The Kroger Co. (NYSE:KR) Q3 2022 Earnings Call Transcript

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Operator: Thank you. And the next question goes to Kelly Bania of BMO. Kelly, please go ahead. Your line is open.

Kelly Bania: Hi. Good morning. Kelly Bania from BMO. Thanks for taking our questions.

Rodney McMullen: Good morning. Hey Kelly.

Kelly Bania: Good morning. Just a couple of simple questions. I guess as we think about the comp here or the IDs in the back half, can you just help us understand how much inflation drove the upside there versus tonnage or €“ you talked quite a bit about your fresh initiative. Is it those stores? Just helping us understand where the upside is coming from? And then on top of that, we often talk on the food service side of the industry about volume and tonnage, I guess is the way you talk about it relative to 2019. And I am just curious if you can help us understand where you are in terms of volume or tonnage, however you think about that relative to 2019 levels at this point?

Rodney McMullen: Gary, I will let you talk about the €“ a little color on the IDs and then on the food service after you finish health, you share some things there.

Gary Millerchip: Okay. Great. Kelly, I think overall, we mentioned it in our prepared remarks somewhat as well. We have seen inflation starting to level. It’s still obviously a very heightened levels. But if you look at the trend quarter-over-quarter, it really narrowed down to less than I would 1% increase in inflation in our Q3 versus our Q2. So, what we were pleased about was in that context, the continued momentum in our overall ID sales when we look at our Q3 performance versus our Q2, and I think a lot of that ties to some of the prepared remarks that Rodney also shared around household growth that we are seeing and really some defying more share of wallet from loyal customers and seeing lower customer growth. So, that’s the piece that I think we have been the most pleased around.

And we continue to perform really well with winning that first large basket with customers. We continue to see strong momentum there. And even as customers have continued to adjust their behavior as they kind of wrestle with inflation and decide how to balance budgets, we have been really pleased with how our overall pinning that first basket has continued to maintain strong momentum.

Rodney McMullen: Yes. On food service, volume would actually be above where we would have been in 2019. For us, when we look at food service or food €“ we are always €“ I never know quite what to call it other than it’s a great meal, easy to cook, easy to heat up, easy to assemble. It was the reason why strategically we merged with Home Chef because we thought Home Chef on its own had great trends and could continue to grow. We also felt like their capabilities we could leverage back into Kroger to further improve our mill pit and a great restaurant quality meals would be an example. If you look at sushi, we are the largest sushi restaurant in the United States as an example. Obviously, we partner with a lot of third-parties and local entrepreneurs on that, sandwiches and all those things.

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