Kroger Set for Fred Meyer
Ten cents of every food dollar spent in U.S. food stores will be spent at a Kroger-owned store once the merger of Kroger Co., Cincinnati, and Fred Meyer Inc., Portland, Ore., is completed later this year, said Joseph A. Pichler, Kroger's chairman and chief executive officer.
Kroger officials said they hope to mail proxies to shareholders this month and to hold shareholder meetings in April to approve the merger.
According to Pichler, "We're absolutely delighted with this merger -- it's the one we wanted to do -- and we're pleased with the progress we're making. We need to achieve synergies of $225 million over three years [to make it work], and we'll get it."
W. Rodney McMullen, chief financial officer of Kroger, said the projected cost savings of $225 million over a three-year period include $75 million in the first 12 months (in addition to $90 million in savings resulting from prior Fred Meyer mergers).
He said 50% of the savings will come from purchasing and merchandising efficiencies; 25% from in-market synergies, primarily in Arizona, where both companies operate stores; and 25% from manufacturing, distribution and administrative savings.
The pending merger has prompted Kroger to raise its growth target on earnings per share to 16% to 18% a year beginning in 2000, up from 15% to 17% a year, McMullen added.
Pichler said the merger resulted from his friendship with Robert G. Miller, vice chairman and CEO of Fred Meyer. "With Fred Meyer's growth [through mergers] into Arizona and Utah -- areas contiguous to ours -- and changes in systems at both companies, we sat down last fall to look at a possible combination, and the numbers were there," he said.
One thing that's nice about the merger, Pichler said, "is that we each have comparative advantages. Fred Meyer has tremendous experience in general merchandise and a purchasing history that will be useful to Kroger. And Kroger sells products like bath and body items but we don't sell them right, so we see a tremendous upside potential there."
Noting that Kroger operates 797 convenience stores under six names in 19 states, Pichler said, "We like that business. It's very profitable for us, and we're good at it."
He said he sees opportunities to leverage gas station operations at approximately 700 C-store outlets as Kroger expands the number of gas stations at supermarkets.
According to Miller, the post-merger Kroger will be "the biggest purchaser of private-label goods in several categories, so we will have the lowest costs. And we're also looking at low price and premium labels for the whole company."
Pichler said grocery private-label penetration is 25% of dollar sales and 30% of unit sales, "and sales are growing faster than total sales, and we see opportunities to continue that."