W. Rodney McMullen
Chairman and Chief Executive Officer at Kroger
Thank you, Rob. Good morning, everyone, and thank you for joining us today. We're off to a great start in 2023 with results that reflect the strength of our go-to-market strategy. Kroger is continuing to navigate a challenged environment as our customers manage the effects of high inflation, fewer SNAP dollars, and macroeconomic uncertainty. Despite these conditions, customers continue to prioritize their spending on food, and our value proposition is resonating. The investments and productivity improvements we made over recent years have strengthened our business, allowing us to sustainably invest in price for our customers while maintaining margins. By delivering great value and driving strategic initiatives, we are sustaining momentum, which gives us the confidence that we will continue delivering on our commitments.
Many of our customer preferences and trends that emerged last year have, as expected, accelerated into the first quarter. Customers are actively looking for ways to save, and we are focused on providing a fresh and affordable shopping experience with zero compromise on quality, selection, or convenience. As we've seen over recent quarters, our customers are saving through loyalty discounts, including weekly specials and yellow-tag promotions, engaging in our broad assortment of Our Brands, products, and redeeming personalized digital coupons and fuel rewards. During the first quarter, sales made on promotion increased approximately 380 basis points and digital coupon redemptions increased to 180 million. We are delivering more savings opportunities, including working with our suppliers to fund more promotions. Kroger's value proposition offers something for every customer, which I'm pleased to say led to increased customer trips and our eighth consecutive quarter of household growth.
That being said, we continue to see a split in spend across customer segments. The economic environment is more significantly impacting our budget conscious shoppers while our mainstream and higher income shoppers are increasing their spend with us and deepening their loyalty. We grew mainstream households, which make up the largest segment of our customer base. We also grew our higher income customer households as they migrate from specialty retailers to Kroger. These customers are extremely valuable because they are building larger baskets and spending more per item. We see these customers buying premium Our Brands lines, more Fresh items, and larger pack size, and as a result, they are more profitable.
In contrast, our budget conscious households are buying fewer items, particularly as SNAP benefits decline during the quarter. In some cases, we see these households switching to lower priced products and smaller pack sizes. The least loyal customer in this group are clearly prioritizing at shelf over other factors such as personalized offers, convenience, and quality. While no one can predict the macroeconomic outlook with certainty, we expect customers, particularly those on tighter budgets, will continue to feel the effects of inflation and higher interest rates. We have started to see relief as year-over-year inflation levels moderate, particularly in Fresh categories. We expect value and quality to remain in focus for the majority of our customers in the months ahead. Our attractive value proposition positions us well for this environment. In fact, our promotional pricing, personalized offers, and fuel savings work together to create an overall value comparable to everyday low-price providers. And those savings come with much more personalized experience.
Along with our great value proposition, we will continue investing in and growing our strategic priorities of Fresh, Our Brands, personalization, and seamless to create a full, fresh, and friendly customer experience. As you know, we lead with Fresh. Our Fresh for Everyone promise connects strongly with customers and is a key differentiator that drives customers to us. We are constantly innovating by applying data and technology to improve the customers' Fresh experience. A key to winning in Fresh is our supply chain. We improved our supply chain's efficiency through investments in talent and technology as well as controlling more movement of products across our network. As a result, our associates improved our in-stock rates, which drive higher sales. Through our end-to-end Fresh initiative, we are streamlining our supply chain to minimize the lapse time from farm to shelf. Combined with our convenient store network, these investments deliver even more days of freshness at home for our customers. Together, these improvements also reduce our expenses, allowing us to invest in price for customers while providing fresher choices and more options.
Turning to Our Brands. Our Brands delivered another solid quarter, led by our namesake Kroger brand, a national brand equivalent. Our Brands are always a winner with our customers. In this period of sustained high inflation, it helps our customers save money without sacrificing quality. While inflation may have been the reason for some customers trying our brand's products, the taste and quality makes the customer love these products and continue to repurchase them. For customers looking for more convenience, Home Chef plays an important role and continues to innovate and expand offerings to meet growing customer needs. This quarter, Home Chef expanded its menu to bring more healthy choices, premium meals, and new concepts. Our team unveiled its first dedicated family menu designed to make family dinners easier than ever. The menu includes easy to prepare recipes for larger groups, with meals appealing to both adults and children and at an attractive value.
Next is personalization. For years, Kroger has been at the forefront of using data and analytics, including artificial intelligence, to build a better customer and associate experience. By applying our data and AI-based personalization, we can better understand what truly matters to our customers and deliver more targeted and effective experiences. As customers' digital engagement increases, we have new and more efficient channels to present the most relevant products and the right promotions at the right times, no matter where and how customers choose to shop with us. As AI advances, we continue to work and constantly evaluate potential use cases throughout the business with privacy and responsible implementation in mind.
For customers, we see opportunities to further simplify the digital experience and offer more accurate, personalized recommendations. Our teams are working with search algorithms and generative AI to improve substitution accuracy and search results. Within our 84.51 customer research team, we are already piloting several large language models to summarize customer database sets. By applying AI to customer surveys and customer service logs, our team can analyze and categorize them in minutes versus days before. This allows the business to react to customer feedback more quickly and accurately, and then reflect these learnings in the customer experience. For our associates, we envision ways to further simplify work through advanced algorithms that optimize activities such as store orders. These, in turn, help reduce out of stocks, improve inventory management, and reduce expenses. Data is in our DNA. Our rich history as a technology leader gives us confidence that we will continue to effectively use AI, including more recent innovations. We also believe robust, accurate, and diverse first-party data is critical to maximizing the impact of innovation in data science and AI. As a result, Kroger is well positioned to successfully adopt these innovations and deliver a better customer and associate experience.
Now on seamless growth in both our pickup and delivery businesses led to a strong quarter of digital sales growth. A significant rise in both households and transactions fueled this growth. Pickup remains an important part of our seamless ecosystem. During the quarter, our team's focus on associate training resulted in improvements in the customer experience. Pickup Net Promoter Scores increased as we improved fill rates and reduced customer wait times; obviously, something we're very proud of. Seamless starts with our digital experience, which we built to be simple, convenient, regardless of how customers choose to shop with us. Whether our customers want immediacy of Kroger delivery now or to place a large stock-up order through our customer fulfillment centers, the customer experience is the same. This shifts complexity from our customers to Kroger. Even customers shopping only in store are beginning their shopping trip through our mobile app or website by clipping coupons and creating shopping lists curated for their store. These growing interactions contributed to the 13% increase in digitally-engaged households this quarter. We value this behavior as digitally-engaged households are more loyal, spend nearly three times more with us, and help grow our alternative profit businesses like Kroger Precision Marketing.
Our associates continue to provide our customers with an outstanding full, fresh, and friendly experience. Better continuity on our teams and more engaged associates lead to a more consistent customer experience, and we are excited about the continued improvement in retention. This improvement reflects our focus on making Kroger a place where associates can come for a job and discover a career. Kroger is committed to training our future leaders and made significant investments this quarter. We enhanced our career development framework, expanded our leadership development course catalog, and introduced companywide development days. In the first quarter alone, our leaders engaged in more than 445,000 leadership development courses to strengthen their skills. We are excited for our associates' commitment to developing their careers with Kroger. Our associates are driven by our purpose to feed the human spirit, and Kroger's effort to build healthy communities are being recognized. This quarter, Kroger was selected as a 2023 SEAL Business Sustainability Awards winner in the Environmental Initiative category. We received this award in recognition for our progress in creating communities free from hunger and waste, which is a result of our team's collective efforts to more deeply integrate Zero Hunger, Zero Waste in our operations. We are incredibly appreciative of all of these efforts.
In closing, Kroger delivered a strong first quarter by focusing on delivering customers value through our seamless ecosystem. We are growing customer households and trips, and our business remains well positioned for the environment ahead.
With that, I'll turn it over to Gary to take you through our financial results. Gary?
