Kroger (KR) to focus on expanding its share in the food-at-home market

Retailers like The Kroger Co. (NYSE: KR) have benefited significantly from the COVID-19 pandemic as people stocked up on groceries and essentials and turned to cooking more meals at home. For the final quarter of 2020, the company reported mixed results with adjusted earnings coming ahead of estimates while revenue fell short of expectations.

Despite concerns that the momentum seen throughout last year might wane as vaccines are rolled out and things gradually normalize, Kroger remains confident that the trend of cooking and eating at home will continue as health remains a priority.

Changing trends

On its quarterly conference call, Kroger said the pandemic had not only changed the way people work but also the way they enjoy food. As people work from home, they eat more at home while also giving priority to health and cleanliness. The company expects these trends to continue even after the restrictions are eased.

These changes have benefited Kroger’s Fresh segment significantly with its produce department outperforming the total company. As customers turn to healthier options, Simple Truth, the company’s brand of organic food products gained substantially. Simple Truth grew 18% during the fourth quarter and surpassed $1 billion in annual sales.

Kroger is expanding its plant-based food offerings and the company launched 53 new products through its Simple Truth plant-based platform in 2020. This has helped in bringing in new customers and driving sales growth.

Kroger is seeing strong demand for ready-to-heat and ready-to-eat foods. The company also witnessed solid growth in deli bakery and meals along with record sales at Home Chef. Kroger’s premium culinary brand, Private Selection, saw a 20% growth during the year as more people preferred to cook at home.

Digital growth

Digital continues to be a strong spot for the company. Kroger saw triple-digit growth in digital sales during 2020 along with a 30% increase in customer interactions across digital modalities versus last year. In the fourth quarter, digital sales rose 118%. The company also saw increases in pickup and delivery services with delivery sales rising 249% during the quarter.

Outlook

For 2021, Kroger expects sales to turn negative due to tough comparisons with 2020 and the company is guiding for identical sales, excluding fuel, to come in a range of negative 3% to negative 5%. Adjusted EPS is expected to be $2.75-2.95.

Kroger expects its two-year stacked identical sales without fuel to come in the range of 9-11%. Adjusted EPS is projected to have a compounded annual growth rate of 12-16%.

Click here to read the full transcript of Kroger’s Q4 2020 earnings conference call