Kudos to Kroger
Erin is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Common sense business practices led to Kroger's (NYSE: KR) recent successes.
J. Michael Schlotman, senior vice president and chief financial officer, spelled it out at the Jefferies Global Consumer Conference. “What we’ve been doing pretty diligently over the last three to four years is trimming some of the deadwood at the bottom, so that the new roots can flourish. We’ve been pretty diligent about going through the portfolio of assets, and if a store is underperforming, giving the division a while to try to turn those results around.”
Using the common-sense business practice of cutting losses, and investing in other areas, has helped Kroger increase customer traffic, generate a higher profit, and improve first quarter earnings.
Kroger is the nation's largest traditional grocery retailer, with 2,425 supermarkets and multi-department stores across the country. The company cut 25 stores in 2011, and by doing so has been able to maintain sales and increase identical store sales at a time when competitors saw declines.
Excluding fuel center sales, total revenue for the company improved 4.3%. At the same time, identical supermarket sales (stores open without expansion or relocation for five full quarters) rose 4.2%. Competitor Safeway (NYSE: SWY) saw first quarter identical store sales remain flat, with only a total sales increase of 2.4%. Likewise, Supervalue (NYSE: SVU) suffered a 1.9% loss in identical store sales.
Kroger has the ability to “tweak” its multi-department stores to better fit local area demands in higher end and discount offerings. It keeps the company competing against the discount behemoth Wal-Mart (NYSE: WMT), and the more high-end Whole Foods Market (NASDAQ: WFM), as well as the more traditional grocery retailers. Kroger must compete both with the lower prices expected at Wal-Mart, as well as with the organic products at Whole Foods. In 2008, Citigroup Global Markets conducted a survey to figure out how consumers are making their grocery shopping choices. The survey showed that 72% of customers said that Wal-Mart had the lowest prices. Among the top three traditional supermarkets, Kroger was perceived by more consumers to be the lowest priced. Whole Foods brings the competition in organic foods and more high-end unconventional offerings. Whole Foods is typically thought of as a more expensive grocery retailer. However, the prices on organic produce at Whole Foods can be cheaper than the organic offerings at Kroger.
The competition from both ends of the spectrum appears to be paying off for Kroger. It isn't just smart business practices like cutting losses and tweaking offerings that keeps Kroger in the black. The company's Customer 1st strategy of passing on benefits to customers, lower prices, personalized coupons, and fuel pump rewards, keeps customers loyal and happy. Shareholders should be happy as well with a recently announced quarterly dividend of 11.5¢ per share.
At a time when it can be tough to trust a company's operating practices (JPMorgan anybody?), it is nice to see straight-forward, open, and sensible business policies. Kudos to Kroger. This is one company to keep coming back to.
ErinAnnie has no positions in the stocks mentioned above. The Motley Fool owns shares of SUPERVALU INC. and Whole Foods Market. Motley Fool newsletter services recommend Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.