Kroger has reported a modest sales growth in the first quarter, but the retailer was still struggling to gain market share amid a period of transition, according to an analyst.

For the quarter ended May 23, total sales rose 2.2 per cent year-on-year to $46.1 billion. However, much of the increase was driven by higher fuel revenue driven by inflation. 

Excluding fuel and Vitacost, sales were up only 0.5 per cent compared to the same period last year, and comparable sales grew 1 per cent.

“Both numbers mean that, in market share terms, Kroger retreated,” commented GlobalData MD Neil Saunders.

“Kroger is a retailer with enormous reach and powerful economies of scale. The problem is that, for many years, it has failed to capitalize on these things. The company hasn’t been aggressive enough, nor has it been sufficiently progressive. 

“Other than its botched merger with Albertsons – on which it pinned far too many hopes – it has not had a clear enough vision of how to defend, let alone grow, its market share,” Saunders said.

The analyst described Kroger as a “bland, middle-market grocer” that is not sufficiently differentiated in terms of price, experience, private label, or e-commerce. This led to it struggling to hold on to sales as customers increasingly shop around for alternatives. 

Many of these issues have their roots in the decisions of past leadership, Saunders continued, adding that new management under CEO Greg Foran has clearly identified some of the problems. Some investments, such as in sharpening prices, have already been made, and the company is also investing more in improving the customer experience.  

“These things are sensible. Better prices and better store execution are part of the foundation on which Kroger needs to rebuild its competitiveness. However, Kroger’s value equation needs much more work to make it a grocer of choice for more people,” he said.

The bottom line gives the company some “breathing space” to enact these changes, Saunders said, as it remains reasonably profitable with operating income up 6 per cent and attributable net earnings up 4 per cent for the quarter.

“This provides the capacity to invest, but it also raises the question of whether more of that capacity should be directed towards strengthening the customer proposition rather than enhancing near-term shareholder returns via things like share buybacks,” the analyst explained.

For the full year, Kroger expects identical sales without fuel to grow 1-2 per cent, which Saunders considered reasonable and reflects a company in transition. 

“Foran seems to have found the right road to travel. The problem is that the road is not easy. Nor is it short. It will take a lot of time and resources for Kroger to reach its ultimate destination.”