The Kroger Co. grew both its total and digital sales in its fiscal second quarter, which ended Aug. 17, 2024.
Kroger digital sales grew at nearly 10 times the rate of total sales — excluding fuel — in Q2, which increased 1.2% year over year. Total Kroger sales in Q2 2024 reached $33.91 billion, up from $33.85 billion for the same period in 2023. The company did not attach a dollar amount to its digital sales. Gross margin was 22.6% of sales.
CEO Rodney McMullen said on an earnings call with investors that Kroger customers “continue adjusting to the current economic environment.” He highlighted reduced savings, higher interest rates and inflation as pressures consumers face.
“Customers are purchasing lower-priced cuts of meat, buying less and focusing on essentials,” McMullen told investors. “Budget-conscious customers are buying more at the beginning of the month to stock up on essential items and groceries. And then as the month progresses, they are more cautious with their spending.”
Kroger’s loyalty program and personalized promotions helped the retailer “deliver value beyond the shelf price,” he added. He credited better product recommendations and more effective promotions for “generating greater unit lift on promotions.”
Kroger has moved up to No. 6 in the Top 1000 Database this year. The database is Digital Commerce 360’s ranking of the largest online retailers in North America by their annual web sales. Kroger is No. 1 in the Top 1000’s Food & Beverage category. However, it competes with Mass Merchants that rank higher than it does in the Top 1000 — Walmart and Target — for online grocery sales.
Kroger digital sales in Q2
In its fiscal Q2, Kroger digital sales grew 11% year over year. McMullen said that’s a result of an increase in both households buying from Kroger and web traffic. Thanks to those contributing factors, it grew delivery sales 17% year over year, crediting its customer fulfillment centers. Pickup sales grew 10% in the quarter.
“One of the many ways we move customers up the loyalty ladder is to convert digitally engaged households into ecommerce households,” McMullen said. “This means we are moving customers from simply using our app or website to making purchases through one of these digital channels.”
As a result, he said, Kroger grew its number of ecommerce households 14% year over year in Q2.
Interim chief financial officer Todd Foley credited the increase in Kroger digital sales to:
- Increased fill rates
- A reduction in wait times
- A 33% improvement in perfect orders
Kroger defines perfect orders as those with both a 100% fill rate and that are completed within an appropriate wait time, he said.
Through artificial intelligence (AI)-enabled advancements, dynamic batching and routing, Foley said Kroger can offer two-hour lead times and pickup in all its stores.
Kroger retail media network
Households that shop with Kroger digitally and in physical stores are the retailer’s most loyal, McMullen said. They also increase retail media and monetization opportunities, he added.
“Customers tell us they love the convenience of on-time and refrigerated delivery right to their homes,” McMullen said. “Profitability remains a key focus as we drive volume growth through our customer fulfillment centers.”
Kroger Precision Marketing, the company’s retail media network, remains on pace to grow more than 20% this year, McMullen said.
Kroger labor agreements
Foley said Kroger ratified new labor agreements in the second quarter, covering more than 13,000 associates. They include:
- Food 4 Less warehouse stores in Southern California
- Columbus Valley stores
- Mid-Atlantic Division stores
- Anderson Bakery
- Michigan
- West Michigan
- New Market clerks
- Central Peoria clerks
- Shelbyville warehouse
Kroger is working to reach an agreement with the United Food & Commercial Workers (UFCW) union. This agreement would impact grocery store workers at 29 Fred Meyer stores in Portland, Foley said. Employees at those stores chose to strike for six days in September, he said.
Update on Kroger-Albertsons merger
Integration work continues to progress, McMullen told investors.
“As part of our merger preparation, Kroger recently launched an exchange offering for Albertsons notes, contingent upon the closing of the merger as well as a successful new offering for $10.5 billion of senior unsecured notes with the net proceeds expected to fund a portion of the cash consideration for the proposed merger,” McMullen said.
A portion of the proceeds from the offering is subject to a “special mandatory redemption” if the Kroger-Albertsons merger does not close, he added.
Additionally, McMullen said, Kroger remains committed to the merger with Albertsons because it “will provide meaningful and measurable benefits for customers, associates and communities across the country.”
Albertsons ranks No. 24 in the Top 1000.
Percentage changes may not align exactly with dollar figures due to rounding. Check back for more earnings reports. Here’s last quarter’s update on Kroger.
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