Kroger will conclude one of its most challenging fiscal years in at least five years on March 2 when it releases its fourth-quarter 2016 results and provides a sneak peek into its full fiscal year performance. As it did last year, Kroger leadership will likely begin outlining its 2017 plan at investor conferences around the country this spring before its annual investors call in June.
At Kantar Retail, we’ll be listening carefully to the retailer’s statements and sharing our top-line takeaways after the investor conferences. For now, here’s where we think Kroger is headed in 2017 and beyond:
Rebounding identical store sales: On the third quarter investors call, Kroger senior leadership was clear that lower identical sales growth was due to deflation and strong capital expenditures throughout the year. In the last week, a number of retailers, including Walmart, announced strong fourth-quarter sales growth. We anticipate a similar trend from Kroger, suggesting even stronger performance in upcoming quarters as the deflationary environment improves.
Capital expenditure plans: In Q3 2016, the retailer announced a drawback on capital expenditures in late 2016 and early 2017 to shore up profitability in the current fiscal year. If identical sales improve and the retailer posts strong Q4 results, expect to see renewed investment in capital expenditures. We also anticipate that 2017 will be the year Kroger determines the future of its Millennial-focused Main & Vine concept store and sorts out its investment strategy in Lucky’s Market, which gives it a strong footing in the natural and organic space.
Multiplatform online grocery strategy evolution: Last year was the year of ClickList for Kroger, with the retailer aggressively opening sites at a rate of more than one a day at times. This click-and-collect service gives Kroger a strong platform with which to compete against Amazon, Walmart, and regional competitors in core markets. As an alternative, Kroger has continued to explore home-delivery alternatives through some of its banners or possibly a multipronged approach to online grocery. We anticipate Kroger will continue this aggressive growth through 2017, with as many as half of its grocery stores across banners offering online grocery services by the end of the year.
Bridging digital and data: By integrating 84.51 with the larger insights organization and acquiring Market 6, Kroger loudly announced the path forward for stronger retailer-supplier partnerships. Suppliers will need to transform Kroger’s available data sources into real insights and actionable recommendations and strategies that prioritize shoppers and personalize opportunities for them. As Kroger more actively promotes Market 6 as a data source, suppliers will need to articulate not just supply-chain implications before product hits the store, but also in-store merchandising and promotional strategies based on loyalty card data. Furthermore, as it begins to actively use online grocery purchase metrics, we anticipate that Kroger will ask suppliers this year to build strategies and recommendations promoting ClickList. The promotion of Yael Cosset of 84.51 to the new role of chief digital officer reinforces the renewed emphasis on and strategic evolution of this space.
Increasing focus on experiential differentiation: Over the last few years, we have seen Kroger introduce several store-within-a-store concepts, including the natural and organic department featuring its $2 billion Simple Truth brand and Murray’s Cheese Shop. In addition, we’ve seen investment in unique food service and grocery concepts at new stores, expansion of the Kroger Little Clinic, and the evolution of services supporting shoppers. As Kroger works to differentiate itself from competition across channels, expect to see continued innovation in stores in 2017 and beyond.
Source: Kantar Retail