Intense competition among grocers is forcing Kroger to slash prices on popular items like milk and eggs – staples that help sway where shoppers go.
The company, which operates Harris Teeter, Fred Meyer, Ralphs and Fry’s, on Thursday reported its second straight quarter of declining sales after more than seven years of uninterrupted growth. It also cut its profit outlook for the year, citing the moves it’s making to adapt to the “upheaval” in food retailing and to keep prices competitive.
Kroger shares closed down nearly 19 percent at $24.56 on Thursday.
Kroger said it had to respond when rivals in some regions ran “hot features” on milk and eggs during the first quarter. The Cincinnati company stressed that it does not plan to “lose on price.”
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“We’re going to react, and not allow our customers to think they have to go somewhere else for the best value for those products,” Chief Financial Officer Michael Schlotman said during a conference call with analysts.
The pressure comes amid a price fight among grocers. German discounter Aldi has been aggressively expanding, while its European rival Lidl opened its first 10 stores in the U.S. this week with specials for 39-cent croissants and 79-cent chocolate bars. The two chains have taken market share in the United Kingdom, and are looking to repeat that success in the U.S. with their no-frills stores that focus on affordable house-brand products. Grocery giant Walmart has also been working on lowering prices.
More broadly, Kroger executives acknowledged Thursday the big changes in how people are getting their food. Online leader Amazon is expected to continue expanding its grocery business, and meal-kit delivery companies like Blue Apron are aggressively trying to enlist new customers.
Still, Kroger executives believe the company has an advantage offering a wider breadth of services than discounters, and that many people like going into physical stores to do their shopping. And they noted they’re already starting to see store closures in the saturated grocery industry, which will give Kroger the opportunity to expand its own presence in some markets.
For the quarter ended May 20, Kroger said sales at established supermarkets fell 0.2 percent. That follows a 0.7 percent decline in the previous quarter, with deflation in food prices weighing down results. The company noted that the sales figure turned positive toward the end of the quarter and has remained so in the current quarter, in part helped by easing deflationary trends.
For the year, Kroger expects sales at established locations to be flat to up 1 percent.
The pressure to keep prices low is likely to only grow this year, says Moody’s vice president Mickey Chadha, which will hurt profitability.
In addition to keeping prices down, Kroger said it is raising starting wages in some markets and adding more staffing in certain departments. The moves are intended to keep down employee turnover and generally improve customer service.
For the quarter, Kroger Co. earned $303 million, or 32 cents per share. Earnings, adjusted for non-recurring costs, were 58 cents per share, which was a penny more than analysts expected, according to Zacks Investment Research. Total revenue was $36.28 billion, higher than the $35.51 billion Wall Street expected.
Kroger expects full-year earnings in the range of $2 to $2.05 per share, down from its previous guidance of $2.21 to $2.25 per share.