Kroger – Right on Track with its Customer-Centric Philosophy
Himanshu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
“Customer is the king.” – This premise is the very basis of any business and is followed to the T by the Cincinnati-based grocer, Kroger (NYSE: KR). The company posted its first quarter results which, though they failed to meet Wall Street’s expectations, made investors happy by lifting shares 4%. Let’s understand what worked for the company.
An Effortful Quarter
Kroger strategically increased its revenue 5.8% to $29.1 billion by mailing discount coupons to its most loyal customers. The retailer asked for feedback from its customers and used this information to increase traffic in its stores. For the quarter, it witnessed a greater frequency of small purchases, contributing to the jump in revenue.
In such a tough environment, with economic headwinds lingering, and peers such as Safeway (NYSE: SWY) and Supervalu (NYSE: SVU) struggling to attract customers and fight cost inflation, Kroger proved to be the winner. Both Safeway and Supervalu experienced problems that were reflected in their recent quarterly results, with Safeway’s earnings taking a hit of almost 20% and Supervalu’s same-store sales turning negative. Kroger’s earnings rose to 78 cents per share compared to 70 cents a share in the same period last year. The credit goes to the grocer’s efforts to make customers’ experiences even better by cutting down unnecessary costs and using this money in more important areas. It tried to reduce its administrative costs in order to invest the savings in customer discounts. This has hurt the company’s margins but ultimately it could increase customer visits, taking away from its competitors’ market share. Along with easing its income tax expense, another driver of increased profits was a lower outstanding share count relative to the same period a year ago.
The Performers…
Kroger’s store brand, which saw healthy growth over the quarter, is more profitable than other brands, constituting 26% of the retailer’s department sales. Moreover, along with the growth of same-store sales, the company witnessed similar growth in its fuel operations. But the star-performing segment for the company was its pharmacy operations. This segment performed well overall and the addition of new Express Scripts business added to the pharmacy business’ growth.
Along with the customer-centric strategies in place, the company has recently launched new snack chips in different innovative flavors, which could lead to higher revenues.
Conclusive Thoughts
Though Kroger did not meet the Street’s expectations, it has managed to attract greater crowds in its stores than its competitors, who are unable to end the sorrow of declining volumes. With its philosophy that the customer comes first, it has won customers’ hearts by earning their loyalty. Further, its cost cutting measures will result in better margins moving on. I believe the company has a long way to go with its smart moves working for it. What do you think?
justhimanshu has no positions in the stocks mentioned above. The Motley Fool owns shares of SUPERVALU INC. 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.
