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INDEPENDENCE DAY AND THE FIREWORKS OF SUCCESS

Since this is Independence Day, let's blast off a little fireworks of our own and celebrate the fact that what has long been considered a formula for retailing success really works.The formula is as simple as this: The right product priced the right way and merchandised in the context of an optimal service environment will yield superior sales results.That's what Kroger Co. found out in the course

Since this is Independence Day, let's blast off a little fireworks of our own and celebrate the fact that what has long been considered a formula for retailing success really works.

The formula is as simple as this: The right product priced the right way and merchandised in the context of an optimal service environment will yield superior sales results.

That's what Kroger Co. found out in the course of a long effort to set the proper balance between margin and service. That balance is not an easy one to find. Shoppers often are a fickle lot.

Here's part of the challenge: It's generally the case that if pricing isn't sharp enough, shoppers may not give the supermarket enough credit for superior service to make the store a primary destination. It's also possible to go too far the other way, to reduce prices and margins below the level needed to win and retain business.

Adding to the complexity of the situation, it's also possible to present such a robust service and merchandising offer that shoppers assume a supermarket must be a high-priced shopping venue no matter how toned up price points may be.

Kroger's effort to find the right price and right service was a work in progress for quite a while. In March, Kroger reported that its fiscal year, which ended Jan. 29, had been marked by a gross-margin reduction to 25.08% of sales compared to 26.43% at the conclusion of the previous year. That reduction was unnecessarily sharp, it developed.

"We obviously achieved sales benefits for the price of [margin] investment, but the cost of that investment was higher than it should be or needs to be," said Kroger's David Dillon at the time. "We should have been able to achieve the sales growth without that kind of gross investment. Our intent this year is to prove that point."

Well, that's what has happened, at least so far this fiscal year. As was reported last week, Kroger achieved a quarterly sales gain of 6.2% and an earnings increase of 12% on a gross margin of 25.19%. It pays to get to the Goldilocks margin plan: Not too warm, not too cool.

It's encouraging to see that a large-scale retailer such as Kroger can find the right formula to improve its profitability. Two other large-scale retailers have embarked on quests of their own aimed at pumping up profitability. Let's take a look at what they're doing.

Safeway is rolling out a refined "branding" strategy for its stores, which involves calling attention to the shopping experience and to proprietary product offerings, such as upscale meats, expanded produce and more prepared food. Creating a branded experience across a disparate portfolio of stores will be no easy task, but if it succeeds it should result in sales increases. Shoppers who can predict the experience they are likely to have before they enter a store are far more likely to enter than those who can't make that prediction.

Meanwhile, Albertsons, too, is considering margin investments. Possibly because of Kroger's earlier experience, Albertsons has decided to keep margins stable to protect profitability.

Regardless, let's hope what Kroger has done shows that large-scale retailers can find a strategy that's worth fireworks.

TAGS: Kroger