Kroger is still the US's largest traditional grocer, despite Wal-Mart overtaking the chain as the nation's largest seller of groceries years ago. It operates some 3,800 stores, including 2,600-plus supermarkets and multi-department stores, under two dozen banners across 35 states. It also runs 780-plus convenience stores (under the Quik Stop, Kwik Shop, and other brands), around 330 jewelry stores, and nearly 40 food processing plants in the US. Kroger's Fred Meyer Stores subsidiary operates around 130 supercenters that offer groceries, merchandise, and jewelry in the western US. While Kroger has added other amenities to its mix, groceries still make up over 70% of its sales, while fuel sales make up another 20%.
Kroger (either directly or through its subsidiaries) operates a wide variety of store formats and banners that divvy up the retail market by size, price point, and geography. Roughly 50% of its supermarket and multi-department stores have a fuel center. Its combination-food-and-drug stores account for 85% of its stores base, followed by price-impact warehouse stores (5%), large multi-department stores (5%), and Marketplace stores (less than 5%).
The company's 98 Marketplace stores, which trade under the Dillon's, Fry's, Kroger, and Smith's banners, capitalize on Fred Meyer's general merchandise expertise. While similar to multi-department stores, Marketplace stores are generally smaller and don't stock apparel. Kroger's 131 price-impact warehouse-style stores operate under the Food 4 Less and Foods Co. banners and cater to the thrifty with no-frills, low-cost shopping for grocery and health and beauty care items.
Kroger's 780 convenience stores (C-Stores) generate around 20% of its total revenue, and operate under five main banners, including Kwik Shop, Loaf ‘N Jug, Quik Stop, Tom Thumb, and Turkey Hill Minit Markets. The company operates nearly 40 manufacturing plants, including 17 dairies and a pair of ice cream plants, which supply its stores with breads and baked goods, dairy products, meat, and thousands of other grocery items, including organic foods. Kroger's supermarkets typically stock about 11,000 of its own-brand products (under the Kroger, Ralphs, Fred Meyer, King Soopers, and other brands), about 40% of which the company manufactures. Kroger is also a major pharmacy operator in the US (most of its stores have one), though its pharmacy products and services contribute just under 10% of its revenue.
Kroger operates supermarkets in about 35 US states from coast to coast. Key markets include California, Ohio, Texas, and Georgia, which combined are home to more than a third of its supermarkets. Its Fred Meyer subsidiary does business in the Pacific Northwest and Alaska. All of Kroger's sales are rung up in the US.
Sales and Marketing
Kroger has been devoting more dollars toward advertising in recent years. The retailer spent $648 million on advertising in fiscal 2015 (ended January 2015), up from the $587 million and $553 million it spent in fiscal years 2014 and 2013, respectively.
Kroger's revenues and profits have been rising over the past several years thanks to new store openings and acquisitions and a steady increase in same-store sales revenue.
The retailer’s revenue jumped 10% to $108 billion in fiscal 2015 (ended January 2015) mostly thanks to added store revenue from its large acquisition of Harris Teeter Supermarkets. Kroger's same store sales (excluding fuel sales) climbed by more than 5% thanks to new customer growth, an increase in visits per household, and product cost inflation. Fuel sales declined by nearly 7% due to a drop in average fuel prices, though its fuel sales volume increased by nearly 7%.
Higher revenue in FY2015 drove Kroger’s net income up 14% to $1.7 billion. The retailer's operating cash levels spiked 17% to $4.2 billion for the year mostly driven by higher cash earnings.
Kroger looks to boost existing store sales with remodels, promote organic growth through store openings in under-served markets, and expand its revenue and geographic reach through select store and brand acquisitions. In late 2015, the grocery operator expanded in the Dallas-Fort Worth market after spending $150 million to open five Marketplace stores and increase the size of three existing locations. During 2014, Kroger remodeled 115 stores and 22 of its gas stations. That year it also opened three new fuel center locations including Abingdon, Virginia; Decatur, Georgia; and Louisville, Kentucky, bringing Kroger's fuel center locations total to 2,000.
To continue boosting same-store sales (the company noted in 2015 that its same-store sales have grown annually for more than a decade), Kroger has begun experimenting with new store concepts. In late 2015, it opened a new concept store near Cincinnati (it's second-largest store ever) that included a wide variety of amenities including gourmet food, clothing, and housewares. Pushing more organic food, the company was also expected to soon surpass Whole Foods Market as the nation's largest seller of organic and natural foods.
Increasing its market share is an important part of the company's long-term strategy. In recent years, Kroger has continued to improve its loyalty program that offers discounts to customers based on their past purchases. Thanks to its QueVision predictive analytics technology (which it originally began using in 2012), the retailer has also whittled the wait time at the checkout stand to an average of about 30 seconds, from as long as four minutes in the past. Private-label products, which help to differentiate supermarket chains from their competitors and foster customer loyalty, are a pillar of Kroger's merchandising strategy; the grocer's 11,000 private-label products account for more than 25% of its grocery sales. Thanks to efforts like these, Kroger noted in 2015 that it had captured a larger share of the massive food market for the 10th year in a row.
Mergers and Acquisitions
In November 2015, the retailer agreed to buy Milwaukee-based grocer Roundy's for $178 million. The deal would expand Kroger's reach into the Midwest, adding 151 Copps, Mariano's, Metro Market, and Pick 'n Save stores in Wisconsin and Illinois.
In August 2014, Kroger acquired online vitamin and supplement retailer Vitacost.com Inc. for $280 million, adding an e-commerce platform to its business. The Florida-based company boasted technology expertise and ship-to-home fulfillment centers located in Las Vegas and Lexington, North Carolina, that allow it to ship products to customers in all 50 US states and internationally. (Purchasing Vitacost.com also gave Kroger access to 16 new states.)
In February 2014, the company purchased the assets of YOU Technology Brand Services, Inc., the Silicon Valley-based leader in digital coupons and promotions. The deal enabled Kroger to deliver hundreds of millions of digital coupons to Kroger customers.
In January 2014, Kroger acquired Harris Teeter Supermarkets, a regional chain of some 225 stores with a big presence in the Carolinas, where Kroger did not have significant heft. Kroger paid about $2.5 billion for the regional grocery chain, which rang up $4.7 billion in sales in fiscal 2013.