CINCINNATI -- Kroger Co. here plans to boost capital expenditures to about $850 million this year and in each of the next two years -- the largest capital commitment in the company's 113-year history, Joseph A. Pichler, chairman and chief executive, told shareholders at the chain's annual meeting here. Kroger initiated an accelerated investment program three years ago "and the returns from these earlier investments have been outstanding," according to Pichler.
"Kroger is successfully achieving our two major goals: generating solid current earnings
increases while investing in strategic projects that will build future earnings." Also at the meeting, Pichler announced that Kroger expects to achieve an investment-grade rating on its stock this year, based on the company's 1995 financial performance -- which included a decline of $372 million in long-term debt, a 4.5% drop in interest costs and a decline in net operating working capital to a negative $10.5 million.
An investment-grade rating "would save substantial borrowing costs and attract new investors to Kroger stock," Pichler explained.
For expansion, the chain is targeting four marketing areas -- Atlanta, Michigan, Nashville, Tenn., and Phoenix, "[where] we face aggressive competition or where we have attractive new-store opportunities in fast-growing neighborhoods," noted David Dillon, president and chief operating officer.
Kroger spent a record $726 million on capital projects in 1995, which represented a 36% increase over 1994 spending, according to Dillon. One factor in the company's ongoing spending rise was its decision to increase the number of company-owned stores and other properties, he said. A third of this year's capital budget is earmarked for company-developed projects, including land, buildings and warehouses, he added. "Self-development and ownership of stores and properties is important because it saves approximately $1 per square foot in annual rent as compared to leasing," Dillon explained. "As a consequence, Kroger invested $313 million in land and buildings in 1995, compared with $195 million in 1994, which enabled us to open or expand 23 more company-owned stores than in the prior year." Of Kroger's total of 1,325 food stores, 237 units, or 18%, are company-owned, he noted. Another part of the budget will be invested in systems and logistics, including field tests of computer-assisted ordering and a new warehouse inventory network, Dillon said. Although he did not say how much would be invested in those areas this year, Dillon said Kroger invested $90 million last year in management information and distribution systems, including expansion of three distribution centers and construction of a fourth in Colorado to handle slow-moving items.
He added that greater use of information systems has enabled Kroger to more accurately pinpoint potential sales during holiday seasons. During Easter, for example, stores were traditionally pleased when they sold out of candy before Easter Sunday, he explained. However, by using scan data from 1995 and demographic information on customer preferences to generate store orders this year, Kroger had product available through the holiday and increased candy sales 29%.