KROGER SIGNS NEW BAKERY PACT WITH EARTHGRAINS

CAROL KROSKEY

Cincinnati -- The Kroger Co. based here and Earthgrains Co. have announced that starting in mid-September, Earthgrains will supply retailer's private-label store branded breads and rolls to 174 Kroger Food Stores in Texas and Louisiana.

As a result, Kroger will phase out baking operations at its bakery manufacturing facility, Texas Bakery, in Houston.

"The quality of Earthgrains' products was a key consideration in our decision to choose them as our bakery supplier," said Paul Bernish, Kroger spokesman. "Our shoppers respect the quality image of the Kroger brands. We wanted an assurance that quality and consistency in our bread products would continue, so our shoppers continue to have confidence in Kroger brands."

Kroger's Texas Bakery has baked Kroger-branded breads and rolls since the early 1970s. In fact, before the Earthgrains agreement, Cincinnati-based Kroger operated a total of six bakery manufacturing facilities dedicated to producing Kroger's private-label breads, rolls, buns, sweet goods, cookies, crackers and snacks. The planned phase out of Kroger's Texas Bakery will leave it with five other captive bakeries, located in Anderson, S.C.; Bowling Green, Ky.; Columbus, Ohio; Indianapolis; and Memphis, Tenn.

"The Kroger Co. constantly reviews the performance of the company's assets," said Bernish. "Because of the somewhat unusual circumstances that emerged after Kroger merged its Houston and Dallas divisions to create the Southwest Marketing Area, we took a closer look at the Texas Bakery. Because the Earthgrains Co. has bakeries in both Houston and Dallas, we determined that it would be more cost-efficient to allow Earthgrains to supply bread products to the Southwest Marketing Area."

Earthgrains, whose corporate headquarters are in St. Louis, operates 44 U.S. bakeries, as well as two refrigerated dough plants that serve the southern half of the United States. Earthgrains' major brands include Colonial, Rainbo, IronKids, Earth Grains, Heiner's, Grant's Farm, San Luis Sourdough, Break Cake and Merico.

"Every market is a little different," Bernish said, "so this agreement with Earthgrains shouldn't be perceived as a template for any of our other locations or business divisions. However, because Earthgrains was already supplying our stores with their high-quality products, we feel every confidence that our shoppers won't notice the difference when Earthgrains begins supplying our Kroger-branded breads and rolls."

The Texas Bakery's manufacturing and sales and distribution personnel will be interviewed by Earthgrains to fill any openings or new positions at its bakeries. Said Earthgrains spokeman Matt Hall, "Although Earthgrains already supplies Kroger stores in the southwest market, some of the territories will be new. We expect to add more than 30 routes to service these new accounts."

The agreement with Earthgrains will bring advantages to both companies, according to officials from both companies. "Earthgrains would like to become the preferred supplier to customers, and to be able to enhance our customer service," Hall said. "We feel that we offer expertise in bakery production, and we've enjoyed an excellent relationship with our retail customers as a result. Because we already were selling our branded products in Kroger stores, the company was familiar with our quality and service."

When Earthgrains begins distributing the Kroger-branded products this fall, its route drivers will deliver them and service the private-label breads and rolls in the commercial bread aisle, just as they do the Earthgrains products.

"This supply agreement will help us to manage the bread aisle, particularly through the use of our information technology capabilities," said John Iselin Jr., president of Earthgrains' U.S. bakery products division. "We'll use our expertise in category management to make sure we get the right product mix in stores for the benefit of consumers, Kroger and Earthgrains. Earthgrains has already worked with Kroger to enhance super premium bread sales in some stores in north Texas, based on demographic and market-research analysis."

Earthgrains' technological capabilities will allow it to move aggressively into paperless transactions, another attractive incentive for its customers, according to Hall.

"Our category management software allows us to analyze the customer demographics by store," he said. "As a result, we can determine not only the best layout for the products, but also the best mix of products, both branded and store brand. That will enable us to draw more sales to both groups of products. In fact, Earthgrains in the industry leader in using scanner-based technology. In addition, each route driver is equipped with handheld computers that can combine sales data with category management. That's a real help in merchandising the bread aisle."

Kroger's Bernish agreed, saying that "as a company, we are working to achieve paperless invoices. The more accurate the billing procedures used by our suppliers, the more efficiently they can be processed and the less costly it is to the company."

Earthgrains already has experience rolling out partnerships with supermarket operators that maximize production efficiencies and bakery sales. In 1996, Jackson, Miss.-based Jitney-Jungle Stores of America came to a similar arrangement with Earthgrains. Jitney-Jungle closed its captive bakery, and Earthgrains began to supply both private-label and branded products to Jitney-Jungle stores from a previously under-utilized Earthgrains plant. "We were able to prove to retailers that taking a different approach to setting the bread aisle, by having the right product in the right place at the right time through technology, can be very successful," said Iselin, in an interview last year.