The Kroger Co. (NYSE:KR) Q4 2022 Earnings Call Transcript

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Operator: Our final question for today comes from Kelly Bania from BMO Capital Markets. Please go ahead.

Kelly Bania: Rodney and Gary. I wanted to ask just about what your guidance assumes regarding the broader promotional environment. And I guess particularly thinking about the back half when maybe inflation is at a little bit of a lower level, do you expect competition and promotional activity to heat up? This seems to be one of the key investor concerns as we head into next year.

Gary Millerchip: Yes. Thanks for the question, Kelly. I think from our perspective, we feel that we have to be agile, and we’re certainly shooting in our guidance that we’ll be continuing to invest in value for the customer. I think one of the things that we believe has changed somewhat during the COVID environment is the situation of how the customer shops and engages with you is different. And what I mean by that is many more customers are engaged digitally, which gives us the ability to truly be able to personalize and bring together all the different pieces. So it’s less about just what you see when you enter the store, it’s about the fuel rewards that we can target for that customer. It’s the personalized digital coupons.

It’s the Our Brands offers that, as Rodney mentioned earlier, can save the customer 10% on an equivalent basket if they decide to shift to some of those products. So we believe we’ve learned a lot through the pandemic of how do you really channel those dollars in the most effective way, and that’s what gives us the confidence that as we think about the rest of the year. We’ll continue to invest in value for the customer, but that we can do that even more effectively than the past to make sure that we stretch those dollars further to deliver value for our customers.

William McMullen: And one of the things that I think is always important to make sure a lot customers also decide where to shop based on how the freshness of product and the friendliness of associates, and that’s part of the overall value equation. So when you look at how we go to market, we have personalized offers, we have promotions, we have fuel rewards. And the customer will engage in those to manage their budget and then they win by having incredibly fresh product and incredibly friendly associates. And that’s how somebody decides where to shop. So I really think it’s important for you to look at all those together.

Kelly Bania: Okay. Great. And just to follow up on the discussion of units and inflation. I think as we look at this year comps, 5% to 6% range with inflation, I believe, in the double-digit range. So maybe would imply units or tonnage down high single digit. And for next year, 2.5% to 3.5% maybe seems to assume a pretty meaningful acceleration in units. So just maybe correct me where I’m wrong on that math? Or just help us understand what would maybe drive a better unit or tonnage backdrop for Kroger in ’23?

William McMullen: The unit change wouldn’t be as much as you said because remember also, people are switching to Our Brands and other things, where the ring per item is less, but we sell more units. So when you look at overall, and if you look overall, we also look at share and if when you look at units in total, they’re declining as well. So we would expect to continue to make progress in improving our share and the flow-through of units would come from that. I don’t know, Gary, anything…

Gary Millerchip: No…

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