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Restocking Kroger ready to sell off $4B division

The Kroger Co. will announce its plan to redefine the food and grocery customer experience in the United States, called Restock Kroger, during its annual investor conference today. Part of the Restock Kroger includes the potential sale of its convenience store business, which generated $4 billion of revenue last year.krolog

"We know that when we serve America through food inspiration and uplift, we create value for our shareholders, customers and associates," said Rodney McMullen, Kroger's chairman and chief executive officer. "We understand that today's marketplace is shifting rapidly. Kroger's success has always depended on our ability to proactively address changes by focusing relentlessly on our customers. We have the scale, the data, physical assets and human connection to win. Combining our food expertise and data analytics uniquely positions Kroger to create new and highly relevant customer experiences, delivered both digitally and in stores. Restock Kroger builds on our strengths and strategically repositions Kroger to accelerate our customer-centered efforts in order to create shareholder value."

The Restock Kroger Plan will be fueled by capital investments, cost savings and free cash flow.

The plan has four main drivers: redefine the food and grocery customer experience, expand partnerships to create customer value, develop talent, and live Kroger's purpose. The company will regularly update investors on its progress against these pillars, which collectively will create shareholder value.

Redefine the food and grocery customer experience:
Kroger will outline how it is uniquely positioned to win with customers by accelerating its digital and ecommerce efforts, applying its customer data and personalization expertise through 84.51 to even more aspects of the business, and building on the outstanding growth of the company's Our Brands portfolio.

  • Data and personalization: Kroger already delivers more than 3 billion personalized recommendations to customers annually. Kroger will update investors on how it is using shopper data to create different experiences for customers.
  • Digital: Kroger will outline how it is optimizing the digital experience by placing the customer at the center of everything it does do, providing not only functional information but also inspiration and personalized discovery through recipes and product content.
  • Space optimization: Kroger intends to leverage customer science to make space-planning decisions to disrupt shelf, optimize assortment and improve in-stocks.
  • Our Brands: Building on Our Brands strong, 37 percent growth from 2011 to 2017 (from $15 billion to $20.5 billion in annual sales), Kroger will continue investing to grow its most popular brands.
  • Smart pricing: Kroger will continue investing to avoid losing customers because of price. The company has invested more than $4 billion in price since 2001.

Expand partnerships to create customer value
The company will discuss its plans to utilize more of its capital to fund technology and infrastructure upgrades, and its intention to create alternative revenue streams.

  • Front end transformation: Redesign front-end to maximize stores for self-checkout, include expanding currently 20-store Scan, Bag, Go pilot to 400 stores in 2018.
  • Technology innovation: Kroger will continue building its Internet of Things sensor network, video analytics and machine learning networks and complement those innovations with robotics and artificial intelligence to transform the customer experience.
  • Alternative revenue streams: Kroger intends to create shareholder value by expanding its alternative revenue streams, including driving media and advertising revenue.

Develop talent
Kroger will discuss how it is accelerating its high-performance leadership culture through future talent development, training and a rebalancing of pay and benefits.

Investing in store associates: Kroger plans to invest an incremental $500 million in human capital over the next three years. This will be in addition to the company's continued efforts to rebalance pay and benefits while also focusing on certifications and performance incentives, career opportunities and training.

Live Kroger purpose through social impact
The company successfully launched its Zero Hunger | Zero Waste Plan in September, which aims to end hunger in the communities Kroger calls home and eliminate waste in the company by 2025.

The Restock Kroger plan is expected to generate $400 million in incremental operating margin by 2020. Kroger will also outline how it will prioritize its estimated $9 billion in capital investments to support Restock Kroger over the next three years. The company expects to generate more than $4 billion of free cash flow over the next three years — nearly double what was generated over the previous three years.

"Our goal is to continue generating shareholder value even as we make strategic investments to grow our business," said Mike Schlotman, Kroger's executive vice president and chief financial officer.

Kroger also announced its intention to explore strategic alternatives for its convenience store business, including a potential sale. This is the result of a review of assets that are potentially of more value outside of the company than as part of Kroger.

"Our convenience stores are strong, successful and growing with the potential to grow even more," said Schlotman. "We want to look at all options to ensure this part of the business is meeting its full potential. Considering the current premium multiples for convenience stores, we feel it is our obligation as a management team to undertake this review."

Kroger's convenience store business includes 784 convenience stores located across 18 states. It includes 68 franchise operations. The stores employ 11,000 associates and operate under the following banner names: Turkey Hill Minit Markets, Loaf 'N Jug, KwikShop, Tom Thumb and QuickStop. Neither supermarket fuel centers nor Turkey Hill Dairy is included in this review.

Kroger's convenience store business generated revenue of $1.4 billion and sold 1.2 billion gallons of fuel in 2016. The business unit has delivered 62 consecutive quarters of identical store sales growth.

"Our convenience store management and associates are an important part of our success. They put our customer first every day. We value what they do and thank them for what they will continue to do as we conduct this evaluation," Mr. Schlotman said.