Food inflation is top of mind with retailers these days and more specifically the ability to preserve margins by raising prices to offset the higher prices suppliers are charging. This ability to pass through price increases is dominating discussions in a food universe where it has become common to hear retailers use the word “rational” when describing the pricing climate.
What this means in essence is: “we are raising prices,” and it sends a clear signal to competitors that it is okay for them to take similar actions. Target talked about the rational pricing environment during its first quarter conference call and just last week the nation’s second largest grocer also note the pricing environment is rational.
The so-called rational environment is what contributed to stellar results at Kroger where identical-store sales increased 4.6%, better than the 3.8% analysts expected. The company parlayed the top line performance into profits with earnings per share of 70 cents well in excess of the 64 cents consensus estimate and the prior year performance of 58 cents. Expectation of further rational pricing prompted the company to raise its forecast for identical-store sales growth to a range of 3.5% to 4.5% from a prior range of 3% to 4% and elevate full-year profits to a range of $1.85 to $1.95 from $1.80 to $1.92 previously.