The Kroger Co. (KR) Earnings Call Transcript & Summary

Okay. Great. Thank you. This is Mike Montani from Evercore ISI. I'm joined on the line by my colleague and longtime partner, Greg Melich; and then also Rebekah Manis , Director of Investor Relations from Kroger; as well as Rodney McMullen, the Chairman and Chief Executive Officer of Kroger. So we're happy to be able to deal with all of you today. Certainly, a tumultuous time, a lot going on in terms of the regulatory environment, the consumer backdrop and certainly the grocery landscape at large. What I wanted to do is just to walk through a few of the observations that we have and then from there, turn it over to Rodney to make a few comments before we begin the fireside chat. So we're kind of thinking about the world today through a survive-and-thrive framework. That would be kind of the #1 thing. For a lot of the retailers that we cover, the coverage spans everything from home improvement to auto part retail to grocery. We are seeing a lot of folks that are struggling out there. And so I think the #1 thing is what companies have the balance sheet, the wherewithal and some of the capability set to be able to get through this difficult time and then how will they be positioned when we do come to the other side of this, which we do believe is going to happen hopefully sooner than later. So the other thing that we've been looking through is this men framework. So if we think about that, multichannel and e-commerce is sort of the first component of that. If you look, 16% of retail sales, this is of a $3.7 trillion market in 2019, were basically e-commerce. And the shift that was already underway going back to the iPhone circa '08, '09, we think, is only going to accelerate from here. So that's something to continue to watch for. And the companies that have the balance sheets and capability to invest in those areas, I think, will be able to meet that consumer demand because that is one thing we're highly convicted and that will change coming out of this. The second thing would be nesting. So as we think about home office, obviously, electronics, some of the basics of the home getting incremental usage and focus. Food at home relative to food away from home is a shift certainly that we're seeing in the near term but something that we think has medium-term legs as well and potentially longer than that. So that's another key thing to focus on. And then lastly would be de-densification. Of the 3, this is the one certainly with the least level of conviction, but still probably more than 50%, 60% chance it would happen from our surveys of millennials and the broader consumer really dating back to this past fall. So even before all of this virus-related crisis occurred, we were seeing folks incrementally more likely to want to move out of some of the urban centers and head to the suburbs or even rural areas. So what does that mean then for personal transportation, public transit and then also just some of the products, goods and services that are consumed in our everyday lives. So with that anyways, I really wanted to be able to turn it over to Rodney for some of his introductory thoughts. And by way of background, as Chairman and CEO of Kroger, you're basically looking at 2,800 stores, almost 0.5 million associates, about $130 billion of revenue. So the second largest U.S. grocer, Rodney has great insights, I think, to share with us and particularly timely just given everything that's going on in the landscape. So with that, I'll turn it over to him, and then we can resume the fireside chat.

Thank you, Mike, and good morning, everyone, and thank you for joining us on the call. As Mike mentioned, these are unprecedented times we are experiencing. I wanted to address how we're managing through the COVID-19 pandemic and talk about the Kroger long-term strategic model. At Kroger, we remain committed to our purpose, and our purpose is especially important today, and that's to feed the human spirit. This is the foundation for everything we do, and it accelerates our multifaceted ecosystem. People want to work for, shop with and invest with companies that are purpose-driven and actively making the world a better place. For Kroger, that means that we're there for our communities, for our customers and even more important during these challenging times. Customers shop with Kroger in these times of uncertainty because it's a brand they trust. Our most urgent priority is to provide a safe environment for our associates and our customers with open stores, comprehensive digital solutions and an efficient operating supply chain so that our communities have access to fresh, affordable food and essentials. When we look across the globe, we know supermarkets and other food and drug stores have remained open throughout the pandemic, even in the hardest-hit countries so far, such as China, Italy and Spain. Based on early observations, customer behavior can be broadly grouped into 3 phases. Initially, there is a surge in demand due to customer stockpiling. This is followed by a period when demand starts to taper but remains higher than normal as customers adjust to new dining and travel restrictions. Beyond the second phase, it's way too early to speculate on customer behavior and how it will change for the long term and what will emerge as the new normal. As we shared in our business update on April 1, Kroger is seeing trends similar to other markets affected by the pandemic. We started to see a significant shift in customer behavior during the last few days of February as shoppers started to stock -- started stocking up, especially in the western part of the country. Sales sharply accelerated in March with identical retail supermarket sales without fuel up approximately 30%. This was driven by dynamic heightened demand in the middle of the month as customers were stockpiling, which then tapered but remained elevated and higher than normal in the final week as customers adjusted to the new dining, work and travel restrictions. We currently believe we are in the second phase within the U.S. We are making investments in our associates, stores and supply chains to ensure whatever the third phase brings, Kroger will be best positioned to serve our customers and communities and come out better. We and I are so incredibly proud of our dedicated associates who are on the front line and remain committed to serving our customers when they need us most. Their efforts are nothing short of heroic. We recognize their contributions and are taking care of our associates by providing additional paid sick leave for those who have been diagnosed with the coronavirus as well as those who need to self-isolate. We are also providing special pay above regular wages for frontline hourly associates, including the Hero Bonus, a $2 premium above their standard base rate of pay, in addition to the onetime bonus we announced earlier this month. Kroger has now hired over 60,000 associates to help provide fresh food and useful supplies to our communities. We continue to leverage partnerships with local, regional and national businesses to Kroger roles, ensuring the food supply chain continues without disruption. I've been inspired by their dedication to live our purpose and uplift the communities they are in by ensuring that all people have access to fresh, affordable and -- food and necessities during this time. We also continue to invest in our store safety protocols, including frequent and rigorous cleaning and sanitation procedures in our stores, distribution centers and manufacturing facilities. Kroger is investing in the supply chain to extend capacity where possible. All of these investments are supporting associates, customers and communities through the pandemic and will help the company emerge stronger as a result. One of our principal goals is to make sure we come out of this stronger than when we started. We know our model is resilient and produces strong and durable free cash flow even in economic downturns. Leading into the pandemic, we were pleased with the improving trends in our supermarket business. This is a result of our customer obsession and our renewed intensity around operational excellence. We delivered on our commitments for identical sales without fuel, adjusted FIFO operating profit, cost saves and delivered over $100 million of incremental operating profit through alternative profit streams in 2019. For the full year 2019, we delivered on our total shareholder return, or TSR, model that we outlined in our Investor Day, and we are positioned to deliver on our TSR model of the future. We are using the power of Kroger's stable and growing supermarket business to create meaningful incremental operating profit through the alternative profit stream businesses, positioning our business for long-term growth that generates consistently attractive total shareholder return. Our confidence that we can deliver even stronger TSR in the future is guided by our strong free cash flow and sustainable net earnings growth. By executing against the Restock Kroger framework, we are repositioning our business by widening and deepening our competitive moats. The 4 main areas of Restock Kroger framework, redefine the customer experience, partner to create value, develop talent and live our purpose, continue to be our top strategic priority for us. We are continuing to enhance the customer connection by leveraging our competitive moats of today, which are product freshness and quality, Our Brands and personalized rewards and data and our competitive moats of tomorrow, the seamless ecosystem we are building. We continue to remain committed to our communities as well as our community partners during this time. Kroger's Zero Hunger | Zero Waste Foundation is rapidly deploying more than $3 million in hunger relief resources to communities disproportionately impacted by the coronavirus pandemic through our nonprofit partners, Feeding America and No Kid Hungry. The Kroger Foundation also supported the American Red Cross annual disaster giving program and disaster responses program at the $500,000 level in 2020, enabling the Red Cross to develop capacity, leaders and resources to provide relief. In addition, we continue our own efforts to donate both food and funds to local food banks and hunger relief efforts. For the past 137 years, there have been many challenges within our business environment, but our commitment to feeding the human spirit has never faltered. Kroger is committed, as we've always been, to our customers, our associates and our communities. We remain vigilant to the dynamic conditions, and our business model remains agile to be able to continue to accommodate those conditions. With that, Mike, I'd like to turn it back over to you to answer any questions and have our fireside chat without a fire.

Sounds great. Safety first in this world, right?

Absolutely.

So maybe jumping right into it in terms of some of the sales trends that you all have seen from the press release on April 1, you mentioned that the consumers are shopping across the store. And so we're just hoping to get some incremental color from you, Rodney, in terms of what are the types of items that people are buying in terms of categories as well as what behavior do you see from a good, better, best spectrum.

Yes. The -- several different questions in there. If you look initially, the panic or stock-up, whichever word you want to use, was more focused on toilet paper, sanitation-type products and those types of things. If you look at over time and -- remember, in today's world, time means like a week. And I've never been part of an environment where you're adjusting, in some cases, almost hourly. But if you look at -- then it started moving to the fresh departments. And if you look at meat, produce, some of those areas, it's fascinating throughout this, toilet paper, any type of sanitation product, basically most of our stores get daily deliveries. And basically, stores almost every day get deliveries of those products, and they're typically out by 10:00 in the morning, sometimes noon, but still aggressive buying of some of those products continuing. People are continuing to buy the fresh when you look at meat, produce and certainly things that I would call it easy-to-cook items. So if you look at pasta, beans, rice, some of those areas continue to be heavily purchased. On the fresh side -- this is something that's a little off your question, but I think everybody would find of interest. On the fresh side, we've been able to aggressively partner with several traditional restaurant suppliers. The one that we -- both us and Sysco has talked about publicly, but we've been able to get access to a lot of their product supply. And the example of Sysco, we've also have a deep relationship with using some of their assets and their people as well. So it's an example of coming up with creative ideas on how to expand capacity and expand products that we have access to.

Okay. Great. And just from a private label versus branded perspective, Rodney, curious to hear what has been the experience in the stores. Do you see even faster take-up of some of the private label offering that you all have?

I love the question and I probably won't be able to be as helpful as you would like. What we're finding is people buy everything. Kroger's hope, my hope is the people that -- we have a lot of new customers coming in our stores. We have a lot of new customers buying our brand products. Our expectation, hope is, one, the new people coming to our stores, we do a good job for them and we do a great job for them and relative to the environment that's going on. And to the extent they buy our branded product and our traditional customers that haven't necessarily bought our branded products, they find out how good they are and they get addicted to our brands and we end up gaining share. But right now, people are more focused on having -- if you look at toilet paper, people really don't complain about what brand it is. All they're looking for is toilet paper. And there are several categories where, at the moment, the brand loyalty, it's more important to get the item versus the brand.

Okay. That makes sense. So if we could maybe just talk about some of the trends that you all have seen, you did mention that there was some moderation after the 30% growth that you had in March. I guess the question would be, is it still fair to think that demand trends remain elevated relative to the prior normal, which seemed to be around 2% growth?

There is no doubt they continue to be elevated against that. And I think a lot of that is where people are eating 3 meals a day at home, they're eating 3 meals a day at home with their family. So -- and it's probably the comment I made about the fresh when you look at meat and produce and things where we continue to see elevated growth in those departments. So definitely continue elevated growth beyond what was traditionally experienced. If you look at what we're experiencing, it's pretty similar to what we would see in the conversation that I had on Phase 2, and it's consistent with what we've seen in China and Hong Kong, Singapore, Italy. I have regular calls with CEOs from those areas, plus Australia and Canada, and we're all trying to understand what our long-term customer trend changes. And for us, especially when you look at China, Italy and Hong Kong and Singapore, they are still probably in Phase 2 or beginning to be in Phase 3 and trying to learn from those trends.

Okay. I was hoping to just get some incremental color at the channel level, Rodney. So maybe if you could share some of the digital trends that you're seeing from some of our own work using web traffic that we've been able to put together. We've been seeing gains well in excess of 30%, approaching triple digits for some of the digital offering that you guys have. So just curious if you can provide some incremental color about what the store experience is seeing relative to some of the digital offering.

We're seeing a meaningful pickup in both physical stores and digital. Digital, basically, the capacity that we have -- and if you look at the people that we've hired, a lot of those people hired have been to support our pickup business. The growth there has been substantial and the growth has been substantial both in terms of pickup and delivery. And basically every day, we expand the capacity. And basically every day, we sell out the expanded capacity.

Okay. And then just from the loyal households that you have that historically have been the driver, maybe talk about some of the growth that you're seeing in terms of loyal households relative to the new shoppers that might not have shopped at Kroger before.

This is a broad comment. What we find is that people come to the store less frequently, and they spend significantly more per trip. And where in the past somebody would stop at the store to pick up dinner tonight, very seldom where you see somebody come into the store just for -- to pick up one meal. And most people come into the store to really try to purchase for the whole week or 2 weeks. And that behavior is the same for loyal households as it is for people that we would call nonloyal. But the nonloyals are spending a meaningful amount per spend, and they're just looking for a store that is doing the best job on in-stock and having the products they want. So we still capture the -- we're looking at the data every single week. We don't see any behavior that looks like a recession so far. We see significant behavior changes because of the uncertainty and the fear of COVID-19. The customers tell us they're incredibly appreciative of the things that we're doing, trying to support both our associates' safety and our customers' safety. And basically, probably every other day or so, we do something incremental trying to improve the safety of our associates and for our customers. And I don't think about it very much until you go back and look at all the changes we've made. So we've added plexiglass for every checkout lane, our pharmacy, Starbucks. We've hired over 10,000 people that are purely focused on cleaning the stores, cleaning bus carts, those types of things. And as you learn about something or you identify something to try to create an environment that's safe for your associates and safe for the customers, you're just trying to make them feel as comfortable as possible, but still people are going out less frequently and buying significantly more when they do go out.

Okay. And another follow-up would be, how does the team use the data from 84.51 to kind of help personalize the offer and reach out to these households? And then also, how do you ensure that you're engaging and locking in new shoppers who aren't as familiar with Kroger historically?

Yes. It's a couple of different dimensions. One of the things that we've tried to remain disciplined to is make sure we still have an ad, still have things on promotion. We're still doing mailings directly to customers on a monthly basis based on their shopping behavior. If you look at the new customers, traditionally, it would take longer for a new customer to start getting access to some of those pieces, but we've -- on new customers, we start sending them that information immediately because we think it's incredibly important to continue to put an ad out, though several of our competitors have stopped doing that. Now we have changed to where we tried not to incentify stock-up. So if you think about in the past, we would have been aggressive users of 10 for $10 or Buy 5 Save $5, those types of things. So we have modified those offers, but we continue to have an ad, and we continue to communicate to customers individually based on their household behaviors. Existing customers, it would be similar based on their behavior and algorithms. New customers, we put them into that mix quicker than we historically would have done.

Okay. One common question that I'm getting is about the supply chain, Rodney. So just wanted to get an overall sense from you, how is availability of product trending in general. And then maybe in specific, some of the hard-to-find items, your paper towels, toilet paper and sanitizers, is that starting to open up again? Any surprises there versus what you would have thought?

Yes. If you look at supply chain overall, I've been thrilled with the Kroger team and the Kroger supply chain team. And their ability to flex and expand the capacity of what goes through our system incredibly quickly is inspirational and appreciated and mind-boggling. They're doing a lot of things in terms of how do you -- and I mentioned it briefly before, how do you expand capacity out of the traditional channels. So there would be a lot more products that we are taking full pallet loads to stores and taking, in essence, a small cross-dock facility where you bring in pallets, you ship out pallets to stores. If you look at hard-to-find items, on some hard-to-find items, I'm incredibly appreciative of our own manufacturing plants because our own manufacturing plants are running 24 hours a day, 7 days a week. And the only time they shut down is for cleaning. We've reduced the number of SKUs so we can -- don't have as much change over time so you can get more production out. But in some categories of hard-to-find, that's been a huge advantage because we're able to be in stock better than some of our competitors. I would say -- I'm trying to figure out a way to answer the rest of your question in a way that's helpful. And if it doesn't make sense, you just have to say, Rodney, you've lost me. On a lot of the hard-to-find items, we're getting them every day, but basically, when we stock the shelf, they're sold by the end of that day. So if you look at like pasta and beans and rice and toilet paper and paper towels, a store will get the product in, but -- and it's a hard-to-find item, but by that night, we're out of it again. And how much people can buy? I saw a cartoon a couple of days ago where somebody that would be -- your grandkids and great grandkids talking about -- remember grandpa Mike or great grandpa Mike when he bought all that toilet paper, and we're just now using the last of it. I have no idea how much toilet paper people have in their houses. For weeks on end, we've sold multiples of what the traditional movement would be. And one of the things whenever I get a chance to be in front of a national audience, I always remind people, there's plenty of food in the supply chain and just buy what you need. And as long as everybody buys what you need, the supply chain will operate effectively and efficiently, and people will be able to continue to eat and eat the way they want to. And it's incredibly -- all of a sudden -- the U.S. supply chain just isn't designed to where people that traditionally might have a week's worth of stuff at home if all of a sudden they felt like they needed 4 weeks at home, and it's that change. But there is no doubt, every day, I see -- every day, we're making progress on the supply chain. Every day, we're making progress with CPG partners on reducing the number of items. On some categories, we don't know what the demand really is because basically, we're ordering twice what we used to, and we're selling twice what we used to.

Okay. I guess I have to ask this question, but are there any suppliers that have stood out to you guys during this period? What does it mean to Kroger? What are some of the better suppliers doing in terms of execution to make sure that they're able to execute at that high-level run?

Yes. Obviously, we'll never get into specifics on specific companies. There are -- no doubt, there are some suppliers stepping up in a big way, and they're very inspirational and very great communications. I mean it's daily communication, in some cases, more than once-a-day communications. I would say the biggest changes over the last week or so is those conversations used to be a conversation about what are you going to get delivered tomorrow. Probably over the week or -- last week or so, we've been able to start talking about what's going to get delivered over the next week. And a few of the suppliers were actually starting to talk about what our demands look like over the next 2 or 3 weeks and how do we manage that. Some of those suppliers have been very aggressive on being able to move things away from the restaurant channel to the grocery channel. Some cases, they've hired and they're operating their facilities around the clock as well. So it's -- to me, it's like anything else. You definitely have some suppliers that are amazing partners, and in times of stress, it even shows up more. And if you look at -- you followed Kroger and you know Kroger, every once in a while, we will talk about a specific company on a specific example. So if you look at our media business, we used a couple of specific companies. It's safe to assume that those types of companies are the ones that are -- continue to be incredible partners.

How important, Rodney, is it to have a U.S.-centric kind of supply chain at this point in time and times like this? And do you think that becomes even more critical in the future?

The -- I do -- for Kroger, I think it's a meaningful advantage. It obviously significantly simplifies things. On a country standpoint, I do think it's going to cause our country to look at supply chains differently. I think -- and it's -- for us, it's some of the things that we sell on the edge. For other retailers, it's much more part of their center plate. But I think there will definitely be changes in the supply chain. And I just think about -- one of the things that we're encouraging our associates is to wear masks and gloves. The ability to get those products out of China -- I mean I personally got involved in getting them, and that wouldn't be the case on a typical basis. And somebody is going to figure out a way to make them in the U.S. and make them in the U.S. at a price that makes sense.

Okay. Great. So what I wanted to do at this point is maybe shift a little bit to some of the long-term questions and then -- I am getting a lot of questions in as we're doing this, so we'll make sure to leave some time. For those of you who are on the line, we are going to be doing e-mail with -- a follow-up e-mail after this is done with the replay, and then we'll also be running to 9:45. So we do have a bit of time here. But just on the long-term view, Rodney, I did want to get some of your thoughts about the implications of the virus on the grocery industry at large. And then, of course, as it relates to Kroger in particular, the question, I guess, from my view is how will this pandemic create a new normal for Kroger.

That question to me is an outstanding question, and internally, we're putting a tremendous amount of energy behind it. And I mentioned in the prepared remarks, we're doing everything we can to make sure we come out of this stronger than we went in. Everything that we can -- I mean there is no doubt that people are engaging in digital channels much more aggressive than before. And one of the things that's nice about our approach to digital is because it's so distributed, you can scale it quicker. And then you get it to a certain scale and then you can start backfilling it with facilities like Ocado and other size facilities that's more automated in nature that has a different economic model. So everything we can see, we believe digital will be even more important. Customers really -- we're getting good feedback on the way our digital channels are designed in terms of the ease to shop, the ease to get the items I want and the speed to my basket. So we definitely see that, that is a long-term trend, and we're delighted with the investments and the commitments that we've made in that channel. If you look at -- like an example, on Home Chef, Home Chef has had -- basically, they're at capacity every day from their online business. And it's -- I think there'll be a lot of customers that will decide I like that and they'll continue to use it. One of the things that we're working hard on is on the new customers, making sure that we have the variety they want and for them to understand what we're good at. And obviously, our strength is in our fresh departments and our associates. And those customers are heavily engaged in meat, produce, prepared meals and things. So we -- it appears that people are liking to cook as a family more than they thought they would. There is no doubt that people are using digital channels more aggressively than they were, and they're more aggressive on being engaged to meat, produce and fresh prepared product.

It's a bit of a stack question here and it's clearly early days, but I did want to get your perspective, Rodney, on if you think that consumers would, on the margin, make more of a shift towards kind of food-at-home eating. What we've seen is for every 10 kind of meal occasions, normally, you might see 8 of those being food at home. So then obviously, every one incremental move from here gets you a double-digit lift in consumption. But just kind of curious to get your take on that.

Yes. We would totally agree with that, and we're working hard to try to make sure people fall in love with eating as a family again. Time will tell. If you look at -- we spent quite a bit of effort on that trying to understand in China and Hong Kong, Singapore and Italy. So far, I think it's still too early to see something there that we would be confident in saying even a position. But we're working hard to make sure the customers' experience is such that they find out they like it. And the other thing is you can feed a family of 4 for less than half versus the cost of going out. In some cases, it's as much as 2/3 cheaper.

Okay. Makes sense. I guess one thing to follow up on is innovation. So as I think about Kroger's journey, really, you had a good 18-, 24-month period of kind of investing back into the shopping experience, the pricing, the digital capabilities. I think over the past several quarters, the story has started to evolve from one of turnaround and execution to one of incrementally trying to capitalize on some of the strengths. And so the question that investors have asked me about is what is Kroger really doing to innovate. And so I'd love to get your thoughts, Rodney, about some of the forward-looking moves that you all are making just beyond this current environment. And maybe talk about some of the partnerships, whether it's Walgreens or Ocado.

Yes. If you look at the innovation in terms of all the work that we've been doing over the last few years on seamless, that is paying off huge for us right now. And every time a customer moves to seamless, and you've heard us talk about it before, that it takes 3 to 5 years before that customer is more profitable than it was when they just came into the store. But after a year, they come into the store more often than they did before they became a seamless shopper. So all -- we have tons of innovation there. The partnership with Ocado will allow us to move some of that volume into a shed where the cost to pick that order is significantly lower. And what we find is that we'll be able to drop that off where a customer can pick it up at a store or deliver. We continue to invest in our own brands both from an innovation standpoint, and we also continue to invest in personalization of digital. All of those areas, we believe this environment will cause those to accelerate. And I always tell people, when you have a recession, every year counts as 2 when you do things right. And if you think about the last recession, we were able to come out of that recession significantly stronger than our competitors and significantly stronger than when we went in. We believe there's a high risk of that -- of having a recession. Again, we have every intention of coming out of it stronger than going in. And those partnerships and innovation that we've been investing in will be hugely helpful. On Walgreens, it's still early. We have stores in Knoxville converted. We also, longer term, had stores in Northern Kentucky converted. Walgreens has been an incredible partner and, I would say, test and learn and changing and modifying. I know they've been even more pleased with the partnership over the last few weeks from having the broader food offering and stuff. To me, I continue to be excited about Walgreens. I think there's a ton of opportunity. If we can identify something that the customer can't get in any kind of way -- other way, it's the ability to scale our footprint much more quickly. And when you tie that in with the partnership with Ocado, then you start seeing how the pieces tie together and then our traditional supply chain to support it. So I'm -- to me, the only downside is I wish we were a year further ahead in those partnerships given the environment today. But I'm even more excited about the partnerships given the environment we're in than I was even before COVID-19 became such a big part of what's going on.

That's a great point. So maybe to dig into that, Rodney, just talk about on the curbside initiatives with ClickList. Did you all, I believe I had read, remove the delivery fee there? How lasting do you think that would be? And what's been the consumer adoption, obviously, at this time for something like that?

Yes. We did remove the fee for pickup. We still have a fee for delivery. The -- it's one of those things where we're just trying to be helpful to the customer and everything that's going on. The -- what we would do over time, we would not have a position on that, that we would talk about externally at this point. There -- I've said it before, but the customer has given us good feedback on our pickup and delivery options even with the in-stock is lower than they've traditionally been accustomed to. But they understand. At some point, they won't be so understanding, and we want to make sure that we stay in front of that, improving faster than the understanding changes. But it's one of those things where we're able to help support everything that's going on in a tough environment. It also -- if you look at at-risk people and first responders and medical people, it just -- it's very flexible to allow them to engage with us on how they want to and how they need to as well.

Great. So one thing to hit on I think that's important as we think about the innovation with Kroger and partnerships with Ocado, in particular, would be multichannel. And so as we've covered Ocado, what we've come to appreciate a bit better is the capabilities that the DCs could have to enhance fulfillment in a variety of ways. Maybe if you think about curbside as well as ship-to-home and also potentially for C-stores or smaller-format stores and even potentially for in-store replenishment on some of dry goods or more shelf-stable product, especially, so just curious, Rodney, if you would just give an update on timing for people who may not be as familiar with the initiative and then also if you can maybe share your thoughts about some of the far-reaching impacts that, that partnership could really have in terms of your ability and cost to serve.

Yes. To me, Ocado is an incredible partner. And when Tim and I were in the -- Tim is one of the co-founders of Ocado. The thing that I've always been most impressed with Ocado is their unrelenting desire to get better. And the unrelenting and intensity to the -- to not -- the only thing they're wedded to is to be better tomorrow than they were yesterday. And if you think about their Zoom facility, they opened up the Zoom facility just a few weeks after they decided they were going to do it. And I believe Ocado would continue to transition their model based on customer demands when you look at same day, next day, the cost to do their model, pickup, delivery, a variety of products, the trade-off between automation and people. So I just have so much faith and confidence in Tim and his team that they just continue to get better and better. And there hasn't been anything so far that would cause me to doubt that as you look at the partnership so far. So far, we've publicly announced 6 locations. The first one to schedule to open will be in early 2021 in Monroe, Ohio. And the one soon after that will probably be the one in Florida. Those -- so far, the construction of those have continued to move along even in this environment. I would say they're a little slower because importing certain -- some of the products are taking longer from an import standpoint. But so far, it continues to move along. If you look at those first 3 that we announced, the strategy behind them is one was a market where we had high market share. One was a market where we had no market share, and one was a market where we had median market share. And getting those 3 open will give us a lot of insight in terms of how fast can they mature. And obviously, the speed of maturity of those facilities will be a heavy driver of the economics. And we're looking forward to getting them open. We think it's an important part of our ability to continue to grow as an organization because it allows us to go into new markets in a different way than we've traditionally gone into new markets. And it also -- if you think about your comment on C-stores or pharmacy, the Walgreens partnership, some of those types of partnerships, it allows you to penetrate a market in a different way as well.

Great. That's definitely something to look forward to here. So just with the final 10 minutes we had, wanted to do kind of a lightning round with you, Rodney, based on all these questions I'm getting. We'll just get through as many as we can, if that's okay.

Sure.

So have one client asking about how the operating costs impacting the very near term when you talk about the Hero Bonus and some of the other labor increases that you guys have made. And then secondly, how are the rules limiting the number of customers in the store at one time impacting revenues?

Yes. The announcement that we made on April 1, we reiterated our commitment to achieving the EPS guidance we gave for the year. In that, we also said that we thought first quarter would be above the trend and above where we previously had expected. The incremental operating costs, the costs would be really focused on 2 areas. One is around safety that I talked about it in the prepared remarks and some of the earlier questions. Some of those are onetime costs. Some would be ongoing costs. So obviously, we'll continue to have incremental people in our -- at the stores cleaning stores as long as the fear and risk of COVID-19. And things like that are the reasons why for the year, we thought it was prudent to commit and let people know that we still had confidence in our prior guidance, but we left the guidance the way it was. On limiting the number of people in stores, there are certain times of the day. But what we're finding, people are willing to wait to get into a store as long as it's within reason. So, so far, we've been able to manage that. The -- and the customers have been understanding of it as well. It also ties back to -- we think as -- if we do -- as long as we do a better job on recovering and keeping our stores in stock and the customers feel safe when they're shopping and feel like we're taking care of our associates and helping them be able to be safe, we think the customer will be willing to wait within reason. And so far -- I mean I wouldn't -- I haven't -- I don't have the data from yesterday, but I had the data from 2 days ago, and I know how many stores people had to wait to get in. I know how long they had to wait to get in. And it's one of the things where we're able to use our technology that we've had for several years on QueVision, and that's how we track how many people are in the store and that's also how we track -- how long does it take somebody to shop and how long is somebody waiting as well. So, so far, it's things that we feel that we can manage and manage within the guidance we've given. As you look forward, the country will recover -- different parts of the country will recover at different speeds. And we're starting to do quite a bit of work internally to try to understand those varying recovery patterns and how do we manage that with our teams as well.

It's Greg Melich. I might just chime in on that, Mike, a little bit because I think from Costco, one thing that they did talk about, they saw that in the back half of March that it was simply hard physically. I know and depending on where you live, you may only be allowed legally and, frankly, safely to have half the people in a store that might normally be in there.

That's a good point, Greg. So just for Rodney, a couple of people have said, you mentioned about recession and how we haven't seen it yet. And I guess the question folks are asking is, what does a recession look like? And how should we expect consumer behavior to change as it does take hold?

Yes. The $6 million or $6 billion question. We've done a lot of -- we already had quite a bit of data that we've captured from 2008 and '09 in terms of how customers behaved. We're looking at it -- looking at the prior work that we had put together plus updating it in different ways. The -- historically, when the U.S. has a recession, grocery stores for the first 6 to 12 months actually pick up business because people still want to eat good. So they have a steak at home that they buy from a grocery store versus a steak at a restaurant. So if you look historically, Kroger and supermarket retailers actually come out ahead early in it. Now if the recession lasts long enough, then it will catch up with you. The government is obviously doing everything they can. I know I've participated in several calls with different government officials both collectively as groups and individually. And the government is approaching this as if it's a war and it's COVID-19 more, and they're putting all their resources behind it. I do think that will cause the country to recover quicker. But I do think until people get comfortable going out or they feel comfortable that masks and things like that will actually protect you from getting the COVID-19 or spreading the COVID-19, I think people will be very timid on traveling broadly, I'm not talking about internationally, I'm just talking traveling within their communities. And for the whole economy to recover, people got to be able to relax and get comfortable again.

All right. We've had several people, Rodney, who want to ask about promotions. And I guess the question would be, are you seeing any reduction in promotions from your competitors as well as the promotions that Kroger itself would normally run?

Yes. If you look at -- there are some of our competitors that aren't running promotions. We continue to run promotions both a physical ad and digitally. And we continue to do communications with customers through loyal customer mailings or digital offers as well. The biggest change in behavior that we've done is we've tried to do promotions that only incentify you to buy one item versus trying to stock up. We are not doing promotions that traditionally would have been stock-up promotions. But we think it's important for our customers to continue to have promotions because there's a lot of fear in the economy. There's a lot of people that are worried about their financial budget more than normal. So we believe that as long as we can be able to keep our stores in stock and maintain the support of a promotion, we think it's very important to continue to do that even though some of our competitors have stopped or even reduced it more than we have. So there is no doubt there's behavior changes out there, but we want to make sure customers -- we continue to give all customers access to affordable food and fresh food. And as a matter of fact, I was talking to a couple of customers yesterday, and that was one of the things that they called -- they were telling me that they were surprised that we still have yellow tags in the store, and they were appreciative of it. And this was unprompted. I mean I didn't ask specifically about it.

Great. Well, with that, I think we have exceeded the time. I just wanted to thank on behalf of myself and Greg Rodney and Rebekah for taking the time and making yourselves available for the investors and for all you're doing for the shoppers out there as well. And Rodney, I don't know if you had any last word you want to share from the webcast as well.

Yes. Thanks, Mike. I really appreciate, Mike, you putting -- bringing this together, and Mike and Greg for participating as well. I can't be more proud of the Kroger team. And it's everything from our truck drivers to our warehouse folks, to our plants, to our offices and especially our stores. And it is Kroger at our best. And we take personal pride in being able to be there for the communities when they need us. And it's so inspiring for our teams. And when I'm out talking to our teams and engaging with our teams, they are so proud when they have customers come up to them and thank them. And there's numerous examples of customers bringing coffee and bagels, delivering 20 pizzas to a store, things like that, and it makes them -- it makes our teams really understand how important they are to communities that we operate in. So I am so proud of how everybody is stepping up and delivering for communities when they need us most. And we have every expectation and every intention that coming out of this stronger than what we were going in. And one of the things that we tried to share in our April 1 update is that even before COVID-19, we were continuing to make progress that investors saw in the third -- fourth quarter and -- the fourth quarter versus third quarter and the third quarter versus second quarter. So I'm proud of where we are, excited about the future and will be, like everyone else, happy when the country has COVID-19 in the rearview mirror. So with that, Mike, I'll finish up and turn it back to you

Great. Thanks so much. So just as a reminder, we are going to send out a replay after this is all done. And for those who I couldn't necessarily get all the questions in, I am going to try to follow up with Rebekah and the Kroger team, and we'll do our best to get back to you with those today. So again, I just want to thank everyone for tuning in. Have a great day.

Thank you.

Thank you.