Kroger Supermarkets (competition, history, industry)


               Cincinnati-based Kroger, currently is the largest US-based pureplay grocery chain (if all retail stores are considered then it's #2 behind Wal-Mart) but it wasn't always an industry leader.  Like many other large chains (Carrefour, Sobeys) acquisitions, not organic growth, propelled the company to the top.  In 2013 Kroger stores could be found in 31 states;  they employ 339,000 people at 2,422 grocery and department stores (+212 Harris Teeter), 1,141 gas stations, 790 convenience stores, 37 food processing plants and 344 jewelry stores.  Grocery banners are Kroger, City Market, Smith's, Dillons, Fry's, Jay C, Food 4 Less, King Soopers, Fred Meyer, King Soopers, QFC, Ralphs.  July 3 update:  Kroger pays $2.44 billion and assumes $100m in debt for 212 Harris Teeter stores in eight states (2012 revenue: $4.5b).

Kroger began as the Great Western Tea Company, a door to door distributor of coffee and tea founded in 1883 by a young Bernard Kroger.  Within just ten years Kroger operated 17 stores in Cincinnati but it wasn't until 1902 (when the company was 19 years old) that the company was diversified enough to call itself a grocery chain - by then there were 40 stores;  Consequently it was renamed the Kroger Grocery and Baking Co. (vertical integration help spur more success: the grocer baked its own bread !).

Key acquisitions is how Kroger expanded beyond just one state:  1912: purchased 25 stores in St. Louis which rebranded as Kroger.  Kroger then used different forms of transportation to expand into Detroit and Indiana.  By 1920 the Kroger grocery chain was present in Ohio, Michigan, Indiana and Missouri. 

The company's growth relied almost entirely on the purchase of small chains in areas it already operated in.  That made it into somewhat of a monopoly which led to the formation of opposition groups who attempted to exploit the situation through negative publicity stunts (they accused the large grocery chains of selling low quality products and called their practices unfair).  To counter anti grocery-chain sentiment, Kroger created Westco Food Company (in charge of overseeing the quality of produce sold at supermarkets) and 23 new semi-headoffices to manage operations in place of just one (encouragaing customers to trust Kroger as a local business). 

In 1928 when the company oversaw 5,500 shops (most of them small) Bernard Kroger sold his share of the business for just under $30 million.

The Kroger Food Foundation which did quality tests on food, was formed in 1930.  The Kroger Food Foundation is credited with having invented a new method to process meat, one that didn't require harmful chemical additives.  It was in 1946 that the company's name changed for the last time:  The Kroger Grocery and Baking Co. --> The Kroger Co which utilized the familiar blue and white logo.  The next 20 years were pivotal for American grocery chains:  # of supermarkets more than doubled and the industry became even more ultra-competitive.  Again, acquisitions played a key role in Kroger's growth model:  Takeover of Sav-on drugstores gave Kroger a foothold in the drugstore business.  The drugstore business became known as SupeRx.

1952 --> 1963  Kroger's revenue doubles from $1 billion --> $2 billion

1970's Battle With The Federal Trade Commision

Acquisitions remained a key part of its growth model however antitrust laws in the 1970's forced the company to rethink takeovers:  In 1970 the Federal Trade Commission forced it to sell a couple supermarkets in Ohio.

In 1974 Kroger was accused of fixing the price of beef.  The only good news here is that it wasn't the only chain guilty of doing that.

FTC later accused Kroger of unfair and deceptive practices with regards to its adversing campaigns.  Kroger didn't settle on that until the mid 1980's.  In 1983 Kroger completed the takeover of supermarket and convenience store operator Dillon Companies which allowed Kroger to become a more diversified, national grocery chain.  In 1995 Kroger sold some of Dillon's assets in order to raise money to pay down its debt and restructure; over 100 Time Savers locations were divested.

In 1988 the company rejected a couple lucrative takeover offers, instead opting to succeed independently (recapitalized and handed out dividends to attract investment).  The economic recovery of the 1990's caused a natural decline in Kroger's debt through lower interest rates (refinancing debt drastically improved the company's balance sheet) that allowed it to seek out new acquisitions and to expand.

1988 --> 1997  total debt  $5 billion --> $3.2 billion

Takover of Fred Meyers pushes sales up by +56% to $43 billion

sales:  1952: $1b  1963: $2b  1997: $27b    1999: $43b    2001: $51.8b  2010: $82b  2011: $90.4b

The Fred Meyers deal took effect May 1999 and added 900 grocery stores to Kroger's 1,400.  The acquisition gave Kroger a larger presence in the Western portion of the United States.  Major subsidiaries also gained through Fred Meyer:  Fry's Marketplace (concept was used by Kroger to launch Kroger Marketplace in 2004).

Kroger Co number of locations:  1997:  1,400  1999:  2,300  2002:  2,500   2010:  3,574    2012:  4,353* 

*(incl. gas stations exl jewelry stores)

Gas Stations were first introduced at Kroger in 1998.  In 2002 there were just over 300 gas stations, by November 2012 the number of gas stations had grown to 1141.

As of December 2012, according to Kroger's 3Q2012 report the company employs 339,000 people at 2,422 grocery and department stores, 1,141 gas stations, 790 convenience stores, 37 food processing plants and 344 jewelry stores.

2012:  Kroger along with Costco Wholesale and Sears begins phasing out the use of gestation crates in their pork supply chains.  Among the suppliers affected by the decision is Christensen Farms.

Sept. 21, 2012: Kroger Marketplace Begins Selling Clothing

For the first time in its 129-year history a Kroger bannered supermarket will be selling apparel (Levi's, Hanes).  New items also include shoes and jewellery.  Kroger's venture into apparel will intensify competition in the American retail industry;  It becomes a direct competitor to both Wal-Mart and Target.

more.. During the second quarter of 2012 European bank UBS released a startling report showing a steep decline in the market share for grocery sales held by traditional supermarkets;  2012: 51% 2000: 66%

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