Kroger’s Q1 2022 earnings release signaled good news for the retailer and the company’s suppliers. The company beat Wall Street expectations for revenue and EPS this morning with topline growth and less impact to the bottom-line than some of their competitors reported in Q1. Kroger’s executives attributed the topline growth to strength in Fresh, Kroger private label brands, and digital engagement (despite a YOY decline in digital sales due to traffic shifting back into stores). Overall, Kroger earnings displayed similar trends to other retailers: high impact to pricing from inflation with mixed results from customer behavior; strength in private label; some lingering supply chain challenges; and compressed margins. However, where other retailers also reported excess inventory and overstaffing in Q1, Kroger did not indicate experiencing these pressures.
Harvest Group Takeaways
As our Harvest Group Kroger team combines the interactions we have on a daily basis with Kroger Category Managers, Directors, and Executives with the information released in the Q1 2022 earnings report, we see 4 highly critical themes you should focus on to ensure you are building a strategic relationship with Kroger:
1. Despite the overall decline in digital sales, Kroger saw increased household engagement with their digital channels this quarter. The retailer is committed to growing their digital sales through pickup, delivery from store, and delivery from Ocado CFCs. Suppliers should invest in your digital business as an omni-channel growth strategy and communicate that to your Kroger merchants. Specific steps:
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- Develop leading-edge brand & item pages on Kroger.com.
- Spend advertising dollars on Kroger Precision Marketing activations.
- Leverage digital couponing efforts via 84.51, especially as customers increasingly engage with digital coupons amid inflationary pressures
2. Kroger continues to lean investments in additional Ocado hubs and spokes, increasing their footprint nationwide without store presence—and customers are loving this strategy. Engage with your Category Manager and Director about your participation in Ocado as Kroger expands these CFCs nationally as their #1 growth priority:
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- Proactively start the conversation with your Category Manager. Reach out to them—don’t expect them to reach out to you.
- Next, engage with the Digital Assortment team.
- Make getting your assortment into CFCs a part of your KOMPASS meetings and strategic appointments
3. While their situation is improving overall, Kroger continues to face challenges in their supply chain. Suppliers should proactively communicate the status of any supply chain issues you are facing, and more importantly, your supply chain wins:
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- Ensure your CM and Director are aware when you are exceeding in-stock goals or on-time levels.
- Proactively communicate any expected outages or shortages and present the plan for solving quickly. Don’t delay and communicate last minute.
4. Inflationary pressures are causing customers to shift to private label products across retailers, and Kroger is no different. Kroger continues to lean into Our Brands as a competitive moat. Suppliers should begin approaching merchants to share product and category differentiation versus private label.
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- Kroger noted in the earnings release—and we are hearing in our discussions with Kroger—that private label will continue to be a leading priority as consumer spending habits change.
- We predict that Kroger will begin rationalizing SKUs and prioritizing in-stock levels on private label, and large national brands will level-up.
- It is critical that suppliers use data from sources Stratum and Market 6 to make a persuasive case to Category Managers: focus on the importance of your brand, limited item interaction with private label, and your items’ ability to drive dollar growth and market share growth.
Considering Your Kroger Business
Harvest Group is strategically and actively managing our clients’ Kroger business with a low client-to-team ratio. Harvest Group is ready to chat when you are! Email us at hello@harvestgroup.com or fill out our Contact Us form here.
Download the full Harvest Group Q1 2022 Kroger earnings report here:
