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Kroger Company (KR)Stock (Food & Beverage Industry, Grocery Stores Industry, Retail Industry)
The Kroger Co. (NYSE: KR) is the largest operator of traditional grocery stores in the United States and the second largest food retailer in the United States after Wal-Mart, the largest retailer in the U.S. and worldwide. Kroger sells food and other consumer goods in more than 2,400 supermarkets under 24 store brand names, including Kroger, Fred Meyer, Dillons, Food 4 Less, and Fry's. Kroger's diversified operations also include 779 convenience stores and 412 jewelry stores. Over the last few decades, the supermarket industry has undergone a tremendous transformation in the United States. Twenty years ago, 90% of food shopping was conducted in traditional grocery stores. Today, just 50% of food shopping is done at traditional grocery stores. Both low-price mega stores with non-unionized workforces--such as Wal-Mart--and specialty retailers--such as Whole Foods Market (WFMI)--have cut into Kroger's traditional business by taking away market share as well as creating downward pricing pressures. In order to compete, Kroger has invested heavily in technology, maintained a successful private label program, and opened a number of mega-stores itself. In addition to facing these challenges, the company confronts the difficulties associated with having an enormous unionized workforce of over 310,000 employees and operating in an increasingly competitive market.
[edit] Company OverviewThe Kroger Co. was started in 1883 by Barney Kroger who opened a grocery store in Cincinnati, where the company is still based. Over the last century, Kroger has purchased a number of other supermarket chains, including Dillon Companies in 1983 and Fred Meyer in 1999. Kroger Co. (KR) beat analysts’ first-quarter earnings by lowering prices on the shelves and offering gasoline discounts, Reuters reported. The Cincinnati-based company Kroger posted a profit of $386 million, or 58 cents per share, compared with a profit of $336.6 million, or 47 cents per share, in the year-earlier quarter. [edit] Store TypesAlthough Kroger does not break-down sales per unit, the company operates five types of stores: combo stores, multi-department stores, price-impact warehouse stores, convenience stores, and jewelry stores. Among them are 2,468 supermarkets. 631 of these stores also sell gasoline. The company operates stores under 24 brand names, including Kroger, Ralphs, Fred Meyer, Food 4 Less, King Soopers, Smith's, Fry's, Fry's Marketplace, Dillons, QFC and City Market.
[edit] CompetitionKroger competes with other large traditional supermarket chains in the United States but its largest competitor is Wal-Mart Stores (WMT), which is able to use its enormous economies of scale to undercut Kroger's prices. Generally, Wal-Mart charges about 8% less than Kroger for the same products. Kroger stores cater to a similar broad public as Wal-Mart. Still, among traditional supermarket chains, Kroger has been able to use its own size to offer lower prices. In fact, despite the fierce competition, Kroger has increased its market share in most of its markets. In 2006, Kroger's market share increased in 36 of its major markets, fell in 7, and remained the same in one. Kroger maintains it still has room to grow since 47% of the market share in its major markets is controlled by smaller competitors. However, many of its competitors are consolidating. For example, SuperValu (SVU) recently purchased Albertsons' 1,100 stores, creating the third largest food retailer in America. Whole Foods Markets announced in February that it was buying Wild Oats, another natural foods supermarket chain. The acquisition is particularly troubling for Kroger since Kroger has tried to make inroads in the fast-growing natural foods segment; 65% of the company's stores now have organic food sections. Kroger's sales per square foot are squarely in the middle of its traditional competitors, although the company's sales per square foot have risen 20% since 2003. The company's same-store sales growth has also accelerated over the last four years, from 2.1% in 2003 to 6.5% in 2006.
 Kroger Company2004 Data 2005 Data 2006 Data 2007 Data 2008 Data Most Recent Data Available
[edit] Trends and forces[edit] Private label foodIn order to increase its margins and compete against Wal-Mart's lower prices, Kroger continues to invest in its private labels. Kroger sells almost 11,000 private label products at its supermarkets. It sells both higher end brands, "banner brand" items (such as Kroger or King Soopers), and value private label items. It is generally considered to have one of the most successful private-label products in the industry. Approximately a quarter of the products that Kroger sells are private label, which are typically associated with higher margins and can fuel customer loyalty. Kroger produces 55% of these products in its own 42 plants, while the rest are produced by third party manufacturers.
[edit] TechnologyIn 2003, Kroger purchased a 50% stake of dunnhumby USA a database management company. With dunnhumby's technology, Kroger can analyze a tremendous amount of information about its customers. Kroger is utilizing that knowledge to design its stores to match the needs of local markets. For instance, some of Kroger's supermarkets now have office supply stores built inside them. Kroger also used dunnhumby's data to build Kroger Personal Finance, which offers home equity loans and mortgages at some Kroger locations. Analysts partly credit dunnhumby for boosting Kroger's sales per square foot, which have risen 20% since 2003. [edit] Alternate store formatsKroger is boosting the selection of general merchandise it offers at many stores--partly to better compete with Wal-Mart Stores (WMT) and also to boost its own margins. The margins associated with general merchandise are higher (30%) than those associated with food (20%). Using dunnhumby technology, the company is tailoring its general merchandise selection to local markets. By broadening its selection of merchandise, Kroger is also able to better compete against Wal-Mart, which offers a vast array of non-food products. Kroger Marketplace is the best example in this area - a store much larger than a typical supermarket where you can find things like furniture, domestic decor, kitchen utensils, etc. [edit] Labor issuesKroger employs 310,000 workers, most of whom are unionized. This year alone, the contracts of 140,000 workers are set to expire, including those who work in the company's stores in Southern California, Cincinnati, Detroit, Houston, Memphis, Toledo, Seattle, and West Virginia. Since the company needs to keep wage costs down in order to compete with discount stores such as Wal-Mart--which have non-unionized work force--the negotiations can be difficult and strikes are a distinct possibility, especially since health care and benefit costs continue to rise. When food retail employees went on strike for more than four months in southern California in 2003, retailers lost more than $2 billion in sales. [edit] Gas pricesSince 631 of Kroger's supermarkets and most of the company's 779 convenience stores sell gasoline, the company's results can vary depending on the price of gasoline. [edit] References
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