Kroger

Kroger has not evolved its approach to protein diversification, it continues to be driven by consumer demand. In the discussion with investors, Kroger noted the value creation potential of alternative proteins; however, it did not discuss the climate mitigation potential of growing and/or transitioning its product portfolio. After consulting with investors and environmental groups to understand what issues are considered most material to its business, Kroger has begun to update its materiality assessment. The company will follow a new, more comprehensive ‘double materiality’ assessment, with third-party organisations reviewing the assessment. This will inform the company’s ESG strategy going forward. The company expects issues such as sustainable agriculture and biodiversity to be regarded as material; however, there was no mention of including high exposure to animal-derived products as a material risk. Kroger has conducted two scenario analysis phases. The second phase modelled three climate scenarios, in which it was unclear whether animal agricultural supply chains were covered. This means Kroger has likely not identified where its vulnerabilities lie in its animal supply chains in terms of the transition and physical risks, nor the opportunities of transitioning towards plant-based proteins. The company shared with investors that it will be embarking on its third phase of scenario analysis during the latter half of 2022, the company expects to align with TCFD scenario analysis recommendations. For this phase, Kroger confirmed the study will cover the entire supply chain, including animal agriculture.

Kroger has been stagnant at implementing its health strategy and has been slow relative to its peers in setting science-based emission reduction targets. This has resulted in the company being awarded a negative. Kroger has not reported progress against its health strategy including the “20x5by2025” commitment or the increase of healthier SKUs. Kroger stated its health strategy had to be disrupted as services were pivoted to support pandemic-related efforts. Last year, the company was amongst the few in the engagement without a Scope 3 target. Kroger shared with investors that it will, for the first time, set a Scope 3 emissions reduction. Additionally, Kroger shared with investors that it is planning on getting its Scope 1 and 2 targets SBTi-approved. Kroger is starting to consider setting a net zero target but did not provide a timeline for this work. Taking this many years to set a target addressing the vast majority of its GHG emissions showcases the slowness of the company in setting targets and pathways of action. From discussions this year, the company stated it is currently collecting emissions data from suppliers. At present, Kroger is unsure how it will engage suppliers on Scope 3 emission reductions, as it hasn’t formally queried suppliers and shared with investors that collecting data is challenging. The company’s sustainable sourcing strategy does not robustly address the environmental impacts of animal agriculture. Nevertheless, it does have some animal welfare initiatives. Kroger shared with investors that it plans to review its policies and, where applicable, reframe them using a biodiversity lens. Kroger reported that 95% of the beef or beef-based products its Meat Department purchased were a product from the US. The company did not report on its co-packed products. Additionally, the company has not established a monitoring program to assess these statistics; instead, it is estimated through supplier engagement. From discussions, the company does not intend to set a protein diversification target in the short to medium term.

There has been no significant change in the company’s product portfolio assessment. Kroger continues to invest in product development. It also collaborates with manufacturers to produce new plant-based products. For example, where products are challenging to produce, the company has worked with the Good Food Institute to find manufacturers with the right technology. Also, the company has collaborated with Impossible Foods and Custom Made Meals to develop plant-based protein products. The details of the collaboration have not been disclosed. Kroger continues to develop blended products to appeal to flexitarians. Under the Simple Truth brand, the company has launched a burger that has less meat and more mushroom ingredients. Additionally, the company has launched more plant-based products including products in seafood, frozen, bakery and prepared meal categories. In terms of nutrition, it continues to be unclear how sustainable proteins are integrated into the company’s Food as Medicine strategy, and how the company is integrating nutrition in alternative products, given there is no evidence of the company using a Nutrient Profiling System (NPS) when formulating products. The company has approximately 7% of its product portfolio comprised of plant-based alternatives across dairy, frozen grocery, dry grocery and meat categories.

Relative to its peers, Kroger has less of a focus on promoting the increased consumption of plant-based proteins. The company shared with investors that it has a new consumer engagement strategy called ‘veggie forward’ aimed at flexitarian customers, this promotes products that are high in vegetable content and can be an alternative to meat-based products, such as bean burgers. This encourages consumers to increase their overall intake of plant-based foods rather than nudging them towards analogue products. However, the extent to which this strategy has been implemented is challenging to evaluate as the company did not provide figures. Kroger only focuses on the health dimensions of plant-based products, this is due to the company’s hesitancy to advertise the environmental benefits of a plant-based product due to it lacking supporting data. The company is beginning to ask suppliers for their emissions data, which will ultimately enable the company to make substantiated claims about the climate mitigation potential of its plant-based products. The company stated that health continues to be a focus area and that it has increased investments in its OptUp tool, available online and via an app, which enables Kroger to simplify healthier shopping for its customers. Following the company’s work with the PBFA, they have begun placing alternative proteins next to their animal counterparts. However, it was unclear how many stores have updated their store design to have an integrated protein section. Kroger shared with investors that between 2021 and 2022 it has run integrated marketing campaigns for plant-based, natural and organic items. Additionally, plant-based items are included in the company’s CRM print and digital programme which have been sent to more than 6 million households between Q2’21 and Q2’22. Kroger has also marketed plant-based products via targeted digital coupons, targeted onsite ads, and in-store signage multiple times per year. Additionally, 20% of total brand posts per month on social media include plant-based products. While these adhoc initiatives are positive, the company lacks a consumer engagement strategy with KPIs to push consumers towards alternative proteins. The company does not disclose its marketing spend, so it is challenging to understand resource allocation for alternative proteins.

Kroger shared with investors that its Simple Truth brand has a presence in 29% of commodity categories. In FY21 the year-over-year plant-based product sales growth for the Simple Truths brand grew by 10%. For total plant-based sales, Kroger saw a 5% growth year-over-year in 2021. Kroger has not yet calculated its Scope 3 emissions from purchased goods and services, as it is currently in the data collection stage. However, in the discussion with investors, it confirmed it will begin work on this in 2023. The company confirmed that it plans to provide a breakdown under the purchased goods and services category, however, it did not specify what this would look like.

The company attended the technical roundtable on protein diversification metrics, participated in informal discussions with FAIRR and met with FAIRR and the investors for formal dialogue. The company showed a willingness to learn about best practices and to update its disclosures based on investor interest. Kroger responded to FAIRR’s follow-up questions via email and provided feedback on the final assessment.