Dive Brief:
- Kroger is conducting a “full site-by-site analysis” of its automated order-fulfilment network as it looks to improve profitability and reduce costs, interim CEO Ron Sargent said Thursday during the grocer’s second-quarter earnings call.
- The supermarket operator intends to focus on store-level fulfillment as it strives to provide grocery delivery services faster and more efficiently, Sargent said.
- Kroger’s e-commerce sales were up 16% during Q1, and delivery orders outpaced pickup transactions for the first time, according to the interim CEO.
Dive Insight:
Kroger has invested billions of dollars into automated e-commerce infrastructure, but Sargent made clear during the earnings call that the company will depend on individual supermarkets to power its digital growth going forward.
“Stores are our most important asset, and when we use our stores to fulfill online orders, the inventory is closer to customers and the last-mile delivery costs are lower,” Sargent said. “As demand for convenience grows, we can leverage our store footprint to reach new customer segments and expand rapid delivery capabilities without significant capital investments.”
Developed in partnership with U.K.-based automation specialist Ocado, Kroger’s automated e-commerce network features robotic warehouses that connect to smaller facilities known as spokes. After pumping the brakes in 2023 on adding new facilities, Ocado said at the start of this year that it plans to open two customer fulfillment centers with Kroger — one in Charlotte, North Carolina, and one in Phoenix — in fiscal 2026.
“Where we have seen strong demand in high-density areas, these facilities deliver better results than those facilities where density is lower and customer adoption has been slower, Sargent said about the network, adding, “We are taking a hard look at some of our automated facilities.”
The company will provide an update on the analysis during its next earnings call, he said.
Sargent noted that Kroger is stepping up development of new stores and placing a premium on more efficient layouts and speedier construction. The company is on track to complete 30 major store projects in 2025 and expects to increase store openings by 30% next year, which will help the company increase online and in-store sales more rapidly, he said.
Kroger’s total sales for the quarter came in at $33.9 billion, in line with its results during the same period in 2024. Sales rose 3.8% year-over-year when excluding sales from Kroger’s former specialty pharmacy business, which the company sold in 2024.
Same-store sales without fuel rose 3.4% during the second quarter, up from 1.2% during the same period last year. Kroger has seen its performance in the key metric improve for six straight quarters, Sargent noted.
Kroger raised its forecast for identical sales growth during fiscal 2025. The company now expects same-store sales to increase by between 2.7% and 3.4%, up from its earlier projection of 2.25% to 3.25%.
Kroger has not seen a material effect from tariffs on imports, Kroger CFO David Kennerly said during the call. He added that the chain’s “approach remains to raise prices as a last resort, to ensure that we keep prices as low as possible for our customers.”
In response to a question from an analyst, Sargent said Kroger does not intend to embrace an everyday low price strategy.
“There’s no debate about moving to an EDLP pricing architecture. Kroger is a retailer that for many, many years has been a promotional retailer. Our customers respond to that. Our customers come to us for that. So I don’t think there’s going to be a dramatic change on that,” he said.
However, the company is working to reduce the spread on everyday pricing, Sargent added. “I don’t think there’s a fundamental shift in our pricing strategy, but we’re going to be sharper and we’re going to be more focused,” he said.
Sargent also said during the call that Kroger’s board continues to be “actively engaged” in its search for a permanent CEO, but did not provide additional details.
Catherine Douglas Moran contributed reporting.
