SWOT Analysis

Strengths:
Sturdy Market Position
Three Tier Branding Approach
Proficient Manufacturing Operations
Diversified Market Position

Weaknesses:
Vendor Quality Control
Unionized Workforce
Legal Issues (regarding acquisitions)

Opportunities:
Increased Emphasis on Private Label Brands
Strategic Expansion Plans
In-Store Health Clinic Programs

Threats:
Increasing Labor Costs
High Debt Burden
Slumping Economic Projections

http://www.marketingteacher.com/swot/kroger-swot.html

Kroger Second Quarter Earnings Transcript and Customer 1st Strategy

For those that are interested (if any..ha) here is a link to the transcript of Kroger's 9/14/10 second quarter earnings report.  In the transcript, CED David Dillon says "The competitive environment remains challenging. During the quarter, we saw significant and aggressive promotional pricing at several competitors. Our customers tell us that while price is important, it is not the only factor that influences their shopping decisions. The customer experience matters and that’s why Kroger's strategy incorporates all elements that are important to our customers".  Kroger calls their strategy that on focuses on customers their "Customer 1st Strategy"  This strategy is desgined to reward loyal customers and is based on listening to what customers and associates say is important to them and acting on their feedback. This strategy focuses on four keys areas of Kroger: employees, prices, products and services, and the overall shopping experience.  I believe that this focus on the customer helped Kroger to beat analysts projections for the second quarter.  While Kroger could have gained more one time customers by slashing prices on certain products they feel their strategy of focusing on the repeat customer would be more advantageous and profitable.  I tend to agree with their strategy.

http://seekingalpha.com/article/225174-kroger-ceo-discusses-q2-2010-results-earnings-call-transcript

Stock Price 9/24/10

Closing price for 9/24/10 was $22.09, up $0.30 from 9/17/10.

Quarterly Dividends Increased by 10.5%

The Kroger Co. announced on 9/16/10 that its Board of Directors increased the amount of its quarterly dividend to 10.5¢ per share from 9.5¢ per share. This 10.5% increase is the fourth time the Board has raised the quarterly dividend since it initiated the program in 2006.  According to David Dillon, chairman and chief executive officer of Kroger, “We are creating value for our shareholders by reducing debt and returning value to them through dividends and share repurchases. We believe Kroger is in a strong position to continue to deliver shareholder value now and in the future and we appreciate the continued trust and support of our shareholders."
http://www.thekrogerco.com/corpnews/corpnewsinfo_pressreleases_09162010.htm

Loyal Households

Kroger's second quarter results beat industry analysts estimated earnings.  Kroger attributes this success to its loyal customers.  Kroger focused on service to keep its existing customers as opposed to slashing prices to attract new customers.  Cherry pickers, as they are known, shop various different stores looking solely for the lowest price.  Kroger calculates "loyal households" based on the total purchase size and how often they shop at its stores.  According to Kroger, the number of loyal households rose during the second quarter.  As a way to increase service to these customers Kroger targeted coupons to frequent customers and made efforts to increase its customer service.  I can attest to the increased distribution of the coupons.  I received in the mail last month a coupon book from Kroger.  These coupons targeted the items that I frequently purchase.  In addition to the normal $.50 to $2.00 off coupons this booklet also included coupons for free products such as free pizza, free sandwich meat, free cookies, and free potato chips.  When I went grocery shopping this week the free coupons added up to almost $10.00 worth of items.  That was reason enough for me to make a trip to the store before the coupons expired.  Of course I bought more than just the free items but that strategy was a way to get previous customers back in the store.

http://www.reuters.com/article/idUSTRE68D2OA20100914

Second quarter results

Kroger reported its second quarter (which ended August 14th) results on September 14th. Here is an excerpt from The Kroger Company website.  The full press announcement is included in the link at the end of this post.  Also included in the link are financial statements for the second quarter.

"The Kroger Co. (NYSE: KR) today reported total sales, which include fuel, increased 6.0% to $18.8 billion in the second quarter of fiscal 2010 compared with $17.7 billion for the same period last year. Excluding fuel sales, total sales increased 3.3% in the second quarter, which ended August 14, 2010, over the same period last year. Identical supermarket sales, without fuel, increased 2.7% in the second quarter over the same period last year.  Net earnings for the second quarter totaled $261.6 million, or $0.41 per diluted share. Net earnings in the same period last year were $254.4 million, or $0.39 per diluted share."

“Kroger’s sales have remained solid in the face of competitive and economic challenges because of the strong credibility we have with our shoppers. Our team understands the importance of finding ways to make each customer visit better than the last one, resulting in consistent positive identical supermarket sales growth,” said David B. Dillon, Kroger’s chairman and chief executive officer. “We continue to build momentum through our Customer 1st strategy, which serves Kroger customers, associates, shareholders and communities well in a variety of operating environments.”

Note: as a definition, Kroger considers an "identical supermarket" as those stores that are open without expansion or relocation for five full quarters.

http://www.thekrogerco.com/corpnews/corpnewsinfo_pressreleases_09142010.htm

Stock Price 9/17/10

Closing price for 9/17/10 was $21.79, up $0.54 from 9/10/10.

Corporate Brands

Corporate brand products play a central role in Kroger's merchandising strategy and provide a key competitive advantage to Kroger. Kroger uses its corporate brands to build and solidify customer loyalty.  Kroger supermarkets, on average, stock approximately 11,000 private label items.  Kroger brand products are produced and sold in three quality tiers. This strategy fills the needs of all customers in the various markets in which Kroger operates. All tiers are value priced to offer shoppers big savings over other premium, national and economy brand items.

Private Selection is Kroger's premium quality brand is designed to meet or beat "gourmet" or "upscale" national or regional brands.
Banner brands (such as Kroger, Ralphs, King Soopers), which represent the majority of the 11,000 items stocked in stores, are designed to be equal to or better than the national brand. These brands are backed by a "Try It, Like It, or Get the National Brand Free" guarantee.
Value brand is designed to deliver good quality at a very affordable price.

Kroger’s three-tier corporate brands strategy generates enhanced profit margins and its “good, better, best” approach enables Kroger to serve a very broad and diverse customer base.  Approximately 39% of the corporate brand units sold are produced in Kroger's 40 manufacturing plants; the remaining corporate brand items are produced to Kroger's strict specifications by outside manufacturers.

http://www.thekrogerco.com/operations/operations_manufacturing.htm

Recession Hits Kroger

People's spending habits change during recessions.  The grocery industry has been called "recession proof" because during tough economic times people eat out less, shoppers are going to a one-stop place like a Kroger store to buy food instead of multiple outlets in order to save fuel, and instead of going out for fun more people are entertaining at home, meaning that they will grocery shop for party favors and refreshments.  However even though consumers are shopping at grocery stores more during these tough times, Kroger has still been impacted by the recession.  For example, consumers are buying lower cost generic items that have resulted in lower overall earnings in the grocery industry.  In a previous blog I discussed the new online coupons that Kroger now offers.  This new strategy was a direct result of Kroger trying to improve its earnings by getting more shoppers in their stores and buying more branded (both store and national) products.

Here is an excerpt from the article in the attached link that discusses Kroger's stock averages. "The recession seems to have hit Kroger hard, as the equity is currently pinned beneath long-term resistance from its 10-month and 20-month trend lines -- the latter of which has capped the grocer's progress since November 2008.  However, from a shorter-term perspective, Kroger appears to have staged a rally, inching slowly, but steadily, higher since early June. Along the way, the stock regained the support of its 10-week moving average, and is currently attempting to overtake its 20-week counterpart.  Kroger has not closed a week above this duo since April 23". http://www.schaeffersresearch.com/commentary/content/the+kroger+co+makes+plans+to+combat+the+recession+--+and+technical+resistance/observations.aspx?ID=101362

Stock Price 9/10/10

Closing price for 9/10/10 was $21.25, up $0.56 from 9/3/10.

Kroger sees opportunities in beauty

This summer Kroger increased its efforts in promoting its store branded beauty products. CEO David Dillon said Kroger sees health and beauty products as an "undeveloped area among store brands".  Mirra is Kroger's store branded line of cosmetics, shampoos, and other beauty products. Kroger has made store brands a high priority, saying the products build customer loyalty. Store brands also usually have bigger profit margins than national brands. Corporate brands account for 34 percent of Kroger grocery items sold and 26 percent of grocery revenue.  Currently there are fewer than 100 Mirra branded products but that number is up from 41 just three three months ago.  Kroger plans to introduce more Mirra branded items this fall, such as anti-wrinkle products with retinol-A and anticipates more new products next summer.  So far the product has not been marketed very heavily, only through in-store demonstrations and word-of-mouth.  However, Kroger will increase its marketing efforts this fall with national advertising inserts and coupons.  We will have to wait and see if consumers are willing to try store branded beauty products versus national brands.  Here is the link to the article. http://www.google.com/hostednews/ap/article/ALeqM5iq0GAe44yRxHH16-LbwDoFoHIHhgD9HIMOC80

Stock price 9/3/10

So we can monitor the stock price I am going to post the price at the end of each week and compare it to the ending price from the week before.

Closing price for 9/3/10 was $20.69, up $0.36 from 8/27/10.

Digital Coupons

Here is something I found interesting and I can see this as an opportunity for Kroger.  All of us that shop at Kroger probably have a Kroger Plus Shopper's card.  This card give you access to special deals in the store.  The Kroger Co. has unveiled its all-new digital coupon center, available on its website.  The website address is www.kroger.com/digitalcoupons.  The coupon center is an industry-leading combination of manufacturer, Kroger brand and web-only exclusive coupons, all located in one online center. Customers can easily load offers directly onto their Kroger Plus Card or loyalty cards for other stores Kroger operates including City Market, Dillons, Fred Meyer, Fry’s, Jay C, King Soopers, QFC, Ralphs and Smith’s.  The website allows you to search by category, sort the results, and then add the coupons directly to your Kroger card.  If you are interested in the press release it is posted here http://www.thekrogerco.com/corpnews/corpnewsinfo_pressreleases_07222010.htm

For consumers who are extremely price conscious and use coupons received the traditional way such as newspapers and direct mail, I see this as an opportunity for Kroger to get more shoppers in their stores.  This opportunity fits in with a trend posted in the previous blog about ad spending going digital.

Industry Trends

I was searching online for supermarket trends for 2010 and came across an article that lists six trends.  They are fully discussed in the link below but I will briefing describe them here:
1. Value is King - Private label brands will continue to gain market share at branded products expense.
2. Ad spending improves and goes digital - Brands will be forced to increase their ad and consumer promotion spending to drive sales volume and add value to their products.
3. Health drives the consumer - The consumer is finally doing what they say and buying more healthful products.
4. Pricing remains stable - Commodity pricing will be stable and somewhat boring compared to prior year price swings. Deflation hurts the retailers the most but moderate price increases on basic commodities will not lead to aggressive price increases because companies will risk losing market share.
5. Mergers and competition intensify - Increased consolidation and acquisition activities of commodities companies.
6. Home Cooking, but not really - The consumer will continue with their home focus over restaurants for family food consumption.
http://www.glgroup.com/News/Top-Supermarket-Trends-For-2010-46238.html

Competition

Kroger is the nations largest traditional retail supermarket chain in the United States and is the second largest general retailer, behind Wal-Mart.  Supervalu and Safeway are major competitors, but Kroger's biggest competitor is Wal-Mart and faces many competitive pressures from Wal-Mart.  According to market analysts, in response to pressure from its bigger rival, Wal-Mart, which has become more aggressive about cutting its prices on food products to lure customers away from discount and traditional grocery competitors, Kroger offered promotions and discounts on dairy and meat products to keep their customers.  But despite Wal-Marts efforts to lower prices to lure customers from Kroger and other grocers into Wal-Mart, Kroger's 1st quarter earnings were higher than expected.  Kroger has an opportunity to gain food manufacturers and suppliers that stand to lose sales when rival brands are featured as temporary, fast-moving Wal-Mart rollbacks.  The demands by Wal-Mart to suppliers to cut prices presents an opportunity for suppliers to move to Kroger.  According to Kroger CEO David Dillon, "It cannot be just about price. If it is just about price, that really is Wal-Mart's game and not our game, so we don't focus just on that."  Kroger feels that customers are basing their shopping decisions on things other than just price.  So, in addition to keeping prices competitive, Kroger is focusing on improving the overall customer shopping experience.  http://finance.yahoo.com/news/Grocer-Krogers-1stqtr-net-apf-547066984.html?x=0&.v=7