Inside Kroger's Main & Vine store.
Inside Kroger's Main & Vine store.
Not everything Kroger Co. tries needs to produce positive results to be considered a success, J. Michael Schlotman, SVP and CFO, told an investors conference Tuesday.
“One of the reasons we have so many [initiatives] out there — even if we decide a format is not going to be something we want to deploy, for example — is that [trying them] enables you to take your learnings to another level in terms of the financials of that model or about dealing with a competitor so you can remain relevant to your customer.”
Speaking at the Goldman Sachs Global Staples Forum in New York, Schlotman was asked about the thinking behind Kroger’s single upscale Main & Vine store, its acquisition of Mariano’s and its partnership with Lucky’s Stores.
“We clearly think there is something there in that specialty, high foodservice environment that we can learn from about what customers think and then grow on that,” Schlotman explained.
“If for some reason any of these tests aren’t successful, we will know more about different pieces of that business that we can either replicate or decide not to replicate at our traditional stores.
“There is so much we’re already learning from the foodservice side of Main & Vine that, if we were to just stop today, we could export it probably to 1,000 stores and improve their foodservice operations.  The time and energy we spend on Main & Vine is going to be more than worth it to the full business.
“So not everything you do needs to be successful to help the company be more successful — it’s what you learn from it.”
Asked why Kroger was interested in acquiring Milwaukee-based Roundy’s Supermarkets, which operates conventional stores in Wisconsin and fresh-focused Mariano’s in the Chicago market, Schlotman said,  “From a financial standpoint, we basically added approximately the same amount of annual sales as we got when we merged with Harris Teeter at about a third the price, which got us a growing share and presence in Chicago, a very vibrant market where we think we can continue to expand the Mariano’s chain.
“When we look at Wisconsin, we acquired stores with very strong real estate sites, which have been a little bit under-invested from a price standpoint, from an associate standpoint and from the standpoint of keeping the stores fresh, all of which we can fix.
“We continue to be very bullish on that transaction, and as we start to improve the results in Wisconsin, that’s going to be where the big incremental out-performance will be for return for our shareholders.”
Having visited the Roundy’s stores, Schlotman said customers are excited “when we talk about our plans, and if they are excited, I can’t even describe what the associates inside the stores feel, knowing what our plans are to give them a better environment.”
When Kroger thinks about Ruler Foods, its hard-discount format, Schlotman said it focuses on the specific needs of that model.
"We have to make sure we don’t let any supermarket mentality enter into a hard-discount format.  You have to understand what makes that format successful to the customer and not try to force a format on them that they’re willing to pay for, and we’re learning.
We have to let the customer decide how long the lines should be, not let somebody who thinks the lines should only have two people in them [impose that thinking]. And we can’t worry about bagging groceries or not bagging groceries when the customers are perfectly willing in that environment to do it."

Referring to conventional stores, Schlotman said it's up to each division whether it publicizes price reductions. "We've made price investments every month for the last 12 years, and some of our geographies have chosen to make those investments public.
"One of the things we learned early on is, if you try to be quiet about it when you invest $400 million or $500 million in price, you don't get credit for it. The divisions can make their own decisions on whether or not they make the price reductions public.  
"Part of it is the competitive landscape, such as the potential market disruption from disposition of assets from the Ahold-Delhaize merger.  You want to make sure customers understand your price position."