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Kroger stock is down 30% after the Cincinnati-based company cut its profit forecast 10% during its second quarter earnings report held June 15.

The company reported sales of $36.3 billion, and same store sales, excluding fuel, dropped 0.2% in the second quarter which ended May 20.  

CEO Rodney McMullen said during the call that the company plans to continue its Customer 1st strategy to position itself to weather the change in the retail environment: 

“We’re incredibly focused on differentiating our experience versus our competitors in terms of the service our associates provide, the products and the quality of the products, the quality especially in the fresh areas and produce and meat and seafood and our deli, and the shopping experience itself.”

“The best thing that we can do is to stay on the offense by continuing to focus on our customers – what they want and need today and what we anticipate they will want and need tomorrow – and executing our strategy.”

 

McMullen emphasized the positives that he believes will keep Kroger on the right track: 30% growth in new digital customers, more than 30% increase in digital visits, and faster growth in mobile compared to last year.

CFO Michael Schlotman said the company’s digital revenue more than doubled in the first quarter compared to last year.

Prep + Pared, Kroger’s meal kit solution, also is a promising growth opportunity, and stores can “hardly keep them on the shelf” in test markets.

“What we’re finding is the quality of the meal is the same as going to a restaurant and getting the meal, but people like to prepare something at home and they find it easy and love the variety we offer,” Schlotman said.“We’ll continue to roll it out based on the availability for the facilities to handle the volume, and so far it’s been very good and we appreciate and are looking forward to it.”

 

Hard discount competition

McMullen said Kroger is watching the expansion of chains like Aldi, which recently announced a $5 billion investment toward 2,500 stores in the U.S. by 2022, and Lidl, which plans to open 200 stores in the U.S. over the next couple of years.

“If you look at the base experience of the supermarket in the U.S., we would typically offer more services…the produce would have more variety and be fresher,” McMullen said. “So, there are a lot of aspects from the experience standpoint that would be different.”

McMullen has been quoted as saying Kroger will “not lose on price,” but that doesn’t mean they’re aiming to be the cheapest on the block.

“We’re incredibly focused on differentiating our experience versus our competitors in terms of the service our associates provide, the products and the quality of the products, the quality especially in the fresh areas and produce and meat and seafood and our deli, and the shopping experience itself,” he said. “We’re just making sure we don’t lose customers because of price.”

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