LOS ANGELES – Anne Marie Sablock said she regularly drives past an Albertsons, a Whole Foods Market and several other supermarkets to shop at the Ralphs on Pacific Coast Highway in Long Beach.
The mother of two teens is price-sensitive and likes a broad selection of goods. She buys house brands and private-label products.
“I shop here because there is more choice and better prices,” Sablock said as she dropped a box of Ralphs brand instant oatmeal into her cart earlier this month.
Times are tough for neighborhood supermarkets as cost-conscious consumers defect to Wal-Mart, Costco and other discounters. But Kroger Co., owner of the Ralphs and Food 4 Less chains, seems to be bucking that trend.
Kroger posted same-store sales growth of 5 percent in the latest fiscal year. That compares with growth of less than 1 percent for Vons parent Safeway and a 1.2 percent decline for SuperValu Inc., parent company of Albertsons (excluding fuel sales for all three).
And Kroger last week said first-quarter profit shot up 12.7 percent as more recession-hit households opted to eat at home instead of restaurants and were buying low-priced store brands.
The company said profit jumped to $435.1 million, or 66 cents a share, compared with $386 million, or 58 cents a share last year. Sales were $22.8 billion, down slightly from $23.1 billion last year. But Kroger blamed the drop on lower gasoline prices at its service stations.
Industry analysts say the Cincinnati-based Kroger’s success probably is tied to its efforts to attract bargain hunters, aided by its exhaustive electronic tracking of customers’ shopping patterns and a push into marketing house brands.
“Kroger is the best-positioned traditional food retailer in a weak economic environment based on its aggressive pricing and strong market-share positions,” said Joseph Agnese, a Standard & Poor’s equity analyst.
Much of Kroger’s recent success is attributed to a tracking system that identifies how often shoppers visit the store and provides the company with detailed information about what they buy, Kroger Chief Executive David B. Dillon said.
Developed by Dunnhumby, a British marketing company that also is working in the United States with the Macy’s department store chain, the system gives Kroger clues as to what types of promotions and specials will draw people back into its stores.
“We send our very best customers coupon books specifically targeted at what they actually buy. The redemption rate of these coupons is significantly higher than other coupons,” Dillon said.
Kroger uses the data to divide the stores of most of its chains into three tiers and stock them accordingly. The upscale Ralphs store, for example, will have a larger wine selection and won’t offer the lowest price “Value” private-label goods. A mainstream Ralphs will have a broad mix of goods at varying prices points, while the value store “will be much more focused on price,” Dillon said.
The system allows Kroger to identify which items matter most to customers when it comes to price and prevents the company from discounting products that would sell at higher prices.
With nearly 2,500 stores in 31 states, Kroger is the nation’s largest grocery company. It operates under two dozen local banner names, including Scott’s in northeast Indiana, Ralphs and Food 4 Less in Southern California and Chicago, Fred Meyer in the Pacific Northwest, Fry’s Food and Drug in Arizona and Kroger in Ohio, the Midwest and much of the South. The company also owns 385 jewelry stores.
Kroger has proved especially adept at operating in regions where Wal-Mart’s supercenters have captured large market shares, analysts say. Last year, Kroger’s share grew almost a full percentage point in regions where Wal-Mart is no less than the No. 3 seller of groceries.
It could be nothing more than Kroger’s giant size and reach “allowing it to be the last man standing,” said Jim Prevor, editor in chief of PerishablePundit.com, a food-industry Web site. “Wal-Mart comes in and destroys the independents but doesn’t get all of that share. Kroger gets a slice, too.”
Kroger has benefited from shoppers turning to private-label goods to save money, said Andrew Wolf, an analyst at BB&T Capital Markets in Richmond, Va. Private labels are now a $12.5 billion annual business at Kroger.
Kroger’s house brands typically have a higher profit margin than the national labels. The shift by consumers to less-expensive but higher-margin private-label goods is reflected in Kroger’s financial results, Agnese said. Profits rose 8 percent to $349.2 million in the quarter ended Jan. 31, even though sales grew less than 1 percent to $17.3 billion.
“Profits are the outcome of focusing on the customer,” Dillon said.
Associated Press contributed to this story.
