A. Case Abstract
This is a comprehensive strategic management case that includes the company’s financial statements, organization chart, competitor information, and industry trends. Sufficient internal and external data are provided to enable students to evaluate current strategies and recommend a three-year strategic plan for the company. The Kroger Company, Inc., with headquarters in Cincinnati, Ohio (513-762-4000), operates over 2,500 supermarkets, 795 convenience stores, and 436 jewelry stores. The Kroger Company employs approximately 290,000 employees. The company achieved annual revenues of $56.4 million in fiscal year ending February 2005, compared to $53.7 million in 2004. Kroger is ranked #19 on the Fortune 500 list and is ranked as the third largest retailer in the world, behind Wal-Mart (#1) and the Home Depot (#2). The company has been in existence for over one hundred years and is the # 1 pure grocery chain in the United States with over 3,770 (including subsidiary businesses) stores in 32 states. Kroger and its subsidiary operations market food, pharmacy, and jewelry products.
B. Vision Statement (proposed)
Our vision is to be America’s supermarket, and to continue to provide innovation and unparalleled value to our customers, employees, and shareholders.
C. Mission Statement (actual)
Our mission is to be a leader in the distribution and merchandising of food, pharmacy, health and personal care items, seasonal merchandise, and related products and services.
1. Provide the freshest food, highest quality products, and exceptional service to our customers all at reasonable prices; 2. Be a leader in the distribution and merchandising of food, pharmacy, health and personal care items, seasonal merchandise, and related products and services; 3. Strive to have a prominent, profitable presence and positive name recognition in all 50 states and the District of Columbia; 4. Employ the latest and most innovative technology to improve distribution, enhance customer service, anticipate customer needs, cut costs, and compete using an arsenal of consumer data; 5. Continuously review the performance of each and every Kroger store, manufacturing facility, employee, and private label product to insure that every element of the company is contributing to its growth and financial strength; 6. Hold fast to our corporate values of honesty, integrity, respect for others, diversity, safety, and inclusion; 7. Uphold the motto of our founder, “Be particular. Never sell anything you would not want yourself.” 8. Contribute generously to causes that relieve hunger and provide medicine to the poor; and 9. Compensate our employees in a manner that is consistent with the exceptionally high quality of customer service that is expected of them, striving to maintain positive relationships with the labor unions that represent our many associates across the country.
This mission statement incorporates all aspects of the company’s interests. The first point relates to the fact that Kroger must differentiate itself on the basis of fresh food, high quality products, and exceptional service. In this respect, Kroger has a strategic advantage, since rivals like Wal-Mart are weak on customer service, and since Kroger manufactures many of its own items, it therefore has more control over quality and prices. The third point is important since Kroger now has a very weak presence on the East Coast. Kroger is missing opportunities by not having grocery stores in places like New Jersey, Maryland, and Florida.
The fourth point is supported by Kroger’s new relationship with dunnhumby, a database management company from the United Kingdom, which is partnering with Kroger to better utilize consumer information to improve sales. This is an overwhelming strength against Wal-Mart, which does not even issue loyalty cards to its customers, and therefore, does not have access to nearly as vast a customer database as Kroger does. Point five is key, since Kroger must have the management dexterity and courage to close underperforming stores, execute make-versus-buy decisions, and implement enterprise-wide changes quickly when necessary.
D. Class Discussion Questions and Issues
1. Considering Kroger’s current position in the industry, would you advise an international expansion strategy? If so, in what international market(s)? How would you suggest entrance with respect to location selections and number of units?
Currently, Kroger has no existence in international markets, it would be advisable for Kroger to enter, perhaps Mexico and/or Canada, with a limited number of locations so it can test and strengthen the market at one or both international arenas. While Wal-Mart seems to exist everywhere, Canada is a promising economy to test 3 to 5 store locations.
2. If international expansion is one recommended strategy, discuss the pros and cons of considering hiring expatriate leadership/management teams.
Leading/operating in international markets requires a thorough cultural understanding of the respective country. It’s difficult for expatriates to serve in such a capacity without having a conceptualization of the culture. It is advisable to recruit local leaders from the countries and perhaps examine local operational functions to ensure they are adaptable to business/cultural standards abroad. The use of expatriates can be considered a strength as they are aware of the corporate functions/culture and can operate with minimal direction abroad.
3. Discuss cultural diversity/sensitivity management, as it applies to Kroger Company, Inc. How might it differ and what should Kroger consider/incorporate if international expansion efforts are proposed?
Cultural diversity is critical regarding workforce. Kroger should consider recruiting proposed international market leaders and training them at their headquarters. This would constitute leadership that represents the sociological culture of a respective country coupled with the values/operational functions of headquarters as a result of training, etc. There is more of a ‘buy-in’ when local cultural leaders are in power, where transfer of objectives would take place much easier.
4. Discuss how Kroger can take advantage of the concept of synergy.
Kroger operates over 40 manufacturing facilities and should continue to focus on this business to operate the system more lean, where it can achieve optimal operating costs, converting to manufacturing savings and better pricing for consumers relating to corporate brand (55%) goods (www.kroger.com). Moreover, Kroger can benefit from manufacturing dairy/bakery, etc., goods at a reduced price that it sells in its grocery stores, which can be considered a strategic advantage.
5. How can Kroger, if at all, keep competitors at a distance? In your response discuss expansion in the United States, abroad, product line(s), and portfolio management.
Kroger should continue to focus on its core business, grocery, by identifying emerging markets (population > 20,000) and expanding. Additionally, continue to focus on product lines (grocery), with respect to buying power and sales. Incorporate more self-checkout units in stores to cut employee costs. Also, expand the jewelry business into more states and perhaps consider international expansion into Mexico and/or Canada too.
6. How effective is the “Strategic Growth Plan”? Would you change and/or recommend any additions?
The growth plan in its current state is worthy; however, should include specific language/objectives with respect to international expansion to better compete with rival competitors. The focus should be to operate more lean and expand businesses that are achieving lucrative sales.
7. What influence, if any, may consumer purchasing behavior affect an organization’s (grocery retail) considerations to transition abroad? Please discuss:
Specialty outlets, such as butcher/meat shops, produce and flower outdoor markets, etc. Sociological factors, such as diet and grocery purchasing frequencies, etc.
Kroger should always focus on behavior patterns of consumers; one way to monitor this may be by use of a “club card” where consumer transactions are able to be recorded and reviewed. This is especially valuable abroad as behavior patterns are obviously different, simply just by physically noticing what is purchased and the quantity also. In Europe, butcher, flower markets, and outdoor produce markets are all highly common, where prices are lower as a result of operating expenses are being trimmed. Moreover, a greater part of the world (Asia and Europe) consumption patterns are minimal compared to the United States. It is common for consumers to visit the grocery store to purchase enough items to store in a shopping basket, as opposed to an average shopping visit in the United States which may require the use of a shopping cart. Obesity factors should be considered too.
E. External Audit
1. Supermarket sales of drugs grew 6.9% to $27 billion in 2004. 2. Wal-Mart has a large, recruitable low-paid, nonunion workforce. 3. Organic food sales are up 19.5% annually over the last 5 years. 4. Hispanic shoppers spend $117/week vs. $87/week average on groceries. 5. Hispanic population growth rate = 13% = 4X average.
6. Margins for private-label products are 35-45% vs. 27% for national brands. 7. 87% of consumers have tried private-label products.
1. Traditional drugstores are focusing on customer service and merchandising. 2. Mail-order pharmacies are the fastest-growing format in the industry (up 17.9%). 3. Health plans allow larger supplies of drugs for Mail-order pharmacies. 4. Drug price inflation has led to illegal drug importation. 5. Supercenters are dominating the market share of grocery sales. 6. Wal-Mart is tops in logistics technology. 7. Labor costs account for >50% of operating expenses. 8. Price pressure was the cause of the Southern California strikes.