Kroger has trimmed its full-year same-store sales outlook even as digital e-commerce and retail media continue to see strong double-digit growth.

Chris Walton and Josh Hahn discuss the state of traditional grocery and what shrinking sales forecasts mean when digital layers are the primary bright spots.

▶️ Watch the full Fast Five episode here: https://youtu.be/089y7s8PKCE

Kroger cut its full year same store sales outlook now expecting identical sales excluding fuel to grow just 0.2% to 0.8%, which is down from a prior forecast of 1% to 2% growth, according to Supermarket News.

The reduced outlook includes an estimated negative 140 basis point hit from lower pharmacy pricing tied to the Inflation Reduction Act.

And CEO Greg Foreign said a cyclospora outbreak tied to recalled leaf lettuce cost the company roughly 35 basis points of total comps in the back half of the quarter.

Not all the news was soft and I use air quotes intentionally there, Josh.

E Commerce sales grew 20% with a second straight quarter of profitable E Commerce growth.

Josh, what does Kroger cutting its sales outlook say about the state of traditional grocery when the bright spots are the businesses layered on top of the core store sales performance?

I'm not hitting the panic button yet, but I would say talk to me again you know, next year at this time.

Greg Ferrand continues to share that they're investing in price, both price transparency and also just reducing prices more promotions for customers.

Right.

So I think if they deliver on, on this, I think it's going to be fine.

And, and you know, value right now is such an important strategy that you know, overall value perception is something that is not going to change overnight.

So I know he's been in seat for a little bit of time but I think it's just something that takes a while to change and in today's economic environment like out the door, costs matter so much especially with the cost of fuel and what's happening there.

I did see they mentioned in the, in the earnings call that they're keeping profit targets the same despite kind of the lower sales outlook.

Right.

So I think they're banking on a few different things.

I think they're banking on like you mentioned, some of the businesses that are performing better, you know, the digital growth.

I think they're cutting some costs and creating some cost efficiencies.

I did see they revamped their, their loyalty program to be able to or their fuel points program to be able to allow people to cut dollars off their grocery bill as well if they want rather than just fuel.

And then, and so I think you know, longer term their price competitiveness is going to be hopefully I think they're banking on it creating more trimps.

Right.

And earning more customers back.

And I, I, you know, I, I can't emphasize value enough and how important it is right now.

If you look at like the Aldi's of the world, the dollar generals of the world and the dollar trees, like, these retailers are expanding so fast.

They're building hundreds of stores across the US this year.

And so brick and mortar, I guess, traditional grocery, at least in still working.

But as retailers, you have to give the wallet some love right now or you're going to have a harder time than.

Than those retailers that are.

Yeah.

God, Josh, there's so much there that we have to unpack on the show.

Okay, so like, let's talk about the pricing side of this first.

Like, I'm a little worried that they're entering a battle they can't win, you know, because you're going against price on Walmart, Aldi, Amazon even plays in that realm.

So it's going to be really hard for you to compete in the long term on the margin structure that Kroger has traditionally operated on.

But the thing that I stop and think about when I say that is I don't know that they have any other choice because the other impact here is the coming of agent E commerce and the more widely visible price transparency that I've hypothesized or theorized is coming to the marketplace anyway.

So you kind of have to go in this direction.

To your point, the second thing that has me a little unnerved by this announcement is the digital performance on both fronts.

Like, the digital performance sounds strong, but it's really not.

When you look at the brick meets click data, which has become my bible on this show whenever it gets reported, it's actually not keeping pace with the Joneses.

And that's important for a number of factors.

One, like Walmart and Amazon are crushing it based again on quick delivery, which has been another theme of this show so far.

And then the fact that online delivery is just more convenient and again, it's more price transparent.

So yes, I think Net net, I think Kroger investing in price probably a good decision, even though you're going right into the lion's den.

But the part that I'm worried about too is the retail media number, because, Josh, you've got more experience here than I do.

What do you think of the disconnect between growing retail media to such an extent when your store sales are lagging behind?

Is that a win or is it actually a Pyrrhic victory at the end of the day?

Like, I don't, I don't know that that's something to write home about because it doesn't tell me that the in store experience is aligned to what your customers really want and your potentially eyes are on another prize.

Yeah, I think, you know, retail media is, it's becoming less sexy.

I mean obviously everybody's still doing it right than it was a few years ago because the expectation is performance more than there's ever been, especially when, and it's very hard to get the closed loop measurement when you're talking about investing online and retail media and understanding what's happening in the stores.

And to your point, like if sales are struggling in the stores and those, Those manufacturers and CPGs aren't seeing the return on the retail media investment, like they're going to invest less and they're going to go invest with Walmart or somebody else that's, that's showing better results.

And so I think you're exactly right.

Like they can't bank on retail media if the sales aren't coming in store or online.

And so it's, yeah, I mean it's, it's a challenging time right now, I would say for traditional grocers.

Right.

There's no question about that.

And the solution, you know, a lot of it is leaning into value right now.

But that could change.

Like if prices come down, if you know, inflation slows, if fuel prices come down, then maybe Kroger seems more appealing again or another one of these groceries, you know, that aren't really value or everyday low price focus becomes more appealing again.

But then you can't lose too many customers in times like this because if they're having a great experience somewhere else, it's that much harder to bring them back.

Yeah.

The other exacerbating factor, what you just said is like if you're growing your retail media business to the extent that you are, that means the CBG brands are betting and investing in your retail media side at the expense potentially of your store sales, which isn't going to help anything in the long run.

Especially if you're not even keeping pace with the average growth rate of the digital space in general.

100.

Yeah.

I mean you're always balancing as a retailer, like how much are you pushing?

I did see, I think their own brand product is doing okay too.

I think that was one of the other numbers that I saw.

So you're always bouncing like what are we pushing this retail media when we could be pushing, you know, our, our own brands or something else that maybe drives better, better sales, better margin, et cetera.

And so it's a hard balance that you have to strike and when you're that retailer sitting in that spot to figure out, like, how much of this is retail media that we're pushing versus the media that we need to push to drive our business.

Right?

Yeah, maybe that.

Maybe this is the galvanizing rod where Greg Forest stands up in front of the supplier community and says, hey, we need more investment into our store side and price.

Like, you guys need to help us with this if we're going to try to reposition ourselves in the market.

The other point I'd make, and then we'll move to the lighting round, is the honeymoon's almost over here for Ferran.

Like, he started in February, so, like, you know, he's got maybe another three to six months where, you know, this kind of performance is going to pass.

In terms of the sales results, is it not?

Yeah, it'll be interesting to see.

Like I said, they kept their earnings kind of target the same, and so if they hit that, that people will feel a little bit better.

But, man, if that.

If that falls short significantly, I would be.

You know, there's going to be some interesting conversations taking place about what to do next year.