Kroger CEO expects continued momentum from at-home cooking trends
- The Kroger Co. (NYSE: KR) raised full-year guidance following better than expected 1Q.
- Inflation is expected to be in check at 1% to 2%
- Kroger enjoys a major advantage in the “fresh” food category and in-house brands
Grocery giant The Kroger Co. (NYSE: KR) reported first quarter results on Thursday but management’s move to lift its full-year guidance despite looming inflation caught investor attention. Speaking on CNBC’s “Closing Bell” on Thursday, Kroger CEO Rodney McMullen said he is confident “at-home cooking” trends driven by COVID-19 lockdowns and restrictions are here to stay.
Consumers learned to cook at home
McMullen said that family events are expected to be larger and more frequent as the COVID-19 pandemic eases. Over the past year, consumers enjoyed learning how to cook at home and people are eager to show off their new skills during valuable family time.
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McMullen also noted that the rise in guidance comes on the heels of better cost management in all the sub-sectors.
Inflation expected to be in check
Commenting on the inflation rate in the food market, McMullen said fresh produce is experiencing higher levels of inflation versus “center of store” items. However, this type of food inflation has historically been seasonal and not permanent. He added:
We have operated in all inflationary environments. High or Low and we are comfortable with whatever the environment is. I always tell people the easiest environment to operate is in when inflation is 3 to 4% and right now we are still expecting inflation to probably be 1 to 2%.
Additionally, Kroger has a wide portfolio of its own brands. Historical trends confirm that Kroger-owned brands tend to gain market share when inflation pushes prices upwards. Kroger’s in-house brands’ prices tend to be lower compared to third-party rivals until real costs.
According to McMullen, the food market (at home and away from home) is very large at $1.4 trillion and all players have room for a “meaningful share”. Amazon.com, Inc. (NASDAQ: AMZN), despite a recent major push into the physical grocery space, is no different of a competitor compared to Walmart Inc (NYSE: WMT), and Costco Wholesale Corporation (NASDAQ: COST).
Nevertheless, McMullen strongly believes that Kroger enjoys an “incredible strong reputation from a fresh standpoint” and access to fresh items is the top priority when somebody decides where to shop. As such, Kroger “starts out with an advantage” and management remains dedicated to further separate itself from its rivals.