A recent Supermarket News article rightly touted the remarkable comparable store sales record of Kroger. Fifty consecutive quarters of positive same store sales comps (without fuel). The article went on to explain the simple but rare approach that Kroger leadership took to enable such remarkable results. The article’s author, Liz Webber, quoted Andrew Wolf, a food retailing sector financial analyst from a conversation Wolf had with then Kroger CEO, David Dillon;
“I had a meeting with him 10 years ago or so, and he told me they were never going to make a sales or earnings number again by moving the pencil, i.e. raising prices, as long as he was CEO,” said Wolf. “So I think he had remarkable courage and a strong spine.”
Under Dillon’s leadership Kroger became amazingly disciplined and strategic. He demanded that despite likely short-term hits to their stock price and profitability, Kroger was to keep their eye on the prize, GROWTH.
As a battered veteran of many Monday morning retail meetings, I can tell you that while sales growth is almost always discussed, it is seldom given the prominence of profit and hitting a near term EBITDA number. It would be foolish to infer that profit and margin metrics are not critical numbers to track, but the question should be asked, which number drives the other. My point is that tracking EBITDA as the lead metric often results in tweaking margin rates up with the false notion that there will be little or no impact on same store sales or longer term market share.
Dillon understood that while his competition was mired in P&L calculations, he was focused on driving sales with the confidence that ultimately, his sales driven approach would produce acceptable, if not pleasing profitability. That is exactly what happened.
Certainly, there are other factors at play in the Kroger success story. For starters, their store and service improvement programs, coupled with their strategic investment in customer segmentation intelligence have been key. None of those initiatives however, would be nearly as effective without a cogent pricing strategy with an objective of constant sales growth.
It does matter what you measure and prioritize. Competitors of Kroger should take note. Short term paper profit gains often morph into longer-term negative comparable store sales and all the woes that condition carries.