Kroger doubling down on dairy

by Monica Watrous
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Kroger opened a dairy processing plant in Denver that enables production of longer shelf-life products with aseptic packaging.

CINCINNATI — Kroger’s banner brands are having a banner year. The retail chain posted double-digit growth in earnings and revenue during the third quarter, with private label products representing more than 27% of units sold and nearly 26% of sales dollars.

“In fact, corporate brands experienced its highest sales growth and total retail dollar share of any quarter in the last three years,” said Mike Ellis, president and chief operating officer, during a Dec. 4 earnings call with financial analysts. “So, clearly, our rebranded opening price point and Kroger banner brands are a hit with our customers. Simple Truth and Simple Truth Organics continued to earn double-digit unit and sales growth.”

Net earnings attributable to Kroger for the quarter were $362 million, equal to 74c per share on the common stock, up 21% from $299 million, or 58c per share, in the comparable period. Sales increased 11% to $24,987 million from $22,470 million for the year-ago quarter.

The retail chain achieved its 44th consecutive quarter of same-store sales growth and continued to gain market share. A key driver of Kroger’s sustainable growth is innovation. Recent launches include a new line of Simple Truth lunch meats and expanded offerings in the dairy department.

The company has opened a dairy processing plant in Denver that enables production of longer shelf-life products with aseptic packaging. The dairy plant is the first in the United States to use robotic technology to pack cases and palletize orders entirely by automation, Mr. Ellis said.

“The dairy, our first ground-up manufacturing plant of any kind in 20 years, opened in May and began full production of fresh milk in August,” he added. “We have been producing fresh milk, organic milk, juices and drinks, and customer response has been very, very positive.”

The retail chain continues to expand its natural and organic offerings, which recently included a line of deli meats under the Simple Truth banner.

Another strong focus for Kroger is the natural and organic category. As the company continues to expand its selection under the Simple Truth and Simple Truth Organic lines, more shoppers are migrating to those businesses.

“It’s kind of interesting… a large part of our customers that switch over is because some items they think taste better,” said Rodney McMullen, chief executive officer, during the call. “So it actually is driven by the taste and in some situations, it’s driven by the innovation of the product.

“So it’s not just exclusively people wanting to live and buy and eat natural products and organics, it’s much broader than that.”

Offering organic products at lower price points and having the flexibility to innovate to customers’ tastes are competitive advantages.

“It’s one of the things that we get excited about, having a store that has a lot of flexibility in it, is that we can change what’s inside the store based on what the customers’ needs are and how those change,” Mr. McMullen said. “So, we’re excited about the category and we’re excited about the potential (of adding) even more.”
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