KROGER VOWS TO CUT COSTS, BUILD SALES

DAVID GHITELMAN

NEW YORK -- Kroger Co., Cincinnati, continues to say it will cut costs and reinvest the money it saves to grow sales.

Mark Schlotman, Kroger's chief financial officer, spoke here earlier this month at the Food and Drug Retail Conference, sponsored by New York-based Credit Suisse First Boston. At the conference, he reiterated the strategy outlined in December by Joseph A. Pichler, Kroger's chairman and chief executive officer, when the company released its third-quarter results.

Schlotman said the company's goal is to increase annual identical-store food sales by 2% to 3% above cost annually. He declined "for competitive reasons" to give any hint about how Kroger intends to build sales, just as Pichler chose not to reveal details in December.

To fund this sales-building initiative, Schlotman said Kroger will reduce operating and administrative costs by $500 million over the next two years.

Some of the reduction, he explained, will come from improving productivity and some will come from reducing shrink. He also noted that Kroger will eliminate approximately 1,500 managerial and clerical jobs, with most of the layoffs coming in 2002.

"On the operating side, Kroger has already been initiating store-labor productivity programs," Schlotman said, including increased use of self-checkout registers.

"Kroger has the opportunity to remove substantial costs," he said.

Kroger is also looking at leveraging its size more fully, according to Schlotman. "We are accelerating central procurement by consolidating more activities around Cincinnati," he said.

The company expects these efforts to pay off in earnings-per-share growth of 10 to 12 cents in 2002 and 2003, and 13 to 15 cents after that, Schlotman noted.