Kroger Trims CapEx by $500 Million, Continues to Invest in Analytic Capabilities

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Kroger Trims CapEx by $500 Million, Continues to Invest in Analytic Capabilities

By Tim Denman - 09/13/2016
Over the next year and a half Kroger plans to allocate approximately $500 million less to capital investments as it looks to return short-term value to its shareholders. Kroger, known throughout the industry as a tech leader and investor, will continue to invest in its Customer 1st strategy including its analytic capabilities through its 84.51° team to gain a deeper understanding of the wants and needs of its shoppers.

"We just think it's prudent in this environment to maintain and increase our financial flexibility to respond to the environment that's out there and to have that incremental cash to be able to spend," said CFO and EVP Mike Scholtman on a recent earnings call with analysts. "Our view is there will always be a significant number of projects in the pipeline, and we're comfortable we're going to be able to do the projects we have the highest level of confidence in and get those built, while maintaining as much financial flexibility as we can."

Kroger remains laser-focused on providing consumers an engaging, meaningful shopping experience, and despite the reduction in CapEx will continue to invest in this important capability. For example, the retailer is increasing its operating hours in some markets to meet rising demand. "This increases our cost as a rate of sales," said CEO Rodney McMullen. "But without this investment, the shopping experience, an important element of our Customer 1st Strategy, would be negatively affected."

A cornerstone of a successful customer-centric strategy is actually knowing what the consumer is demanding. Kroger has a leg up on the competition in this regard thanks to its wholly-owned 84.51° analytics unit.

"Our team at 84.51° helps us figure out what customers want so we can provide highly informed strategic investments based on rigorous data analytics rather than simply reacting to competitors," McMullen said. "Customer insights give us a big advantage in challenging environments like this one. A lot of what we are seeing suggests a gradual tightening of budgets. Our customers tell us they are less confident about the economy now than they were three months ago, and they expect the economy to get worse in the next three months."

While consumer confidence in the economy continues to decrease, Kroger reports that its pricing initiatives remain an important tenant of its customer-first strategy. The grocer monitors the cost of a basket of good on a near weekly basis in relation to the competition, and hasn't seen a drastic change for a long time. Despite the fact that Kroger continue to capture market share and drive lesser competitors out of key markets it has been reluctant to raise prices, instead continuing to return value to its shoppers by keeping margins tight.

"In a research, most people are saying their basket of goods cost more money," McMullen said. "But we, in fact, know that it isn't. So helping the customer see that is always a challenge for us and our competitors as well."