Kroger Earnings Expected To Show Benefit Of Digital Shift

Kroger is expected to post better than expected earnings tomorrow on both sides of the grocery aisle — offline and digital. Analysts expect the company to earn $1.04 per share for the fiscal first quarter of 2020, which would be an increase of 44.4 percent. Revenue is expected to come in at $40.45 billion for the quarter for an increase of 8.6 percent over 2019.

Analysts noted two drivers behind the expected increases. The first is the pandemic-driven online grocery shift and the fact that supermarkets took most of the essential retail shopping during pandemic lockdowns. But other analysts complimented the chain for proprietary improvements to its operations.

“Notably, the company’s ‘Restock Kroger’ program involving investments in omni-channel platform, identifying margin-rich alternative profit streams, merchandise optimization, and lowering of expenses has been gaining traction,” said Yahoo Finance. “Apart from these, its order online, pick up in store initiative and home delivery and self-checkout services are also worth mentioning. As part of the program, the company has been making investments in space optimization, store remodeling and technology advancements. Cumulatively, these have been aiding identical supermarket sales.”

Because it has invested both in-store and online, Kroger has been the beneficiary of major changes in consumer shopping behavior, both quantified by various tracker projects from PYMNTS. The first is the latest installment in the COVID-19 tracker series titled “The Great Reopening: Shifting Preferences.” It identified four personas for consumers as they approach going back to physical stores: social shifters (most likely to return to physical stores); safety shifters: (more concerned about contracting the virus than other consumers) convenience shifters: (choosing merchants based on their digital offerings) and office shifters: consumers who have shifted to working from home and want to go back to being outdoors and working in office environments.

Consumers who have gone online to do their grocery shopping (social shifters) are the most likely to say they consider it crucial that merchants provide digital alternatives. The survey shows 52.3 percent of safety shifters feel it is “very” or “extremely important” for merchants to provide such options going forward, compared to 43.1 percent of social and 42.9 percent of convenience shifters. Office shifters are less likely to say merchants should provide digital shopping options, with only 39.5 percent saying it is “very” or “extremely important” that they do so.

PYMNTS also reinforced the Kroger numbers and trends in its recently posted How We Eat tracker project. PYMNTS research found the share of U.S. consumers who went online to shop for groceries increased nearly 400 percent from early March to late May, when 13.2 percent reported doing so. A large share of these consumers cited potential exposure to the virus as the main reason to shop online (40.2 percent), while 36.3 percent pointed to greater convenience or speed. These latter considerations may prove to be even more compelling as consumers begin to tire of large supermarket crowds, long lines and social distancing rules.

Finally, it saw more evidence in the PYMNTS Commerce Connected report, released last week. It found several spikes in online grocery usage including a surge in the use of online ordering platforms, home delivery services, mobile grocery ordering applications and subscription services. The report states that 51 percent of shoppers responding to another survey made online grocery orders in late March and early April, and 33 percent noted it was the first time they had done so. Consumers have also turned their attention to mobile phones for home delivery, with aggregated shopping application Instacart reporting that downloads rose 218 percent from Feb. 15 to March 15.

So expect Kroger to see the benefit from the consumers who are ready to return to stores and from the shift to online grocery. It remains to be seen exactly how that earnings split will play out, but some analysts expect the digital take to be surprisingly high.

“U.S. shoppers have tended to eschew online grocery shopping because they want to squeeze their peaches and nab that just-perfectly-sized steak,” says Bloomberg. “But this unusual moment will make some of them realize just how much of their typical grocery haul is comprised of replenishment-type items that are, in fact, easy to hand off to someone else. After all, a box of Cheez-Its or a pint of Ben & Jerry’s tastes the same no matter who selects them. Also, retailers and services such as Instacart have fine-tuned their app experiences so it’s generally very easy to reorder favorite items after you’ve done it once. These factors … will drive a sharp increase in e-commerce penetration of a corner of retail that has remained relatively insulated from digital change.”