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Supermarket chain Kroger (NYSE: KR ) has kept its chin up in these trying times. It not only churned out a great first quarter but also raised its full-year earnings guidance. Smart execution of strategies and cashing in on rivals' problems worked for Kroger, and I feel it will continue to do well.
Kroger realized it had to adjust according to customers' changing needs, and came up with a Customer 1st strategy through which it has tried to cut costs and pass on the benefits to customers. Lower prices, discounts, reward points with options to redeem at fuel pumps -- Kroger is going all out to lure customers.
Peers like SUPERVALU (NYSE: SVU ) are pursuing similar strategies, but customers seem to like Kroger more. Where SUPERVALU is expecting same-store sales to fall for the full year, Kroger is looking at a 3% to 3.5% rise.
Kroger has met success with its customer-oriented moves. Its first-quarter sales rose nearly 6% from the year-ago period, and identical-store sales climbed 4.2%. Compare this with SUPERVALU's negative same-store sales figure of 1.9% or Safeway's (NYSE: SWY ) flat first-quarter same-store sales, and we know customers are flocking to Kroger. Consistently growing same-store sales only highlights Kroger's operational efficiency.
The giant retailer is also doing well with its store brands, which now represent more than a quarter of its grocery division sales. Kroger is continuously adding to its list of store-brand products (the latest being its Private Selection snack chips, available in 13 flavors). This isn't really surprising as these exclusive brands are better money makers than national brands. Which explains why Safeway is also trying to boost margins by taking the house brands route.
If internal initiatives weren't enough, industrial spats have added to Kroger's good fortunes. Kroger has been gaining from Walgreen's losses. The company's pharmacy division outperformed the company's own expectations, thanks to Express Scripts (Nasdaq: ESRX ) customers queuing up at Kroger's and other drug retailers to fill their prescriptions after the company split with Walgreen. Nearly half of Kroger's same-store pharmacy sales during its first quarter came from new customers, an unexpected win for the company. Retaining customers doesn't really seem to be an issue at Kroger's, so benefits of this impasse should continue to flow in.
The Foolish bottom line
Peers can emulate Kroger's strategies, but the biggest grocery retailer in the U.S. continues to hold its own. And I love the way Kroger keeps just about every player in this space on its toes. Its latest victim isn't even a grocery retailer. Green Mountain Coffee Roasters (Nasdaq: GMCR ) has continued to see shares trend lower after Kroger revealed plans to distribute its own K-cups. Safeway followed with an announcement to launch five Keurig-compatible store-brand coffees. Now this is one story I am not going to miss!
Some biggies (read: Wal-Mart) might be reaching out to customers through price-comparing advertisements, but Kroger knows how to do it right the silent way, with great deals and cheap fuel, much the same way Foolish favorite Costco keeps winning. I strongly recommend adding the grocery retailer to your personalized stock watchlist to stay updated on all its news and analysis. Click here to add Kroger.
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