David Dillon

Power 50 Profile Ranking: 1
Title: chairman and CEO
Company: Kroger Co.
Key Developments: Kroger assumed a clear leadership position in pacing industry sales growth
What's Next: Maintain sales momentum while managing inflationary pressures

Kroger might not have predicted the current economic slowdown, but it certainly was well prepared for it.

The Cincinnati-based retailer, the nation’s largest operator of traditional supermarkets with about $70.2 billion in sales last year, has positioned itself perfectly to capture a share of the wallets of today’s hard-pressed consumers.

In an interview with SN earlier this year marking Kroger’s 125th anniversary, David Dillon, Kroger’s chairman and chief executive officer, said his company’s willingness to evolve enabled it to be ready for the current environment.

“I think we are better positioned because we have focused some of our attention on price,” he told SN. “We are a better value proposition today than we were 10 years ago — that better positions us for the customers that are interested in that issue.”

Kroger has been posting industry-leading sales gains for several quarters, setting an example of how traditional supermarkets can compete with the shrewd use of customer analytics, strong private-label offerings, promotions that resonate with customers and service levels that set it apart from the discounters.

Chuck Cerankosky, an analyst with FTN Midwest, Cleveland, said Dillon spearheaded the company’s development of a sound strategy for Kroger to prosper, and then stuck by its plan.

“He looked at the business after the last economic slowdown, and after going through the painful Southern California strike, and he saw how the business needed to be changed in the face of many more nontraditional competitors,” he said. “I give David a great deal of credit for executing a strategy that bothered Wall Street for a while. Market share has picked up, they have been a catalyst for consolidating markets, and their plan is working.”

In reporting results for its first fiscal quarter last month, Kroger surpassed expectations with same-store sales gains of 5.8% (that figure was 9.2% including fuel sales). It was the ninth consecutive quarter in which samestore sales increased by 5% or more, in an industry that previously had been chugging along with sales gains in the 1%-2% range.

“[The first-quarter] results prove that Kroger can successfully mitigate (and excel) in a challenging consumer and commodity cost environment, while continuing to gain share, reduce prices and expand private-label penetration,” Karen Short, an analyst with Friedman, Billings, Ramsey & Co., New York, wrote in a research note.

Kroger has consistently taken a leadership role in projecting its value image this year, with programs ranging from awarding a 10% bonus for exchanging economic stimulus checks for Kroger gift cards, to offering 10 cents off a gallon of gas for every $100 spent on groceries. The initiatives fit into Kroger’s broad “customer first” philosophy, in which the needs of the shopper guide the company’s strategic direction.

“These types of programs and our associates’ exceptional ability to execute them well are just some of the reasons Kroger’s business is growing,” Dillon said in the first-quarter conference call. “Our strategy is helping us strengthen our connection with customers at a time when many shoppers are looking for the best options to stretch their dollars.”

Among the keys to the company’s performance has been its private-label program. Dillon projected that its highest-end store brand, Private Selections, will become a $1 billion brand this year, with such new offerings as Angus beef steaks and artisan breads, while its core mid-tier Kroger brand also continues to gain sales.

“One piece of advice I occasionally give customers who are interested in saving money,” Dillon told SN in the interview earlier this year, “is that unless you find a national brand occasionally is priced below our Kroger brand, you should always buy the Kroger brand, because not only is it as good as the national brand, but it is a darn sight cheaper. A lot of people realize that, and that is why the growth in our Kroger brand has been so good.”

Dillon, a scion of the Dillon’s chain that was acquired by Kroger in 1983, told SN that he learned to be an effective CEO from some of his predecessors at the company.

He began his friendship with Joseph Pichler, Dillon’s predecessor as chairman and CEO, when Pichler was a professor at the University of Kansas Business School and Dillon was a student there.

Dillon recalled writing a note to Pichler when Kroger lured him away from academia to join the company.

“‘Dear Joe, I am so pleased you are going to be here, and we will hopefully learn this business together,’” Dillon said he recalled saying in the letter.

“I had no idea how true that statement would end up being,” Dillon told SN, noting that he reported to Pichler for much of his career, and continues to meet him for lunch quite often.

“I still count him among my advisors, and as a friend and as a mentor.”

Other former executives in the Kroger network of chains whom Dillon considers mentors include Lyle Evringham, who was Pichler’s predecessor as chairman and CEO; Chuck Fry, whom Dillon credits with teaching him how to be a merchant; and Dick Bere and Ray Rose.

“Those are some of my mentors in the industry, and there have been many others,” Dillon said. “There is no doubt in my mind I would not have been successful in the business, and would certainly not be in the position I am now without each and every one of those individuals.”

— MARK HAMSTRA