Kroger sees at-home cooking and eating as predominant consumer behavior for foreseeable future
Total company sales were $30.5bn in the second quarter this year, compared to $28.2bn for the same period last year, according to the company's Q2 2020 earnings results. Excluding fuel, sales grew 13.9%.
“While the full economic impact of COVID-19 is not yet understood, our data shows that during the periods of lower economic activity, we see a structural shift from food consumed away from home to food consumed at home,” said McMullen during the company’s Q2 2020 earnings call.
“All of these factors combined lead us to believe there will be more meals eaten at home or prepared at home for the foreseeable future.”
According to McMullen, the company’s data insights show customers are “rediscovering their passion for cooking at home and have an aspiration to eat more healthy foods as a result of COVID,” he said.
With back-to-school season in full swing, at-home eating and cooking has taken center stage for many US households.
“When we talk to our customers they tell us they plan to continue to prepare and eat more meals at home. As children return to school many families are telling us they plan to make breakfast in the morning and prepare lunch for their children to take school,” said McMullen.
“This makes our leadership position in fresh an even more important sales driver for Kroger. Customers rank our fresh departments higher than all of our big box competitors and our fresh departments generated strong identical sales in the second quarter and gained market share,” shared McMullen.
Kroger’s Simple Truth line shines
The growing trend of at-home eating has also accelerated other key areas of Kroger’s business, including sale of fresh, private label, and natural and organic offerings.
According to McMullen, Kroger’s larger sized big pack platform is up well over 50% in sales this quarter compared to last year, and the retailer’s private label lines, Private Selection and Simple Truth, increased sales by 17% and 20%, respectively, in Q2 2020.
“A recent third-party industry study reconfirmed that Simple Truth is the most-loved natural and organic brand in the US. Simple Truth significantly outperformed competitors on strength of brand, which is a combination of awareness, willingness to recommend and strength as the driver of store selection,” claimed McMullen.
“Our brands continues to tap into emerging trends and evolving customer needs, delivering new flavors and innovative new items like the new plant-based Emerge grinds and patties (sold under the Simple Truth brand), which launched in late 2019.”
Digital sales in Q2 2020 grew 127%, a surge the retailer was prepared to handle, said McMullen. Prior to the pandemic Kroger had been investing heavily in its digital business, and found itself in a good position to meet accelerated consumer demand for seamless offerings including online grocery delivery and pickup services when the pandemic -- and subsequent lockdown mandates -- hit.
Kroger currently has over 2,100 pickup locations and 2,400 delivery locations reaching 98% of customers.
“Many of our customers are ordering groceries online for the first time as a result of COVID-19 and the majority of them tell us they plan to continue to do so in the future.”
Home Chef meal kits sold by Kroger, for instance, have seen significant growth thanks to at-home eating and cooking trends, said McMullen.
McMullen added that the company will continue to invest in and expand its digital capabilities to customers this year.
“We also announced that Kroger Ship will expand to offer an extended ship-to-home assortment through a marketplace offering of third-party sellers. We will continue to expand our ecosystem over time,” he said.
'2021 will be even stronger than we previously anticipated'
Kroger is remaining disciplined with how it will deploy capital and investments in the future as the company incurred increased capital expenditure, said CFO Gary Millerchip.
“For the full year 2020, we expect total identical sales without fuel to exceed 13%, and we expect to achieve adjusted EPS (earnings per share) growth of approximately 45% to 50%.
"[We] believe that not only 2020 will be strong, but, [that] 2021 will be even stronger than we previously anticipated," McMullen added.