KROGER: AFTER ACQUISITIONS, WILL GROW ORGANICALLY

RACHEL MELCER

CINCINNATI -- The Kroger Co. here said last week that, after years of aggressive growth through acquisitions, it now has the tools it needs to stave off competition from superstores and to focus on organic growth.

Speaking during the company's annual meeting, Joseph Pichler, Kroger chief executive officer, told shareholders the company is now in a position to be "very selective" about further acquisitions, although he did not rule out the possibility of buying more stores in the coming year.

Instead, according to Pichler, Kroger is planning to use its existing assets to grow sales and market share:

The company will add 100 food items to the collection of 1,100 Private Selection goods it introduced last year. While selling store-brand products cuts into revenue, it increases gross profit margins by 10% per item, Pichler said.

Kroger stores will continue to add general merchandise and seasonal goods to their shelves. The supply of everything from patio furniture to stereos was made available through the 1998 acquisition of Portland, Ore.-based Fred Meyer Inc., whose stores feature both general merchandise and groceries.

Approximately 200 natural food departments will be added to Kroger stores by the end of fiscal 2001, capitalizing on booming demand. Americans spent an estimated $23 billion on natural foods last year, up from $9 billion in 1995, Pichler noted.

Kroger also said it expects to continue seeing "double-digit" sales growth in its 1,600 in-store pharmacies.

And the company will continue to build on its goal of providing "one-stop shopping" by adding between 36 and 56 more gas stations to its stores this fiscal year. It now has 114 gas stations, up from 28 at this time last year.

Pichler also hinted at aggressive technology-related plans, without revealing details. Kroger will spend $200 million on "a dozen new initiatives" designed to increase sales and supply chain efficiency.

The company will also continue to buy back stock and pay down debt -- all while growing organically. Kroger will open or expand between 110 and 120 stores and remodel another 180 this year.

"Our company is in very, very good condition," said Pichler. "We are focused squarely on the goal of increasing shareholder revenue."

He predicted that Kroger Co. will increase earnings per share by between 16% and 18% through fiscal 2002, with 15% annual growth after that -- all without further acquisitions.

"Strong free cash flow enables Kroger to invest in significant new projects," Pichler said. "And there are significant opportunities to increase sales in existing stores."