Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, June 27, 1993 TAG: 9306250406
SECTION: BUSINESS PAGE: F-1 EDITION: METRO
SOURCE: SANDRA BROWN KELLY STAFF WRITER
DATELINE: LENGTH: Long
At 78,000 square feet, the place is 42 percent larger than the typical 55,000-square-foot Kroger supermarket, and the layout is nothing like the other 114 stores that are operated from division headquarters in Roanoke.
Taking up the extra space are photo-processing and "warehouse club" bulk sales departments and eight tenant shops providing services such as shoe repair and tax preparation.
Kroger is leasing the photo-processing equipment, but Kroger employees will operate it. The warehouse section is only 5,500 square feet, but its inventory includes the store's entire stock. Any item on the shelves can be ordered by the case at a discount price if it's not already being sold at cost, said Manager Alex Straightiff.
For instance, a customer who buys a case of pet food gets 5 percent off the cost of buying the same quality unit by unit.
The store also will experiment with more cooked-to-order foods. Kroger seafood departments already will cook seafood for a customer. But Straightiff said his store will prepare "prime rib for one to go."
Prepared food is a big issue in the store. Three of the tenants are quick-food shops: Taco Bell, T.J. Cinnamons and Piemonte Pizza. Taco Bell's presence is the result of a national partnership between Kroger Co. and PepsiCo, the soft-drink manufacturer that also owns Taco Bell.
Kroger also advertised that it had space to lease in the new store. A member of the family that owns Heel Quik shoe repair heard about the Kroger location from Heel Quik headquarters in Atlanta.
The store is different, but nothing in it is a true "first." Kroger stores in Memphis, Dallas and Cincinnati have similar specialty shop setups. The warehouse club sales also will be offered at the other Charlottesville Kroger store, about a mile away.
And Roanoke Valley Kroger stores even sell produce at bulk prices; an official said fresh strawberries were especially popular in three-quart half-flats and six-quart flats.
But the way the pieces have been put together in Charlottesville is new. In addition to the obvious - that brie sells well in the sophisticated University of Virginia community - you can surmise that there are tryouts going on at Rio Hill Kroger on U.S. 29.
James R. Thorne, president of the Roanoke-based Mid-Atlantic marketing area that includes the Charlottesville area, prefers not to call his "super-supermarket" a test market.
Rather, he said, it is what resulted when "we had an opportunity to strike a deal on 78,000 feet of existing space" after Ames Department Stores Inc. closed a discount store there.
After Kroger "plopped down" plans for one of its traditional-size stores in the Ames shell, the space left over "caused us to do something different," said Thorne, who runs his 115-store, 13,344-employee division from offices on Peters Creek Road in Roanoke.
Of course, "whichever of these features" might be successful could be expanded into other stores, he said.
For example, the warehouse-club section would let the company compete more directly with the Sam's Wholesale Club that is across the street from where Kroger plans to build a new store in Northwest Roanoke.
Construction on the $6 million project contiguous to Towne Square Shopping Center near the Roanoke Regional Airport is scheduled to begin this summer. The new store will replace the store at nearby Crossroads Mall and will be adjacent to a Lowe's Co. building-supply store already under construction.
However, don't expect to go Krogering and find all the same features as at the Charlottesville store.
"We're up against such a variety of competitors. It would be foolish for us to have a single approach for marketing," said Paul Bernish, spokesman for the Kroger Co. in Cincinnati.
Marketing can be different for each Kroger store. There are standard store items, but a store manager can decide to expand the varieties of mustard on the shelf, and each store's employees decide which charities receive their corporate allowance for community service.
Stores are as different as is reasonable to meet customer needs, said corporate's Bernish. But no one is out of sync with the company direction.
"We're in the food and drug one-stop shopping business," said Thorne.
Also, Kroger, with $22.1 billion in sales in 1992, is the nation's leading food retailer, and it doesn't intend to relinquish that position.
It has new competition, though.
Wal-Mart Stores Inc., which has supercenters with full grocery stores in 42 markets and plans 30 more this year, could overtake Kroger by 1997, predicted industry analyst Burt P. Flickinger III of Booz Allen & Hamilton Inc. He made the comments in a recent article in Business Week.
Bernish said the company is "`holding its own" in the markets where it goes against Wal-Mart.
But there's another power player, Kmart Corp. It also is opening supercenters with grocery aisles. Next month, it opens one in Hickory, N.C., where Kroger also operates.
Thorne said Kroger "is reacting" to Kmart there, but he wouldn't elaborate.
"We evaluate all new competition and react accordingly," he said.
Thorne and Bernish and other Kroger executives point out again and again that competition within the $383 billion grocery industry varies from market to market and sometimes from year to year.
In Thorne's Mid-Atlantic region, the main players are the same stores where customers shop in Western Virginia - Food Lion, Winn-Dixie, Harris-Teeter plus, in the Charleston, W.Va., area, Foodland, Big Bear and Fas Check.
In the Roanoke Valley where Kroger has nine stores, it has about 43 percent of supermarket sales, Thorne said. The competitors don't disagree with that. In fact, they say the market is about the same as five years ago: Food Lion, about 30 percent; Harris-Teeter, about 12.5 percent; and Winn-Dixie, about the same as Harris-Teeter.
Ivan Hardesty Jr., spokesman for Winn-Dixie, which is the No. 6 grocery retailer nationally, said Kroger is "very tough."
Hardesty said Kroger is especially difficult on competition in its headquarters area of the Roanoke Valley.
"Because Roanoke is a headquarters city, we truly have as fine of facilities here as in larger areas," said Thorne.
Winn-Dixie's Hardesty said the two chains have different operating philosophies.
"Their appeal is primarily on weekly specials and double coupons, where we feel we have a large advantage in that our everyday prices are much, much lower," Hardesty said.
While double-coupon offers are rare in the Roanoke Valley, they are normal business practice at Kroger stores in the Raleigh area where Winn-Dixie has a regional headquarters. Winn-Dixie doesn't push coupons, but another grocery in the area does, Hardesty said.
Kroger makes coupon offers where it has to to be competitive, the company said.
"We have a wide variety of marketing approaches," said Bernish. "We're not everyday low-price merchants. Some [of our stores] even offer triple coupons."
The one constant, he said, is "we like to have a similar general format." That means a grocery store, with a pharmacy and other services like banking.
How, in a business where the profit margin averages a mere penny or two, can a company continue to increase expensive labor-intensive services like offering prime rib to go and still stay competitive with prices?
Bernish said Kroger is "making a concerted effort to drive costs out of our business." The company plans to spend $130 million on technology that includes a satellite to link all stores to headquarters and each other. This will eliminate costs of some phone lines and paper.
It also owns a number of private labels, from Big K soft drinks to Country Club ice cream and Cost Cutter meat products, that it can price below the name brand equivalents, Bernish pointed out.
But the real secret to remaining competitive is to have lots of customers. "Volume," said Leonard Tarranova, Mid-Atlantic vice president for merchandising.
There have to be enough shoppers who want services like takeout prime rib to justify their being offered, he said. The more people who come in, the greater the number who might ask for a particular service.
For example, he said, 25 percent to 40 percent of seafood sales are for precooked products or are cooked while the customer waits. That justifies the seafood-cooking service.
How many people at a time need to order prime rib? Tarranova doesn't know. He said what he does know is that the more customers who visit a store a week, the greater the market will be for such a dish.
Grocery shopping has become a more frequent activity in recent years. Plus, Kroger stores are designed to encourage frequent shopping with in-store banks, salad bars, delicatessens, ready-to-cook meats and custom cooking of seafood.
In an average week, 14,000 customers flow through each Kroger store in the company's Mid-Atlantic region. That territory includes areas, especially in West Virginia, where residents get their income monthly, so they shop monthly. It also includes metropolitan areas, including the Roanoke Valley, where Kroger's nine stores have weekly volume of more than 18,000 people, said Larry LaCroix, vice president for retail operations.
Kroger gets the customers in with its services, but also with an aggressive advertising effort that combines newspaper, radio and television, said LaCroix.
"Ten years ago, nobody knew what a kiwi fruit was. Now we sell it by the truckloads," he said.
"Some of the things in Charlottesville are another reflection of our continuing to find ways to add to the one-stop shopping idea."
Tarranova said dry cleaners are a "big hit" in the Memphis-based division.
Mention a grocery retailer, and the average consumer might remember the company's latest special or how cool it keeps its stores. But behind Kroger's 1,274 food stores is a large distribution network and 37 food-processing companies.
Two of the processing companies, Westover Dairy in Lynchburg and Bluefield Beverage in Bluefield, Va., are part of the Mid-Atlantic region, as are distribution centers in Charleston, W.Va., and near Salem.
The company has had a large presence in the Roanoke Valley since 1929. Some 137 drivers plus support people work out of the 13-acre distribution center in Glenvar, west of Salem. The center has 61 tractors that trail 190 trailers an average of 145,000 miles weekly.
There are 265 people working in the two-story headquarters building on Peters Creek Road.
An oil painting of founder Barney Kroger with his Kroger store horse-drawn delivery wagon, hangs in the corridor near Jim Thorne's office.
Photographs in the company's files show 1920s Kroger trucks lined up in front of the company's first Roanoke office and warehouse, which was on Norfolk Avenue near Henry Street in downtown Roanoke.
Plaques in the lobby suggest the company's policy of community involvement. One mentions support of the "Say No to Drugs" campaign. Others are recognition from the Arthritis Foundation Telethon, the Mental Health Services Board of the Roanoke Valley, the Osteogenesic Imperfecta Foundation, Muscular Dystrophy and the Southwest Virginia Community Food Bank.
Kroger is the Food Bank's main corporate sponsor and a major, regular donor because of its "Don't Dump, Donate" program.
Joann Boone, a 40-year employee who is the Mid-Atlantic public information specialist, helps oversee the reclamation project, which began in the 1980s. Boone said before the company began giving away its dented cans and out-of-date bakery products, it threw the items away.
Now after items are counted at a central reclamation center at Crossroads Mall, they are given to community organizations for distribution. The Second Harvest Southwest Virginia Food Bank is the main recipient. Second Harvest is a national service project for Kroger.
Now that the food bank has its first refrigerated truck, Boone said, Kroger is trying to determine if it can also donate refrigerated items that can be eaten but cannot be sold.
Despite its dominance in its industry, Kroger is shy. Thorne declined to talk much about the company's good deeds or his role or the company. This goes all the way to the top, where top executives rarely do interviews.
Thorne said the company doesn't like to talk about what it does in a community because someone might think it did the good works just to get noticed.
He wouldn't even be photographed without other staff also being in the picture.
Kroger people aren't "flash and flare," he said. "The culture of Kroger is we want to be homespun and down on the farm."
Kroger is a publicly owned company, but it does not have to break down sales figures by division. The corporate spokesman said the Mid-Atlantic Marketing Area always has been "one of our rock solid divisions."
For many years, the company was the key retailer through West Virginia and part of Virginia, said Bernish.
"Especially so in West Virginia. In some small towns, they don't say they're going grocery shopping, they say they're going Kroger's."
Thorne will only say that who had what share of a market used to be "neat and clean," and competition used to be just between "grocery stores and grocery stores."
Perhaps he is more reticent than homespun, though.
Thorne, who became president in January, joined Kroger's management-trainee program in 1966 when he was just out of West Virginia Wesleyan College. In 1985, he moved from Roanoke to the Cincinnati headquarters to head a research and development project for a new store concept.
In 1988, he came back to Roanoke as director of merchandising.
Thorne said his role is to "aggressively lead this market into the future." \ THE KROGER CO.\ \ The company: A publicly traded company with headquarters in Cincinnati, Ohio,\ Kroger is the largest U.S. grocery retailer, based on annual sales, which were\ $22.1 billion in 1992.
\ Kroger brands: It processes food for sale in its own stores and to other food retailers. Among its 37 processing companies are Westover Dairy of Lynchburg and Bluefield Beverage of Bluefield, Va. In addition to its own Kroger brands, the company also owns these grocery brands: Avondale, Embassy, Cost Cutter, B.H. Kroger, Spotlight, Bright, Sports Shot, Big K, Pet Pride, Cats Choice, Crystal Clear, Westover, Springdale, Tamarack, Country Club, Sun Gold, Texas Gold, Esprit, Polar Pak, Big Value, Country Oven, Natural Grains, American Home and Outback Jack. Its meat brands are Country Club, Serve N Save, Cost Cutter and Kwick Krisp; its produce brand is Golden Crown (potatoes and mini, peeled carrots).
\ Employees: Nationwide, 190,000. Company has approximately 250 labor contracts with its 110,000 union employees. The United Food and Commercial Workers and the Teamsters are the main representatives. In many markets, Kroger is the only union supermarket. The Mid-Atlantic area has 13,344 employees.
\ Sales: Last year the company's supermarkets averaged sales of $402 a square foot or $20.2 billion, 91 percent of total company revenues. Convenience stores produced sales of $389 a square foot or $916 million. Other sales of $1 billion include sales by Kroger-owned processing companies to other retailers and sales of general merchandise and health and beauty care items to Hook-SupeRx Inc. Kroger spun off the publicly held Hook-SupeRx drug company in 1986, but owned 25 percent of it at the end of 1992.
\ Ownership: Kroger is a publicly traded, shareholder owned company. Its common stock is traded on the New York Stock Exchange. About 91.4 million shares are held by investors.
\ Operating strategy: In the next two years, the company proposes to increase the net square footage of its food stores by 3.5 percent a year, compared with 2.5 percent annually between 1990 and 1992. It has budgeted $900 million for new stores, expansions and remodeling of stores in markets where it holds a substantial share of the grocery business. It also plans to link most of its facilities with a satellite communications system and implement more efficient purchase and distribution programs. Source: The company
by CNB