Following its 2016 results, Kroger remains focused on its long term strategy of investing in its people, the business and technology to deliver for its customers.
Sales driven by acquisitions
Despite the operating environment being more challenging than expected, Kroger achieved sales of $115.3bn for 2016, up 5% on 2015 or 1% on a like-for-like basis.The deflationary conditions have driven lower than expected Q4 sales for the retailer, with same store sales dropping for the first time in 52 quarters, by 0.7% (excl fuel). However, overall sales for the quarter grew by 5.5% in the quarter, driven by the acquisitions of Roundy's and ModernHEALTH during the year. This is the 12th consecutive year of market share gains for Kroger and net profit for the year grew by 3.1% to $2bn.
Increasing online capabilities
ClickList has been the main focus for Kroger over the past year, with new locations opening rapidly. During 2016, the retailer opened more than 420 ClickList and Express Lane locations, bringing the total to over 640. The acquisition of Harris Teeter in 2014 allowed Kroger to accelerate the rollout, inheriting 140 pick up locations and taking the learning's from the business to influence its own model. The retailer has been using data and insight from its 84.51º division to inform its decisions on which locations to offer the services at, as well as how best to engage with customers online.
Testing last mile delivery options
Kroger also offers a home delivery service in two markets. For years it has been available in Denver as a test market, but with grocery ecommerce starting to accelerate in the US, it is looking into expanding this, in order to offer customers the shopping experience most convenient to them. It is also in the early stages of testing a number of different delivery services, including a partnership with Uber, which allows customers to order their groceries and have them delivered by an Uber driver.
Outlook for 2017
Excluding fuel, Kroger expects same store sales to perform in the region of 0-1% growth in 2017. Due to continuing deflation in the operating environment, it expects the first half of 2017 to be similar to the second half of 2016, with improvements happening in the second half of the year. Capital expenditures, excluding mergers and acquisitions, are forecast to be $3.2-$3.5bn in 2017, and will be focused on sales generating initiatives, remodels, upgrading the logistics network and digital and technological initiatives.
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