W. Rodney McMullen
Chairman and Chief Executive Officer at Kroger
Thank you, Rob. Good morning, everyone, and thank you for joining us today. Before we begin, I'd like to provide an outline of our discussion topics this morning. I will start by sharing a recap of our third quarter performance and highlight how we continue to advance our go-to-market strategy, which powers our value creation model and drives long-term sustainable growth for our shareholders. Then Todd will cover our financial results for the third quarter and walk-through updates to our full-year guidance. And finally, I will close with some comments on our pending merger with Albertsons.
Turning first to our performance. We delivered strong third quarter sales results led by our pharmacy and digital performance, which reflects the versatility of our model. Customer engagement remains strong. Our convenient seamless shopping experience, along with incredible customer value through low prices, personalized offers and great quality our brand products drove growth in both total and loyal households. As we entered the last quarter of 2024, we are focused on providing the quality, fresh and affordable products that make holiday celebrations special.
Customer spending habits continue adjusting to current macroeconomic factors. As inflation normalizes, our premium and mainstream households are feeling more confident and are returning to their pre-pandemic shopping patterns more quickly. Mainstream households are the primary driver of our positive customer engagement trends. While overall consumer sentiment remains low, expectations are improving, which positions us well for the holidays and into next year. As we said, near-term, some customers are managing macroeconomic uncertainty.
Spending from budget conscious households remain under pressure as the effects of multi-year inflation and higher interest rates have had a larger impact on these households. Therefore, we expect it will take longer for these households to fill the benefits of economic improvement. Kroger is delivering on its long-standing commitment to provide customers with the value they are seeking. We are helping customers save in multiple ways, including competitive shelf prices and loyalty discounts, personalized offers, fuel rewards and an expanded multi-tier Our Brands portfolio.
Digital offers are an important way we deliver savings to customers and engagement continues to grow, with 5% more digital offer clips so-far this year and that has led to 14% more savings for Kroger customers. We are always creating additional ways for our customers to save. This quarter, we celebrated and thanked our customers with a customer appreciation week, offering new great deals and to help our customers enjoy a memorable Thanksgiving, we lowered the price of Thanksgiving meals for the third consecutive year by creating a meal bundle that served a group of 10 people for less than $5 per person.
We are focused on executing our go-to-market strategy to deliver a differentiated customer experience through our focus areas of Fresh, Our Brands, Personalization, and Seamless. We appreciate our associates' continued efforts to elevate the customer experience and bringing this strategy to life by improving on our key priorities of full, fresh and friendly again this quarter.
I would now like to cover how we are enhancing our go-to-market strategy. We are seeing long runways for growth in many areas of our strategy, starting with Fresh. Customers connect strongly to our Fresh for Everyone brand promise, which is a key differentiator for Kroger. Improvements across the supply chain as part of our end-to-end fresh initiative are increasing days of freshness. For example, bagged salads now offer customers more than seven days of freshness. Customers are noticing and it has led to identical sales in produce of more than 3% this quarter.
In addition, we constantly evaluate new ways to apply data and technology to provide an even better fresh experience and deliver more days of freshness for our customers. One of the ways we are doing this is through recent implementation of RFID embedded labels on bakery items. These labels provide us with greater insights into our Fresh inventory, resulting in consistently fresher items and higher in-stock levels. We have seen encouraging results, including higher sales in locations and categories where we have piloted the RFID labels and we look forward to scaling this to more stores.
Turning to Our Brands, I would like to step back and talk about the significant investments we've made in Our Brands and how those investments are delivering value to both customers and shareholders. For years, the grocery industry offered private-label products with the primary goal of creating products at lower price points. Several years ago, we recognized an untapped opportunity for growth in these products and envisioned a future where our private-label products would match or exceed the innovation, quality and recognition of national brands, which is why we coined the phrase Our Brands.
Guided by that vision, our teams built distinct and recognizable brands that our customers want and love, providing more value and meeting unique product needs that national brands cannot fill. Recently, we focused in on refining our brand architecture to optimize the portfolio and ensure each brand plays a unique role on the shelf. The successful addition of Smart Way, our new opening price point brand played an important role in rounding out our multi-tiered portfolio and offering an attractive alternative to national brands at every price point.
The next phase of the work involved refreshing designs and packaging, enhancing brand equity and reinforcing quality and improving the shopability. For example, to reinforce our long-standing guarantee of quality and freshness, we are placing guarantees on labels across our Kroger branded products. Innovation remains a driving force for Our Brands growth. We utilize our data and insights to understand customer trends and meet increasing demands by consistently introducing new items to our portfolio with a focus on growth areas, including free-from, organic and multi-cultural. This innovation enables us to differentiate ourselves from both national brands and other private-label brands, creating destination items that help build customer loyalty.
Our manufacturing capabilities will continue to be an important advantage for Our Brands. With oversight over the quality and the supply, we can develop unique and differentiated products while keeping costs low, allowing us to pass the savings to customers, while preserving our ability to grow margins, a true win-win for customers in Kroger. This quarter, Our Brands continued to deliver strong financial results, which Todd will cover in more detail.
Next to Personalization. Our Kroger Plus program provides our loyal customers access to savings and rewards that in-turn drive traffic to our seamless experience. As customers become more engaged, we gain deeper insights into customer trends while creating the data that enables us to grow Kroger Precision Marketing and deliver more effective promotions and relevant product recommendations. We are working to grow Boost, the next level of our loyalty program through new benefits and this quarter, we announced the addition of Disney+, Hulu or ESPN+ streaming benefits with Boost annual memberships.
Turning to Seamless. Digital sales grew 11%, driven by an increase in both households and traffic. Within digital, delivery sales grew at 18% and continues to outpace other channels. Boost is one of the important ways we are increasing e-commerce penetration, providing customers an affordable membership model for free delivery. Increasing e-commerce penetration is important to our model as households who shop with us digitally and are in our stores are our most loyal customers and increased retail media monetization opportunities as well.
As our digital business grows, particularly in our delivery network, it continues to have a larger impact on our financial results. Improving profitability is a key priority and becoming even more important to our financial model. Over nearly a decade, we made significant investments in our digital capabilities, building out our own properties, creating distribution channels in both pickup and delivery, investing in automation, enhancing Personalization and introducing an industry-leading retail media network. While each of these capabilities required significant investments, we now have a unique digital experience that our customers enjoy.
Moving forward, we are committed to growing volumes, utilizing automation and introducing new technology that will create efficiency gains while helping us narrow the profitability gap between online and in-store. Narrowing that gap will generate meaningful operating margin benefits and help drive shareholder value over the next several years.
By executing our go-to-market strategy, we are building loyalty, increasing customer engagement and creating more growth opportunities. First, with alternative profit businesses, which had another solid quarter. Kroger Precision Marketing continued to deliver the most significant growth from our alternative profit businesses.
Next, in health and wellness. As the pharmacy industry continues to transform, Kroger has a unique opportunity to play a bigger role in helping patients live healthier lives while growing our share of the industry. We are excited about this area of the business and its performance this quarter demonstrates we can grow this business profitably in a way that supports our customers to live healthier lives.
Sales and profitability this quarter were well-ahead of last year, led by growth in both GLP-1s and vaccines. Our strong growth in vaccines reflect patient trust in Kroger to vaccinate them and their families during the start of the cold and flu season. The peak quarter of the year for vaccinations, our health and wellness teams did an excellent job this quarter in building awareness around our vaccine capabilities, growing share and administrating significantly more vaccines this year versus a year-ago. These helped offset the product mix pressures from GLP-1s. Our vaccine efforts are leading to new patient scripts, which is important as these customers are more likely to become loyal households and spend more across the store.
We appreciate our associates for their continued efforts to elevate the customer experience by delivering on our key priorities of full, fresh and friendly. Team consistency leads to a better customer experience, and we are excited about another quarter of improvement in retention. Our focus on retention reflects a holistic strategy, including investments in wages and benefits as well as enhancing the associate experience through training, technology and career development opportunities.
With that, I will hand it over to Todd to take you through our third quarter financial results. Todd?
