- Kroger will cut new-store development, store expansions and relocations in 2017 by 35 percent, according to its annual 10-K report filed with the Securities and Exchange Commission.
- With 55 projects planned, versus 85 in 2016, the report shows Kroger aims to trim capital expenditures by approximately 13% to between $3.2 billion and $3.5 billion, compared with $3.7 billion in 2016.
- Kroger said it expects square footage to grow by 1.8% in 2017, compared with 3.44% a year earlier.
Following a trend seen by many in the grocery space, Kroger is slowing down expansion and reinvesting in its own operations to stay competitive. The announcement comes following its latest earnings report where Kroger executives attributed their first same-store sales slip in 52 quarters to price deflation and store investments. It only makes sense that Kroger reconfigured its expansion strategy to address these challenges.
Even the once seemingly invincible Whole Foods announced last month that it will close nine stores following a disappointing first-quarter earnings report. The company hopes the move will increase cash flow and shift the focus to high-performing stores.
Analysts have praised Kroger's management, and this latest move will probably be seen as a savvy decision that shows the grocer knows how to read and respond to changes in the marketplace. Kroger has been aggressively expanding its Click List e-commerce service, helping to establish it as the online grocery leader in markets around the country. The grocery giant has invested in state-of-the-art store technology, including a new store pilot that tracks shoppers as they walk the store and delivers targeted offers to their mobile phones. In addition, it's tradition of acquiring companies such as Harris Teeter and Roundy's continued with its recent acquisition of Murray’s Cheese that gives it another advantage in the fresh foods space.
But the company acknowledged earlier this month that its competitors are improving and operating their stores better — many of them emulating Kroger's own strategy. Even Wal-Mart has aggressively cut prices in some states where Kroger has a presence, potentially sparking price wars and pressuring profits. Kroger must only must battle other grocers but deal with growing online competition from Amazon and meal kit delivery services such as HelloFresh and Blue Apron. The company's decision to rein in store development is the right one, but it's just one step the grocer will need to take to stay competitive.