Kroger Co., Cincinnati, said it has achieved integration synergies of $380 million a full year ahead of schedule.
f Fred Meyer, Inc., in 1998 had been expected by the end of fiscal 2002 but were already apparent in results for the year ended Feb. 3, 2001.
He said Kroger was able to achieve its goals ahead of schedule by assigning teams to specific projects and setting targets and timetables, "and we will use the same team approach to achieve our targets over the next two years, as we focus on a dozen or so new initiatives in such areas as margin improvement and sales. And the industry is not fully consolidated, so there are still consolidation opportunities as well."
Speaking at the Food & Drug Retailing Conference sponsored by Credit Suisse First Boston here, Pichler said 65% of the synergy savings came from merchandising and purchasing, compared to the 50% originally anticipated; 13% from consolidation in its Arizona division, rather than the 25% originally projected, and 22% from systems consolidations and other activities, instead of the expected 25%.
In purchasing, he said the company is buying centrally for all categories, with additional synergies anticipated in the area of private label.
The consolidation in Arizona involved combining Fred Meyer operations with Kroger's Fry's and Smith's stores there; the conversion of Fred Meyer stores to the Fry's Marketplace format, "which was not part of the original integration plan," he noted, and the consolidation of distribution facilities.
"All that was more challenging than we had expected," Pichler said, "though we're now seeing positive synergies there."
Pichler said Kroger's plans for information systems -- to consolidate four systems into two -- has been completed at all Smith's stores, with conversions at Quality Food Centers in western Washington due to be completed this quarter and with King Soopers, City Markets, Fry's and Ralphs due for completion by the end of the next fiscal year.
Pichler said Kroger's No. 1 goal is to increase earnings per share by 16% to 18% a year beginning in the current fiscal year, with 10% to 11% of the growth coming from annual sales gains of 5% to 6%; 4% to 5% from annual margin improvements of 20 basis points, and 2% from deleveraging, refinancing and stock repurchases.
He said Kroger sees "significant growth opportunities" in two of its formats:
Food 4 Less, "a format we can take to a lot of places, including those where we start with zero market share." Food 4 Less stores have been expanding in northern California, he said, and they will be introduced into two new markets in California (Fresno and El Centro) later this year.
Marketplace, a format with expanded general merchandise similar to a Fred Meyer multi-department store, only less fashion-oriented and smaller (120,000 square feet compared with 180,000-plus square feet).
In other comments, Pichler said:
Kroger will add natural food departments at about 150 stores this year, for a chain-wide total of 400.
It will also add 73 to 93 fuel centers to boost the number of fuel centers from 77 to between 150 and 170 by the end of the year.
