Kroger CEO sees prices stabilizing, cooking demand lasting: Our customers ‘actually enjoy it’

Kroger CEO Rodney McMullen said Friday the pandemic-related spike in food prices is subsiding, while the at-home cooking trend is here to stay even after the coronavirus situation improves. 

“As we look forward, we see lower inflation than what it’s been over the last several months. It’s one of the reasons why we didn’t pass through all of the inflation that we incurred in the second quarter,” he said on CNBC’s “Closing Bell.” 

“When you look at meat especially, and some of those areas, … we do not see the inflation the way it was earlier in the year as the plants come back on,” he said. “There’s plenty of raw materials supply out there. It’s just a matter of the plants being able to process it.” 

On the other hand, McMullen said he believes the increase in cooking that was sparked by the Covid-19 outbreak — as restaurants were forced to shutter their dining rooms and lockdown orders kept families cooped up at home — will outlast the health crisis. 

“When we talk to our customers, what they tell us — and it’s fascinating — if they have young kid they love baking with their kids, and it’s something they enjoy doing together. If they have older kids, it’s like, ‘Well, we really enjoy time together,'” said McMullen, whose comments followed Kroger’s strong earnings report earlier Friday. 

“So everything that we can see, it’s something that will be a long-term trend because people have, one, learned how to cook and, two, found they really enjoy it. And the other thing that’s special, is when families eat as a family, they stay together. The kids don’t get into as much trouble. Those kinds of things,” he added. “But for us the thing that gives us the most excitement, our customers are telling us they actually enjoy it.” 

The Cincinnati-based grocer reported earnings before the bell Friday that surpassed Wall Street expectations on the top and bottom lines. Revenues checked in at $30.49 billion, when analysts were looking for $29.95 billion. Earnings per share of $0.73 beat forecasts of $0.55.

Kroger shares closed lower by 1.07% Friday to $34.37 apiece. The stock has outpaced the broader market this year, having risen 18.61% so far in 2020. The S&P 500 is up a little over 3% in that time. 

Reflecting optimism about sustained demand for groceries, Kroger also hiked its guidance and indicated it expects same-store sales, excluding fuel, to rise greater than 13% for the year. That is up from its previous forecast of growth greater than 2.25%.

Kroger also saw its online sales rise 127% in the quarter, building on the 92% growth it reported in the prior quarter as the coronavirus pandemic intensified across the U.S. 

Earlier this month, Walmart announced it was launching a paid subscription service, called Walmart+, with grocery delivery being a key component of it. Walmart is the country’s largest grocer, while Kroger is the nation’s biggest supermarket chain. 

McMullen said Kroger’s digital grocery offering, which it had been investing in prior to the pandemic, is distinct from its rivals.’ 

“For us, it’s the whole total experience. … One of the reasons why our digital business is strong is things that are personalized. We do incredibly well on fresh. Customers tell us and they expect that our fresh is really good, and good relative to our competition, and it’s really all of those things together,” he said.