Biggest US Supermarket Chain Boosts Outlook as Inflation-Weary Shoppers Focus on Groceries
Kroger, the nation’s largest supermarket chain, raised its financial outlook for the rest of the year as it reported an increase in fiscal first-quarter sales buoyed by Americans facing record inflation redirecting their spending to essentials such as groceries.
The Cincinnati-based company that operates 2,723 grocery stores under the Kroger, Harris Teeter, Ralphs and Fred Meyer brands said sales for the quarter ended May 21 rose to $44.6 billion from $41.3 billion in the year-earlier quarter. Sales, excluding gas, at stores open at least a year were up 4.1% in the quarter. But Kroger’s gross margins took a hit, partly because of higher supply-chain costs and sale promotions.
The results from the company, which because of its size serves as an important indicator of food sales and potential demand for grocery store properties, show that as inflation has risen to a 40-year high and Americans have spent their government stimulus payments, retailers have seen a shift in consumer purchasing this year. People are focusing on buying essential goods — such as food and gas, for which prices have soared — and have slowed spending on items such as furniture and home decor.
Kroger Chairman and CEO Rodney McMullen told Wall Street analysts that trend helped his company and increased its optimism about the rest of 2022. By contrast, it has hurt retail giants such as Walmart and Target, which are now stuck with excess inventory in some merchandise categories and have had to resort to discounting.
Kroger’s results reflect what is happening nationally, based on the Commerce Department’s data on U.S. retail and food service sales for last month. Sales dipped 0.3% month over month in May to $672.9 billion, the department reported Wednesday. The big year-over-year retail gainers in May included sellers of building and gardening supplies, up 6.4%; grocery stores, up 8.7%; and clothing stores, up 6.1%.
Based on its first-quarter results, Kroger Chief Financial Officer Gary Millerchip said the company was raising its full-year outlook. It is now expecting same-store sales without fuel to be up in the range of 2.5% to 3.5%, compared with its prior range of 2% to 3%, and operating profit of $4.3 billion to $4.4 billion.
Grocery stores have become a popular tenant with retail landlords because they generate repeat visits and foot traffic at shopping centers, helping make those properties successful and desired by investors. JLL Research’s recently released Grocery Tracker 2022 report found that grocery-anchored retail posted the second-highest level of activity recorded for property transactions, with trades topping $13.3 billion.
“Grocery-anchored retail within infill locations continues to be in high demand with both private and institutional investors,” Jose Cruz, JLL senior managing director, said in a statement.
This month, JLL said it brokered the $18.55 million sale of Crawfordsville Square, a Kroger-anchored shopping center in Crawfordsville, Indiana, for $18.55 million. Essential Growth Properties, a Cincinnati-based private equity real estate investment company, acquired the property from Lamar Cos.
Grocery stores can be found at the center of redevelopment plans, too. In suburban Philadelphia, Hampshire Cos. and MCB Real Estate are looking to add a large ShopRite supermarket in addition to multifamily housing, a self-storage facility and office space to Drexeline Town Center.
Bargain Food Buying
In his remarks, McMullen echoed comments made earlier this year by Walmart officials, saying that some shoppers are turning to less expensive private-label groceries rather than national brand-name goods. And Kroger offers a vast array of private-label goods, according to McMullen.
Budget-constrained shoppers are “actively looking for ways to save,” he said. “When the economy is tight, our brands always gain share.”
Kroger also continued its effort to boost its digital grocery business, which includes a need for new real estate. Specifically, the company is expanding its physical footprint in places where it doesn’t have stores.
Partnering with United Kingdom-based Ocado Group, the retailer has been rolling out warehouses that incorporate artificial intelligence, state-of-the-art robotics and automation to fulfill online orders, delivering them to homes by vans and trucks.
To create this e-commerce distribution network, Kroger is constructing fulfillment centers as well as smaller last-mile stations. The hubs funnel products to last-mile spokes, which then deliver orders to homes.
In the first quarter, it opened two new Kroger Delivery facilities, powered by Ocado, in Dallas and in Pleasant Prairie, Wisconsin. Kroger also said it expanded its delivery network by opening three new spoke facilities, which essentially serve as last-mile locations, including in Columbus, Ohio, and Louisville, Kentucky, areas where it has stores, as well as Miami, a new region for the grocery chain.