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This Supermarket Retailer Can Deliver Long-Term Growth

August 05, 2014 | About:
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Kroger’s (KR) performance in the first quarter was above expectations, as the company saw tremendous sales growth. The company’s merger and acquisition efforts have helped it perform well, especially the Harris Teeter merger. Kroger is seeing substantial synergies from its acquisitions already, and under its share repurchase program, it has already returned $1 billion to investors.

Impressive cost cutting

Kroger is making some impressive moves to improve its profit margins. It is trying to cut its costs to establish a more competitive cost structure as compared to peers in this highly competitive market. The supermarket chain is focusing on investing the cash in growth initiatives, which it gets from its cost-cutting plans. Kroger is expecting 12% to 15% net earnings per share growth rate for the year as a result of its cost-cutting moves and the Harris Teeter merger.

Kroger is making some good moves to restructure its associates’ pension plan obligation. Under this, it is planning to move 2,000 associates and retirees to more stable pension plans. Besides this, Kroger also has its self-sponsored 401(K) plan, to which it plans to shift 350 associates. With such innovative agreements, it is looking for opportunities that will safeguard its financial flexibility as well as its associates’ benefits. These efforts by the company will help it see healthy growth in the future.

Moving on, Kroger is currently negotiating contracts with the UFCW for store associates in Cincinnati, New Mexico, Toledo and parts of California and an agreement with Teamsters covering several distributions and manufacturing facilities to improve labour relations. With this initiative, it is focused on finding a reasonable balance between competitive costs and compensation packages, providing solid wage, good quality, affordable healthcare and retirement benefits to its associates.

Solid growth expected

Moreover, Kroger is counting on the changing customer behaviour. It is now more determined about the customer spending pattern, as the consumer confidence index is showing positive signs. Consumers tend to spend more when they perceive that the economy is recovering. Kroger wants to capitalize on this through its innovative and exciting programs and strategies. Its attractive fuel rewards program, Simple Truth offerings, and a more convenient shopping experience are some of the efforts that will allow Kroger to improve.

Kroger’s moves toward attracting customers and making them feel attached are working well. It is pleased with the execution of Customer 1st Strategy, which is driving growth for the company. With such moves, Kroger is strategically investing to improve customer loyalty. The success of this strategy can be seen in an impressive growth in its loyal households

Better times ahead

Moving on to the Harris Teeter merger, Kroger is seeing solid growth in the customer base. It is learning a lot about how to connect with customers. Kroger is counting on Harris Teeter’s online ordering and store pickup model. A key growth driver in the customer connection is its Customer 1st innovation program which is yielding good improvements and helping it grow its market share.

Kroger enjoys a differentiating corporate brand portfolio, which is differentiated by its multi-tier offering. With such a strategy, the company is offering the right price points and product experiences for everyone. Under its previously introduced good, better, best program, Kroger has added new branding and packaging for its value products. Moreover, the replacement of Kroger Value with the Heritage Farm brand has benefited the company as well.

Technology moves

Kroger’s technological team is making attempts to deliver the internet of things in the retail market place. It is planning to leverage this technology by introducing temperature check in stores. Previously, temperature check was done manually by the associates, but with this technology, Kroger's food safety efforts will improve remarkably.

Conclusion

Kroger is making the right moves to address the end market opportunity. Its acquisitions and cost-cutting moves should result in long-term gains, making Kroger a solid investment for the future.


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