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Kroger plans to redefine grocery experience

Kroger

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CINCINNATI — Kroger Co. on Wednesday unveiled its plan to redefine its strategic focus to food products and the grocery experience.

Details of the plan, called Restock Kroger, were presented at the company’s annual investor conference.

Kroger also reiterated that it is exploring strategic alternatives for its 784 convenience stores across 18 states. It has tapped Goldman Sachs for identifying and reviewing strategic options, including the sale of the business.

Rodney McMullen, Kroger’s chairman and chief executive officer, said Restock Kroger builds on the retailer’s strengths and strategically repositions Kroger to accelerate its customer-centered efforts in order to create shareholder value.

“We understand that today’s marketplace is shifting rapidly. Kroger’s success has always depended on our ability to proactively address changes by focusing relentlessly on our customers,” McMullen said. “We have the scale, the data, physical assets and human connection to win. Combining our food expertise and data analytics uniquely positions Kroger to create new and highly relevant customer experiences, delivered both digitally and in stores.”

Kroger said the strategic plan would be fueled by capital investments, cost savings and free cash flow. Restock Kroger is expected to generate $400 million in incremental operating margin by 2020. The company expects to generate more than $4 billion of free cash flow over the next three years — nearly double what was generated over the previous three years.

“Our goal is to continue generating shareholder value even as we make strategic investments to grow our business,” said Mike Schlotman, Kroger’s executive vice president and chief financial officer.

Restock Kroger has four main drivers:

  • Redefine the food and grocery customer experience —The company expects to win with customers by accelerating its digital and e-commerce efforts, applying its customer data and personalization expertise through 84.51, its data analytics subsidiary, to even more aspects of the business, building on the growth of its proprietary Our Brands portfolio, and continuing to invest in “smart” pricing aimed at retaining customers.
  • Expand partnerships to create customer value — Kroger intends to utilize more of its capital to fund technology and infrastructure upgrades, and to create alternative revenue streams.
  • Develop talent — Kroger intends to accelerate its high-performance leadership culture through talent development, training, and a rebalancing of pay and benefits.
  • Live Kroger’s purpose through social impact — The company introduced its Zero Hunger Zero Waste plan last month to end hunger in the communities in which it operates and eliminate waste in the company by 2025.

McMullen also used the investor day event to outline Kroger’s investment thesis.

“We feel great about our strengths. As America’s grocer, we are growing in a fragmented market. Kroger has more data than any of our competitors, which leads to deep customer knowledge and unparalleled personalization,” he said. “We have incredibly convenient locations and platforms for pickup and delivery within one to two miles of our customers. We have a leadership team that combines deep experience with creative new talent. We have the scale to win with more than 60 million households shopping with us annually. In fact, we’ve been named America’s most beloved grocery store several times. We connect personally with our associates, customers and communities to uplift and improve lives. And we have a proven track record of consistently returning capital to shareholders through an increasing dividend and share buyback program. We believe our best days are ahead of us.”

Kroger said it expects identical-supermarket sales to rise in 2018 compared to the current year and for earnings to be flat to slightly higher.

Kroger serves nearly 9 million customers daily in 2,793 retail food stores under a variety of banners in 35 states and the District of Columbia. It also has 2,258 pharmacies, 783 convenience stores, 307 fine jewelry stores, 222 retail health clinics, 1,472 supermarket fuel centers and 38 food production plants in the United States.

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