Dive Brief:
- Kroger expects its online business to turn a profit next year as it logs improvements related to its closure of automated fulfillment centers and ramped-up partnerships with third-party e-commerce providers, the retailer said Thursday.
- The supermarket chain saw digital sales rise 17% during its third quarter. Identical sales were up 2.6% compared with the same period last year, but the company saw overall sales increase by less than 1%, to $33.9 billion.
- Kroger is making “good progress” toward selecting a new CEO and expects to appoint someone to the role during the first quarter of 2026, interim CEO Ron Sargent said during an earnings call on Thursday.
Dive Insight:
Kroger’s projection that its e-commerce sales will reach profitability next year reflects the company’s calculation that it will net $400 million in savings related in part to its decision to close three robotic fulfillment facilities early next year, CFO David Kennerley said during the earnings call.
The grocer also believes its stepped-up focus on store-based fulfillment — including its partnerships with Instacart, DoorDash and Uber — will contribute to its ability to make money though its digital operations, Kennerley said.
While those deals will contribute only incrementally to Kroger’s online sales and ability to attract new digital customers, the arrangements will bolster the company’s retail media business, which will help Kroger generate a profit online, said Kennerley.
“You’ve got the media business that we expect to continue to grow, and importantly, the media sharing opportunities that we have with our new partners, and when you put all that together that allows us to expect we will make money in e-commerce next year,” Kennerley said.
Sargent said Kroger plans to begin constructing 14 new stores during the fourth quarter and expects to “accelerate capital investment” in fleet expansion going forward to improve its competitiveness. He added that the company’s investments in the automated fulfillment network held back its ability to devote money to new stores.
“[O]ne of our biggest challenges over the last few years is we haven’t allocated enough capital to growing stores, because we have allocated a lot of capital in other areas, like fulfillment centers,” Sargent said.
Kroger’s optimistic outlook for its digital sales comes as the supermarket operator deals with pressure stemming from the federal government shutdown, the pause in SNAP benefit distribution and skittishness among shoppers, Sargent said. Those headwinds put pressure on the company’s financial results toward the end of Q3, which ended Nov. 8, he said, adding that Kroger stepped up promotions during the quarter in response to the challenges consumers faced.
“We invested in what we believed was an appropriate way and also a very responsible way, with our margins, to bring the cost of a Thanksgiving dinner down, as well as lower prices through promotions on a number of critical items for households,” Kennerley said.
Neil Saunders, managing director of GlobalData Retail, said he thinks Kroger’s sales growth should be stronger, adding that the company’s financial performance in Q3 suggests that it is losing sales and shoppers to competitors like Walmart and Aldi.
“This bleeding needs to be stopped because, if left unchecked, it undermines the volume needed to make the business model work, especially during a time of elevated costs,” Saunders said in emailed comments. “In our view, Kroger is something of a ‘meh’ retailer at a time when it needs to be firmly on the front foot.”
Kroger posted an operating loss of about $1.5 billion during Q3 compared with a profit of more than $800 million during the third quarter of 2024. Kroger narrowed its full-year guidance for same-store sales without fuel to a range of 2.8% to 3% from its previous forecast of 2.7% to 3.4%
In response to a question about why Kroger hasn’t yet announced a replacement for former Chairman and CEO Rodney McMullen, who departed abruptly in March, Sargent said the company is deliberately taking its time in appointing a successor. The retailer is looking for someone with “a deep understanding of retail transformation” who is “very close to the customer” and reflects Kroger’s culture and values, he said.
Kroger intends to bring in someone from outside the company to serve as its next chief executive and has had conversations with several “very highly qualified” candidates, Sargent added.
