McMullen emphasized, "We are creating more engagement with customers through personalization, offering more targeted and effective promotions... and our seamless ecosystem is resonating with customer needs and allows us to derive increased loyalty."
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GLODue to the impacts of reduced benefits, many low-income consumers are facing challenges, leading Kroger, the leading grocer in the United States, to observe a shift in the behavior of their budget-conscious customers.
CEO Rodney McMullen explained during an analyst call that sustained inflation, reduced government benefits like SNAP (Supplemental Nutrition Assistance Program), and higher interest rates are affecting customer spending, particularly for those with limited budgets. He noted, “These customers are buying in smaller pack sizes, [often] prioritizing the lowest shelf price… building smaller baskets and switching to lower-priced items to stretch their budgets.”
McMullen further pointed out that these customers’ spending patterns are influenced by their payroll schedules and the status of their SNAP benefits.
In response to these economic challenges, Kroger experienced a drop in sales of approximately $700 million year over year in the quarter, from $34.6 billion in Q2 2022 to $33.9 billion.
Data from PYMNTS Intelligence indicates that consumers are indeed cutting back due to ongoing economic difficulties. Their May report showed that 57% of respondents reduced spending on nonessential groceries, and 47% shifted to sellers offering better prices on groceries.
However, Kroger is observing a positive trend among high-income consumers, who are trading down from premium grocers and showing a willingness to invest in higher-value items and larger purchases.
McMullen highlighted, “Higher-income households continue to engage more deeply with us, enjoying our customer experience with zero compromise on convenience, quality and value… They purchase bigger pack sizes, shop more fresh categories, and trade up to more premium Our Brands products.”
Regardless of income level, consumers are still allocating some budget for “nice-to-have” grocery items. PYMNTS Intelligence reveals that 75% of all consumers occasionally buy such items, even among those struggling to make ends meet.
In response to consumer concerns about prices, Kroger is experiencing growth in digital coupon redemptions, up 29% year over year in the quarter. They also reported an increase of 1.2 million digitally engaged households.
As Kroger’s planned merger with Albertsons progresses, the combined companies will have first-party data from around 85 million households. This will enhance their ability to personalize the customer experience, ultimately driving sales and loyalty.
McMullen emphasized, “We are creating more engagement with customers through personalization, offering more targeted and effective promotions… and our seamless ecosystem is resonating with customer needs and allows us to derive increased loyalty.”
Source: PYMNTS
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