Competition drives Kroger to cut prices
As grocer Lidl plans its U.S. launch, Kroger is planning on lowering prices on some items to compete with the low-cost German company.
Kroger, the grocery market share leader in Milwaukee and Wisconsin, vowed that it "will not lose on price" as it lowered its financial projections amid dizzying competition for consumers' food dollars.
The intense competition is forcing Kroger Co. to slash prices on popular items such as milk and eggs.
Kroger is the parent company of Milwaukee-based Roundy's. The company operates the Pick 'n Save and Metro Market stores in Wisconsin. It also operates a food production facility in Kenosha County and a huge distribution center in western Waukesha County.
The company employs more than 13,000 people in Wisconsin.
Kroger is the world's third-largest retailer behind Wal-Mart and Costco. Cincinnati-based Kroger holds about a third of Wisconsin's grocery market.
Kroger on Thursday reported its second straight quarter of declining sales after more than seven years of uninterrupted growth. The firm also cut its profit outlook for the year, citing the moves it’s making to adapt to the “upheaval” in food retailing and to keep prices competitive.
"We are making the investments necessary to continue being the best food retailer in the country," Kroger CEO Rodney McMullen told analysts on a conference call. "We are confident that we will continue winning with our people, our food and the customer experience, and we will not lose on price."
Kroger said it had to respond when rivals in some regions ran “hot features” on milk and eggs during the first quarter.
“We’re going to react and not allow our customers to think they have to go somewhere else for the best value for those products,” Chief Financial Officer Michael Schlotman said during the call with analysts.
In Milwaukee, the price competition comes amid big expansions among local, regional, national and international grocers.
In recent weeks, southern Wisconsin has seen store openings by grocery retailers Meijer and Fresh Thyme. A Cermak Fresh Market opened in Milwaukee's Walker's Point neighborhood this week, and Milwaukee-based Sendik's will open a new store in Waukesha on June 24.
Additionally, German discounter Aldi has been aggressively expanding, while its European rival Lidl opened its first 10 stores in the United States this week with specials for 39-cent croissants and 79-cent chocolate bars. The two chains have taken market share in the United Kingdom and are looking to repeat that success in the U.S. with their no-frills stores that focus on affordable house-brand products.
Aldi has said it will spend $37 million remodeling stores in southern Wisconsin during the next two and a half years.
Kroger has said it will spend $50 million remodeling stores in the Milwaukee area this year.
Kroger executives acknowledged Thursday the big changes in how people are getting their food. Online leader Amazon is expected to continue expanding its grocery business, and meal-kit delivery companies like Blue Apron are aggressively trying to enlist new customers.
In southern Wisconsin, several chains have been aggressively pursuing online grocery delivery as well as "click and pick" online services in which shoppers select items online and then pick them up at a nearby store.
Still, Kroger executives believe the company has an advantage offering a wider breadth of services than discounters, and that many people like going into physical stores to do their shopping.
For the quarter ended May 20, Kroger said sales at established supermarkets fell 0.2%. That follows a 0.7% decline in the previous quarter, with deflation in food prices weighing down results. The company noted that the sales figure turned positive toward the end of the quarter and has remained so in the current quarter, in part helped by easing deflationary trends.
For the year, Kroger expects sales at established locations to be flat to up 1%.
The pressure to keep prices low is likely to only grow this year, said Moody’s vice president Mickey Chadha, which will hurt Kroger's profitability.
In addition to keeping prices down, Kroger said it is raising starting wages in some markets and adding staff in certain departments. The moves are intended to keep down employee turnover and improve customer service.
For the quarter, Kroger earned $303 million, or 32 cents per share. Earnings, adjusted for nonrecurring costs, were 58 cents per share, which was a penny more than analysts expected, according to Zacks Investment Research. Total revenue was $36.28 billion, higher than the $35.51 billion Wall Street expected.
Kroger expects full-year earnings in the range of $2 to $2.05 per share, down from its previous guidance of $2.21 to $2.25 per share.
Kroger shares ended the day Thursday down nearly 20%, or $5.72 a share to $24.56.
The Cincinnati Enquirer and Associated Press contributed to this report.