KROGER TAPS OPERATING CHIEF, ADDS EVP POSITION

JON SPRINGER

CINCINNATI -- Kroger Co. here last week announced a series of management changes that filled the company's vacancy at the chief operating officer slot and created a position focused on strategic planning and merger synergies.

Kroger said David M. Dillon, company president, has taken on the additional role of chief operating officer, filling the vacancy created when Robert G. Miller resigned to take a top-level position with Rite Aid, Camp Hill, Pa., in December. W. Rodney McMullen, Kroger chief financial officer, has been named to the new position of executive vice president for strategy, planning and finance. McMullen is responsible for strategic initiatives, achievement of merger synergies, business planning and capital planning, the company said.

J. Michael Schlotman, who was vice president for financial services and control, has been named group vice president and chief financial officer, and reports to McMullen.

The moves "put McMullen and Dillon in the limelight," as Kroger attempts to follow through on its synergy savings goals promised as a result of its merger with Fred Meyer Inc., Portland, Ore., Chuck Cerankosky, equity analyst with McDonald & Co., Cleveland, told SN.

Kroger, which closed the $13 billion Fred Meyer deal in April, said it expects to achieve $155 million in synergy savings for the 1999 fiscal year, $260 million in fiscal 2000, $345 million in fiscal 2001 and $380 million in fiscal 2002. The savings would come in the form of administrative cost reductions, and reduced costs in purchasing and in manufacturing.

John Heinbockel, equity analyst at Goldman, Sachs & Co., New York, said the changes will "ensure that Kroger does not get left behind in a period of dramatic change within the sector." McMullen's appointment will be the most significant, Heinbockel said, as he will lead Kroger's efforts not only in consolidation but the Internet and the rollout of new store formats.

"Mr. McMullen is a very smart, thoughtful executive with a reasonably good balance of imagination, conservatism and attention to detail," Heinbockel said. "We believe that he will be able to more positively impact EBITDA and shareholder value."

The company announced several other executive changes last week as well:

Don W. George was named executive vice president. George, who had been senior vice president since 1997, is responsible for working with other executives to enhance Kroger's private-label business.

Donald E. Becker, previously president of the Indianapolis-based Central Kroger Marketing Area, was named senior vice president. He is responsible for various Kroger regions.

Paul Scutt, who had overseen Kroger's Dillon, King Soopers, City Markets and convenience stores, assumes Becker's former position as leader of the Indianapolis KMA. "This realignment will position Kroger for continued growth by establishing a corporate-wide focus on operations, merchandising and support systems," said Joseph A. Pichler, Kroger chairman and chief executive officer. "The structure enhances Kroger's ability to achieve synergies from economies of scale throughout the organization."

Pichler added that Kroger "remains on track" to meet its synergy-savings goals, and that the company will generate 16% to 18% earnings per-share growth during the 2000 fiscal year.

"The company continues to signal that it's happy with the progress of the Fred Meyer merger," said Cerankosky.

Miller, who had been CEO of Fred Meyer until its merger with Kroger, left Kroger in December along with former Fred Meyer executives Mary Sammons, David Jessick and John Standley to form a new management team for Rite Aid. The sudden departure accompanied a 25% drop in Kroger stock.

Kroger was trading at the close Jan. 27, one day after the announcement, at $17.50, up 6%.