Kroger is feeling the pain of increased competitive pressure.
Kroger, the largest grocery chain in the US, reported that total sales increased 4.9% to $36.3 billion in the first quarter. Excluding fuel, total sales increased 2.9% in the first quarter.
But sales were bolstered by the company's recent purchase of specialty pharmacy ModernHealth. Q1 comparable sales, excluding fuel, edged down 0.2% in the fiscal first quarter, its second straight quarterly decline after gains in at least the past five years.
The company admitted it had to make “some incremental investments in price” in certain markets that had “very hot features on milk and eggs.”
“When those kinds of [promotions persist], particularly when it's two important commodities like milk and eggs, ultimately we're going to react and not allow our customers to think they have to go somewhere else to get the best value for those kinds of products,” said Kroger’s Chief Financial Officer, Michael Schlotman, on an earnings call.
On the company’s call, executives repeatedly mentioned the “competitive landscape.” Indeed, retailers such as Walmart and Target have both mentioned they would also cut prices in key consumables categories to lure customers in stores. And Kroger’s competition is set to increase with Thursday’s entry of German grocery giant Lidl, which is pledging that its prices will be significantly lower than competitors.
Meanwhile, the company cut its profit forecast, saying it is increasing labor hours and starting wages in certain areas and markets to improve customer service and employee retention. Kroger said its results will also continue to be pressured by rising health care and pension costs, which it said some of its rivals don’t face.
Here are some key data points for Kroger, drawn from the eMarketer Retail & Ecommerce database:
Average sales per store: Kroger has managed to eke out gains in per store growth in each of the past five years, with the slimmest gain in 2016 at 0.7%. Average sales per square foot actually edged lower in 2016, declining 0.9% after growing the preceding four years.