Kroger Communications Evolve

ELLIOT ZWIEBACH

NEW YORK — The supermarket industry is on “the edge of a totally different world” in terms of communicating with consumers, David Dillon, chairman and chief executive officer of Cincinnati-based Kroger Co., told investors at the Retail Days Conference sponsored by Citigroup here last week.

He said he was referring to a variety of loyalty-building programs Kroger and other supermarkets are developing that create “complex relationships that touch customers' lives in a variety of ways,” including loyalty cards, paperless coupons and a Kroger program called “iWireless” that communicates directly with customers when they qualify for special discounts because they've spent a certain amount of money at Kroger.

“It's not clear how this will all develop,” Dillon added. “There are dozens, if not hundreds, of companies trying to find new opportunities to use technology, and as we sift through those, it will be a totally different world for shoppers.”

In response to a question, Dillon said he expects inflation to return at a moderate pace later this year — and he said he also expects tonnage to shift moderately.

“We can operate in any environment, though a small amount of inflation works best because sales move quicker than the rise in expenses that are behind them, and we've found ways to adapt and make it profitable. What made it so difficult last year was the quick change from inflation to deflation.”

Dillon said Kroger is seeing small signs of economic recovery, “with some improvements in sales in certain categories as people feel they can spend more — in categories like jewelry, floral, Starbucks and wine, plus Private Selection, the chain's high-end corporate brand, and we expect that trend to continue for the next year or two.”

Commenting on industry consolidation, Dillon said the signs are already in place for more companies to sell over the next few years, “but it can take a long time to play out.”

“Bankers don't like to write off bad loans, so they help keep retail businesses from failing. I've seen a lot of companies that will fold someday that are kept alive artificially by lenders and others, but the financial strain on some is pretty intense.

“In some cases their assets are for sale but the quality of the facilities aren't up to Kroger standards, or else the price is not reasonable.”