“Even though natural and organic foods have been notoriously out of reach for many customers, we used our merchandising expertise, manufacturing base and buying power to make them affordable and accessible to all customers through Simple Truth,” McMullen told analysts.
Asked about the positioning of ‘natural’ foods within Kroger stores, he said: “Natural food items, do you include them in the center store or a separate department? It’s getting increasingly complicated, because there are certain categories where natural foods are almost as big as the historical business.
“Natural foods are becoming more and more mainstream for many people. And while customers will always have evolving expectations for convenience, we have improved our prepared food offering to meet their changing needs as well.”
Chief financial officer Michael Schlotman added: “I think you're going to continue to see great growth in natural foods. It's more of a way of life for our customer today… The other thing is that in certain categories we are starting to integrate it rather than put it in a separate space as well.”
Private label accounts for more than 25% of sales
Asked about Kroger's private label products, president and chief operating officer Michael Ellis said store brands now accounted for more than a quarter (25.8%) of dollar sales excluding fuel and pharmacy, and 28.2% of units sold.
“The star, of course, has been Simple Truth,” added Ellis. “In 2014, Simple Truth reached an amazing milestone by hitting a $1.2bn annual sales mark. Simple Truth has been our most successful brand launch ever, reaching billion dollar brand status in less than two short years.
“During the year, more than 20 million households bought one or more of our 2,688 Simple Truth or Simple Truth Organic items. The brand continues to earn double-digit unit and sales growth, which we don't see ending anytime soon.”
Refreshing the center of the store
Asked about challenges in the center of the store, Ellis said: “Actually, our center store has performed better in the fourth quarter than it had in other quarters in 2014, and we've done a lot of work in the center of the store, getting things refreshed, [getting] new products in…
“A big focus [for us has also been] using customer insights and really going through our stores and doing the work around assortment that's really effective.”
Click & Collect: ‘Customers love the service, and the numbers continue to grow’
Asked about the progress of a "click and collect" trial at a Kroger store in Cincinnati [where customers order online and collect their shopping at the store], Ellis said: “The learnings we have from Harris Teeter [acquired by Kroger in Jan 2014] are really helping us develop our plans on how we're going to go forward. At Harris Teeter, we're at about 160-some stores that are currently offering that to the customer.
"And I'll tell you what, the growth is exciting. Customers love the service, and the numbers continue to grow.”
‘We keep pushing the boundaries on what customers can expect from store brands’
2014 was an “outstanding year” for Kroger, which is investing $3.5bn annually in lower prices and chalked up same store sales growth of 6% excluding fuel in the fourth quarter, said McMullen.
“We expanded our digital capabilities to deepen our relationship with customers in new and exciting ways… [and] our corporate brand team keeps pushing the boundaries on what customers can expect from store brands.”
Within food, natural foods, meat and deli generated “double-digit identical sales growth”, he said.
While customers are “buying fewer units per basket”, they are visiting Kroger stores more frequently, he added.
In the fourth quarter of fiscal 2014 (three months to January 31, 2015), Kroger's net earnings rose 22.7% to $518m on revenues up 8.5% to $25.2bn. Full year 2014 net earnings rose 13.1% to $1.73bn on revenues up 10.3% to $108.5bn.
Click HERE for a list of ingredients banned from the Simple Truth range at Kroger, which operates 2,625 grocery stores in 34 states, and 782 convenience stores in 19 states.