Kroger's Tax-Rebate Promo Reinforces Value Position

MARK HAMSTRA

CINCINNATI — Kroger Co. here got out ahead of its supermarket rivals last week with an offer to boost the value of the tax rebate checks most Americans will soon begin receiving.

Analysts said the program, which would tack on an extra 10% to the value of a Kroger gift card purchased with a rebate check, could serve to reinforce Kroger's positioning as a value leader in the marketplace.

“You can see that Kroger is feeling pretty feisty,” said Andrew Wolf, an analyst with BB&T Capital Markets, Richmond, Va. “Even in tough times, they can afford to go after new customers and gain market share — they feel their business is healthy enough to do so.”

The promotion adheres to Kroger's strategic business plan of recent years to build traffic and market share with aggressive pricing and promotions, he said, noting that Kroger also has been mailing offers of 10% off to customers who spend $100 within a certain period of time.

“They have been using a 10% offer as a promotional tool for quite a while now, so they are pretty experienced with that,” Wolf said.

The tool works only if it succeeds in attracting new customers to the store or encourages existing customers to buy more, he said.

Kroger's offer mirrors an offer announced recently by Sears Holdings, parent of Sears and Kmart, to add 10% to the value of gift cards purchased with tax rebate checks. The rebate checks, part of a $150 billion economic stimulus package, are scheduled to begin arriving at people's homes in early May.

Kroger's plan allows customers to exchange either their tax refund or tax rebate check for gift cards in multiples of $300 — a $300 check earns a $330 gift card, for example. It runs through July.

“We are excited about the opportunity to touch the lives of millions of families across the country by helping them extend their household budgets through this special program,” said David Dillon, chairman and chief executive officer, Kroger, in a prepared statement.

In a conference call discussing fourth-quarter earnings last week, Jeff Noddle, chairman and CEO, Supervalu, said the Minneapolis-based company was also planning a promotion to attract customers tied to their tax rebates, although he did not disclose the specific nature of the promotion.

“We have the Save-A-Lot chain, with almost 1,200 stores that very much are front and center for the customers who will be very high recipients of these stimulus checks,” he said. “We'll have plans throughout the rest of the company also, and those are under way.”

John Heinbockel, an analyst with Goldman Sachs, said Kroger's plan could be effective.

“This program could enable Kroger to gain more than its fair share of tax-check proceeds, thereby adding to sales and earnings,” he said. “It could also help cement Kroger's already strong value perception, a benefit that would transcend the current economic climate. It is reasonable to think that in a tough economy, some solid portion of these tax checks will go toward non-discretionary purchases. By offering a discount, perhaps Kroger can capture some of the money that would otherwise go to other stores/formats that sell groceries.”