Kroger succeeding with Simple Truth

by Keith Nunes
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CINCINNATI — The Kroger Co.’s Simple Truth and Simple Truth Organic lines of products, which include meat and poultry products, continue to grow by achieving $1.2 billion in sales during fiscal 2014, and the private-label line is now leading to a blurring of categories within the center of the store, according to company executives.

“Simple Truth has been our most-successful brand launch ever, reaching billion-dollar brand status in less than two short years,” said Mike Ellis, president and chief operating officer of Kroger, during a March 5 call with financial analysts to discuss the retailer’s most recent earnings. “During the year, more than 20 million households bought one or more of our 2,688 Simple Truth or Simple Truth Organic items. The brand continues to earn double-digit unit and sales growth, which we don’t see ending anytime soon.”

Rodney McMullen, chairman and chief executive officer of Kroger, noted that many retailers have separate sections within their stores for natural and organic products vs. traditional, center-of-the-store consumer packaged goods, but that the line between the two categories is blurring as more companies introduce natural and organic varieties.

“It’s getting increasingly complicated because there are certain categories where natural foods is almost as big as the historical business,” he said.

Ellis added, “Our ability to cross-merchandise some of those products throughout the store, I think, has made some of those products more available, in a broader way, to a larger customer base. We keep talking about the blurring of departments and natural foods is becoming more and more mainstream for many people. So, it’s really broad-based when you look at where the growth is. And we’re trying all kinds of new things to make these types of products more available to our customers every day.”

As natural and organic products continue to be integrated into the center of the store, Mike Schlotman, chief financial officer at Kroger, predicted category growth will continue.

“It’s more of a way of life for our customer today,” he said.

For the fiscal year ended Jan. 31, Kroger’s net income totaled $1,728 million, equal to $3.49 per share on the common stock, and an increase compared with the previous year when the company recorded net income of $1,519 million, or $2.93 per share.

Sales for the year were $108,465 million, an increase compared with the previous year when sales were $98,375 million.

“2014 was an outstanding year by all measures,” McMullen said. “Kroger captured more share of the massive food market, delivered on our commitments and invested to grow our business.

“And yet, we continue to deepen loyalty with all of our customers,” he added. “That is because whatever the external factors are at play at a given time, be it inflation in certain commodities, fluctuating fuel prices, or unemployment, we adjust to win with the customer. So, while inflation affected fuel costs through 2014, our personalized offers, weekly promotions, and price investments helped customers stretch their dollars.

“We are currently investing $3.5 billion annually in lower prices. Even though natural and organic foods have been notoriously out of reach for many customers, we used our merchandising expertise, manufacturing base and buying power to make them affordable and accessible to all customers through Simple Truth, which continues to see double-digit sales growth. And while customers will always have evolving expectations for convenience, we have improved our prepared food offering to meet their changing needs as well.”

Kroger’s fourth-quarter earnings totaled $518 million, or $1.06 per share, and an increase compared with the same period during the previous year when earnings were $422 million, or 82c per share.
Sales for the quarter were $25,207 million compared with $23,222 million the previous year.
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