Sunday, December 05, 1999
Q & A with Kroger CEO
Bigger just means more challenges
Kroger Co.'s acquisition last spring of Fred Meyer Inc. means that the leviathan supermarket chain has bragging rights as the largest grocery store company in the nation — but it still must fight for that position.
Kroger Chief Executive Officer Joe Pichler answers questions about earnings, innovations and employee relations with Cincinnati Enquirer reporter Lisa Biank Fasig.
Question: Kroger is on target to realize $40 million in cost savings this year as a result of its merger with Fred Meyer, and the company has been posting strong earnings. Yet Kroger shares are trading near a year low. Can you explain?
Answer: “We look at our price relative to our peer group. The good news is Kroger is outperforming our peer group, and the bad news is the peer group is doing lousy. ... What's frustrating is all the news from Kroger has been positive. But there's been two (of) what they call sector rotations.
One out of noncyclical stocks — same thing's happening to department stores. So there's been a rotation out of noncyclicals into cyclicals, particularly high-tech, which is drawing tremendous amounts of money.
And secondly, the international scene has gotten healthy again. (Also) the three biggest players in the industry ... have all done very large, major mergers. What people are observing from other industries that have consolidated is that it takes longer to get the synergies than people originally thought, and why won't that also be true in supermarkets? And so there's kind of a wait-and-see attitude; can you really do it? It's very understandable; it's called merger risk.”
Q: Your acquisition of Fred Meyer expands Kroger into seven new states. How is it going as far as entering new markets?
A: “Our expansion into new markets is going very well. For example, our acquisition of 74 Winn-Dixie stores in Texas and Oklahoma (announced in November) will open quite a few markets for us, including southern Oklahoma and Texas towns such as Waco, Killeen, Kilgore and Wichita Falls. We also moved into Northern California with the purchase of 41 stores from Albertson's last summer.
Q: Are you finding more opportunities for consolidating operations throughout the United States?
A: “We're always reviewing our businesses with an eye toward operating more efficiently. We'll continue to look for opportunities to leverage our size.”
Q: You've recently reached an agreement on a new union contract. How often, company-wide, is Kroger handling union negotiations? Who handles it?
A: “If you consider the company as a whole, we currently have 346 labor contracts covering nearly 218,000 workers at our stores and manufacturing plants. Every year, some of these contracts come up for renegotiation. Each Kroger Marketing Area (KMA) is responsible for negotiating its own contracts, with oversight by Kroger's General Office.”
Q: What would you say is the biggest challenge?
A: “Rapid expansion of stores by new competition, especially general merchandise companies that have entered the food business, as well as traditional supermarket operators.”
Q: As you know, retail on the Internet is booming. What are your plans for doing business online?
A: “We have some operations going in e-commerce. .... We're studying carefully what other people are doing and have been for several years as it's developing. What our strategy is here is to stay abreast of development — have enough experience of our own so we understand the complexities — but don't invest a lot of money yet.
“Because nobody has yet solved the problem, at least that we know of, of getting the product from the distribution center to peoples' homes at the quality and the cost and the time that they want. It's a very difficult problem.”
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