Kroger Pushes House Brands in Grocery War

Private-label products give the grocery giant a not-so-secret weapon.

June 24, 2019

CINNCINATI—Kroger has room to improve on sales and anticipates that its store-brand products will help boost growth and win market share from Walmart, Aldi and Amazon, reports U.S. News.

“We know we can do better when it comes to identical sales results,” said Rodney McMullen, CEO, Kroger, after the chain posted quarterly same-store sales below Wall Street estimates, sending its shares down 2.5%.

The grocer’s store-brand business has been one of its most powerful tools. Kroger's own brand sales for the quarter rose 3.3%. Unicorn ice cream, pork belly bites and artesian jerky were among 219 new store brand items that helped increase sales by $225 million.

Kroger’s 16 house brands account for more than 30% of unit sales, the company said in March. By introducing new proprietary items, Kroger hopes to tap into broad sales for private labels. The push comes as grocers compete fiercely on price and rush to grow online ordering and delivery services. Kroger added 1,022 “own brand” items in 2018, and each supermarket stocks an average of 15,000 private-label products that range from pet food, clothes and furniture to meal kits and office supplies.

Kroger has long touted private-label products but began seriously focusing on them in 2012. Kroger’s Simple Truth line hit $2.3 billion in annual sales to become the biggest U.S. natural and organic brand, the grocer reported in March. Sales of its Kroger range and premium Private Selection food line are growing, with the total own brand portfolio expanding 45% since 2011.

“Kroger has been very clever about expanding into rapidly growing categories,” said Neil Saunders of GlobalData, a retail consultancy.

Almost half of Kroger's private-label grocery lines, including bakery and dairy items, are produced in its 37 plants, giving it an advantage when it comes to developing and testing new offerings.

“They (Kroger) are very serious about private label and in my opinion better than any consumer goods company in the U.S.,” said Roger Davidson, a retail consultant who used to oversee food procurement at Walmart. “Big CPG companies are really struggling,” he said, referring to consumer packaged goods makers.

Private-label products on average are about 20% less expensive than branded goods, according to data from IRI. At a Kroger-owned Mariano’s in Chicago, 24 bottles of own-brand water cost $2.50 versus $4.99 for Nestle’s Pure Life, for example. The world’s No.1 consumer company said in April there was no point in Pure Life trying to outcompete private-label bottled water.

Own-brand products made up 14.9% of U.S. store sales in 2018, up half a percentage point, with frozen, pet and baby products growing fastest and millennials buying most, according to IRI. Kroger has a 400-person team developing its brands.

As part of its “Restock Kroger” drive, the company is also investing in store updates and delivery, although a joint venture with Ocado, the British online grocer, is slow to ramp up.