THE KROGER

COMPANY
NYSE: KR

Submitted By:
Himani Tandon (21002)
Puneet Jain (21005)
Ravdeep Singh (21012)
Arushi Kaushal (21020)
Contents
1. Introduction to the company……………………………………………………………………….1-2

2. Brief History…………………………………………………………………………………………………3-4

3. Internal Assessment………………………….……………………………………………………….5-21

3.1 Mission and Vision Statements………………………………………………………………….5

3.2 Organizational Structure……………………………………………………………………………5

3.3 Strategy………………………….………………………………………………………………………6-8

3.4 Strengths…………………………………………………………………………………………………..9

3.5 Weaknesses…………………………………………………………………………………………….10

3.6 BCG Matrix………………………………………………………………………………………………11

3.7 Financials………..………………………………………………………………………………….12-21

4. External Assessment………………………….…………………………………………………….22-25

4.1 Opportunities………………………………………………………………………………………….22

4.2 Threats……………………………………………………………………………………………………22

4.3 Michael Porter’s Five Forces……………………………………………………………….23-24

4.4 Competitive Analysis…………………………………………………………………..……..24-25

5. Future Forecasts……………………………………………………………………………………….26-27

6. Future Outlook……………………………………………………………………………………………..28

7. Questions………………..……………………………………………………………………………………29
Introduction
Kroger is a company that produces and processes food products for sale in
supermarkets. The company operates supermarkets, multi-department stores, jewelry
stores, and convenience stores. Its food and drug stores offer natural food and organic
sections, pharmacies, general merchandise, pet centers, fresh seafood, and organic
produce. Multi-department stores provide general merchandise items, such as apparel,
home fashion and furnishings, outdoor living, electronics, automotive products, toys,
and fine jewelry. Price impact warehouse stores offer grocery, health and beauty care
items, as well as meat, dairy, baked goods, and fresh produce items.

With nearly 2,800 stores in 35 states under two dozen banners and annual sales of more
than $121.1 billion, Kroger today ranks as one of the world’s largest retailers. It is the
United States' largest supermarket by revenue ($121.16 billion for fiscal year 2019), the
second-largest general retailer (behind Walmart). Kroger is also the fifth-largest retailer
in the world and the fourth largest American-owned private employer in the United
States. Kroger is ranked 20 on the Fortune 500 rankings of the largest United States
corporations by total revenue.

All of the company’s operations are domestic.

As of February 2, 2019, they are operating 37 food production plants. These plants
consisted of 17 dairies, ten deli or bakery plants, five grocery product plants, two
beverage plants, one meat plant, and two cheese plants.

1
2
History
1883: Bernard H. Kroger and B.A. Branagan open the Great Western Tea Co., the
beginning of the Kroger Co. empire. Kroger is the first grocer to advertise in newspapers.

1884: Mr. Branagan sold Kroger his share of the business for $1,500.

1901: Kroger becomes the first store to bake its own bread.

1928: Kroger sells his shares in Kroger for more than $28 million. William Albers becomes
president.

1946: The company changes its name to the Kroger Co.

1952: Kroger sales top $1 billion.

1963: Sales reach $2 billion.

1977: Kroger consents to the FTC order.

1991: Kroger now operates 1,263 food stores and 940 convenience stores, and owns 37
processing plants, including 11 bakeries, 15 dairies, and facilities for processing cheese
and various other dairy products. Sales reach $21.3 billion, and net income is $101
million.

1996: Kroger is the largest supermarket chain in the U.S.

1998: Kroger and Fred Meyer Inc. announce plans to merge into Kroger-Fred Meyer, the
first coast-to-coast food retail operation in the U.S. The $12 billion deal will result in the
creation of a $43 billion industry giant with 3,400 stores, including supermarkets,
convenience stores, jewelry stores, and supercenters, spanning 31 states.

2000: Kroger announces its plans to partner with PlanetU, the online promotions
network for the consumers good industry, to offer U-pons, Internet coupons for dozens
of popular national brands, on Kroger's website.

3
2002: Kroger acquires 18 Raley's units, which it plans to convert to Food 4 Less or Smith's
units; 17 Albertson's stores in the Houston, Texas, and surrounding areas; and seven
Winn-Dixie supermarkets in Dallas, Texas. The firm is largest retail grocery store operator
in the U.S.

2005: The firm posts a fiscal year loss of $100 million, despite a 5% increase in revenues
to $56.4 billion.

2013: Kroger announced its acquisition of the 212 stores of Charlotte-based Harris Teeter
in a deal valued at $2.5 billion.

2015: Kroger and Roundy's announced a definitive merger, bringing Roundy's chain's 166
primarily Wisconsin based chains under Kroger ownership. The merger was valued at
$800 million, including debt.

2017: Kroger Co. purchased Murray's Cheese with an undisclosed amount.

2017: Kroger’s longest 52 quarters sales growth streak ended.

2018: Kroger announced that it will be selling its 762 convenience stores to EG Group, a
British gas station operator, for $2.15 billion.

2018: Kroger announced acquisition of Home Chef for $200 million with an additional
$500 million in incentives if certain targets met by Home Chef.

2018: Kroger announced a deal to sell food inside drugstore Walgreens. On the other
hand, Kroger Express will offer meal kits and other meal solutions.

2019: Kroger announced it was expanding its service with robotics company, Nuro to
Houston, Texas with Nuro's autonomous Priuses.

4
Internal Assessment
Mission and Vision Statements:

Neither at its corporate website nor in its Form 10K does Kroger provide a written vision
or mission statement labeled as such. There are statements such as the following,
however, that perhaps serve as Kroger’s vision and/or mission:

1. “To be a leader in the distribution and merchandizing of food, pharmacy, health and personal
care items, seasonal merchandise and related products and services.”

2. “We are on a mission to end hunger in the communities, ‘we call home’ and eliminate waste
across our company by 2025.”

Organizational Structure:

Rodney McMullen
CEO and Chairman

Michael Donnelly
COO

Robert Clark
Alex Tosolini Yael Cosset Erin Sharp
SVP Supply Mark Tuffin SVP New SVP and Chief Group Vice
Chain
SVP Business Information President of
Manufacturing
Developmenty Officer Manufacturing
and Sourcing

5
Kroger appears to operate from a divisional-by-process design, but absent of any
presidents of divisions. However, Kroger does report revenues by both region and
product. Some analysts suggest that titles of Kroger’s executives more closely mirror how
the firm reports sales, and they are having a COO with divisional presidents reporting to
that position.

Strategy:

The Kroger Company has grown over the years in the US to become the second largest
retailer. Kroger’s first key strategic move was to manufacture its own products, allowing
customers access to a less expensive product that held the high-quality Kroger is still
known today. Basing the entire company on the basics of “putting the customer first” is
a standard in today’s business world but in the 1930’s, it was not so. Truly caring for its
customers by showing them through employee’s actions, ads, sales, etc. helped Kroger
solidify its customer-first outlook of business. Adding to Kroger’s list of “firsts,” they were
the first grocery chain to routinely monitor product quality and test foods offered to the
customer. Kroger also employs one of the largest networks of private label
manufacturing in the country. Thirty-seven plants (either wholly owned or used with
operating agreements) in seventeen states create about 40% of Kroger's private label
products.

The main growth strategy used by Kroger is acquisitions of several big and small
companies of the market. Two deals that particularly stand out; in 1983, the company
merged with Dillon Companies to become a coast-to-coast operator and take ownership
of its subsidiaries, King Sooper's, City Market, and others. Then in 1999 came the biggest
merger in Kroger's history: it combined with Fred Meyer, the fifth-largest grocery
company at the time, in a $13 billion deal that gave it control of Ralph's, QFC, and other
banners. This deal had created a supermarket chain with the broadest geographic
coverage and widest variety of formats in the food retailing industry. The merger also
enabled Kroger to generate huge economies of scale in purchasing, manufacturing,
information systems and logistics. In 2014, the company acquired the upscale Southeast
grocery chain Harris Teeter for $2.5 billion. This merger brought to Kroger an exceptional
brand and complementary base of stores in high-growth markets, primarily in the Mid-
Atlantic region and the District of Columbia. Later that year, Kroger merged with
Vitacost.com, one of the largest pure e-commerce companies in the nutrition and
6
healthy living market. The company’s e-commerce platform accelerated Kroger’s entry
into the e-commerce space by several years, bringing the ability to serve customers
through ship-to-home orders, and expanding Kroger’s reach into all 50 states and
internationally.

At the end of 2018, Kroger has also partnered its segmental rival, Walgreens Boots
Alliance. Kroger announced it is testing a concept called “Kroger Express” inside 13
Walgreen stores in northern Kentucky. The test features 2,400 Kroger SKUs in Walgreens
stores for shoppers to purchase, while also allowing shoppers to order groceries off of
Kroger.com and pick them up at Walgreens. The idea was to put all shoppers in northern
Kentucky within one mile of a Kroger or a Walgreens store. Kroger and Walgreens have
also run an exploratory pilot in which shoppers will be able to order Kroger grocery items
online and pick them up at 13 of the drug store chain’s stores in northern Kentucky. In
November 2019, Kroger and Walgreens have grown their partnership to create a new
group purchasing organization (GPO) called the Retail Procurement Alliance, which will
pool resources to reduce costs and advance innovation.

Innovation is also at the heart of Kroger’s growth and sustainability efforts, aimed at
improving today to protect tomorrow. In 1972, Kroger became the first grocery retailer
in America to test an electronic scanner. It was installed in a store in suburban Cincinnati,
and visitors from around the country attended the event. In the mid-2000s, Kroger
created a process to rescue safe, edible fresh products and donate them quickly to local
food banks. This innovation has been replicated by other retailers and today fresh
products make up more than half of the food distributed nationwide by Feeding America,
America’s largest food bank network. In just the last few years, Kroger pioneered
QueVision, an innovative faster checkout program that has reduced the time customers
wait in line to check out, on average, from four minutes in 2010 to less than 30 seconds
in stores today.

The Kroger Edge project involved replacing traditional shelf-edge tickets with digital
ones. Not only does this save time when making pricing changes, but it also allows Kroger
to shift prices instantly in response to demand.

The retailer has spent the past few years investing in technology and forming
partnerships as part of its Kroger Restock strategy, which aims to transform Kroger to a
7
growth company from a grocery company. Such initiatives include offering 100 SKUs on
Alibaba’s T-Mall Chinese marketplaces, an investment and exclusive agreement with
U.K.-based Ocado Group PLC, developing products for its organic line of products Simple
Truth, grocery order pickup at Walgreens stores and scan-and-go shopping in Kroger
stores.

In 2018, Kroger bought a 5% stake in web-only supermarket Ocado and is now the
exclusive user of Ocado’s technology in the U.S. Kroger will license technology from
Ocado that helps other grocers run automated warehouses and deliver food to
customers’ doors. The warehouses use digital and robotic technology to improve
efficiency.

Kroger also recently announced a scan-and-pay initiative with Microsoft technology.

Shoppers in 1,000 stores can take products off the shelf and scan them in the Kroger app
to purchase them. About 5% of a store’s shoppers use the feature. Moreover, Kroger will
be using its Azure web services platform to create a "connected store" experience for
customers.

Kroger is also experimenting with digital shelves that display the price of a product and
also is selling ad space on them. Kroger charges $100 per ad per shelf per week and is
working with 15 consumer packaged goods companies for the ads. In its test stores, 80%
of the shelves that have ad space are filled and products with ads have a 6-11% increase
in sales.

In 2018, Kroger bought a 5% stake in web-only supermarket Ocado and is now the
exclusive user of Ocado’s technology in the U.S. Kroger will license technology from
Ocado that helps other grocers run automated warehouses and deliver food to
customers’ doors. The warehouses use digital and robotic technology to improve
efficiency. Kroger announced that the facilities will take about two years to build.

Kroger has also partnered with artificial intelligence specialist Nuro for self-driving
grocery delivery.

8
Strengths:
• Economies of Scale: As Kroger has reached a stage in which it is now targeting a
large footprint and a huge number of customers, so it has become much cheaper
to serve each additional customer. Hence, with this increasing sheer volume of
customers, Kroger becomes more profitable.

• Logistics: Kroger also has one of the largest privately-owned truck fleets called
‘Kroger Ship’ in the country. Trucks moving merchandise and supplies among our
stores, warehouses and manufacturing plants log nearly 329 million miles
annually.

• Private Brands: Kroger employs one of the largest networks of private label
manufacturing in the country. Thirty-seven plants (either wholly owned or used
with operating agreements) in seventeen states create about 40% of Kroger's
private label products.

• Multiple Retail Formats: As Kroger owns a large number of stores with different
retail formats across the United States, they cater to the needs of a huge number
of customers on daily basis.

• Strategic partnerships with brands like Ocado, Microsoft and Walgreens: Kroger
has also hold strategic partnerships with Ocado for E-Commerce expansion,
Microsoft for price technology and Walgreens to establish Kroger express units.

• Brand Reputation: Kroger has created a process to rescue safe, edible fresh
products and donate them quickly to local food banks.

• Customer Data: Kroger owns an extensive collection of consumer data generated

from our customer loyalty cards plus a unique partnership with dunnhumby.

9
Weaknesses:
• Liquidity: As a company, they have aggressively grown through acquisitions which
has raised their debt. This growth is good but Kroger just need to be aware of the
rising debt and make sure that they don’t come into a free cash problem.

• High Attrition rate of workforce: As compared to its competitors, Kroger has a

higher attrition rate.

• Limited success outside core business: Even though Kroger is one of the leading
organizations in its industry it has faced challenges in moving to other product
with its present culture.

• Jewellery Stores: As 253 locations only account for a 0.2% of total revenues which
is not a profitable business.

• Rental Property: Approximately 54% of Kroger’s supermarkets are operated in

Company-owned facilities, including some Company-owned buildings on leased
land.

10
BCG Matrix:

Question Marks: Proprietary online platform has limited scope so it remains still a
question mark for Kroger.

Stars: Harris Teeter has a bigger online footprint and better technology which is an area
to look out for future.

Dogs: As 253 Jewellery Stores locations only account for a 0.2% of total revenues which
is not a profitable business.

Cash Cow: Kroger stores cater to a broad geographic diversity and multiple retail formats
generating 95.1% of the total revenue.

11
Financials:
Notable items for 2018 are:

1. Net earnings per diluted share of $3.76.

2. Adjusted operating net earnings per diluted share of $2.11.
3. Identical sales, excluding fuel, increased 1.8% in 2018.
4. Alternative profit increased in 2018, including third party media and Kroger
Personal Finance business, which had combined operating profit growth of
approximately 20% in 2018.
5. Sold our convenience store business unit for $2.2 billion.
6. Announced Ocado partnership and completed our merger with Home Chef.
7. Announced we had entered into a definitive agreement to sell our You Technology
business to Inmar. On March 13, 2019, Kroger completed the sale of our You
Technology business for $565 million, which includes a long-term service
agreement for Inmar to provide digital coupon services.
8. During 2018, Kroger announced that it had decided to explore strategic
alternatives for our Turkey Hill Dairy business, including a potential sale. On March
19, 2019, Kroger announced a definitive agreement for the sale of our Turkey Hill
Dairy business to an affiliate of Peak Rock Capital.
9. During 2018, Kroger returned $2.4 billion to shareholders from share+
repurchases and dividend payments, which includes $1.2 billion repurchased
under a $1.2 billion accelerated stock repurchase (“ASR”) program using after tax
proceeds from the sale of our convenience store business unit.
10. Net cash provided by operating activities was $4.2 billion in 2018 compared to
$3.4 billion in 2017.
11. Digital revenue grew over 58% in 2018, driven by Pickup. Digital revenue primarily
includes revenue from all curbside pickup locations and online sales.

12
BALANCE SHEET:

13
INCOME STATEMENT:

14
Net cash provided by operating activities:
Kroger has generated $4.2 billion of cash from operations in 2018, compared to $3.4
billion in 2017 and $4.3 billion in 2016. The increase in net cash provided by operating
activities in 2018, compared to 2017, resulted primarily from an increase in net earnings
including noncontrolling interests, a decrease in the non-cash adjustment for deferred
income taxes, positive changes in working capital and reduced contributions to the
company sponsored pension plans, partially offset by non-cash adjustments for the
expense for company-sponsored pension plans, the gain on sale of our convenience
store business unit and the mark to market gain on Ocado securities.

The decrease in net cash provided by operating activities in 2017, compared to 2016,
resulted primarily from a decrease in net earnings including noncontrolling interests, the
$1.0 billion contribution to the company-sponsored defined benefit plans and deferred
taxes, partially offset by an increase in non-cash expenses and changes in working
capital. Deferred taxes changed in 2017, compared to 2016, as a result of remeasuring
deferred taxes due to the Tax Act.

Cash provided (used) by operating activities for changes in working capital was $580
million in 2018, ($164) million in 2017 and ($492) million in 2016. The increase in cash
provided by operating activities for changes in working capital in 2018, compared to
2017, was primarily due to the following:

1. A lower increase, over the prior year, of store deposits in-transit in 2018,
compared to 2017
2. A decrease in prepaid medical benefit costs at the end of 2018, compared to 2017
3. Increases in accrued incentive plan costs; and
4. Positive working capital related to income taxes receivable and payable as a result
of an overpayment of our fourth quarter 2017 estimated taxes and our estimated
taxes on the gain on sale of our convenience store business unit; partially offset
by A-23
5. Higher third-party payor receivables due to increasing pharmacy sales and the
timing of third-party payments
6. Increased inventory purchases due to change in inventory mix and new
distribution centres.

15
The decrease in cash used by operating activities for changes in working capital in 2017,
compared to 2016, was primarily due to the following:

1. A lower amount of cash used for inventory purchases due to decreased capital
investments related to store growth,
2. Increased cash collections due to our emphasis on better receivables
management, and
3. A lower increase, over the prior year, of prepaid benefit costs in 2017, compared
to 2016; partially offset by
4. An overpayment of our fourth quarter 2017 estimated income taxes, and
5. An increase in store deposits in-transit due to increased sales in the last few days
of 2017.

Cash paid for taxes increased in 2018, compared to 2017, primarily due to the payment
of estimated taxes on the gain on sale of our convenience store business unit and lower
estimated tax payments in 2017 due to the $1 billion, $650 million net of tax, pension
contribution made in 2017.

16
INCOME STATEMENT:

17
Total sales decreased in 2018, compared to 2017, by 1.2%. The decrease in total sales in
2018, compared to 2017, is due to the Extra Week in 2017, partially offset by the
increase in 2018 sales, compared to 2017 adjusted sales. Total sales increased in 2018,
compared to 2017 adjusted sales, by 0.6%. This increase was primarily due to our
increases in total sales to retail customers without fuel and supermarket fuel sales,
partially offset by a reduction in convenience store sales due to the sale of our
convenience store business unit. The increase in total sales to retail customers without
fuel for 2018, compared to 2017 adjusted sales to retail customers without fuel, was
primarily due to our merger with Home Chef and our identical sales increase, excluding
fuel, of 1.8%. Identical sales, excluding fuel, for 2018, compared to 2017, increased
primarily due to changes in product mix, including higher quality products at a higher
price point, and Kroger Specialty Pharmacy sales growth, partially offset by our
continued investments in lower prices for our customers. Total supermarket fuel sales
increased 15.5% in 2018, compared to 2017 adjusted supermarket fuel sales, primarily
due to an increase in the average retail fuel price of 13.6% and an increase in fuel gallons
sold of 1.5%. The increase in the average retail fuel price was caused by an increase in
the product cost of fuel.

18
Total capital investments for 2018 were $3 billion, excluding mergers, acquisitions and
purchases of leased facilities. Approximately 40% of Kroger’s 2017 capital investments
were used to build, acquire, expand or complete major remodels of food stores. The
balance was allocated among fuel projects, minor remodels and maintenance, and the
Company’s other operating and administrative segments including jewelry stores,
manufacturing, technology, logistics/distribution, and other miscellaneous projects.

FINANCIAL RESULTS:

• Total company sales were $28.0 billion in the third quarter, compared to $27.8
billion for the same period last year. Excluding fuel and dispositions, sales grew
2.7%.
• Gross margin was 22.1% of sales for the third quarter. The FIFO gross margin rate
excluding fuel decreased 24 basis points, primarily driven by industry-wide lower
gross margin rates in pharmacy and continued growth in the specialty pharmacy
business. Gross margin rate excluding fuel and pharmacy improved slightly.
• LIFO charge for the quarter was $23 million, compared to $12 million for the same
period last year, driven by higher inflation in dry grocery, pharmacy and dairy.
• The Operating, General & Administrative rate decrease of 15 basis points is due
to broad based improvement of Restock Kroger cost savings initiatives.
• Third quarter results include an out-of-period charge of $29 million related to an
adjustment for a provision of a pharmacy contract. This amount reduced third

19
 quarter adjusted net earnings per diluted share by $0.03. There is no effect on
earnings guidance as a result of this contract going forward.
• As a result of a portfolio review, Kroger has decided to divest its interest in Lucky's
Market and recognized a non-cash impairment charge of $238 million in the third
quarter, and the portion of this charge attributable to Kroger is $131 million.
• The income tax rate for the third quarter was 35.6%. The income tax rate is higher
than the adjusted income tax rate because a portion of the non-cash impairment
charge related to Lucky's Market is not attributable to Kroger.

FREE CASH FLOW:

Kroger’s operations generate substantial cash flow and it is important to allocate that
cash among various priorities in a balanced manner to benefit our shareholders. The
following table shows Kroger’s 3-year free cash flow trend, including estimated free cash
flow for 2018-2020.

20
KEY FINANCIAL RATIOS:

21
EXTERNAL ASSESSMENT:
Opportunities:
Manufacturing Growth: More private label products, creating more substitutes to
national brands in its stores.

E-Commerce: An online platform having synergy with brick and mortar business will be
more profitable.

Expanded Value Services: Expanding the value services, retail services, clinics,
pharmacies, fuel centers can be big value addition and make Kroger a one-stop location
for their customers.

Expansion into Financial Market: Kroger is expanding their business into the financial
market with Kroger Personal Finance that offers a line of personal finance products that
includes home equity loans, first mortgages, credit cards, identity theft protection, and
even pet insurance.

In-Store Clinics: Opening in-store clinics in their pharmacy stores can also be a good
opportunity for Kroger.

Threats:
Labor & Economy: Labor cost is rising in US especially to a company like Kroger that has
71% of unionized workforce is a concern.

Amazon: Amazon acquiring Whole Foods to enter in the grocery market is a big major
threat to the industry.

Walmart: Walmart continues to grow and take considerable market share from Kroger
by cutting prices and making their new neighborhood markets which are competing with
grocery chains in the lower level market.

22
Michael Porter’s Five Forces Model:
Existing Competitive Rivalry:

The existing competitive rivalry is HIGH.

• Traditional Grocers: There are number of traditional grocers available in the US

market which are aggressive with slashing prices and fighting for locations.
• Non-Traditional Grocers: The new concepts like Supercenters, Warehouse Stores,
Dollar Stores, Club Stores have seen generating value and volume in the sales of
grocery items and foot traffic.

Threat of New Entrants:

The threat from new entrants is MODERATE as there is no direct license required to
operate a grocery store. However, the initial capital required is high as new entrants
would need to purchase land and builds a new store or lease a building, both increasing
barriers to entry.

And, top 20 firms in US grocery stores have 2/3rd of all sales. Hence, it becomes a barrier
for new entrants to enter but a company having strong distribution channel can easily
enter and become successful.

Threat from Substitutes:

The threat from substitutes is LOW. Though there are substitute means of getting food,
such as fast food, restaurants, and convenience stores, the actual products sold within
grocery stores usually are the same at all locations with few variations. The threat from
substitutes may come from the competitive advantage by wholesalers like Sam’s Club
and CostCo but its not easy for the customers to switch to wholesales because retailers
are usually more prevalent and are available in smaller markets where wholesales may
not find beneficial to be located.

23
Bargaining Power of Suppliers:

The bargaining power of suppliers is LOW.

• Supplier-Retailer Relationship: The large retailers like Kroger have more power
over there suppliers because of the suppliers need to be associated with the large
grocery stores and its dependence on the stores business to stay competitive.
Therefore, the suppliers on the retail industry often have low bargaining power
due to the large size of their customers.
• Private Brand Development: The rise of private brand development has created
substitutes to national brand products and the top firms have created their own
logistics networks leading to the low bargaining power of suppliers.

Bargaining Power of Buyers:

The bargaining power of buyers is LOW. The bargaining power of buyers in grocery store
industry is high as buyers want to buy the best offerings available at the lowest price
possible. The power of buyers also increases when there are few switching costs
associated with changing vendors.

Competitive Analysis:
Walmart: Walmart is a retailing corporation that operates a chain of hypermarkets,
discount department stores, and grocery stores. Its operations are organized into three
divisions: Walmart U.S., Walmart International, and Sam's Club. The company offers
various retail formats, including supercenters, supermarkets, hypermarkets, warehouse
clubs, cash-and-carry stores, home improvement, specialty electronics, restaurants,
apparel stores, drugstores, convenience stores, and digital retail.

Costco: Costco Wholesale Corporation operates membership warehouses. The

Company offers branded and private-label products in a range of merchandise
categories. It provides dry and packaged foods, groceries, snack foods, candies, bakery,
meat, alcoholic and nonalcoholic beverages, health and beauty aids, hardware, garden
and patio products, apparel, and small appliances. Costco Wholesale Corporation also

24
 operates gas stations, pharmacies, optical dispensing centers, food courts, hearing-aid
centers, and is engaged in the travel business.

Target: Target is as a general merchandise retailer. The company offers food

assortment, including perishables, dry grocery, dairy, and frozen items. It also provides
beauty and household essentials, including beauty products, personal and baby care
products, cleaning products, paper products, and pet supplies.

Kroger Walmart Costco Target

Kroger is a Walmart is a Costco Wholesale Target is as a general

company that retailing Corporation merchandise retailer.
produces and corporation that operates
processes food operates a chain of membership
products for sale hypermarkets, warehouses.
in supermarkets. discount
department stores,
and grocery stores.

Founding Date 1883 1962 1983 1962

Type Public Public Public Pubic

Tags Food & Beverage Retail Retail Retail

Retail

Employees 453,000 2,200,000 149,000 360,000

Valuation ($) 22.5 b 305.5 b 124.2 b 52.2 b

Revenue(est.) $121.2b $514.4b $152.7b $75.4b

Cost of goods $94.9b $385.3b $132.9b $53.3b

Gross Profit $26.3b $129.1b $19.8b $22.1b

Net Income $3.1b $7.2b $3.7b $2.9b

Stores 2.8 k 11.3 k 785 1.9 k

P/E Ratio 15.19 22.33 36.66 17.43

Dividend Yield 2.16% 1.86% 0.84% 2.42%

25
INCOME STATEMENT EVOLUTION:

ANNUAL INCOME STATEMENT:

26
FINANCIAL LEVERAGES:

FINANCIAL RATIOS:

27
FUTURE OUTLOOK

1. The identical sales growth (excluding fuel) of Kroger is expected to be greater than
2.25% as the company has set aside 3.2 billion capital investments for next year
mainly for driving private label brand’s sales growth in physical and online stores. For
this purpose, they are going to roll out its first Ocado warehouse facility that will go
live in 2020-21.

2. The alternative profit business is expected to grow incremental operating profit in

the range of $125 to $150 million. Various stages of incubation are a major
component of alternative profit portfolio such as the recently announced
collaboration with Lindsay Goldberg to form Pearlrock partners, a platform to
identify, invest in and help grow the next generation of leading consumer product
brands. Ventures like this are expected to have a major effect on Kroger’s profit
beyond 2020.

3. Kroger’s total shareholder return is expected to be between 8% & 11% in 2020. This
will be driven by 3-5% growth from improved earnings and growth in company’s free
cash flow payout rate through a combination of share repurchases and dividends.

4. The company’s digital sales are expected to grow by 21% as Kroger has improved its
digital capabilities by extending its pickup and delivery facilities from 1915 to 2326
locations covering over 96% of Kroger households and launched fully seamless ship
offering.

28
QUESTIONS
Ques.1: Construct a VRIO framework for Kroger.

Ques.2: In spite of having a huge success in US market, why the company isn’t growing
to new territories and foreign market?

Ques. 3: Is Amazon really killing Kroger?

29