CINCINNATI — Kroger Co. officials here last week reiterated their customary caution on acquisitions and the economy, but said they foresee a “tremendous amount of change” in the grocery market in coming years.
Rodney McMullen, Kroger's president and chief operating officer, made that remark during a presentation illustrating Kroger's gains in market share during an investor conference here.
Kroger's share of the total dollars spent on groceries in the U.S. increased from 19% in fiscal 2007 to 20% last year, McMullen said, citing Nielsen figures. Kroger gained that share by absorbing roughly half of the share surrendered by smaller competitors over that period, he said.
That group of smaller competitors currently controls about 45% of the total market but has been losing share at a rate of 1% per year over the last five years, McMullen said. A single percentage point represents about $2 billion in sales.
McMullen added that he thinks the rate of share erosion among smaller competitors could accelerate in coming years, although he acknowledged that the figure has historically been steady. “I think it's going to accelerate and get faster, but I always remind myself, that hasn't been the case historically … the 1% doesn't suddenly become 2% or 3%. Now maybe this time it'll be different.”
David Dillon, Kroger's chairman and chief executive officer, said that high asking prices — or low asset quality — has been keeping the retailer out of the acquisitions market.
“What we've seen is the people who are selling any assets that are good enough quality we would want, still have some big idea of a big multiple in their head,” he said. “And frankly, if we're going to spend money for something at a multiple today, we don't have to look much further than buying our own stock, which is a good buy today in my view.”
Dillon added he would be “surprised” to see Kroger tackle a new store format, saying the company was focused primarily on tying together its existing formats and focusing on their evolution.
He acknowledged the customer is in a “funk” and the “economy is still giving us interesting challenges,” but Kroger reiterated its annual earnings guidance, saying a focus on loyal customers and key components of its “Customer 1st” strategy were helping it to gain on competitors over the long term.
