Kroger's First Quarter 2024: Surge in Digital Engagement, Delivery Fulfillment, and Private Brands Expansion

In the first quarter of 2024, the national grocer reported a marginal 0.5% increase in sales, excluding fuel, reaching $45.3 billion compared to $45.2 billion in the same period last year. The gross margin rose to 22.4% of sales, driven by the strong performance of private brands.

Kroger's improved performance can be attributed to a strategic product mix of new brands, effective promotions, and enhanced fulfillment methods, offering convenient, restaurant-quality meals and expanding, contributing to better customer experience metrics. Additionally, Kroger focuses on offering convenient, restaurant-quality meals and expanding its ready-to-eat and ready-to-heat options. This aligns with our internal research, which suggests that 69% of grocers view prepared food as a key differentiator against the competition.

Key Highlights 

Accentuating Fresh 

Kroger has introduced 346 new brands as part of its fresh initiative, aiming to enhance customer experience, particularly for budget-conscious consumers, which has led to improved profit margins. Among the new offerings is the brand Field & Vine, featuring high-quality, regionally grown berries. Kroger also focuses on improving its supply sources and product mix to boost profitability. This strategy has increased loyalty from premium households, further driving higher profit margins. Notably, our research indicates that 63% of grocers have reported a rise in prepared fresh food sales in the first half of 2024, aligning with Kroger's successful approach.

Delivery and Pickup 

In Q1, Kroger reported an 8% growth in digital sales and 17% increase in delivery sales. This success stems from the retailer's strategic efforts to enhance their digital solutions, particularly by improving their delivery network. By reallocating capacity closer to automated fulfillment centers with higher customer density, Kroger has achieved better order-level profitability. This strategy reflects the company's commitment to investing in delivery solutions that meet changing consumer preferences and improve customer experience. According to Grocery Doppio's digital performance scorecard, 69% of grocers are re-negotiating logistics and delivery costs to boost profitability, a practice Kroger is also adopting. The differentiation in Kroger's delivery network has driven double-digit growth. Furthermore, utilizing AI and machine learning for pickup operations and providing store associates with necessary tools has significantly elevated customer experiences. Our internal research supports this approach, showing that 88% of grocers aim to enhance picking efficiency to improve profitability. 

Digital Engagement

The company's focus on enhancing the digital experience is evident in the 9% increase in digitally engaged households over the previous year. This growth is driven by investments in personalized promotions, leading to an 18% rise in digital coupon usage. This highlights that digitally engaged customers tend to be more loyal. Our research shows that 86% of shoppers expect a more personalized shopping experience, which fosters greater loyalty.

Rodney McMullen, Kroger's CEO, indicates that digitally engaged households are central to their long-term growth model, as these customers spend three times more than others. This aligns with our internal research, which suggests that 81% of grocers consider personalization crucial for competitiveness. Furthermore, improving personalization could lead to a 17% increase in conversion rates when targeting specific segments.

Future Outlook

The grocer has updated its full-year projection for identical sales growth, excluding fuel, to 0.25% to 1.75%.