The Kroger Co.’s transformation had a strong first year, with online sales growing 58.0% in 2018 despite an overall comparable sales increase of just 2.0%. The grocer, No. 86 in the Internet Retailer Top 1000, is a year into a three-year “Restock Kroger” plan that includes improvements in ecommerce among other initiatives.
Digital sales hit $5 billion in 2018, according to CEO Rodney McMullen. Kroger, which owns grocery chains including Mariano’s, Fred Meyer and King Scoopers, generated $121.16 billion in total sales, meaning online sales generated about 4.1% of overall revenue.
Kroger now offers delivery or pickup services to 91% of Kroger shoppers, and these services generated a portion of its online growth. Kroger also acquired the formerly online-only meal kit provider Home Chef, which now sells its products in some Kroger stores in addition to its online shop.
However, digital investments stunted profit. For example, Kroger opened a new warehouse to fulfill online orders in high-demand markets. It also unified its ecommerce platform across its brands’ websites to simplify the grocer’s back-end operations. Profit for the year was nearly flat year over year at $2.61 billion. McMullen said those hits to profit growth should pay off in 2019.
Kroger also is looking to expand beyond just selling groceries, a traditionally low-margin business. McMullen said the grocer is “doing a lot of exploratory work” to identify an area of health care that it could enter and benefit customers—and perhaps lower their medical costs. Last year it teamed up with Walgreens Boots Alliance Inc. (No. 37) to let shoppers pick up their Kroger online orders at some of the drug chain’s stores. Plus, Walgreens also carries a selection of Kroger’s Simple Truth natural and organic foods.
The grocer is also looking for new sources of revenue such as digital advertising, placing web ads for the likes of Unilever and General Mills Inc., which is more profitable than its core business of selling food. Kroger expects the ad business and other new endeavors to help generate $400 million in additional operating profit by the end of 2020.
In other earnings news:
- Apparel retailer Urban Outfitters Inc. (No. 39) generated “well above 40%” of revenue through ecommerce operations during the fourth quarter ending Jan. 31, with higher conversion rates and more sessions but smaller average orders, according to executives on an earnings call transcribed by Seeking Alpha. That’s at least $45.2 million in ecommerce sales for the quarter. Full year ecommerce sales weren’t disclosed.
Apparel brand Abercrombie & Fitch Co. (No. 69) generated $1.08 billion in ecommerce sales for its fiscal year ending Feb. 2. Digital penetration hit 30% for the year and rose 10.1% over last year’s ecommerce total.
- Warehouse club Costco Wholesale Corp. (No. 12) reported a 20.2% increase in ecommerce sales for the second quarter ending Feb. 17, and a 25.9% increase for the first half of its fiscal year. During the quarter, Costco started shipping ecommerce packages through an automated line at an existing fulfillment center, a step it plans to take at more locations around the country. The cost of fulfilling ecommerce orders decreased slightly during the quarter as well, helping to improve margins on the fast-growing channel, Costco says. For 2019, the retailer plans to launch ecommerce operations in Japan and Australia.
- Online sales at bookstore chain Barnes & Noble Booksellers Inc. (No. 74), declined 2% for the third quarter ending Jan 26. However, that doesn’t account for orders placed online and picked up in stores, which increased during the quarter. Accounting for that improvement, chief financial officer Allen Lindstrom said ecommerce sales achieved positive growth but didn’t disclose any figures.