A prolonged recession and food price deflation over the last 18 months combined to give Kroger Co.’s “Customer First” strategy its sternest test, but Dave Dillon resolutely stuck to his guns.
When the dust settled, Kroger was one of the few food retailers to gain market share and grow sales during the downturn, even as those gains came at a cost to its bottom line. Competitors, who either got a later start than Kroger on price investments or couldn’t bear to sacrifice profits while making them, surrendered share in the same period.
“That’s the kind of leader Dave Dillon is,” remarked Neil Stern, senior partner at McMillan Doolittle, Chicago. “He’s saying, ‘This is the right thing for Kroger in the long term, and we will continue to be on the road we’re on.’ And they are continuing to execute exactly what they set out to do.”
Analysts noted that Kroger’s results over the last year weren’t particularly popular on Wall Street. But they give Dillon credit for dealing with the earnings bruises forthrightly.
“The notable thing to me about David Dillon is that he’s not only one of the most capable CEOs in the industry, but he’s the straightest shooter, and that helps them succeed with all of their stakeholders, including employees and Wall Street,” Gary Giblen, an analyst with Quint-Miller & Co., New York, told SN. “With Wall Street, he’s devoid of any private agenda.”
This came into play when Dillon told analysts last year that despite their indications that the industry was poised to grow, Dillon and Kroger sensed customers were pessimistic, and subsequently invested heavily in shelf pricing. The actions resulted in a massive net loss, but ultimately eked out sales and market share gains. Dillon, analysts later noted, was on-target regarding the consumer mood.
“The industry is in a situation where most of the operators were losing market share and earnings were down. Kroger saw what was coming and decided to hit the accelerator on pricing coming into ’09 and that worked,” Andrew Wolf, an analyst at BB&T Capital Markets, Richmond, Va., told SN. “They were able to see where things were going early. Earnings were down a lot, but they gained share, outperforming the industry. And if you believe as I do that we will come out of this downturn as we head to 2011, you want to go into the recovery with more share. That’s what they set out to do.”
Kroger’s next challenge is to maintain the share it has won while improving profits. “They need to strike the right balance,” Wolf said. “But because they were the first to go into a price-cutting mode, they are positioned to be the first to go into a growing-profit mode. They will do that at a measured pace because the recovery will probably be slow.”
In written remarks to SN, Dillon said supportive family and co-workers and his own sense of hard work have contributed to his leadership style.
“I believe there is value in every job and learning the value of a hard day’s work is a lesson that has stayed with me throughout my career in the grocery business,” he said. “Along the way, I have been fortunate to be surrounded by supportive family, friends and colleagues who I count on for advice and honest feedback about what I can do to better serve our customers, associates and shareholders. At Kroger, we encourage leaders to create an environment where feedback is welcome and where everyone’s input is valued.”
