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Kroger Thinking Big to Fight Big Foes

NEW YORK -- Kroger Co. intends to throw its own weight around to compete against big supercenter competition, said the chain's c.f.o., Michael Schlotman, yesterday at the Banc of America Securities 2005 Consumer Conference here.

"Kroger's financial strength is an important competitive advantage," noted Schlotman. He also cited the company's broad geographic diversity (spanning 32 states) and multiple formats, which enable the retailer to reach an increasingly diverse customer base, including not only different ethnic groups, but also various income levels and purchasing patterns.

Cincinnati-based Kroger holds the leading market share -- either the No. 1 or No. 2 position -- in 40 of the 52 major markets where it operates, Schlotman pointed out.

However, Wal-Mart and other supercenters have encroached upon Kroger's presence in many markets, and fighting back is especially difficult where Kroger also shares turf with leading rivals Albertsons and Safeway, Schlotman admitted.

"We have over 13 years of experience competing with Wal-Mart supercenters, so we have a pretty good game plan in place. We've factored Wal-Mart's growth into our business strategy," he explained. "One advantage we have, however, is that in 32 of the markets where we compete with Wal-Mart, we're now the only other large grocer. When we're all there, it’s tougher." He added that it wouldn't surprise him if these over-muscled markets continue to have fewer players.

Overall, Schlotman emphasized, Kroger grew sales and maintained market share in 2004 despite the substantial supercenter expansion, due to factors such as sharper customer loyalty data, and an unmatchable private label program. "Our partnership with Dunnhumby [a company that worked with Tesco in the UK] has been key to unlocking insight," he noted. "We're now working on segmenting our customer bases and targeting them, and connecting with our most profitable customers. It's clear to us that loyalty data is of enormous importance to the future." Kroger is also working on rewarding its customers who buy fuel, Schlotman said.

Citing Kroger's "industry-leading private label program," Schlotman said that in 2004, the retailer introduced 765 items among its three product tiers -- good, better, and best. Kroger's private label items now account for 24.6 percent of grocery dollars and 31.72 percent of its grocery units, he said.

"We're entering 2005 with our strongest sales momentum yet," Schlotman said at the end of his presentation. He noted that better-quality seasonal products are expected to help drive top-line growth in the company's second quarter.

In other Kroger news, the retailer said it plans to launch a new custom monthly publication on July 1, to educate shoppers about natural products, organics, and nutritional supplements. "Optimum Wellness" will initially be distributed in more than 300 Kroger-owned stores in Southern California, Washington, Northern Oregon and Denver.

The magazine will be produced by Active Interest Media, Inc., the Los Angeles-based publisher of leading special interest consumer magazines such as "Vegetarian Times."

-- Jenny McTaggart
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