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

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William McMullen: I’ll let Gary get into the details. But in sourcing, it’s an area where several years ago, we really didn’t have a separate department and didn’t have professionals that manage that organization. And a couple of leaders and now reports to Gary, they’ve done a great job of finding talent that understands how to source product, understands the cost of the ingredients and all the pieces. And it’s really turned it into a professional organization, and it’s under the leadership of Mike Donnelly and Erin Sharp and a few people that have retired and now it’s under Gary’s leadership. And I just think that team has done a great job of bringing professionalism to the area. In terms of the specifics, now I’ll let Gary get into the details.

Gary Millerchip: Sure. Thanks, Rodney. Thanks for the question, . Yes, we certainly believe that we — it’s a bit like our overall approach to taking cost out of the business. We started out saying, how do we make sure we’re as efficient as we can be and then really become, I think, part of the culture and part of the capability in the organization and the team is working together, I’d say it’s across merchandising, operations, supply chain and sourcing, all kind of collaborating on how do we design for value. So whether that be, as Rodney mentioned, continuing to make sure we understand the cost that makes the product and build the product and get the product to our stores in a way that we’re able to make sure we’re being dynamic in negotiating and managing those costs effectively where they change, but it’s also about optimizing product design.

It’s looking at product end-to-end and improving, whether it’s packaging or product design and optimizing with customer demand alongside how we can then really match the customer expectations with how we’re actually designing the products to really drive the maximum value. And I’d say a bit like the productivity savings, one of those things where every year, we see a road map to additional savings, additional opportunities. And I think that will continue to be the case based on our experience so far.

Leah Jordan: Great. And I have one quick follow-up on SNAP. Just giving any — the potential changes there. How did you think about that with your guidance. And also, given you have such a diverse footprint, is there any color you could provide on the stores where states they’ve already had that extra allotment roll off?

William McMullen: If you look at SNAP, we’ve assumed that it’s a meaningful headwind for the balance of the year. We’re hopeful that everybody will work together to continue or find additional money because, as you know, because of inflation, there’s a lot of people whose budget is under strain, but we have assumed that, that was a meaningful headwind both in the quarter and for the balance of the year. I don’t know, Gary, anything you want to add?

Gary Millerchip: No, I think it ties to the point about there is still uncertainty, so we’re making sure that we’re allowing for that in our guidance for the year. I would say historically, and you probably or say this before that it’s actually very difficult to find a correlation between SNAP in the market and spend on food at home because typically, it tends to impact more discretionary spend. But I think our view was that we’ve never really had a point in time where we’ve had so much SNAP dollars in the market. So we believe most of the models that we’ve looked at for the last 30 years are kind of difficult to say, well, they hold true in this environment. So we felt it was important to be conservative given that we are in a unique time.

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