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New Kroger CEO Enters Era of M&A

New Kroger CEO Enters Era of M&A

CINCINNATI — The pending retirement of Kroger Co.’s longtime and highly regarded chief executive officer, David Dillon, raises questions about whether his successor will take a more aggressive stance on mergers and acquisitions, observers said.

The company said this month that Dillon, a 37-year Kroger veteran who has strengthened the company’s dominance as the largest traditional supermarket chain with its “Customer 1st” approach, will retire effective Jan. 1, 2014, to be succeeded by his longtime protégé, W. Rodney McMullen.


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Dillon, 62, will continue to serve as chairman of the board through Dec. 31, 2014. He had been CEO since 2003.

McMullen, 53, currently Kroger’s president and chief operating officer, had worked with Dillon on the development of the Customer 1st approach and has played an important role in several key developments at the company, including its 1988 financial restructuring and its 1999 acquisition of Fred Meyer Inc.

While observers said they expected a smooth transition, some questioned whether McMullen might steer the company into a more acquisitive posture.

SN Blog: Kroger's Prospects Hinge on Price Leadership

“The real issue for Kroger is in the area of mergers and acquisitions,” said Neil Stern, senior partner at consulting firm McMillanDolittle, Chicago. “They’ve been relatively conservative, up until the Harris Teeter deal. The question is, do they amp up their activity, because we certainly seem to be heading into the next big era of consolidation in the industry.”

Kroger CEO David Dillon
David Dillon

Kroger, while often rumored to be a likely bidder for nearly every regional chain that has come up for sale in the last decade, has mostly stuck to its mantra of focusing on organic growth and small acquisitions in existing markets. Last year it began signaling a shift to a more aggressive stance, and followed up this year with an agreement to purchase Matthews, N.C.-based Harris Teeter Supermarkets.

Some analysts, such as Scott Mushkin of Wolfe Research, New York, have been arguing for some time that Kroger is well-positioned to lead industry consolidation.

Before Dillon’s retirement was announced, Mushkin said at the SN Analysts Roundtable that he expected Kroger to become more acquisitive “[because] the assets available aren’t massively expensive, and in many cases [Kroger] is the most logical buyer.”

Roundtable: Read more on what the analysts said about Kroger

Several analysts and observers said they expected a smooth transition.

“We believe Kroger has a deep management bench, with 240 years of combined experience among the top nine executives,” said Deborah Weinswig, an analyst at Citi Research, New York, in a research note. “We expect the transition at year-end to go smoothly as Mr. McMullen has been working closely with Mr. Dillon for over 10 years.”

McMullen joined Kroger in 1978 as a store-level stocker and has been president and COO since 2009 and a director since 2003. He previously had been vice chairman; executive vice president of strategy, planning, and finance; and chief financial officer.

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