes hundreds of millions of shifting shopper dollars.
Terry Kelly, a principal at Bartlett & Co., a wealth management firm in Cincinnati, said the data was encouraging, suggesting Kroger’s price cuts were working to gain new customers.
“Kroger is used to this type of warfare,” Kelly said, adding Kroger adapted early in the millennium when Walmart appeared poised to wipe out all competition. Still, he noted Amazon has owned Whole Foods only for a year and competition will remain fierce.
“Call us back when Amazon has fully implemented its strategy,” he said.
The data comes just weeks after Amazon loudly declared another round of price cutting at its Whole Foods subsidiary. The digital juggernaut said prices would be reduced by an average of 20% on select items throughout the store as well as further discounts for Prime members.
Kroger’s gains speak to CEO Rodney McMullen’s strategy of eschewing huge acquisitions while trying to grow loyalty and new customers in existing markets.
Kroger’s own lower prices cut into the company’s 2018 profits even after boosting sales 2% last year (excluding the divestiture of its convenience store business). Between tech initiatives and lower food prices, Kroger’s fourth-quarter gross profit margin dropped almost an entire point to 22% – effectively evaporating $261 million in gross profit for the 90-day period.
To compete in the race for home delivery and customers avoiding entering stores, Kroger has expanded parking lot pickup or home delivery to 91% of the households it serves.
It also is beginning to build robotic warehouses across the country that will beef up home delivery further through a partnership with the U.K.’s digital grocer Ocado.
In Cincinnati, Kroger’s share has increased 4.9% over the last two years to 49.3% of the region’s total $6.1 billion of groceries sales in 2018. That suggests Kroger’s stores collectively are raking in $300 million more than in 2016.
Most of that gain came from the rest of the region’s Top 5 grocers: Walmart, down 0.6%; Meijer, down 0.5%; Costco, down 0.3%; and Sam’s Club, down 1.4%. But Jungle Jim’s, Aldi, Whole Foods and Trader Joe’s also lost market share.
Amber Fowler, 38, a mother of three and a fitness instructor from Mount Washington in suburban Cincinnati, said she shops mostly at Kroger. “We use a lot of Simple Truth items, and their other store brands are affordable,” Fowler said.