Kroger’s Digital 3.0 Shift Boosts Its First-Quarter Earnings

Kroger posted a monster first quarter on both sides of the aisle Thursday (June 18) as consumers showed they will visit grocery stores with the right safety measures, but also that online grocery is no fad in the post-pandemic era.

The supermarket mega-chain showed a 19 percent jump over first-quarter 2019, with a total sales take of $42 billion. The more closely watched number was digital sales, which the company broke out as a 92 percent spike.

Kroger benefited from the pandemic-driven online grocery shift and the fact that supermarkets attracted most of consumers’ essential retail shopping during the pandemic’s lockdowns. But the chain also reaped dividends from investments in its digital and in-store operations, most notably its “Restock Kroger” program — which Kroger Chairman Rodney McMullen called out as a key factor in the company’s success.

“Restock Kroger” is the company’s initiative to improve shipping, distribution and the tie between its online and offline businesses. The company also detailed $830 million of investments in COVID-19 response activities, including medical testing and safety equipment for employees, bonuses and safety-based redesigns to its stores, which never closed during the pandemic due to their essential status.

But despite the positive results, CFO Gary Millerchip expressed concerns about the unknowns and wouldn’t confirm financial guidance for 2020’s balance.

“The COVID-19 pandemic has dramatically changed the outlook for food retail in 2020 and we continue to monitor, evaluate and adjust our plans to address the impact to our business,” Millerchip said in a statement. “There are still many unknown factors related to the long-term impact of COVID-19 that could influence our financial results for the remainder of 2020, such as continued investments to help our customers and associates, uncertainty surrounding consumer behavior, restrictions and what will be the new normal, and potential long-term shift in customers eating more food at home.”

But because it has invested both in-store and online, Kroger has been the beneficiary of major changes in consumer-shopping behavior that PYMNTS’ recent surveys of U.S. consumers have uncovered.

For example, our latest COVID-19 tracker, “The Great Reopening: Shifting Preferences,” identified four personas for consumers as they approach going back to physical stores. These include “social shifters” (those most likely to return to physical stores); “safety shifters” (more concerned about contracting the coronavirus than other consumers are); “convenience shifters” (choosing merchants based on a company’s 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. Our survey shows 52.3 percent of safety shifters feel it’s “very” or “extremely important” for merchants to provide such options going forward, compared to 43.1 percent of social shifters and 42.9 percent of convenience shifters who agree. Office shifters are less likely to say merchants should provide digital-shopping options, with only 39.5 percent saying it’s “very” or “extremely important” that they do so.

Our recently posted How We Eat tracker also holds good news for Kroger. We found that 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. Those latter considerations might prove to be even more compelling as consumers begin to tire of large supermarket crowds, long lines and social-distancing rules.

Finally, our recent PYMNTS Commerce Connected report uncovered positive findings for companies like Kroger as well. We 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. Some 51 percent of shoppers told us they 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 continue to see the benefit of both consumers who are ready to return to stores — and from the shift to online grocery.