The grocery retailer says it incurred $830 million in coronavirus-related expenses and declined to provide guidance on 2020 financial results.

Grocery chain operator Kroger Co. reported online sales grew 92% for its fiscal first quarter 2020, which ended May 23—a time when the COVID-19 pandemic drove demand for online groceries for curbside pickup or delivery to new highs.

“Our digital delivery and pickup business in the last 2 months grew triple digits and continues to grow at that [rate],” Kroger CEO Rodney McMullen said during a June 18 conference call with analysts transcribed by Seeking Alpha. Kroger (No. 13 in the 2020 Digital Commerce 360 Top 1000) does not break out dollar totals for online sales.

While the pandemic boosted online and offline sales, it also increased costs. Kroger reported spending $830 million on pandemic-related expenses so far in 2020, including $150 million in bonuses to frontline grocery, supply chain, manufacturing, pharmacy and call center employees, McMullen said.

Kroger responded to the pandemic in many different ways, including:

  • Hiring 100,000 new workers.
  • Opening a pickup-only location in Cincinnati for online orders.
  • Installing see-through partitions at checkout lanes, pharmacy counters and for in-store Starbucks counters.
  • Waiving pickup fees with no minimum purchase requirements.
  • Offering free COVID-19 testing to employees based on symptoms and medical needs, along with paid COVID-19 emergency leave and mental health services and other benefits to support employees’ psychological and physical well-being.
  • Contributing $15 million to the retailer’s Helping Hands fund to provide financial support to employees experiencing hardships due to COVID-19, including childcare costs.

Omnichannel investments continue

Kroger is more than 2 years into a 3-year strategic plan, dubbed Restock Kroger, which includes improvements in ecommerce capabilities, among other initiatives. Kroger continues to invest in its digital capabilities Gary Millerchip, Kroger’s chief financial officer, said during the June 18 call. 

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Recently, Kroger added several new enhancements to its digital customer experience, including the launch of a check-in-on-arrival option for pickup customers and contactless doorstep delivery, he said. During the pandemic, Kroger delayed some unspecified cost-saving initiatives related to the strategic plan, he said. Despite that, the retailer expects to see the vast majority of its targeted $1 billion on cost savings in 2020, he said.

As part of the Restock Kroger plan, McMullen said, the retailer also will increase employee wages incrementally by about $800 million per year through the end of 2020, which is $300 million more than the original plan. The company also reported it contributed an additional; $236 million to pension plans during the quarter.

This month, Kroger and British online grocery retailer and technology vendor Ocado Group Plc (No. 25 in the Digital Commerce 360 Europe 500) announced plans to build three robotic fulfillment centers for online orders in the West, Pacific Northwest and Great Lakes regions of the United States. The new center in the West will measure 300,000 square feet, the Pacific Northwest center will be 200,000 square feet and the facility in the Great Lakes region facility will be 150,000 square feet. Kroger did not disclose the exact locations but says it plans to reveal them soon. The newly proposed facilities join six similar robotic fulfillment centers now planned or under construction.

“We continue to invest in and constantly improve our ecommerce capabilities. Our partnership with Ocado remains an essential part of our all being a seamless ecosystem,” McMullen said. “Our customer fulfillment centers will accelerate our ability to serve customers seamlessly and in a more cost-effective way.”

In its earnings statement, Kroger declined to provide guidance to investors about projected financial results. “There are still many unknown factors related to the long-term impact of COVID-19 that could influence our financial results for the remainder of 2020,” the statement said. Those factors include the possibility of additional coronavirus-related spending, “uncertainty surrounding consumer behavior” and a “potential long-term shift in customers eating more food at home.”

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The increased ecommerce sales at Kroger comes at a time when the pandemic has generated enormous growth in online grocery sales. In May, U.S. online grocery sales reached a record of $6.6 billion, according to a May 20-22 survey by grocery ecommerce consulting firm Brick Meets Click and grocery ecommerce platform Mercatus. That was an increase of 24.5% over the previous record of $5.3 billion in online grocery sales a month earlier.

Kroger operates grocery stores in 35 states under a variety of banner names, such as Kroger, Pick ‘n Save, Ralphs and Mariano’s.

For its fiscal first quarter ended May 23, Kroger reported:

  • Overall sales (online and offline) of $41.55 billion for the quarter, up 11.5% from $37.25 billion in the comparable quarter a year earlier. Excluding fuel and dispositions, sales grew 19.1%.
  • Net income of $1.212 billion, up 57.0% from $772.0 million for the year-ago quarter.
  • An increase of 19.0%  in identical sales (excluding fuel).
  • A balance of $2.3 billion in cash as of the end of the quarter.

Percentage changes may not align exactly with dollar figures due to rounding.

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