Kroger SWOT Analysis | Business Teacher
Kroger supermarkets and multi-department stores exist throughout the United States under flagship brands such as Kroger, Fry’s, Ralph’s, and King Soopers, just to name a few. The company also operates additional grocery, retail, and specialised brand lines to target specific population segments and niche consumer subgroups. For 2015, Kroger recorded nearly $110 billion in revenue and generated $3.1 billion in operating profits, both which represent double-digit growth over prior year’s performance (MarketLine, 2016, p. 1). Regarding its employment base, Kroger is home to approximately 400,000 employees who work across a broad network of 2,796 supermarkets and multi-department stores, 319 jewellery stores, 38 food production plants, and 38 distribution centres (Kroger, 2017a, p. 2).
Through a strategic combination of distinct store and brand lines, Kroger continues to be successful when it comes to targeting and appealing to distinguishable market segments (Kroger, 2017b). Kroger’s comparative size as a grocery retailer is a strength for more than one reason. First, Kroger’s large network of stores gives decision-makers a commanding control over supply chain management aspects of the business (MarketLine, 2016). Consequently, Kroger has significant pricing power among food suppliers and producers, not to mention economy of scale advantages against smaller grocery retail chains. Also, Kroger’s degree of differentiation across its widespread network of stores in 35 U.S. states also augments its ability to increase its customer share of wallet (SOW). While quite a few grocery retailers remain transfixed on price differentiation strategies, Kroger uses its size and degree of diversification to facilitate comprehensive customer loyalty strategies to garner larger shares of consumer grocery and retail spending per consumer. According to Inman and Nikolova (2017), cross marketing and promotion activities are a common practice throughout Kroger stores and the company is continually looking for new ways to grow is customer SOW.
During 2016, Kroger used cash for $3.6 billion in capital investments and $390 million to grow the speciality pharmacy division of its grocery retail conglomerate (Kroger, 2017b, p. 19). Additionally, Kroger’s aggressive merger and acquisition strategy may have allowed it to expand its store and brand lines more rapidly, but it also led to billion-dollar chair repurchasing activities in FY 2016. As a result of these investments, and from similar investment activities in previous years, Kroger’s most predominant weakness is its current and significant level of indebtedness (Kroger, 2017b). More specifically, a closer examination of Kroger’s consolidated financial statements indicates Kroger currently has a debt ratio of .80. Should Kroger encounter additional expansion and diversification opportunities, it may encounter challenges with acquiring financing and capitalisation should its level of indebtedness rise enough to affect its credit rating.
The degree to which Kroger’s has already developed private label brand lines qualifies as an opportunity because recent reports regarding growth levels among national and private labels in grocery retail stores indicate a growth rate of 1% and 3%, respectively (MarketLine, 2016; Sheldon, 2017). In other words, an increasing number of U.S. consumers are investing in private label brands that reflect qualitative characteristics they care about in retail grocery products. Since Kroger has an impressive portfolio of private brands in its stores, it stands to reason these labels will thrive commensurately with the growth trends mentioned above. Thus, Kroger should investigate strategies on how it can provision more shelf space to private label products while simultaneously marketing their differentiating qualities. Profit margins on private label products are also higher, which means Kroger will also generate more revenue per unit sold compared to units sold of national brands.
Although Kroger’s level of differentiation reduces the extent it must resort to price wars; intense competition may compel decision-makers to reduce prices to avoid losing market share, especially since such losses could erode sales from Kroger’s other brands and product lines. If other major U.S. grocery retailers such as Wal-Mart, Safeway, and Costco increase discounting activities, it could exacerbate pricing issues for Kroger. Additionally, a new realm of competition exists through electronic commerce channels. Digital retailers like Amazon and Jet could also encroach upon Kroger’s sales as more consumers turn to online shopping platforms and delivery capabilities due to their convenience.
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