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 shows 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, QFC and others.

The data provides a before-and-after look of the grocery industry in the wake of Amazon’s 2017 takeover of Whole Foods for $13.7 billion, which intensified already cutthroat competition.

Here 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 are collectively 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, a 38-year-old mother of three and a fitness instructor from Mount Washington in suburban Cincinnati, said she shops mostly at Kroger, but likes prepared and frozen items at other stores.

“We use a lot of Simple Truth items and their other store brands are affordable,” Fowler said. “I like Fresh Market, Whole Foods and Trader Joe’s prepared and frozen foods for easy dinner options.”

Kroger competes against different sets of major players in the largest metro markets, but the Cincinnati-based grocer has mostly eked out gains.

Each of these gains marks slightly bigger pieces of astronomically large pies, with tens and sometimes hundreds of millions of shifting shopper dollars. Some of the metro areas nabbing extra sales are where Kroger has added additional stores, such as Dallas or Phoenix, but others, such as Los Angeles have trimmed a few stores.

Terry Kelly, a principal at Bartlett & Co. in downtown Cincinnati, said the data was encouraging, suggesting Kroger’s price cuts were working to gain it 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 only owned Whole Foods 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 percent on select items throughout the store as well as further discounts for Prime members.

Arun Sundaram, an analyst with CFRA Research in Washington, D.C., said Kroger has been steadily cutting its food prices as part of its ongoing competitive strategy.

“Since 2001, Kroger has invested more than $4 billion in pricing,” he said. “We think a larger factor for gaining market share would be the investments Kroger made into its omni-channel (orders made online) offerings.”

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 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 percent of the households it serves.

It is also 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. Kroger has also ramped up a pilot project now in Texas with a robotic delivery driver filling home delivery orders.

Source: Cinncinatti.com