Kroger's Q1 FY 2023 Highlights: Sustained Growth, Enhanced Customer Experience, and Commitment to Value

Kroger, a leading grocery retailer, commenced the year with a strong performance in Q1 FY 2023, showcasing the effectiveness of its go-to-market strategy. Despite prevailing challenges such as high inflation, reduced SNAP dollars, and economic uncertainty, Kroger successfully navigated the landscape, offering customers an affordable and quality shopping experience.

The company's investments in productivity and operational improvements over the past years have fortified its business, enabling sustainable investments in pricing while maintaining margins. By delivering exceptional value and driving strategic initiatives, Kroger has sustained its momentum, instilling confidence that it will continue to fulfill its customer commitments.

Throughout the first quarter, customer preferences and trends observed in previous years further accelerated. As customers actively sought ways to save, Kroger focused on providing a fresh and affordable shopping experience without compromising quality, selection, or convenience. In the first quarter, the company's total sales were $45.2 billion, up from $44.6 billion in the same period last year. First-quarter gross margin was 22.3% of sales. 

Promotions played a significant role in driving customer savings, with sales made on promotion increasing by approximately 380 basis points. Additionally, digital coupon redemptions reached an impressive 180 million. Kroger expanded its savings opportunities through collaborations with suppliers to fund promotions, offering customers even more chances to save.

Kroger's value proposition appeals to a diverse customer base, leading to increased customer trips and sustained household growth for the eighth consecutive quarter. While the economic environment affected budget-conscious shoppers, mainstream and higher-income customers demonstrated increased spending and loyalty. Kroger successfully attracted mainstream and higher-income households from specialty retailers, who have shown a willingness to build larger baskets and spend more per item. 

These customers, drawn by the quality and selection of Kroger's premium Our Brands lines and fresh items, proved more profitable for the company. The budget-conscious households adjusted their purchasing behavior by opting for lower-priced products and smaller pack sizes.

As year-over-year inflation levels began to moderate, particularly in fresh categories, Kroger anticipates customer relief. Value and quality are expected to remain paramount for most customers in the coming months, positioning Kroger's attractive value proposition well in the current environment. The company's promotional pricing, personalized offers, and fuel savings combine to create an overall value comparable to everyday low-price providers, accompanied by a more personalized shopping experience.

Kroger's strategic priorities of Fresh, Our Brands, Personalization, and Seamless continue to drive growth and enhance the customer experience. The company's focus on fresh products and investments in supply chain efficiency resulted in improved in-stock rates, contributing to higher sales. By streamlining the supply chain, minimizing the time from farm to shelf, and leveraging its store network, Kroger ensures customers enjoy fresher choices and increased days of freshness at home.

The success of Kroger's Our Brands, including its namesake Kroger brand, has been instrumental in delivering savings to customers without compromising quality. The taste and quality of the products have led to continued repurchases and customer loyalty. Home Chef, a convenient meal solution, expanded its offerings to meet growing customer needs, introducing more healthy choices, premium meals, and dedicated family menus.

Personalization remains a key focus for Kroger, leveraging data, analytics, and artificial intelligence to deliver targeted and effective experiences. By utilizing customer data and AI-based personalization, Kroger gains a deeper understanding of customer preferences and can present relevant products and promotions across digital channels. The company is constantly exploring AI applications, from improving substitution accuracy and search results to optimizing store orders and reducing out-of-stocks.

“As AI advances, we continue to work and constantly evaluate potential use cases throughout the business with privacy and responsible implementation in mind,” said Kroger’s chairman and CEO, Rodney McMullen. “For customers, we see opportunities to further simplify the digital experience and offer more accurate personalized recommendations. Our teams are working with search algorithms and generative AI to improve substitution accuracy and search results.”

Kroger's seamless ecosystem, encompassing pickup and delivery services, experienced solid digital sales growth. Kroger’s digital sales grew by 15% in the first quarter. The rise in households and transactions contributed to this growth. The company reduced wait times and improved its fill rates, resulting in increased pickup net promoter scores. The customer experience remains the same, whether customers place a large stock-up order through fulfillment centers or desire the immediacy of Kroger Delivery Now.