Kroger CEO Gregory Foran has been open about the fact that many of his chain’s stores need work.
“Our operating costs have been growing faster than our sales. That’s not sustainable. And frankly, it’s not acceptable. Taking costs out of this business is not optional. It’s the starting point for everything else we want to do,” he said during the chain’s first-quarter earnings call.
He also made it clear that many Kroger locations are not well run.
“The way we operate behind the stores needs to improve. We need to move faster, make decisions more quickly, and get more out of the assets and the talent we already have,” he added.
Those are problems that won’t be easily solved because of how the chain has opted to spend its money. Kroger has also been dealing with falling in-store customer counts, and that may be a problem the chain caused itself.
Kroger has been losing customers
Kroger, the nation’s largest operator of traditional supermarkets, saw its foot traffic fall by 0.22% in July compared with the prior month, according to a research report by Jefferies provided to TheStreet. That’s the fourth-sharpest decline among the 16 grocery retailers in the analysis.
“Whether this is a downward trend or a brief slump remains to be seen. But the decline continues a recent pattern. Kroger’s foot traffic declined by 0.66 percentage points over the past three months, ranking 11th,” Cincinnati Business Courier reported.
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Kroger’s decline reflects ongoing weakness in the traditional grocery store segment, Jefferies analyst Scott Marks wrote in the report. Foot traffic at traditional grocery stores was essentially flat for the month, inching up just 0.01%.
Grocery chains have performed worse than mass-market retailers, including Target and Walmart.
Kroger’s drop meant its performance was worse than its category, pushing it further down the overall list.
Kroger has real problems
GlobalData Managing Director Neil Saunders thinks that Kroger’s decline is based on significant underlying problems.
“Kroger has enormous reach and powerful economies of scale. The problem is that, for many years, it has failed to capitalize on these things. The company hasn’t been aggressive enough, nor has it been sufficiently progressive,” Saunders told RetailWire.
“The result is that it’s become a bland, middle-market grocer that isn’t sufficiently differentiated. It doesn’t win on price. It doesn’t win on experience. It doesn’t win on private label. It doesn’t win on e-commerce in the way Walmart does,” Saunders added.
Foran has laid out his plan to rebuild traffic at Kroger.
“We do not need to be the lowest-priced retailer. We need to be more competitive, more consistent and easier for customers to understand. When a customer is deciding where to shop, we want more of them choosing Kroger more often because the value is clear, the experience is great, and the trust is there,” he said.
RTM Nexus CEO Dominick Miserandino worries that Kroger simply can’t give some shoppers the prices they need, with Foran admitting that his chain won’t offer the lowest prices.
“Consumers don’t make decisions exclusively based on price; it’s a numerous amount of factors. So he’s not entirely wrong, but the worse the economy gets, the more pricing does become a factor,” he told TheStreet.
Kroger has a path forward
Saunders remains confident that Foran can change the culture at Kroger.
“Prior to Greg Foran, Kroger was far too passive; rather than doing the hard work of reinvention, it pinned all of its hopes on the failed merger with Albertsons. Greg Foran comes from the Walmart culture and brings the kind of energy that Kroger now needs to get back on the front foot. This will, however, take a lot of time,” he told RetailWire.
His BrainTrust colleague Jeff Hall, president of retail marketing and customer experience firm Second to None, agrees that Foran has identified the correct problems.
“For a company of Kroger’s scale, sustained improvement comes from getting hundreds of small things right every day across thousands of stores. Customers rarely think about organizational structure, executive changes, or strategic plans. They notice whether shelves are stocked, associates are available, checkout is efficient, and the overall experience feels worth their time and money,” he wrote.
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