Kroger's Strategy and Sources of Sustained Competitive Advantage

Friends - I wrote a paper on Kroger's strategy and what I believe are its soruces of sustained competitive advantage and I thought of posting it out on my blog to get your feedback. Feel free to post your comments on this blog post. See ya!
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Kroger is one of the largest retail food companies in the United States as measured by total annual sales. Headquartered in Cincinnati, OH it operates ~2400 retail stores in 31 states under nearly two dozen banners with fiscal 2007 sales of $70.2 billion. Its mission is to be a leader in the distribution and merchandising of food, pharmacy, health and personal care items, seasonal merchandise and related products and services. Kroger’s strategy is one that puts the customer in the center of all decisions and is named the “Customer 1st strategy”. This strategy has four basic components: 1.People, 2.Products, 3.Shopping experience and 4.Prices. Kroger formulated 4 keys based on its strategy and is aggressive in enabling these keys. The 4 keys are 1.”Our People are great”, 2.”I get the products I want, plus a littler”, 3.”The shopping experience makes me want to return” and 4.Our prices are good”.

Kroger is celebrating its 125th anniversary this year (2008) and continues to implement its strategy that supports its mission, employ its unique strengths of people and product to increase market share and bottom line in a very price competitive and consolidating industry and tough economic times and trying to control its operating costs and threats from labor unions.
Kroger’s biggest strength is its human capital. It has a team of talented professionals who are focused on listening and responding to its customer needs. Kroger employs ~320,000 people and it strives to utilize each one of these associates’ daily actions to continue to grow its business in a competitive and consolidating industry and to put its customer 1st.

Another key advantage for Kroger is its line of corporate brand products. Its six-tier exclusive brand program – Private selection, Banner brands, Value brands, Private selection organics, Active lifestyle and Naturally preferred – enables it to serve its broad and diverse customer base. Each one of this product line targets an important segment of its customer base and builds brand loyalty that drives up the sales. In addition to operating multiple store formats – grocery, multi-department, marketplace, convenience stores, Jewelry – to meet its customer needs, Kroger also operates 41 manufacturing plants that allow it to make many of the products it sells and enables it to provide quality and value for customers and enhanced margins. Kroger capitalized on the opportunity of increased sales in prepared foods as consumers choose to dine out less often and eat at home instead, because of the recent difficult economic times, and continue to invest in developing prepared food options that are meaningful to its customers.

Kroger realizes that shoppers have many choices and hence remains focused on improving customer’s overall shopping experience. It continues to invest operating cost savings and productivity gains in to improving the value and product quality it offers its customers. Kroger continues to remain focused on its price strategy to ensure it offers good price to its customers by using economies of scale, reinvesting savings from operational efficiencies to drive sales and leveraging information technology to drive down costs. Kroger continues a lean, efficient and world-class Information technology operation that provides effective and innovative solutions which in turn provides competitive advantage and cost efficiencies.

Kroger has its share of industry threats and organizational weaknesses. Retail grocery industry continues to become highly competitive with low cost discount retailers like Wal-Mart entering the market place and competing for the market share. Health care costs raised many fold over the years and is always becoming an issue in multiple labor contract negotiations with the unions. Kroger responded with its price strategy and increased focus on strengthening its labor relations. Price strategy gained even more significance in current tough economic situation.

It is evident that Kroger’s customer 1st strategy is working by its recent 3rd quarter earnings. Kroger reported total sales of $17.6 billion for the third quarter ended November 8, 2008, an increase of 9.0% over the same period last year and its balance sheet continue to remain strong.