US supermarket chain Kroger is fighting fit. The company has been growing market share for a number of quarters and a focus on expanding its store count has fuelled further expansion. The news CEO Dave Dillon is standing down will see him go out on top. Waiting in the wings is chief operating officer Rodney McMullen. The long-time Kroger executive represents a safe pair of hands as the retailer pushes on with its growth plans. Katy Askew reports.
The departure of Dave Dillon as chief executive of Kroger will no doubt come as something of a blow for the US supermarket group. A 37-year veteran of Kroger – and CEO since 2003 – Dillon has overseen some strategic milestones for the firm as it has expanded its store count and moved into new territories in the US.
Under Dillon, Kroger has grown through store openings and M&A. In 2004, it acquired the Thriftway stores in Cincinnati from Winn-Dixie and in 2007 it took over the Scott’s Food and Pharmacy chain from Supervalu Inc. Most recently, it entered into an agreement to buy regional supermarket chain Harris Teeter in a deal worth US$2.44bn.
The company has also expanded its geographic reach, moving into new US markets. The Harris Teeter deal will leave Kroger with gaps only in the north-east and north central states of North America. And Kroger’s strong capital and operational efficiency sets it up to fill those in with acquisitions at a later date. Indeed, rumours this summer linked the company to a possible acquisition of the Great Atlantic and Pacific Tea Company, or A&P.
In addition to M&A, Kroger has stepped up the pace of new store openings. At the end of the last full year in March, Kroger revealed in fiscal 2013/14 it would raise its capex budget $2.1 to $2.4bn. That expenditure, the retailer said, will include around 45-50 “major” projects covering new stores, expansions and relocations, as well as 130 to 160 remodels. Many of these store openings will come online in the next fiscal, Kroger added.
At the same time as Kroger has reached more US consumers by expanding its store base, it has also worked to convert these consumers to loyal customers. Kroger’s Customer 1st strategy has built loyalty through improvements in four key areas: “our people, our products, the shopping experience in our stores and prices,” Kroger has indicated.
While the total number of households Kroger serves continues to grow, the number of “loyal households” appears to be growing at a faster rate as a result.
These initiatives have helped Kroger fend off growing competition from big-box retailers, drug stores and dollar stores that are expanding their grocery sections.
During 2012/13 Kroger said it delivered an “outstanding” performance, with earnings exceeding expectations, identical sales growth and improved operating margins.
That head of steam seems to have carried over into the current year and, following the company’s first-quarter results in June, Kroger raised its full-year earnings pers share forecast for for 2013/14.
Dillon must be credited with much of this success. As Neil Stern, senior partner with McMillan Doolitte, tells just-food, Dillon has been a “great” leader at Kroger. “He has built a strong and what should be an enduring culture.”
However, Kroger’s number two, Rodney McMullen, is ideally suited to take up the reigns.
McMullen is a Kroger lifer. Having worked his way up from a part-time position while in college, he joined the company after graduation and became a financial analyst in 1986.
By 1995, at the age of 35, McMullen was Kroger’s CFO. However, his duties soon expanded beyond traditional finance roles to encompass strategy and operations and, in 1999, he led the integration of Kroger’s $13bn merger with Fred Meyer. In 2000, McMullen was elected executive vice president of strategy, planning and finance. McMullen has served as chief operating officer and president since 2009.
Commenting on his departure, Dillon emphasised the key role McMullen has played at Kroger, crediting him with helping the grocer develop its Customer 1st initiative and shaping the group’s overall growth strategy.
“As Kroger implements its strategic growth initiatives, the time is right for the transition of leadership,” Dillon said in a statement. “I am delighted that the board has elected Rodney McMullen to succeed me. Rodney has played a leadership role in every major decision Kroger has made for the past 25 years.”
McMullen has been roundly welcomed as a reliable executive, with an excellent understanding of Kroger and operational finesse. As such, industry pundits largely expect business as usual in the near term.
However, less clear is the long-term impact McMullen’s appointment will have on strategic direction.
Stern suggests that he is a more conservative executive than his predecessor. “Rodney is more of a traditional operator but will be fine in maintaining the same strategic direction,” he predicts.
In contrast, Willard Bishop’s Bill Bishop suggests the appointment could result in a more radical direction for Kroger.
In particular, Bishop says McMullen could take a stronger stance on innovation in the digital sphere. “I would anticipate that Rodney might move forward even more aggressively to innovate business to competing in this new digital world,” he tells just-food.
Crystal ball gazing aside, only time will tell the strategic direction that McMullen will move Kroger in. While McMullen may have his own take on the strategic path that Kroger should follow, what is clear is he is a capable leader with an unparalleled understanding of the US supermarket group.