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 3,900 stores under various banners, including 2,800 supermarkets and multi-department stores, nearly 800 convenience stores, and around 320 jewelry stores. It also has over 35 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.
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 (5%).
The company's 150 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 130 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-plus convenience stores (C-Stores) generate around 20% of its revenue, and operate under six main banners, including Kwik Shop, Loaf 'N Jug, Quik Stop, Tom Thumb, Turkey Hill Minit Markets, and Smith's Express. The company operates 35-plus manufacturing plants under the Kroger, Ralphs, and King Scooper's banners. Of these, 17 are dairies, ten are bakeries, five grocery plants, two beverage plants, two meat plants, and two cheese plants.
Kroger's supermarkets typically stock more than 14,000 of its own-brand products (under the Kroger, Ralphs, Fred Meyer, King Soopers, and other brands), about 35% 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.
Cincinnati-based 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.
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.
In fiscal 2017 (ended January), sales bumped up 5% to $115.3 billion due to an increase in comparable (excluding fuel) sales, store openings, and the contribution from the acquired ModernHEALTH business. Food price deflation weighed on growth. Weakness in the fuel price triggered a 6% decrease in fuel sales to $14.0 billion, although the lower price pushed up volume sales by 4%.
Net income fell 5% to $2.0 billion due to the restructuring of multi-employer pension obligations. Cash from operating activities fell 13% to $4.3 billion due to lower net income and changes in working capital, partially offset by higher non-cash expenses.
Kroger looks to boost existing store sales with remodels, seeks organic growth through store openings in under-served markets, and expands its revenue and geographic reach through select store and brand acquisitions. In 2016, Kroger remodeled 220 stores, and in January 2017 hit 50 straight quarter of rising same-store sales.
Recent acquisitions include Colorado-based Lucky's and its 17 stores in 2016; specialty pharmacist ModernHEALTH (via subsid Axium) also in 2016; upscale, organic cheesemaker Murrary's Cheese in 2017; and Milwaukee-based Roundy's in 2015.
Kroger's is going organic and gunning for Whole Foods. The company has upped the quantity of organic foodstuffs in its aisles while able to offer them at low prices. The strategy has been a huge success, ripping market share from its rival: in 2017 Kroger's organic food sales surpassed that of Whole 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. Kroger's QueVision predictive analytics technology has 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 14,000 private-label products account for more than 25% of its grocery sales.
Mergers and Acquisitions
In early 2017, Kroger’s acquired Murray's Cheese, a New York-based specialty cheesemaker. This acquisition bolsters Kroger's push into upscale and organic foods.
In July 2016 Kroger's subsidiary Axium Pharmacy Holdings acquired Modern HC Holdings, a leading specialty pharmacy. The purchase created a combined specialty pharmacy that operate as a wholly-owned subsidiary of Kroger's.
In 2016, Kroger's invested in Lucky, a Colorado-based chain that offers organic foods. The company's store are mostly in college towns in the Midwest and Southeast US.
In December 2015, the retailer closed its purchase of buy Milwaukee-based grocer Roundy's for $178 million. The deal expanded Kroger's reach into the Midwest, adding 151 Copps, Mariano's, Metro Market, and Pick 'n Save stores in Wisconsin and Illinois.