When times are tough, the tough scrimp and save, which includes saving on groceries. Supermarket chain Kroger
Lingering sales from last quarter’s incentive to convert government stimulus checks into Kroger gift cards may have positively affected the results. But more importantly, the successful second quarter further displayed management’s ability to understand its customers' changing needs. Accumulating data via its loyalty cards has helped the company cater to shoppers’ tastes by stuffing its shelves full of the right product mix.
Kroger is also capitalizing on its Private Label program, which has become the most extensive in the industry. As consumers turn away from premium-priced goods produced by name-brand labels, such as General Mills
This is a trend being found throughout the grocery-shopping industry. Wal-Mart, SUPERVALU
Even with some 26% of its sales represented by private label-brands, margins proved difficult for Kroger to uphold in this time of promotional and inflationary pressures. The gross margin slipped 120 basis points and profits inched up just 3.4%, a rate notably slower than that of sales. However, thanks to buybacks, the per-share figure rose 10.5%.
Kroger has implemented a successful strategy to take advantage of a time when consumers are trading down for cheaper goods and eating in rather than dining out. It’s investing for long-term success, and it's positioned to continue gaining further market share.
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Fool contributor Rich Duprey owns shares of Kroger and Wal-Mart but does not have a financial position in any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.