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Kroger's CFO Talks Food Deflation

Kroger's CFO Talks Food Deflation

Shares of Kroger Co (NYSE: KR) were trading lower by more than 3 percent on Thursday despite the company's fourth-quarter report containing a top- and bottom-line beat. However, the grocer's guidance for the first quarter came in light and the company also cited deflationary concerns.

Kroger's Chief Financial Officer Michael Schlotman was a guest on CNBC's "Squawk Box" segment to discuss the company's results. He noted that the impact to the business from deflation remained in the fourth quarter but the mix was slightly different. Specifically, deflation in the grocery segment was a bit less in the quarter but produce deflation ticked higher by 500 to 600 basis points.

Where The Deflation Comes From?

The executive was asked if food deflation is a product of heightened competition in the landscape as Wal-Mart Stores Inc (NYSE: WMT) continues to focus on groceries and fresh produce.

See Also: Kroger Better Positioned Than Most To Survive The Grocery 'Price War'

"Certainly pricing continues to be competitive," he acknowledged. "We build our business plan every year assuming that the succeeding year is going to be more competitive than the last. It's just a fact of life in the retail industry — it's always really competitive."

Schlotman further noted that the two most difficult scenarios for a grocer to manage are when product costs go from inflation to deflation and then the opposite when costs start to inflate back up. He added that it now feels like the company is entering the period where there will be some inflation coming back and this could happen by the end of the year.


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