David Vogin
Kroger Co. has been a rare bright spot recently in a world of food producers and purveyors that are struggling.
On Thursday, the nation's largest pure-play grocery chain is expected to again report strong quarterly growth in sales and profits. Analysts will be watching whether its numbers reveal any broader signs of health in the U.S. consumer, or just reflect Kroger's stronger ability to confront challenges that have been tripping up rival food retailers from Wal-Mart Stores Inc. to Whole Foods Market Inc. as well as packaged-food producers like Campbell Soup Co and Kraft Foods Group Inc.
Cincinnati-based Kroger said in June that so far in its second quarter, sales at its grocery stores open at least 15 months were 4% to 5% higher than the year before. That key metric for retailers, which excludes sales at gas pumps, has grown every quarter at Kroger for more than a decade, outpacing peers like Safeway Inc. andSupervalu Inc. and even Wal-Mart, which hasn't seen an increase in the U.S. since 2012.
Wall Street analysts expect Kroger to report a 10% jump in revenue to nearly $24.9 billion for the latest quarter, and a nearly 10% rise in net income to $347.8 million.
Kroger executives in June said shoppers seem to be gaining more confidence in the economy, observing that while consumers still want to feel like they are getting a bargain, they are going back to buying items they cut out when the economy was rocky.
Given its size—Kroger has 2,640 supermarkets in 34 states and booked revenue last year of $98.4 billion—that would seem to be a positive sign for the broader economy. But other grocers have reported sharply different experiences. Wal-Mart—the biggest U.S. food retailer—last month reported its seventh straight quarterly decline in U.S. store traffic, blaming sluggish spending by consumers concerned about depressed wages and cuts to government benefits.
Roundy's Inc., a Midwest retailer with about 150 grocery stores and $4 billion in annual revenue, cited similar issues last month in reporting a 2.2% decline in same-store sales for the second quarter. "We can attribute the sales decline primarily to the state of the consumer in our core market, a cautious consumer," whose budget for groceries is "stretched thin," Chief Executive Bob Mariano told investors.
Further highlighting the contrast, Kroger on Friday said it plans to hire an additional 20,000 permanent employees to staff its stores as part of an expansion strategy unveiled in 2012. The announcement on Friday came as the U.S. Labor Department reported U.S. job growth slowed to its lowest level of the year in August.
Kroger didn't give an exact time frame for the hiring, saying only that it plans to fill the jobs as soon as possible. The company has added 40,000 jobs over the past six years.
There are a number of reasons why Kroger may be more the exception than the rule.
While most traditional grocery stores have shied away from e-commerce, largely because of the significant capital investment it requires, Kroger has used recent acquisitions to gain access to online platforms and other technology.
Kroger recently bought Vitacost.com Inc., an online seller of vitamins and other health-related products, for $280 million, gaining with the purchase a platform for fulfilling home delivery of online orders, including of some of its own store-branded items, eventually.
Kroger's store brand Simple Truth, which includes a variety of natural and organic foods, will exceed $1 billion in sales this year, just two years after its launch.
And Kroger's timely effort to lower prices to better compete with Wal-Mart just ahead of the recession also helped to give it a leg up with cash-strapped consumers.
Meanwhile, food producers also are hurting. Kraft, which makes its namesake cheeses, Jell-O, Planters nuts and other packaged food, said on Wednesday that consumer demand has "remained persistently weak" since 2012, and that more people are falling into the low-income status.
Soup giant Campbell, which also makes Pepperidge Farm snacks and V8 juices, in July warned of weaker sales this year and next, as executives said they face a "seismic shift" in the food industry, where consumers struggle with underemployment and rising home, gas and health-care costs, among other factors.
General Mills Inc. said Thursday that it is experiencing "the same weak category sales environment you have heard from our peer companies."