Kroger Co. outlines new corporate mission

The nation’s largest grocery store operator is introducing a new plan that it expects will redefine the customer experience.

Kroger Co. reaffirmed its 2017 forecast sales growth of 0.5 to 1.0%, excluding fuel, for the remainder of 2017. Meanwhile, net earnings are still on track to hit between $1.74 and $1.79 per diluted share, including an estimated $.09 for the 53rd week.

This confirmation comes amid growing pressure from Amazon, especially since its recent acquisition of Whole Foods Market has given the e-retailer an even stronger foothold into the supermarket segment.

To fight back, the supermarket operator announced a new program that it expects to drive more engagement and sales.

Called Restock Kroger, the program will leverage the company’s food expertise and data analytics to create new and highly-relevant customer experiences delivered both digitally and in stores. The company will invest an estimated $9 billion in capital investments in the program over the next three years — a move that it expects will generate $400 million in incremental operating margin by 2020.

The program is also designed 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, according to the company.

"Our goal is to continue generating shareholder value even as we make strategic investments to grow our business," Mike Schlotman, Kroger's executive VP and CFO said during the company’s annual investor meeting on Wednesday in New York.

The plan is based on four drivers, from redefining the food and grocery experience and expanding partnerships to developing talent and focusing on social impact. An overarching theme however, will be Kroger’s accelerated commitment to digital and e-commerce efforts, and applying customer data and personalization expertise through its 84.51 customer insights division to even more aspects of the business, including space optimization, pricing and brand growth.

It is also planning a front-end transformation that includes redesigning its front-end, including maximizing its self-checkout presence. This includes expanding its 20-store Scan, Bag, Go pilot to 400 stores in 2018.

Another way Kroger expects to transform the customer experience is by focusing on its Internet of Things sensor network, video analytics and machine learning networks, and complementing those innovations with robotics and artificial intelligence.

In another strategic move, Kroger is also considering putting its convenience store operation on the block. Kroger’s convenience store business includes 784 convenience stores that operate under the banners KwikShop, Tom Thumb and QuickStop across 18 states. It also has 68 franchise operations.

The division has delivered 62 consecutive quarters of identical store sales growth, and generated revenue of $1.4 billion in 2016. However, the operation could experience even more growth under a new owner, according to the grocer.

"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,” he added. “Considering the current premium multiples for convenience stores, we feel it is our obligation as a management team to undertake this review.”

The company has hired Goldman Sachs & Co. to identify, review and evaluate the options.

Kroger operates nearly 2,800 U.S. supermarkets. The company also operates jewelry stores, retail health clinics and pharmacies.