More on Dave Dillon and Dillons store's here.
Posted on 10/16/2005 1:56:22 PM PDT by Rightly Biased
So, that's what Dillon, the chief executive officer and chairman of The Kroger Co., and officials at his company work to give them.
Kroger officials believe the strategy will help the company stay competitive during what's proven to be difficult times for traditional grocery companies.
"Everybody is price sensitive," said Dillon, a Hutchinson native. "But ... also, everybody is driven by other factors - not just price."
Shoppers also want a better variety of products, better customer service and a better shopping environment, Dillon believes.
Those are things, he said, that Kroger and its family of stores are working to give their customers, in addition to making their prices more competitive and reducing the company's costs.
Some of those differences are beginning to take shape in Kroger stores, such as the one in Cincinnati's upscale Hyde Park neighborhood.
Instead of rows and rows of supercenter warehouse-like grocery stacks, the store features large specialty sections for cheese, wine and organic or natural food products.
Dillon said the company's strategy also is seen in stores like the Hutchinson Dillons at 30th and Plum, where high-quality meats and cheese from Boar's Head have been added in recent months.
"Bringing that kind of a product here helps give our customers something that they can't get somewhere else," Dillon said.
Kroger's approach is working, according to analysts like Burt Flickinger III, the managing director of the Strategic Resource Group in New York City, in part because of the strength of Dillon's leadership.
Kroger remains No. 1 or No. 2 in 40 of 52 major markets it operates in, according to the company. It posted strong results in the second quarter of this year after its net earnings per share fell the previous two fiscal years.
"David Dillon has proven to be the finest CEO of any public held retailer in the supermarket sector this decade," Flickinger said.
According to Dillon, traditional grocery retailers like Kroger have been forced to change in response to a challenging environment created by the emergence of three trends - consolidation, fragmentation and the emergence of lower-cost operators.
Smaller operators in the grocery industry have "literally gone out of business," Dillon said, pushed into bankruptcy or forced to merge with larger operations to stay afloat.
At the same time, consumers no longer have to go to a supermarket to buy a grocery store item. From Walgreens to the Family Dollar stores, a number of different companies that aren't traditional grocery stores are selling products that typically are found on Kroger shelves.
Winning against Wal-Mart?
Perhaps the most significant change for traditional grocery stores is the emergence of what Dillon calls "lower operating cost" outfits, most notably Wal-Mart, which have battered traditional grocery stores in recent years.
Kroger, once the nation's largest seller of groceries, fell behind Wal-Mart, which ascended to the No. 1 position in 2003, less than two decades after the Bentonville, Ark., behemoth started selling food and other grocery products at its stores.
Wal-Mart, which operates 1,713 supercenters and 85 neighborhood markets in the United States, has undercut Kroger and other major traditional grocery firms by as much as 8 percent to 27 percent in prices on some items, according to reports cited by Wal-Mart.
But Dillon has helped position Kroger so it can strongly counter the low-cost giant, Flickinger said.
"What David's been able to do is find a way to win against Wal-Mart."
At the same time he's competing against them, Dillon also is critical of the practices embraced by low-cost operators.
Despite "public claims to the contrary," Dillon said, low-cost operators such as Wal-Mart underpay their employees and don't give workers benefits to the same extent that Kroger does.
That strategy helps those companies offer lower prices, Dillon said.
"They have kept their costs so low that they tend to undersell, at retail price, our kinds of stores."
A Wal-Mart official, however, defends his company's practices. Spokesman Dan Fogleman said workers wouldn't take Wal-Mart's jobs if they weren't providing adequate wages and benefits, such as health care coverage and retirement benefits.
He also said the extent to which his company provides low prices and creates new jobs - including more than 100,000 new jobs in 2005 - boosts local economies and opens up opportunities for workers.
"Wal-Mart is providing opportunities for people in the jobs we create," Fogleman said.
In response to the success of low-cost operators, Dillon said traditional grocery chains have been forced to reduce their costs by modifying the costs of their benefits in recent years, in small ways.
Yet Dillon said his company wouldn't try to follow the low-cost operator model of doing business, which would involve a reduction in salaries and the extent of benefits the company pays its employees.
"Our associates deserve more and better than that," Dillon said. "However, we do have to keep that balance in place."
Facing challenges
Chuck Cerankosky, Cleveland-based managing director for KeyBanc Capital Markets, said Kroger is no stranger to battles with low-cost operators.
But recent economic conditions intensify the fight as stores - and customers - focus more on the price of commodities, Cerankosky said.
Many of Kroger's competitors - not only Wal-Mart but also companies like Costco and Target - don't face the labor costs that Kroger does because they don't use union-represented employees.
"They have a major difference in their cost structure in that so many of their competitors are non-union," Cerankosky said. "Dave has shown great leadership addressing all of the aspects of the company that needed to be addressed."
Dillon said his company employs both union and nonunion workers in its operations across the country. Unions do not represent most Kansas workers, he said.
Wal-Mart has come under intense criticism from a variety of sources for its impact on communities and its labor practices, including the lack of union- represented employees. Wal-Mart's Fogleman said organized labor is the root of the vocal opposition.
"They don't like the efficiencies we're bringing into the marketplace," he said.
Though Dillon said he believes his company is working hard to fairly compensate all its employees, some union officials are highly critical of Kroger's labor practices.
In 2003 and 2004, Kroger faced two separate work stoppages, a 141-day strike in southern California and a 63-day strike in West Virginia, which resulted in losses of $246 million.
The company eventually reached agreement with union workers in both states.
Mike Earman, a spokesman for the United Food and Commercial Workers Local 400 union in West Virginia, said relations between union workers and Kroger have severely deteriorated under Dillon's leadership.
"Other companies face challenges, but they live up to what they've agreed to," said Earman, who indicated that the union's relationship with Kroger in recent years has been marked by disputes and litigation.
Dillon said strikes and turmoil in labor relations hurt both Kroger and workers.
Kroger posted losses of 14 cents a share in 2004 due to a slower-than anticipated recovery from the southern California strike.
Work stoppages are the exception rather than the rule, Dillon said.
"We have had a long history of successful contract negotiations," he said. "The real problem with a strike is what it does to the organization, to the people in the organization. It's just hard on them."
'A better grocery chain'
Flickinger said Kroger also has separated itself from Wal-Mart and other low-cost operators by its contributions to the communities in which it operates.
According to Flickinger, Kroger gives a higher percentage of its sales and operating income than Wal-Mart. Kroger gave $124 million in charitable donations in 2004; the company's most recent full-year sales results topped $58.36 billion.
Wal-Mart gave more than $170 million in 2004, according to a company news release. Wal-Mart most recently posted sales in excess of $285 billion and a net income of $10 billion in a year.
Part of Kroger's emphasis on community may be attributable to the company's long-term outlook, which prompts Dillon to say his primary job is to "build and grow a healthy grocery company."
The end result: "increased shareholder value."
"What I am seeking to achieve is a better grocery chain; associates who are successfully achieving what our customers want, customers who are happy with our overall offering as a store, and communities that are growing, at least in part, because of our participation in those communities."
Dillon said his company's focus on community is one of the reasons why he can't understand the series of corporate governance scandals that have toppled high-powered CEOs in recent years.
"I do not understand how a person can do those things to a company that is run by people and serves communities. I have no interest in being part of a company, organization or with people who operate with principles that would allow them to do those things."
Kroger in Denver is King Soopers. Store employees are nice but store policy of stocking Kroger alternate foods, and stopping name brands we've used for years was a sad decision. We now shop at a Safeway on a regular basis and go to our King Soopers as needed, like a 7-11. Even King Sooper employees I've talked to are now shopping at other chains.
If shoppers in Hutchinson KS had a choice they'd bail out of Dillons as well.
For a town of 40k to just get a Wal-Mart superstore three years ago shows the power the Dillons had on a community.
It boiled down to threats to move Dillons shipping warehouse out of Hutch if the city let Wal-mart put in a superstore. The city called Dillons bluff three years ago or so.Dillons still does their Ice-Cream in Hutch and still has a large warehouse there. hmmmmmm?
Dillon is right, at least as far as I'm concerned, I like to shop in nice, clean stores free of hideous architecture. Safeway in NoCal is a good example of a store that has low prices, good selection, and nice clean stores. I don't know how Albertson's competes. As for Dillons, they are not as nice as the Safeways I'm used to shopping in but they are close and pretty decent for Kansas, anyways.
Albertson's is struggling to differentiate itself, and I just don't see them sticking it out in the long run.
One thing that bugs me about Dillons is that employees get frowned upon if they don't by "Dillon's brand" merchandise.
Employees are given a discount but are required to use thier card and then into the Dillons database goes the employees purchases.
My wifes sister has been asked about buying Del Monte green beans and not the Dillons brand on more than one occasion.
Safeway in SoCal is VONS which has been revamping their stores very nicely and seem not to have a problem attracting customers. Kroger/Ralphs in some locations has not recovered from the strike. At least one in San Diego has closed. I wouldn't be surprised to see others follow suit.
I like Walmart and I like Krogers. I used to go to Target but it is insistence on making contributions to activist homosexual groups and refusing to allow the Salvation Army to raise funds in front of their stores has led me to take my business elsewhere. Walmart, Krogers and other stores are never going to be long term careers for most people and I pity a person who thinks that they are going to spend their life checking at Krogers. Kroger does have the right idea, retailers need to offer more if people are going to pay more. I like Walmart because of convenience and the service they have done to make the industry more customer conscious. I still can not understand the people who think they are entitled to not have competition. That we all should be content to take the French view and protect our local businesses who can't compete. Walmart is an example of a company that suffers from its own success. Politicians on the left seem to hate Walmart as much as they hate President Bush. It should make one pause before blaming Walmart for uncounted evils and yet giving it no credit for the billions it adds to the economy.
"Tom Thumb (Randalls) (Safeway)..."
As for your comment on Alberson's trying to differentiate, itself, I used to shop at Alberson's almost exclusively. Then they put in the customer card and raised prices across the board about 2002. Here were the Dallas rankings when they did that: Albertson's, 21 percent; Tom Thumb, 20.8 percent; Kroger, 13.5 percent; Wal-Mart, 12.3 percent. Fort Worth: Albertson's, 20.9 percent; Kroger, 15 percent; and Wal-Mart at 14.4 percent. http://www.morningnewsbeat.com/archives/2002/02/27.html
Since then, Fleming and Winn Dixie have exited the markets, and Brookshires has pulled back.
Compare that with the rankings you posted. Alberson's is suffering from self-inflicted wounds.
Agree...same in Ky.
I used to love shopping at neighborhood Lucky's until Albertson's closed them all down and replaced them with a huge new Albertson's. I hate shopping there now. It's under-lit - like they want us kept in the dark. They have no idea what an express line is for. The clerk is always willing to stop and talk, and talk, and talk. It's inevitable that the person in front of me wants cigarettes, so everything stops while the clerk meanders to the far corner of the store to pick them up. And frequently gets the wrong brand, so we can watch the do-over. I wish they would sell out to Kroger's or somebody other than Safeway (I like Safeway, but I want them to have competition).
LOL!...not much competition?...In Lexington, their (most..8?) are recently remodelled. (w/ in 10 yr. :)
OTOH, they've got that little wand that you can carry through the store, wand your groceries as you put them in the basket, then just plug in the wand when you check out. The process takes about five minutes if you use a credit card.
I'm a big coupon shopper, and Albertson's doesn't double (except on rare occasions). Thus I rarely shop there. My wife goes on occasion because she likes the quality of Albertson's Angus beef.
I don't care for Wal-Mart's meat, but everything else is just great there, and demonstrably cheaper.
For major shopping, Wall-Mart rules.
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