KROGER MAY BE EYEING MOVE BACK INTO FLORIDA

PHIL ADAMSAK

PORTLAND, Ore. -- Kroger Co., Cincinnati, may be contemplating a move back into Florida, Robert G. Miller, vice chairman and chief executive officer of Fred Meyer Inc. here, said last week.

Miller is expected to be named vice chairman and chief operating officer of Kroger once that chain's acquisition of Fred Meyer is completed early next year.

Speaking at the annual fall conference of the Food Industry Leadership Center at Portland State University, Miller said he expects Kroger to try to crack the Florida market, where it tried and failed 10 years ago.

"That's the only fast-growing state we're not in," Miller said. "It's certainly an area we would like to be in."

Miller also said he expects Quality Food Centers, Bellevue, Wash. -- a Fred Meyer subsidiary -- to expand "significantly" in the Portland area, where it currently operates two stores.

He also told the conference he expects Fred Meyer to make moves in northern California, particularly around San Francisco, where Ralphs Grocery Co. -- another Fred Meyer subsidiary -- already operates four FoodsCo. warehouse stores and 22 small Bell and Cala Foods stores.

According to Miller, it's been an exciting 18 months for Fred Meyer Inc., as well as for Miller himself. "Eighteen months ago I was a can-stacker, and today I'm a merger expert," Miller quipped.

During that span Fred Meyer acquired Smith's Food & Drug Centers, Salt lake City, in one package; and QFC, Ralphs, Ralphs' Food 4 Less warehouse store division and Hughes Family Markets, Irwindale, Calif., in southern California in a separate transaction -- momentarily transforming Fred Meyer into the nation's fifth-largest food chain before last month's announcement that it will potentially become part of the industry's largest volume chain.

Miller said the mergers and acquisitions have been part of a single strategy aimed at increasing the value of Fred Meyer stock, which has more than doubled in a year and a half, rising from $19.38 per share in February 1997 to $44.78 in April 1998 and about $49 in October.

Following the proposed Kroger-Fred Meyer merger, Kroger would be a $43 billion company with 2,500 stores, which Miller said is likely to open up new buying opportunities.

According to George Golleher, president and chief operating officer of Fred Meyer, the company's merger activities have resulted in more than $250 million in cost savings over the past year. The company said Golleher has been responsible for blending the chain's acquisitions into the Fred Meyer structure while maintaining the corporate culture of each. Among the savings, according to Golleher:

* At Smith's, $55 million -- higher than the original estimate of $40 million in cost savings -- resulting from consolidation of distribution and manufacturing facilities; elimination of job duplication; conversion of management information systems and point-of-sale systems to Fred Meyer platforms; and the addition of nonfood at the Smith's-owned Smitty's operation in Phoenix. The biggest surprises, Golleher said, were in reduced costs of remodeling, purchasing and merchandising.

* At QFC, $30 million in cost savings, the result of integrating distribution and manufacturing, establishing a best-practices group, converting information systems and eliminating duplicate positions.

* At Ralphs, $155 million in cost savings, including $50 million in general administration and $30 million in distribution and transportation.

Complicating the Ralphs conversion, Golleher said, was the need to bring 55 Hughes Family Markets (formerly a subsidiary of QFC) over to the Ralphs programs.

The conversion came in two phases, he said, beginning with backstage changes that were invisible to customers -- taking over Hughes' distribution and marketing, merging point-of-sale systems, eliminating administrative overhead and closing the Hughes offices in eight weeks while retaining all retail personnel. Other changes included replacing Hughes private-label line with Ralphs brands and dropping separate Hughes advertising (for a savings of $11 million), Golleher said.

The second phase, he said, involved converting Hughes' stores to Ralphs programs, including remerchandising all stores, retraining 3,000 employees, changing all signs and uniforms and implementing best-practices groups to facilitate the transition.

Golleher said Kroger is looking at national purchasing and expanded nonfood activities as primary areas for savings. Miller said the sharing of best practices among the various Fred Meyer subsidiaries has been useful, enabling the companies to compare practices and recommend preferences for the entire group, and that approach will continue once the merger with Kroger is completed.

According to Miller, the information being shared includes Fred Meyer's experience with offshore suppliers, its experience in offering three levels of private-label products (good/better/best) and the knowledge Ralphs has gathered from its Buena Comida private-label line for Hispanic customers.

Fred Meyer subsidiaries have also achieved greater efficiencies by sharing manufacturing facilities, including creameries, bakeries, ice-cream and frozen-dough plants, Miller said.