NEW YORK — In the year since announcing a surprise move to consolidate and take over management of four ailing pension funds, Kroger has seen the condition of those accounts improve slightly and heard from more unions interested in making a similar deal, Kroger’s chief financial officer said in an investment conference here Tuesday.
“Will we ever be able to do one of what we did last year? As far as I’m concerned that glass is half-full, if not entirely full,” Michael Schlotman said in remarks at Barclays Retail and Consumer Discretionary Conference. The Kroger CFO referred to a deal commenced early in 2012 to contribute $650 million to stabilize underfunded multi-employer pension funds covering 65,000 of its workers in 14 local unions. Those plans have “gotten a little better,” since then Schlotman said, citing strong market returns last year.
More importantly, the move won the retailer the good will of organized labor groups who are actively working on “creative solutions” for as many as three additional pension plans in which Kroger participates, he said.
“I think the unions were very pleased with what we wound up doing, and our follow-through. Never in their wildest dreams did they think that we’d fund this fund and manage this fund the way we did, as quickly as we did,” he said. “It’s gained us great credibility with the unions and they’re now coming to us with different ideas on how to jointly solve this problem. They know it’s not a one-way street. They know it can’t just be more contributions to solve this.”
Read more: Kroger to Consolidate Pensions
Schlotman cautioned that the negotiations to complete the first deal were lengthy and complex, even though Kroger represented was a majority contributor to the consolidated funds.
“Keep in mind, we were 90 something percent of those funds and it still took 18 months to get done. So doing this where you’re a 20% player, I can only imagine how long it will take to figure out some of those,” he said. “But there’s options out there.”
In other matters, Schlotman said he was happy with results of an ongoing strategy to focus new-store growth in select markets where its share was low but where demographics resembled places like Louisville, Ky., and Cincinnati, where Kroger’s density is high.
“We’re just really comfortable that we can take some really good markets and make them great markets by increasing our square footage,” he said.
While Schlotman did not identify the markets by name, those with concentrated new-store growth “go from red to black faster than average.” New stores in those markets also tend to build sales over a longer period than average.
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