First off, a belated happy Father’s Day to all the Dads out there! Hope you all had a great weekend and had a chance to enjoy time with your families and friends.
Secondly, happy Amazon Prime Day(s). You gotta love it when a retailer can just create their own retail holiday…especially when the “day” is actually 48 hours long. It’s easy to poke fun at this, right? But the reality is, we are all going to buy something from Amazon today or tomorrow… so maybe it is a real holiday after all.
On to the big news from last week, as Kroger reported their Q1 earnings, which at first glance didn’t look great. Kroger reported -4.1% in Identical Sales for Q1, which makes Kroger one of the first big retailers to report a negative number in 2021, as three of the other big ones already shared positive growth in their respective Q1’s. Yikes, right?
On the surface that negative really jumps out, it doesn’t look great for Kroger at all. Which is why they went a bit deeper to show some meaningful numbers, because when compared to a 2-year stack of Identical Sales they are up 14.9% – the “two year stack” is a sum of Q1 2020 and Q1 2021. Kroger also highlighted 108% Digital Sales growth on that same two year stack. The real highlight was Kroger raising their guidance for the year and announcing a $1 billion share buyback program – which is something Wall Street definitely noticed.
The other thing worth noting is that Kroger’s Q1 overlaps much more of the early pandemic shopping behavior than Target’s or Walmart’s. It will be more telling once they share their Q2 earnings to see how they paced vs last year.
So, in actuality the headline of -4.1% ID sales wasn’t the whole story – as Kroger had kind of a sneaky good quarter and has some real momentum for the rest of the year.
Here at RetailWit, we like to dig deeper to understand what Kroger Leadership is really saying to us on these calls. There are a lot of terms that get thrown around that many of us don’t fully understand, especially for those of us not working in the financial sector.
A quick word cloud summary shows the topics that rose to the top…
There are two sides of this word cloud that jump out to me:
If I am an investor in Kroger, I see “share”, “margin” and “inflation”. The share buyback program might make me feel a bit better, and the raised guidance gives me optimism long term.
If I am a supplier to Kroger, I see words like “cost”, “inflation” and “margin” and start to wonder about my next meeting with Kroger Leadership. What are they going to ask of me? How much more can they squeeze me?
Beyond the word cloud analysis, we took the transcript of the call and ran it through our proprietary tool to categorize the topics. This is where we start to get a feel for what Kroger is focusing on.
The top categories were:
1. “Trends & External Forces” – no surprise
2. “Shopper & Customer” – Kroger maintaining their Customer First mentality
3. “Corporate, Leadership & Strategy” – sharing larger initiatives and highlighting the buyback program
4. “Associates & Employees” – would have liked this one to be slightly higher, especially after the company took some heat by ending the hazard pay for frontline workers while giving Rodney a larger bonus
5. “Ecom & Digital” – growth and focus here has been huge, and will continue to grow with more and more Ocado sheds opening this year
While that’s nothing surprising from Kroger, it can be telling when compared to what we heard from Target and Walmart after their Q1 earnings release?
Looking across these three earnings updates, we have three major takeaways when comparing these retailers:
- Kroger is less focused on stores, formats and merchandising compared to Target and Walmart.
- You could argue that Ocado is technically a store format for Kroger. but it’s true that you don’t hear too much about existing stores these days.
- Nobody is focused more on digital than Walmart!
- Target and Kroger aren’t even close on this one. Just one more sign that Walmart has it sights set on Amazon.
- Target looks to be more internally focused, talking less about COVID and other things out of their control.
- Putting more focus on associates, corporate, leadership and strategy – items they can actually impact directly.
As we continue into the second half of 2021, we will be listening for these focus areas every time these retailers share an update. It could be very telling if there are any shifts in their messaging.
We would love to hear your takeaways and thoughts on this as well, what do you think?
As for the other top stories from last week:
Boxed goes public SPAC* deal valuing online grocer at $900M.
- Another huge beneficiary of the eCommerce boom during the pandemic was Boxed but they didn’t get as much media coverage for some reason. The new company will be led by Boxed’s existing CEO Chieh Huang while Gary Matthews, Seven Oak’s chairman and CEO, serve as board chairman.
- *Seven Oaks Acquisition Corp., a publicly traded special purpose acquisition company (SPAC)
- It is important to note, Boxed is still not making a profit, yet has a $900M valuation, which puts them between SpartanNash and Party City in Retail in Valuation.
The most recent Reputation Quotient Study from Axios and Harris Poll came out and looks at which of the most visible US companies have the best reputation – and the others that did not fare quite as well. It is apparent that the pandemic didn’t just impact bottom lines for companies, it impacted consumer perception.
- Spoiler alert, 4 of the top 10 were retailers! Patagonia, Chewy, Costco and Amazon.
- When looking at industries, Consumer Products (+8) and Retail Grocery (+1) rose to the top two spots as well.
Retailers and CPGs continue to lean into purpose and philanthropy.
- Retailers and CPGs continue to lean into purpose and philanthropy. This week, Amazon partnered with a third party to bring more affordable housing to Washington, DC and 20+ brands, including Target, General Mills, and other big names have committed to spending 2% or more of their total annual media budget with black-owned media companies. P&G has begun positioning their brands being a force for good and a force for growth. While there is no doubt some component of PR in these news releases we are thrilled that companies are continuing to lean into purpose and reinvesting in their communities and the greater good vs. just what Wall Street wants.
In a story about, “you get into my turf, I’ll get into yours”. Netflix announces they will begin to sell merchandise, a direct shot at Disney who invaded the Netfix dynasty of streaming last year. Also, Disney announced earlier this year they are taking a big step back from Brick and Mortar stores so the merchandise battle will commence online – it will be interesting to see who better integrates merchandise sales into their streaming platforms.
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