1. A Strategic Management Case Study
Monday, April 7, 2008
® 2008, Tony Gauvin, UMFK

2. Overview Who we are, What we sell, Where we are
A Brief history of Kroger
Value Statement
Mission and Vision
External Assessment
- EFE Matrix
- CPM Matrix
Internal Assessment
- Financial Condition
- IFE Matrix
Strategy Formulation
- SWOT Matrix
- Space Matrix
- IE Matrix
- Grand Strategy Matrix
- Matrix Analysis
- QSPM Matrix
Strategic Planning for the Future
EPS/EBIT
Decisions/Implementation/Evaluation
Kroger 2006 Update
7-Apr-08
® 2008, Tony Gauvin, UMFK

3. Who we are 7-Apr-08 ® 2008, Tony Gauvin, UMFK
Headquartered in Cincinnati, Ohio, The Kroger Co. is one of the largest retailers in the United States based on annual sales, holding the #26 ranking on the Fortune 100 list. Kroger was founded in 1883 and incorporated in 1902.
At the end of fiscal 2006, Kroger operated (either directly or through its subsidiaries) 2,468 supermarkets, 631 of which had fuel centers. Approximately 39% of these supermarkets were operated in Company-owned facilities, including some Company-owned buildings on leased land. See Section II of this Fact Book for more information about our supermarket operations, and Section III for more information about our supermarket fuel centers.
In addition to supermarkets, Kroger operates (either directly or through its subsidiaries) 779 convenience stores and 412 fine jewelry stores. Subsidiaries operated 687 of the convenience stores, while 92 were operated through franchise agreements. Approximately 44% of the convenience stores operated by subsidiaries were operated in Company-owned facilities.
The Company also manufactures and processes some of the food for sale in its supermarkets. As of February 3, 2007, the Company operated 42 manufacturing plants.
All of the Company’s operations are domestic.
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4. Key facts Kroger operates 2468 supermarkets 779 Convenience Stores
631 have fuel centers
1900 have pharmacy
779 Convenience Stores
412 fine Jewelry stores
42 Manufacturing plants
15 Daires,3 ice cream plants and 2 cheese plants
7 Bakeries
3 Beverage plants
3 Meat Packing plants
44 Distribution Centers in 3 tier
Local (200 mile)
Higher value slow turn, H&BA items (350 mile)
Seasonal and promotions
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5. What We Sell
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6. Where We Are
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7. Brand Strategy Private Selections Banner Brand Value
Gourmet and upscale
Meet or beat national brands
Banner Brand
“Try It, Like, It or get the National Brand Free”
Equal or better to corresponding consumer goods
Value
Good quality at an affordable price
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8. History 7-Apr-08 ® 2008, Tony Gauvin, UMFK
1883: Bernard H. Kroger and B.A. Branagan open the Great Western Tea Co., the beginning of the Kroger Co. empire. Kroger is the first grocer to advertise in newspapers.
1884: Branagan sells Kroger his share of the business for $1,500.
1885: The company expands to four stores in Cincinnati, making the company one of the first chain store operations in America.
1901: It becomes the first store to bake its own bread.
1902: With 40 stores and a factory in Cincinnati, Kroger incorporates and changes the company's name to Kroger Grocery and Baking Co. Kroger buys Nagel Meat Markets and Packing House, and makes the grocery stores the first to include meat departments.
1912: Kroger makes his first long-distance expansion, buying 25 stores in St. Louis, Missouri. The company buys a fleet of trucks, enabling Kroger to move into Detroit, Michigan, Indianapolis, Indiana, and Springfield and Toledo, Ohio.
1920: The company purchases Piggly-Wiggly stores in Ohio, Tennessee, Michigan, Kentucky, Missouri, and Oklahoma and buys most of Piggly-Wiggly's corporate stock. The public begins to accuse food chains of driving small merchants out of business by using unfair business practices.
1928: Kroger sells his shares in Kroger for more than $28 million. William Albers becomes president.
1929: Kroger stores number 5,575.
1930: Morrill introduces the Kroger Food Foundation, making it the first grocery store company to test food scientifically in order to monitor the quality of products. Kroger manager, Michael Cullen, suggests opening bigger self-service supermarkets, but Kroger executives disagree.
1930: Cullen leaves Kroger and forms the first supermarket, King Kullen, in Jamaica, New Jersey. It introduces frozen foods and shopping carts. The Kroger Food Foundation invents a way of processing beef without chemicals so that it remains tender, calling the product "Tenderay" beef.
1940: Kroger sells its stock in Piggly-Wiggly stores.
1946: The company changes it’s name to the Kroger Co.
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9. History 7-Apr-08 ® 2008, Tony Gauvin, UMFK
1947: Kroger opens its first egg processing plant in Wabash, Indiana, to further ensure egg quality. Hall merges the 45 private-label brands into one Kroger brand, and introduces the blue and white logo.
1948: Kroger joins six other firms to establish the Top Value Stamp Co., trying to bring customers into the stores with stamp collecting promotions.
1952: Kroger sales top $1 billion.
1960: The company begins its expansion into the drugstore business. It buys Sav-on drugstore chain and makes its owner, James Herring, the head of the drugstore division.
1961: The first SupeRx drugstore opens next to a Kroger food store in Milford, Ohio.
1963: Sales reach $2 billion.
1971: Enforcing antitrust laws, the Federal Trade Commission proposes a consent order that requires the company to divest itself of three discount food departments. Kroger settles without admitting any violation of antitrust laws, but sells three food departments. FTC prohibits company from purchasing any food store or department in nonfood stores in which the purchase would lessen the competition in that city or county. The government begins to control prices of products.
1972: To increase the accuracy and speed of checkout systems, Kroger, in partnership with RCA, becomes the first grocery company to test electronic scanners to read prices on products under actual working conditions. Kroger introduces an advertising promotion that compares their prices with its competitors' on 150 products a week; the figures are based upon surveys of housewives.
1974: Net profits of the top food chains are up 57%, despite government controlled prices. The FTC reveals illegal business practices of several chains, including Kroger. The company settles out of court on an antitrust claim for fixing beef prices. The FTC sues Kroger for violations of its 1973 trade rule, which forces stores to stock a sufficient supply of specials to meet anticipated demand and to give rainchecks when supplies run out.
1977: Kroger consents to the FTC order.
1978: The FTC rules that Kroger slogans like "Documented Proof: Kroger leads in lower prices" are unfair and deceptive because the items surveyed excluded meats, produce, and house brands. A controversy ensues when the Council of Wage and Price Stability expresses concern that tougher standards for Kroger might prevent the dissemination of food price information in the future.
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10. History 7-Apr-08 ® 2008, Tony Gauvin, UMFK
1981: The company acquires Treasury Drug Stores from J.C. Penney Co. Kroger begins marketing its Cost Cutter brand products.
1983: Absorbs Dillion Companies, Inc. and begins to operate stores coast-to-coast. Kroger settles out of court with the FTC.
1984: Kroger and Wetterau form a grocery wholesaler for Michigan called FoodLand Distributors.
1985: Hook Drugs, Inc. merges with Kroger. Acquires Price Savers Wholesalers, Inc. and M&M Supermarkets, Inc.. Dillion Cos., Inc. purchases Turkey Hill Dairy, Inc.
1986: The company sells most of its interest in Hook and SupeRx drug chains to Hook-SupeRx, Inc. (HSI), a privately held company, for approximately $415 million.
1987: Kroger sells more of its drug stores to Hook-SupeRx, Inc for $88 million. In total, the company has sold approximately 658 stores.
1988: Kroger faces takeover bids from the Dart Group Corp. and from Kohlberg Kravis Roberts, whose highest bid tops $5 billion. Kroger rejects the bids. To ward off the buyout, CEO Everingham and president Joseph Pichler borrow $4.1 million to pay a special dividend to stockholders and to buy additional shares for an employee stock plan, which is increased by 30%.
1990: The company sells to K-Mart its equity interest in Price Savers Wholesale, Inc. Kroger makes its first major acquisition since 1988 by purchasing Great Scott! supermarkets in Michigan.
1991: Kroger now operates 1,263 food stores and 940 convenience stores, and owns 37 processing plants, including 11 bakeries, 15 dairies, and facilities for processing cheese and various other dairy products. Sales reach $21.3 billion, and net income is $101 million.
1993: Kroger, seeking to capitalize on positive views of low-interest credit cards, begins issuing its own co-branded credit cards. Acquires 11 Houston-area supermarkets from AppleTree Markets Inc. Kroger loses $12.2 million for the year.
1994: Kroger secures a credit agreement for a seven-year $1.75 billion revolving loan, increasing available monies for capital expenditures from $500 million to $650 million annually. Sell seven of its stores to Delchamps Inc., and buys two from Delchamps. Earns $242 million on sales of $22.9 billion.
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11. History 7-Apr-08 ® 2008, Tony Gauvin, UMFK
1995: David B. Dillion is named president, CEO, and a director of Kroger. Annual earnings rise to $302 million on sales of $23.9 billion.
1996: Kroger is the largest supermarket chain in the U.S.
1998: Kroger and Fred Meyer Inc. announce plans to merge into Kroger-Fred Meyer, the first coast-to-coast food retail operation in the U.S. The $12 billion deal will result in the creation of a $43 billion industry giant with 3,400 stores, including supermarkets, convenience stores, jewelry stores, and supercenters, spanning 31 states.
1999 July: Kroger announces its plans to partner with US Bancorp to introduce a new co-branded credit card for Kroger customers.
1999: Kroger completes its merger with Fred Meyer, a former grocery powerhouse with a combined $43 billion in annual sales.
2000 May: Kroger announces its plans to partner with PlanetU, the online promotions network for the consumers good industry, to offer U-pons, Internet coupons for dozens of popular national brands, on Kroger's Web site.
2000: Kroger teams up with Priceline Webhouse Club to let customers use the Internet to name their own price for groceries at more than 2,300 Kroger-owned stores around the country.
2001: Sales exceed $50 billion for the first time ever. Kroger launches a restructuring that includes 1,500 layoffs and the consolidation of division operations in Nashville, Tennessee, into offices in Louisville, Kentucky, and Atlanta, Georgia.
2002: Kroger acquires 18 Raley's units, which it plans to convert to Food 4 Less or Smith's units; 17 Albertson's stores in the Houston, Texas, and surrounding areas; and seven Winn-Dixie supermarkets in Dallas, Texas. The firm is largest retail grocery store operator in the U.S.
2004: Kroger begins construction on new Kroger Marketplace stores in Ohio and Smith Marketplace stores in Utah. The Marketplace format, which includes general merchandise, is intended to allow the firm to better compete with retail giants like Wal-Mart.
2005 Jan.: The firm posts a fiscal year loss of $100 million, despite a 5% increase in revenues to $56.4 billion.
2005 Oct.: Kroger enters a bidding war for Albertsons, a struggling chain that put itself up for sale two months ago.
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12. Values Honesty : Integrity : Respect for Others : Diversity : Safety :
Doing the right things, telling the truth.
Integrity :
Living our values in all we do, unified approach to how we do business and treat each other.
Respect for Others :
Valuing opinions, property and perspectives of others.
Diversity :
Reflecting a workplace that includes a variety of people from different backgrounds and cultures, diversity of opinions and thoughts.
Safety :
Watching out for others, being secure and safe in your workplace.
Inclusion :
Your voice matters, working together works, encouraging everyone’s involvement, being the best person you can be.
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13. Mission Statement Actual
“OUR MISSION is to be a leader in the distribution and merchandising of food, health, personal care, and related consumable products and services. By achieving this objective, we will satisfy our responsibilities to shareowners, associates, customers, suppliers, and the communities we serve.
We will conduct our business to produce financial returns that reward investment by shareowners and allow the Company to grow. Investments in retailing, distribution and food processing will be continually evaluated for their contribution to our corporate return objectives.
We will constantly strive to satisfy the needs of customers as well as, or better than, the best of our competitors. Operating procedures will increasingly reflect our belief that the organization levels closest to the customer are best positioned to serve changing consumer needs.
We will provide all associates and customers with a safe, friendly work and shopping environment and will treat each of them with respect, openness, honesty and fairness. We will solicit and respond to the ideas of our associates and reward their meaningful contributions to our success.
We value America’s diversity and will strive to reflect that diversity in our work force, the companies with which we do business, and the customers we serve. As a Company, we will convey respect and dignity to all individuals.
We will encourage our associates to be active and responsible citizens and will allocate resources for activities that enhance the quality of life for our customers, our associates and the communities we serve.”
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® 2008, Tony Gauvin, UMFK

14. Vision Proposed
Our vision is to be America’s supermarket, and to continue to provide innovation and unparalleled value to our customers, employees, and shareholders.
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15. External Assessment
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16. Opportunities
Supermarket sales of drugs grew 6.9% to $27 billion in 2004.
Wal-Mart has a large, recruitable low-paid, nonunion workforce.
Organic food sales are up 19.5% annually over the last 5 years.
Hispanic shoppers spend $117/week vs. $87/week average on groceries.
Hispanic population growth rate = 13% = 4X average.
Margins for private-label products are 35-45% vs. 27% for national brands.
87% of consumers have tried private-label products.
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® 2008, Tony Gauvin, UMFK

17. Threats
Traditional drugstores are focusing on customer service and merchandising.
Mail-order pharmacies are the fastest-growing format in the industry (up 17.9%).
Health plans allow larger supplies of drugs for Mail-order pharmacies.
Drug price inflation has led to illegal drug importation.
Supercenters are dominating the market share of grocery sales.
Wal-Mart is tops in logistics technology.
Labor costs account for >50% of operating expenses.
Price pressure was the cause of the Southern California strikes.
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® 2008, Tony Gauvin, UMFK

18. EFE Matrix Key External Factors Weight Rating Weighted Score
Opportunities
Supermarket sales of drugs grew 6.9%.
0.07 3
0.21
Large, low-paid Wal-Mart workforce.
0.05 1
Organic food sales are up 19.5% annually.
0.15
Hispanics spend 34.5% more than average on groceries.
0.10 2
0.20
Hispanic population growth rate is 4 times the average.
0.08
0.16
Higher margins for private-label products. 4
87% of consumers have tried private-label products.
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19. EFE Matrix Threats Drugstores focusing on service and merchandise.
0.10 2
0.20
Mail-order pharmacies are the fastest-growing format.
0.08 3
0.24
Mail-order pharmacies can dispense larger prescriptions.
0.07
0.14
Drug price inflation has led to illegal drug importation.
0.05 1
Supercenters are dominating grocery sales.
0.30
Wal-Mart is tops in logistics technology. 4
0.40
Labor costs account for >50% of operating expenses.
0. 10
Price pressure caused Southern California strikes.
TOTAL
1.00
2.80
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® 2008, Tony Gauvin, UMFK

20. CPM 7-Apr-08 ® 2008, Tony Gauvin, UMFK Kroger Albertsons Safeway
Wal-Mart
Critical Success Factors
Weight
Rating
Weighted
Score
Market share
0.10 3
0.30 2
0.20 4
0.40
Financial position 1
Growing markets
0.05
0.15
Multiple formats
Customer database
Price competitive
0.45
0.60
Name recognition
Organized labor
Distribution system
Customer service
Consumer loyalty
Employee satisfaction
TOTAL
1.00
3.10
2.25
2.40
3.15
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® 2008, Tony Gauvin, UMFK

21. Key Points
Increasing organic and natural food selections helped to exploit that opportunity (growth in Hispanic populations)
Kroger’s strong private-label brands are a real boon to the bottom line
Kroger has online prescription fulfillment and mail order of prescriptions
Kroger must partner with drug makers to help reduce drug costs in order to curb importation
Kroger has maintained its market share against low-priced supercenters,
Kroger’s 3-tiered logistics system is a strong rival to the Wal-Mart machine
The overall score of 2.8 indicates an above-average job in responding to external forces.
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® 2008, Tony Gauvin, UMFK

22. Internal Assessment
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23. Stock Performance
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® 2008, Tony Gauvin, UMFK

24. Income Statement (Jan, 2006)
(In millions, except per share amounts)
2005 (52 weeks)
2004 (52 weeks)
2003 (52 weeks)
Sales $
60,553
56,434
53,791
Merchandise costs, including advertising, warehousing, and transportation, excluding items shown separately below
45,565
42,140
39,637
Operating, general and administrative
11,027
10,611
10,354
Rent
661
680
657
Depreciation and amortization
1,265
1,256
1,209
Goodwill impairment charge
—  
904
471
Asset impairment charges
120
Operating Profit
2,035
843
1,343
Interest expense
510
557
604
Earnings before income tax expense
1,525
286
739
Income tax expense
567
390
454
Net earnings (loss)
958
(104 )
285
Net earnings (loss) per basic common share
1.32
(0.14
0.38
Average number of common shares used in basic calculation
724
736
747
Net earnings (loss) per diluted common share
1.31
Average number of common shares used in diluted calculation
731
754
THE KROGER CO. CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended January 28, 2006, January 29, 2005, and January 31, 2004
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25. Balance Sheet (Jan, 2006) 7-Apr-08 ® 2008, Tony Gauvin, UMFK ASSETS
THE KROGER CO.
CONSOLIDATED BALANCE SHEETS
(In millions)
January 28, 2006
January 29, 2005
ASSETS
Current assets
Cash and temporary cash investments $
210
144
Deposits In-Transit
488
506
Receivables
680
661
Receivables - Taxes 6
167
FIFO Inventory
4,886
4,729
LIFO Credit
(400 )
(373
Prefunded employee benefits
300
Prepaid and other current assets
296
272
Total current assets
6,466
6,406
Property, plant and equipment, net
11,365
11,497
Goodwill, net
2,192
2.191
Other assets
459
397
Total Assets
20,482
20,491
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® 2008, Tony Gauvin, UMFK

26. Balance Sheet (2005) 7-Apr-08 ® 2008, Tony Gauvin, UMFK LIABILITIES
THE KROGER CO.
CONSOLIDATED BALANCE SHEETS
LIABILITIES
Current liabilities
Current portion of long-term debt including obligations under capital leases and financing obligations $
554 71
Accounts payable
3,550
3,598
Accrued salaries and wages
742
659
Deferred income taxes
217
286
Other current liabilities
1,652
1,721
Total current liabilities
6,715
6,335
Long-term debt including obligations under capital leases and financing obligations
Face value long-term debt including obligations under capital leases and financing obligations
6,651
7,830
Adjustment to reflect fair value interest rate hedges 27 70
6,678
7,900
843
841
Other long-term liabilities
1,856
1,796
Total Liabilities
16,092
16,872
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® 2008, Tony Gauvin, UMFK

27. Balance Sheet (2005) 7-Apr-08 ® 2008, Tony Gauvin, UMFK
THE KROGER CO.
CONSOLIDATED BALANCE SHEETS
SHAREOWNERS’ EQUITY
Preferred stock, $100 par, 5 shares authorized and unissued
—  
Common stock, $1 par, 1,000 shares authorized: 927 shares issued in 2005 and 918 shares issued in 2004
927
918
Additional paid-in capital
2,536
2,432
Accumulated other comprehensive loss
(243 )
(202
Accumulated earnings
4,573
3,620
Common stock in treasury, at cost, 204 shares in 2005 and 190 shares in 2004
(3,403
(3,149
Total Shareowners’ Equity
4,390
3,619
Total Liabilities and Shareowners’ Equity $
20,482
20,491
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® 2008, Tony Gauvin, UMFK

28. Financial Ratios 7-Apr-08 ® 2008, Tony Gauvin, UMFK November 2005 KR
ABS
SWY
WMT
Industry
Market Cap:
13.93B
8.79B
10.38B
204.01B
893.98M
Employees
289,000
241,000
191,000
1,700,000
6.47K
Qtrly Rev Growth (yoy):
6.80%
0.20%
7.20%
10.10%
5.30%
Revenue (ttm):
58.36B
41.30B
37.76B
305.37B
2.58B
Gross Margin (ttm):
23.81%
27.97%
29.03%
23.02%
27.08%
EBITDA (ttm):
3.10B
2.44B
2.26B
22.70B
147.21M
Operating Margins (ttm):
3.13%
3.12%
3.52%
5.87%
3.41%
Net Income (ttm):
-15.00M
510.00M
590.40M
10.80B
27.98M
EPS (ttm):
-0.021
1.374
1.313
2.569
1.16
P/E (ttm):
N/A
17.36
17.6
19.08
17.76
PEG (5 yr expected):
1.5
2.57
1.88
1.19
1.86
P/S (ttm):
0.24
0.21
0.28
0.68
0.25
ABS = Albertson's Inc.
SWY = Safeway Inc.
WMT = Wal-Mart Stores Inc.
Industry = Grocery Stores
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29. Net Profit Margin (mrq)
Financial Ratios
Entity
Market Cap
ROE %
Debt/
Equity
Price to
Book
Net Profit Margin (mrq)
Grocery Stores
53.17B 10
0.012
5.46
1.1
Kroger Co.
14.19B
-0.367
1.842
3.635
1.414
Safeway Inc.
10.48B
13.47
1.35
2.211
1.369
Whole Foods Market Inc.
9.84B
11.682
0.014
7.275
0.812
Albertson's Inc.
8.76B
9.455
1.222
1.59
1.05
Distribucion y Servicio S.A.
2.23B
7.436
0.733
2.425
1.112
The Great Atlantic & Pacific Tea Co.
1.22B
79.924
0.371
1.596
27.302
Casey's General Stores Inc.
1.14B
10.294
0.287
2.341
2.427
Weis Markets Inc.
1.13B
10.382
1.902
2.553
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30. Financial Ratios Trending not Done I ran out of time! 7-Apr-08
® 2008, Tony Gauvin, UMFK

31. Net Worth Analysis (Jan, 2006)
1. Stockholders’ Equity + Goodwill = 4, ,191
$ 6,581
2. Net income x 5 = 958 x 5=
$ 4,790
3. Share price = $18.47/EPS 1.32 = x Net Income 958 =
$ 13,404
4. Number of Shares Outstanding x Share Price = 731 x $18.47 =
$ 13,502
Method Average
$9,569
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® 2008, Tony Gauvin, UMFK

32. Strengths
A high-quality asset base with leading market shares in many of the nation’s largest and fastest growing markets.
Broad geographic diversity and multiple retail formats that allow Kroger to meet the needs of virtually every customer.
An extensive collection of consumer data generated from our customer loyalty cards plus a unique partnership with dunnhumby.
A successful track record of competing head-to-head against supercenters.
Outstanding private-label products that have earned industry-leading market share.
The financial strength and resources to build Kroger’s business for the future.
A prominent reputation in charitable giving and community involvement.
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33. Weaknesses Operates under two dozen banners.
Only owns 35% of store property.
Workforce is 71% unionized.
Jewelry stores are 11% of stores, but account for less than 1% of revenue.
Has not issued dividends since 1988.
Negative net income in 2004.
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34. IFE Matrix 7-Apr-08 ® 2008, Tony Gauvin, UMFK Key Internal Factors
Weight
Rating
Weighted Score
Strengths
A high-quality asset base with leading market shares in many of the nation’s largest and fastest growing markets.
0.05 3
0.15
Broad geographic diversity and multiple retail formats that allow Kroger to meet the needs of virtually every customer.
0.10 4
0.40
An extensive collection of consumer data generated from our customer loyalty cards plus a unique partnership with dunnhumby.
A successful track record of competing head-to-head against supercenters.
Outstanding private-label products that have earned industry-leading market share.
The financial strength and resources to build Kroger’s business for the future.
0.20
A prominent reputation in charitable giving and community involvement.
0.30
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® 2008, Tony Gauvin, UMFK

35. IFE Matrix 7-Apr-08 ® 2008, Tony Gauvin, UMFK Key Internal Factors
Weight
Rating
Weighted Score
Weaknesses
Operates under two dozen banners.
0.1 1
0.10
Only owns 35% of store property.
0.05 2
Workforce is 71% unionized.
Jewelry stores are 11% of stores, but account for less than 1% of revenue.
Has not issued dividends since 1988.
TOTAL
1.00
2.90
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36. Matrix Analysis
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37. SWOT Matrix 7-Apr-08 ® 2008, Tony Gauvin, UMFK Strengths – S
A high-quality asset base
Broad geographic diversity and multiple retail formats
An extensive collection of consumer data
A successful track record of competing head-to-head against supercenters.
Outstanding private-label products
Financial strength and resources
Reputation for charitable giving and community involvement.
Weaknesses – W
Operates under two dozen banners.
Only owns 35% of store property.
Workforce is 71% unionized.
Jewelry stores are 11% of stores, but account for less than 1% of revenue.
Has not issued dividends since 1988.
Negative net income in 2004.
Opportunities – O
1. Supermarket sales of drugs up
2. Low-paid Wal-Mart workforce
3. Organic food sales growth
4. High level of Hispanic spending
5. Hispanic population growth rate
6. High Margins for private-labels
7. High demand for private labels
SO Strategies
1. More pharmacies in stores (S1,O1)
2. Organic private-label (S9,O3-6-7)
3. Hispanic private-label (S9, O4-5)
4. Hispanic format (S4-5, O4-5)
5. Take Wal-Mart’s best employees (S10, O2)
6. New stores in Hispanic hot spots (S4, O5)
WO Strategies
1. Hybridize banners & push Kroger brands (W1, O6-7)
2. Replace some jewelry stores with organic markets (W4, O3)
Threats – T
1. Drugstore service/merchandise focus
2. Growth of mail-order pharmacies
3. Larger prescription rules for MOP’s
4. Illegal drug importation
5. Supercenters dominate grocery sales
6. Wal-Mart logistics technology
7. Labor >50% of operating expenses
8. Price pressure caused labor strikes
ST Strategies
1. Match drugstore offerings of service & merchandise. (S1-5, T1)
2. Grow online pharmacy business (S6-10, T2)
3. New stores in non union areas (S4, T7)
4. VP of unions (S10, T7-8)
5. Stress customer service in all operations (S6-7, T1-5-7)
WT Strategies
1. More hybrid banner supercenter-type stores (W1, T5)
2. Buy store property and save money (W2, T7-8)
3. Divert jewelry store funds into online pharmacy (W4, T2)
7-Apr-08
® 2008, Tony Gauvin, UMFK

38. Space Matrix y-axis = FS + ES = 1.4 + (-5.0) = -3.6
x-axis = CA + IS = (+5.0) = 3.6
7-Apr-08
® 2008, Tony Gauvin, UMFK

39. Space Matrix
7-Apr-08
® 2008, Tony Gauvin, UMFK

40. GSM
7-Apr-08
® 2008, Tony Gauvin, UMFK

41. BCG data All of the Company’s operations are domestic.
The Kroger Co. # of Stores % of Revenue Market Share
Supermarkets 2, % 1
Convenience Stores % 0.1
Jewelry Stores (A) <1% 0.1
Other (B) N/A <1% ?
Total 3, %
(A) Includes 122 locations operated inside our supermarkets and 290 in shopping malls.
(B) Represents sales by Kroger’s manufacturing plants to outside customers.
7-Apr-08
® 2008, Tony Gauvin, UMFK

42. Relative Market Share Position Industry Sales Growth Rate
BCG Matrix
Relative Market Share Position
High
1.0
Medium
.50
Low
0.0
Dogs IV
Cash Cows
III
Question Marks I
Stars II
Industry Sales Growth Rate
High
+20
Medium
Low
-20
7-Apr-08
® 2008, Tony Gauvin, UMFK

43. IE Matrix I II III IV V VI VII VIII IX IFE Scores Strong Average Weak
Hold and Maintain I II
III IV V VI
VII
VIII IX
High
3-4
Medium
2-2.99
Low
1-1.99
Scores
EFE 1
7-Apr-08
® 2008, Tony Gauvin, UMFK

44. Matrix analysis 7-Apr-08 ® 2008, Tony Gauvin, UMFK
Alternative Strategies
BCG IE
SPACE
GRAND
COUNT
Forward Integration x 2
Backward Integration
Horizontal Integration
Market Penetration 3
Market Development
Product Development
Concentric Diversification 1
Conglomerate Diversification
Horizontal Diversification
Joint Venture
Retrenchment
Divestiture
Liquidation
7-Apr-08
® 2008, Tony Gauvin, UMFK

45. QSPM 7-Apr-08 ® 2008, Tony Gauvin, UMFK Opportunities Threats
Strategic Alternatives
A - Diversification of Private Label Natural and Ethnic Products
B - Replace Convenience & Jewelry Stores with Fuel Centers A B
Key Factors
Weight AS
TAS
Supermarket sales of drugs growth
0.07
---
Large, low-paid Wal-Mart workforce
0.05
Organic food sales are up 4
0.20 1
Hispanics spend more than average
0.10
0.40
High Hispanic pop. growth rate
0.08
0.32 2
0.16
High margins for private-label
Popularity of private-label products
1.32
0.41
Drugstore focus on service and merchandise
Mail-order pharmacy (MOP) growth 3
0.24
MOP’s dispense larger prescriptions
Illegal drug importation
Supercenters dominate grocery sales
0.30
Wal-Mart logistics technology
Labor >50% of operating expenses
Labor strikes
1.04
1.38
Opportunities
Threats
7-Apr-08
® 2008, Tony Gauvin, UMFK

46. QSPM 7-Apr-08 ® 2008, Tony Gauvin, UMFK 2.30 1.65 0.25 0.60
Quality asset base
0.05
---
Leading market shares
0.10 4
0.40 3
0.30
In large and growing markets
Geographic diversity
0.20
0.15
Multiple retail formats 2
Consumer database
Dunnhumby partnership
Competitive with supercenters
Outstanding private-label products 1
Financial strength
2.30
1.65
Too many banners
0.1
Too much leased property
Unionized workforce
Many low-revenue jewelry stores
No dividends in nearly 20 years
0.25
0.60
Sum Total Attractiveness Score
4.91
4.04
Strenghts
Weaknesses
7-Apr-08
® 2008, Tony Gauvin, UMFK

47. EPS/EBIT $ Amount Needed: $ 3,000M
EPS-EBIT Analysis for Kroger Company (assume $1,000 million is needed)
Figures in millions (fiscal year: 2002)
$ Amount Needed: $ 3,000M
Stock Price: $ 18
Tax Rate: 40%
Interest Rate: 5%
# Shares Outstanding: 725.5M
7-Apr-08
® 2008, Tony Gauvin, UMFK

48. EPS/EBIT Analysis
Conclusion: Kroger Company should use debt financing to raise the $ 3,000 million on the High EBIT estimate; however, should consider using stock financing on the Low EBIT.
7-Apr-08
® 2008, Tony Gauvin, UMFK

49. Recommendations
Diversification of Private Label Natural and Ethnic Products
Combination of Market Penetration & Product Development
Replace Convenience & Jewelry Stores with Fuel Centers
Get rid of the dogs and build a new star
Bomb Wal-Mart (Just Joking!)
7-Apr-08
® 2008, Tony Gauvin, UMFK

50. Implementation
Build new factories and retool existing to manufacture Ethnic (Hispanic) and Natural foods in desired locations close to targeted geographic markets
$250 Million
Create a new national marketing campaign to inform public on new product
$500 Million
7-Apr-08
® 2008, Tony Gauvin, UMFK

51. Evaluation Quarterly & Yearly Financial Statements
Annual strategic meetings of division
management and corporate management
7-Apr-08
® 2008, Tony Gauvin, UMFK

52. Kroger 2006 Number 26 on Fortune 500 (US Companies)
Dropped from 18
Wal-Mart is Number 2
183th largest Company in the World
Wal-Mart is 10th
Carrefour is 88th
Sales projected at $65 Billion
Steady increases
Net Profit Margin 1.7%
Better than last year but still down from 2.5% in 2002
7-Apr-08
® 2008, Tony Gauvin, UMFK

53. Impact of Fuel Centers
7-Apr-08
® 2008, Tony Gauvin, UMFK

54. Questions?
7-Apr-08
® 2008, Tony Gauvin, UMFK

55. Sources of Information
The 2006 Kroger Fact Book
Kroger Case study notes
Alen Badal: The Union Institute
Henry Jackson McGill, Francis Marion University
History from Notable Corporate Chronologies, Online Edition, Thomson Gale, 2006
Datamonitor
The Kroger Co.
Food Retail in the United States
Global Food Retail
7-Apr-08
® 2008, Tony Gauvin, UMFK