10 Items or Less

A stumble at the fork in the road

As Kroger’s streak ends, so too does an era

This post is part of the 10 Items or Less blog.

Joe DiMaggio went hitless this week. 

Were it any other retailer in America, a modest dip in quarterly same-store sales would hardly merit further examination but then again Kroger isn’t any other retailer. As we reported, the fourth quarter decline of 0.7% marked the first time in 52 quarters — 13 years — the Cincinnati retailer failed to grow non-fuel IDs in a quarter.

Doubtlessly, Kroger’s streak will be as safe a record as DiMaggio’s 56-game hitting streak in the 1941 baseball season. DiMaggio blamed his streak-ending 0-for-3 in part on rain-soaked basepaths in Cleveland that cost him two close plays at first. Kroger’s fourth-quarter track was slowed by the muck of food deflation.

But there’s also some evidence out there that what was an end of a streak for Kroger also coincides with an end of an era for food retail. Quite simply there are more retailers and more formats out there with the ability to execute than there used to be, and some of them suddenly are taking Kroger’s share.

Kroger CEO Rodney McMullen acknowledged a change was in the offing late last year, telling investors at the retailer’s annual investor conference it had come to a “fork in the road” where it needed to re-examine competitive battle plans, although I should note he framed this as an opportunity for growth, and not as a threat to dominance.

“Ten years ago, when we talked about competition, most of the conversation was around one competitor,” McMullen said, referring to Wal-Mart Stores, a company that Kroger managed to render into something of an ally for much of the last 13 years.

Today, Kroger sees itself playing not just against Walmart or other supermarkets, but within a vast universe of restaurants, Internet retailers, hard discounters, convenience stores — the $1.5 trillion total food business. McMullen this week marveled at what he saw was the customer’s willingness to dine at a Kroger store. “We believe that that will be an opportunity to grow the business and create a new leg, a platform for growth,” he said.

As for DiMaggio, he went out the next day in Cleveland and had two hits, starting a 16-game hitting streak.

Walmart is no longer Kroger's only nemesis, officials say.

Discounters Go Hollywood

This month officially marks the first anniversary of the discount invasion of Southern California.

Aldi last March barreled into the market with designs on 45 stores in its first year, although its website shows 34 presently. At the same time, Grocery Outlet moved South from its base in Emeryville, Calif. and today operates 20 stores in Los Angeles, Orange County and the Inland Empire.

Market-share analysis indicates there’s still plenty of room for the discount channel to expand in the Western states, with the greatest population per 1,000 square feet of discount space in the country, a recent Barclays study said. For the West to reach the same level of discount penetration elsewhere in the country, capacity could increase by three times. And if capacity could reach the same level currently faced in the Midwest, discounters could grow by seven times.

Moreover, Grocery Outlet pointed out, there’s a need for more affordable food there. The company is celebrating its anniversary with a charity food drive, which it said could help address and call attention to the 5.4 million Californians facing food insecurity.

"This first year in Southern California has been marked by success and there is no better way to commemorate it than by helping families who struggle to access food on a daily basis," Brian Tademy, senior director of field marketing for Grocery Outlet, said in a statement.

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