Kroger’s 3Q15 Earnings Call Notes

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W. Rodney McMullen

Economy continues to slowly improve, but bifurcation remains

“The economy overall continues to slowly improve, and customers continue to feel more optimistic, but the bifurcation in the economy remains. Some customers are willing to spend more while others are worried about their job or next paychecks are more focused on saving. We find that all customers want quality products and a great shopping experience.”

No Superbowl in 4Q this year

“this year we will not have a Super Bowl in the fourth quarter. A year ago we had Super Bowl in the fourth quarter.”

Private label usually picks up market share when brand name raises priceInnovation has helped justify more shelf space for coffee products

“If you asked me three years ago or four years ago what I thought was going to be the future of the coffee category, I wouldn’t have been very positive. Today because of innovation by Starbucks and Keurig Green Mountain, it’s completely created a different type of growth in that category and we are continually adding spaces on what’s inside the store because the customers want it, and it’s something that is driven by innovation.”

J. Michael Schlotman

Fuel has big impact on topline growth

“Total sales in the third quarter increased 0.4% to $25.1 billion, compared to $25 billion in the same period last year. Excluding fuel, total sales increased 5.5% in the third quarter compared to the same period last year.”

Generic drug costs continue to be high, don’t see anything moderating

“Generics continue to have a good amount of inflation in them. Really don’t see anything as we look into 2016 that would necessarily cause a moderation. Part of that was driven by prices have gotten so low, some folks got out of the manufacture of those products. With good old supply and demand and just basic economic forces, if underlying costs for those continue to be high, at some point other folks will get back into the manufacture of that business and perhaps put pressure on that economic cycle.”

This is a tough industry

“I don’t think there’s a time that Rodney and I have been doing these calls together that we haven’t talked about this being a highly competitive industry. Barriers to entry are low. Our job is to go out every day with our more than 400,000 associates and deliver a better value proposition to our customers today than we did yesterday”

Even our pets are jumping onto the healthy eating bandwagon

“It clearly does seem as though there’s going to be persistence and shift to a more healthy lifestyle and maybe out of some of the traditional center-of-the-store categories into more fresh categories. But I would tell you there are plenty of center-of-the-store categories that now have natural and organic offerings in a can, whether it’s our own Simple Truth brand with spaghetti sauces and salsas and things like that.

If you go down the dog food aisle, the growth in the dog food aisle is in grain-free and natural kind of dog food, so even our pets are jumping onto the bandwagon of leading a healthier lifestyle. Everybody is laughing at me in the room by the way.”