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The sale of the milk and eggs: Kroger cuts outlook amid price battle

NEW YORK – the fierce competition between the supermarkets is forcing Kroger to slash prices on popular products such as milk and eggs — staples that help to sway where shoppers go.

The company, which operates Fred Meyer, Ralphs and Fry, on Thursday reported its second consecutive quarter of declining sales after more than seven years of uninterrupted growth. Also the reduction of the profit forecast for the year, stating the move is to adapt to the “unrest” in the retail food sector and keep prices competitive.

Kroger said that it was to react as rivals in some regions ran “hot” on milk and eggs during the first quarter. The Cincinnati company emphasizes that it does not intend to “lose on price.”

“We’re going to respond, and not allow our customers to think that they have to go somewhere else for the best value for these products,” Chief Financial Officer Michael Schlotman said during a conference call with analysts.

The push comes in the midst of a price battle between supermarkets. The German discounter Aldi is aggressively expanding, while the European competitor Lidl opened its first 10 stores in the US this week with specials for 39 cents croissants and 79 cent chocolate bars. The two chains have taken market share in the United Kingdom, and are looking to repeat that success in the US, with their no-nonsense shops that focus on affordable house-brand products. Grocery giant Walmart has also been working to reduce prices.

More generally, Kroger executives acknowledged Thursday the major changes in how people get their food. Online leader Amazon is expected to continue the expansion of its supermarket business, and meal-kit delivery companies like Blue Apron are aggressively trying to recruit new customers.

Still, Kroger executives believe the company has an advantage of offering a broader scope of services than discounters, and that a lot of people love to go to the physical stores to do their shopping. And they noted that they already begin to see store closures in the saturated from the food industry, giving Kroger the opportunity to expand its own presence in some markets.

For the quarter ended on 20 May, Kroger said sales at established supermarkets fell 0.2 percent. That follows a 0.7 percent decline in the previous quarter, with deflation in food prices are weighing down results. The company noted that the revenue turned positive towards the end of the quarter and has remained so in the current quarter, helped by the easing of deflationary trends.

For the year, Kroger expects sales in established locations to be flat to 1 percent.

The pressure to keep prices low is likely to only grow this year, says Moody’s vice president Mickey Chadha, that will hurt profitability.

In addition to keep prices low, Kroger said that the increase of starting wages in some markets and adding more staff at certain departments. The movements are intended to keep employee turnover and generally improve customer service.

For the quarter, Kroger Co. earned $303 million, or 32 cents per share. Earnings, adjusted for non-recurring costs, 58 cents per share, a penny more than analysts had expected, according to Zacks investment Research. The total turnover was € 36.28 billion, higher than the $35.51 billion Wall Street expected.

Kroger expects full-year earnings in the range of $2 to $2.05 per share, a decline from its previous guidance of $2.21 to $2.25 per share.

The shares were down 18 percent to $24.74 in afternoon trading.

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