Kroger’s private-label growth outpaced national brands in Q3

The news: Kroger beat analysts’ same-store sales expectations in Q3 thanks in part to the strong performance of its private label brands, which outpaced national brands.

• Kroger’s Q3 identical sales grew 2.3% YoY in Q3, versus 1.77% expected.
• Sales, however, fell 1% to $33.63 billion, short of analysts’ expected $34.2 billion.
• Adjusted earnings per share were 98 cents, in line with estimates.

Private label strength: The store brand portfolio was led by mid-single-digit growth in its most premium brand, Private Selection.

• The Private Selection brand hit a sweet spot: “Customers continue to demand premium products but at the same time are looking for value,” CFO Todd Foley said during the company’s earnings call.
• Earlier this year, Numerator reported that Kroger’s budget-priced Smart Way brand was the fastest-growing store brand.

By offering a range of private-label products across several price points, Kroger can appeal to a broad array of consumers who want to trade down from a national brand. “Once a customer tries Our Brand, the repeat rate of customers coming back is incredibly high because they find there's no compromise on quality and they have a great value for the money,” said CEO Rodney McMullen.

Leaning into value: Beyond private labels, Kroger has tried to beat back Walmart and others by leaning into value via loyalty discounts, personalized offers, and fuel rewards.

• The number of digital offer clips is up 5% this year, which has reportedly saved customers an additional 14%.
• The retailer also held a Customer Appreciation Week sale from September 25 to October 1 that offered steep discounts and additional savings for Boost members.
• It also promoted Thanksgiving meal bundles that cost less than $5 per person.

Our take: Kroger, which is awaiting a decision on its planned merger with Albertsons, is putting itself in a strong position to succeed regardless of the outcome.

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