When Kroger removed Red Bull from all of its grocery stores and gas stations, that seemed like an isolated dispute over price with one brand.
Even when the grocery chain pulled another brand, Boar’s Head, from about 200 locations, it still seemed like a small issue. In those stores, however, a sign appeared, which explained the situation.
“A bright yellow sign reads: ‘Boar’s Head products will no longer be offered at this location. We continue to provide a variety of high quality deli meats and cheeses, including many customer favorites from our premium deli selection,'” reported WCPO.
Neither company would explain why the change was being made, but industry analysts told the news station price might be the issue.
“Kroger recently raised the price of some of its Boar’s Head meats — such as Oven Roasted or Maple Honey Turkey — to $14.99 a pound. Kroger’s Private Selection versions are often $10.99 a pound, significantly less,” the local news station shared.
Kroger CEO Gregory Foran shared during the chain’s second-quarter earnings call that these are not necessarily isolated changes.
Kroger wants to hold the line on prices
Robbie Ohmes with Bank of America asked Foran about the impact of inflation on grocery chains.
“As I see what is happening, particularly with gas prices, diesel prices, you know, historically, when you get an environment like this, you see it start to flow through,” he said.
He noted that Kroger has “a lot of active work underway at the moment in terms of cost savings. You know, some of that is built around what we call our COGS (cost-of-goods-sold).
Foran made it clear that the company wasn’t doing that just to have to raise prices for other reasons.
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“What we wanna do is make sure that the great work that is happening in that area just is not if you like, frittered away as we then have to deal with price increases. So there is you know, some really good work that the teams are doing in this area, but I would expect that pressure is actually going to mount,” he said.
Foran didn’t exactly threaten vendors, but his words, plus Red Bull and Boar’s Head removals, provide a clearer picture of how Kroger is responding when suppliers seek higher prices
He also shared how the chain might replace some of those products.
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Kroger expanding its house brand
In some cases, the Boar’s Head products were replaced with Kroger house brand deli meat. That’s something the chain intends to do more of.
“Looking ahead, we are also expanding SmartWay, our opening price point brand. With more items, broader coverage across the store, and improved visibility both in store and online,” Foran said.
Consumers, of course, might show loyalty to brands such as Red Bull and Boar’s Head. Kroger, however, is giving itself more alternatives when negotiations with national brands break down.
Kroger is making a large bet on its entry-level private label brand.
“You are seeing us expand our range of SmartWay products there, you know, circa from about 130, we will get that up to 1 thousand over the next year and a bit. Some of those are already hitting the shelves, and we are very pleased with how they both look and taste and feel,” he added.
Kroger, it should be noted, did not hide that the dispute with Red Bull is over cost.
“We are currently out of stock while we work with our suppliers to keep prices affordable for you,” reads a sign hanging where the energy drink is normally shelved, WCPO reported.
Kroger’s betting on prices over brand loyalty
RTM Nexus CEO Dominick Miserandino thinks consumers have a breaking point when it comes to price.
“For a lot of everyday products, the brand name matters less when the price difference gets big enough. Kroger has a real opportunity with its house brands, especially with shoppers watching every grocery dollar,” he told TheStreet.
That’s not a strategy that will work across all products.
“The risk is assuming that applies to every category. There are still products where shoppers want their brand, and they’ll go somewhere else to get them,” he added.
Miserandino, in an earlier interview with TheStreet, thinks that Kroger is going to hold the line on raising some prices.
“Kroger pulling Red Bull off the shelves comes down to basic shelf math. Red Bull wants to raise wholesale prices, and Kroger refuses to pay it,” he said.
As a Red Bull drinker, I’ll share that unless Kroger sampled a house brand knock-off, I’d likely simply buy the brand elsewhere, but it makes sense to have a fight over an energy drink because I’m probably not changing grocery stores over the lack of Red Bull.
I would also appreciate house brands in areas where I’m less particular.
GlobalData Managing Director Neil Saunders thinks private labels are broadly a smart play for grocery chains.
“The investments have certainly been worth it for grocers. They’ll probably push on it even harder,” he told The Washington Post.
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