Kroger continues to power growth and draw customers using an expanding stable of in-house brands of everything from baked goods to pet food.
Just two years after its introduction, the Cincinnati-based supermarket chain predicts its Simple Truth natural brand will become a $1 billion-a-year business. This summer, Kroger also rolled out three new lower-priced house brands to attract frugal shoppers.
Kroger executives say its private label business now accounts for one quarter of all its sales excluding gasoline and pharmacy receipts – approaching $20 billion annually.
Gil Phipps, vice president corporate brands, says Kroger has accelerated its drive into less expensive private brands since the Great Recession minted legions of new bargain shoppers. But he insists the strategy is not about offering cut-rate product clones.
“We’re not offering knock-off versions. We want to be a knock-out,” Phipps said, noting Kroger wins raves for products such as its house ice cream and peanut butter.
The “Kroger” brand itself is the retailer’s No. 1 seller in its supermarkets, while its upscale “Private Selection” brand is No. 6 worth about $1.5 billion in sales.
Private labels have come a long way from the days in the industry when generic offerings came in ugly cans with plain labels decades ago.
Kroger has long offered its own milk and baked goods, but its private brand philosophy began to evolve after it bought Ralph’s supermarkets in California in the late 1990s. Part of that acquisition was the premium Private Selection label.
“The store brands you see today are not the ones you saw 10 years ago – the quality has improved tremendously,” said Andy Stout, managing director of investments at Simply Money in Symmes Township. “The economy is not as strong was it was and people are still being careful. But you have to have a product that people want to buy.”
These days, Kroger uses its own labels to round out the customer selection from lower cost spices to premium products in flavors or varieties not offered by the big names. Kroger uses house brands to compete on price, but also preference.
“Our peanut butter is fantastic – our customers love it,” Phipps said.
Kroger says cut-rate premium offerings such as Simple Truth – a line of natural foods that are produced free of more than 100 different artificial preservatives and ingredients – have created armies of new customers because they move merchandise to a more affordable price range where they can try them or buy more in general.
Lauren Curley, a 31-year-old corporate trainer from Anderson Township, said Simple Truth was a lifeline. Diagnosed with Celiac disease more than two years ago, the mother of two was paying big bucks for gluten-free groceries she needed.
“It was tough – I was hopping around at Jungle Jim’s or Whole Foods and it was expensive,” Curley said. “Now, I’m spending $50 a trip, when I was spending $100 to $150 before.”
Kroger is working overtime to de-stigmatize house brands. This summer, it overhauled its entry-level house brand offerings. The retailer retired its “Value” label, replacing it three more cheerfully-labeled brands:
• P$$t, for foods such as canned vegetables or spices on shelves.
• Check this Out, for household goods such as paper towels or dishwasher detergent.
• Heritage Farm, for fresh foods such as bacon or bagged potatoes.
“It’s a step further away from generics,” Phipps said. “It’s not just about saving money, it’s gives us a chance to meet specific needs of the customer not being met.”
Profits have grownalong with private labels
Kroger itself makes 40 percent of its house-brand products, while it contracts the rest to outside vendors. With a network of 38 factories nationwide, Kroger has more manufacturing muscle than Campbell Soup, Dr Pepper, General Foods, J.M. Smucker or Kraft Foods.
Kroger has grown its in-house offerings by more than 60 percent in the last decade as it became imperative to compete better on prices with non-traditional rivals like Walmart.
In the last 10 years, Kroger has cut its gross profit margin – the money left after paying for merchandise that’s sold to customers but before operating expenses such as labor are paid – to 20.6 percent in 2013 from 26.3 percent in 2003.
What its given up in profit margin, it’s grown by nearly doubling sales since 2003.
Some customers try the house brands because they’re affordable, but stick with them because they become favorites.
Jane Abel, 54, a sales coordinator from Anderson Township, said she likes Kroger’s store brands like Simple Truth Organic spring mix.
“I just like the spring mix – it’s in a box and stays fresher than bagged salads,” Abel said.
Other customers say they love Kroger’s private labels because they offer what they see as the same product for a lower price.
Larry Rantanen, a 52-year-old sales rep from Anderson Township, said he buys a bunch Kroger-branded staples to feed his two children, 15 and 12, to save money.
“Turkey breast is turkey breast, ice cream is ice cream, butter is butter – why not save a few bucks?” he asked.