Module 2 Assignment

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Louisiana State University, Shreveport *

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705

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Economics

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Apr 3, 2024

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docx

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Slowing Inflation is dragging on Kroger sales, even as consumers still feel a pinch The article Slowing Inflation is dragging on Kroger sales, even as consumers still feel a pinch by Melissa Repko of CNBC details how the leveling off of grocery prices and cooling of inflation is impacting the revenue of large retailers like Kroger. Unlike the first fiscal year, the revenue of Kroger in the second year posted a net loss of $180 million dollars (Repko, 2023). But Kroger is not the only one retailer affected by the cool off of inflation. Home Depot saw a significant loss as well as inflation, caused prices of lumber to soar and their revenue was higher, but now that inflation is cooling off and prices are beginning to stabilize the overall sales appear lower. Furthermore, due to the increase in inflation, stores were reporting higher revenue but lower sales volume and discouraged customers from buying items that are not of necessity (Repko, 2023). Kroger CEO Rodney McMullen mentions in an earnings call that they can anticipate the balancing of inflation to increase sales at the backend of the year. With prices leveling off, they should be able to see the sales volume in their stores increase. Furthermore, retailers like Kroger have added additional security measures to prevent the increasing theft activity that they have seen in the past year, which has caused a larger than usual loss in revenue. Lastly, Kroger is in the middle of closing a deal to buy their grocery rival, Albertsons. This will help them improve their infrastructure by adding more than four hundred stores and eight distribution centers to the brand. But this merger is also leading to some careful examination by the antitrust officials in Washington D.C. The impact of inflation is one of the detrimental aspects of this article. Our course material this week relates to this article because we know the economic forces such as inflation have a huge influence on business operations. As we learned in the text, as prices rise businesses react differently (Parnell, 2012, p. 17). In the case of Kroger, as higher value ticket items rose in price, they tried to combat this by providing more deals and discounts on their own in-house brands to help drive sales volume. By doing this, Kroger is trying to create a comparative advantage in their industry in an attempt to keep consumers from shopping at other retailers that boast cheaper prices like Dollar General. Higher inflations rates have a negative effect on business but not all of them (Parnell, 2012, p. 20). As Kroger experienced, higher inflation rates over a sustained period of time contributed to them having a visual increase in revenue, but also had a decrease in sales volume. This is one way a business may benefit in the short run from inflation but the increase in prices for some of the name brand items that cost more resulted in them staying on the shelves longer. This could result in a cascade effect with the suppliers of these products, triggering them to hike their prices in order to cover the costs of the reduction in sales. But periods of inflation can allow companies to seize opportunities (Parnell, 2012, p. 20). Inflation did impact Kroger in terms of sales volume and the decrease in revenue in the second quarter. But entering the third quarter, where they expect sales volume to return as prices cool down, Kroger has made a strategic move in merging with one of their large competitors, Albertsons, and gaining over four hundred locations and eight distribution centers. This was very strategic because the increase in infrastructure will complement the cooling off of inflation prices and return of a higher volume of purchases at their locations. So theoretically, they could see a drastic increase in revenue at the end of this fiscal year. By acquiring Albertsons, Kroger is effectively increasing its market share, the share of the total industry sales they hold (Parnell,

2012, p. 5). The merger is particularly key to increasing their market power, which allows them to keep prices in a relevant range to match demand because they will have the ability to absorb cost increases (Klein, 2022). This alone helps Kroger take a step ahead in the competitive retail industry. As a consumer, I am not fond of inflation because it means that going grocery shopping for basic necessities can be a hit to the check book. But having read this article and applying what I know from this week’s course material, I have developed a more rounded out view of what these large retailers are attempting to do to keep prices from increasing too much and the demand for items the same. For example, in my own spending habits, the increase in prices in the beginning of the year resulted in my discretionary spending becoming little to none. A trend that has been noticed by these big box retailers. Also, I find it a very strategic move of Kroger to partake in this merger. With the increase in store volume and distribution centers, they will be able to absorb some of the supplier costs in order to keep a competitive edge by keeping goods in a price range that still encourages consumers to shop at their locations. With inflation cooling off, the number of items in carts can be expected to rise; therefore, by the end of this fiscal year or first quarter of the next year, Kroger could see an increase in sales volume and revenue over the previous. References Klein, T. (2022, December 21). Fighting inflation with competition: The right tool for the job? . Oxera. https://www.oxera.com/insights/agenda/articles/fighting-inflation-with- competition-the-right-tool-for-the-job/ Parnell, J. A. (2014). Strategic Management: Theory and Practice, Sage Publications, Chapters 1- 12. Repko, M. (2023, September 8). Slowing inflation is dragging on Kroger sales, even as consumers still feel a pinch . CNBC. https://www.cnbc.com/2023/09/08/kroger-kr- earnings-q2-2023.html

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