DIMENCION AMBIENTAL

The Kroger Co. is the largest retail food company in the United States as measured by total annual sales. The flagship grocery store is able to excel in the industry because of a balanced mix between firm differentiation and competitive cost leadership. The firm’s superior products and efficient operations have propelled their ability to create and sustain a competitive advantage. Kroger differentiates itself from other industry competitors by focusing on product quality, variety, and customer service. Furthermore, The Company establishes cost leadership through competitive strategies such as: economies of scale and scope, low-cost distribution, and minimizing research costs.

Historical Competitive Advantage Analysis

Kroger has been the primary leader and innovator throughout the development of the grocery store industry. The Company originally focused on basic food retail operations; including dairies, bakeries, and meat shops. Mr. Kroger quickly realized that it was more profitable operate regular fixtures in the grocery markets under one roof.

Early Innovations

Kroger was the first grocery chain to consolidate numerous food departments. In addition, Mr. Kroger recognized the profit opportunities

associated with independently producing and selling products. The Company was the first grocery chain to manufacture and produce “corporate brands.” Kroger stores were also the first grocery chain to routinely monitor and test food offered to the customers. The Company has adapted and grown parallel with the

investments. The Company was the first grocery store to install a product scanning system for check out and inventory purposes. This revolutionary innovation dramatically increased store operation efficiency.

Modern Innovations

Kroger was the first American grocery retailer to establish a customer research and database program. This systematic break through prompted the development of delis and unpackaged food divisions. Most recently, Kroger merged with supermarket chain, Fred Mayer Inc., which generated huge economies of scale in purchasing, manufacturing, information systems, and logistics. The ability for Kroger realize and execute their corporate agenda has always put them in a dominant position of power. Historically, Kroger has always had a competitive advantage in the grocery store industry (OneSource

Information Services). Differentiation

The Company’s most important strategy for creating a competitive

advantage is the ability to differentiate. Kroger differentiates from competitors by excelling in product quality, product variety, and customer service.

Superior Product Quality

Superior product quality is crucial in building customer loyalty and store image. The Company uses the method of corporate branding to achieve product quality. Kroger’s outstanding private-label products have earned industry leading market share. Kroger owns and operates private manufacturing plants that produce high quality goods. “Consumer research, the finest ingredients, and our rigorous testing produce the quality behind our corporate brand. This is part of the everyday value that is found in all our products (www.kroger.com).” They are able to closely monitor the production and distribution of these units. The

Company has developed one of the toughest inspection and specification systems in the industry. Quality beef is ensured by tests such as USDA Choice, Certified Angus USDA Choice, and Natural Beef Select. Kroger’s pork is 100% all- natural and poultry items are grown locally or organically. Seafood, among numerous delicate food items, is guaranteed to be fresh. Management performs a “make and buy” analysis on all corporate branded and procured products. All items are held to the same high standards. The Company trademark, “Private Selection,” is a premium quality brand that offers gourmet and upscale items. The majority of Kroger’s manufacturing plants are located within a 200 mile radius of end user stores. In the grocery industry, the level of product class is usually determined by the quality of perishable foods. The Company’s time efficient system of distribution enables the stores to stock new and fresh products daily (www.kroger.com).

Product Variety

Kroger differentiates itself by establishing superior product variety. It is known that every major grocery store will offer a certain range of nationally advertised products. Kroger gains a competitive advantage by providing a wide and unique product selection. Kroger offers products sold in three categories: premium (high grade), brand (medium grade), and budget (low grade). The variety of product classes enables any type of customer to frequent the stores. Kroger’s multiple retail formats allows them to meet the needs of virtually every customer. Kroger is able to gain access to valuable customers with innovations in specialty foods. Kroger is committed to capturing the customers who are

becoming more health conscious regarding their food selection. The Company established a new, cholesterol reducing, fat-free line of food products

(www.kroger.com). Corporate brands such as “Naturally Preferred” and “Active Lifestyle” were established to attract healthy and environmentally concerned

a new customer base. These products establish strong customer loyalty and yield higher profit margins. Kroger’s reputation for superior variety in product selection is anchored by their prepared food innovation. Quick and easy meals are becoming more popular to the general American public. Kroger capitalizes on this opportunity by providing customers the ability to purchase a large variety of freshly prepared meals and ingredients; shoppers are able to buy restaurant quality cuisine in the stores. Kroger’s customers have grown more dependent on these prepared meals; which increases the number of trips a shopper makes within a normal grocery cycle. This strategy is Kroger’s best effort to compete directly with restaurants and fast food establishments.

Customer Service

Kroger uses the strategy of superior customer service to establish a competitive advantage. Any grocery chain can offer a customer various items within a certain price range. A positive experience for the customer is created through their interactions with store employees. The feeling the customer has when they leave the store decides whether or not they will keep coming back. The Company’s associates crucial key to their success. Kroger provides

competitive wages, high-quality health-care benefits and secure pensions to recruit the best people available (www.kroger.com). Kroger’s employees are among the highest compensated in the food retailing industry. The Company offers more employee benefits than its closest competitors. The Company is able to keep store employee moral high; reflecting in positive customer relations activities. They have developed numerous projects and customer service training programs to improve upon their “Customer 1st_{” strategy. Kroger’s unique}

program, “Secret Shoppers,” allows them to evaluate their store performance from the shoppers’ perspective. Through this program, The Company is able to identify problem areas that need improvement. “We carefully consider

opportunities that have the potential to redefine existing operating processes while materially improving the shopping experience of our customers

(www.kroger.com). It is a high of priority that Kroger stores be clean. From the bathrooms to the aisles, Kroger stores follow a uniform cleanliness program that is very effective. “Kroger stores have ranked in the top three in sanitary levels in the last seven years (www.firstresearch.com).” Kroger makes it a priority to have each store adequately staffed. The Company finishes near the top in check out efficiency every year (www.kroger.com).

Cost Leadership

The Company is successful in demonstrating cost leadership. Kroger is highly price competitive within the grocery store industry. Traditional grocery stores cannot consistently price match with super centers and warehouses. Despite the odds, Kroger has had a successful track record of competing head- to-head against super centers. Kroger uses the methods of economies of scale and scope, low-cost distribution, and minimizing research costs to gain a competitive advantage.

Economies to Scale

Kroger is the largest supermarket operator in the United States. In 1999, Kroger merged with another supermarket powerhouse, Fred Mayer Inc.,

establishing superior economies to scale. The Company’s dominant purchasing power enables them to buy in large volume. This allows Kroger to receive purchase discounts and cheaper rates on procured items; resulting in lower prices throughout the store. The Company maintains positive relationships with the largest manufactures in the grocery industry. Kroger acquires numerous products manufactured by a single company; achieving economies of scope through purchasing product bundles, product lines, and family brands. Kroger utilizes its size to offer economies of scale that are invisible to the customer.

accounting, and treasury operations (www.kroger.com). This strategy creates value for customers and better returns for shareholders.

Low-Cost Distribution

The Company uses efficient production methods and low-cost distribution to establish cost leadership. The Kroger Co. invests significant capital and

expense dollars to ensure that their information systems and logistics network operate as efficiently and cost-effectively as possible.

The Company is the only major supermarket with a nationwide three-tier distribution system. The first tier consists of quick turn and perishables that service stores within a 200 mile radius. The second tier consists of consolidation centers that service retail stores. Items at these locations include

pharmaceuticals, health and beauty products, and dry grocery products. The third tier is responsible for shipping seasonal and promotional products to stores. The tiered distribution system and network is supported with innovative

technology and more cost-effective store delivery.

“Demand forecasting technology utilizes certain store ordering system capabilities. This capability enhancement is a reality with the creation of Kroger’s data warehouse, expanded corporate computing infrastructure, and current software systems. Voice-pick technology employed in our distribution centers uses wireless communication and voice picking product versus previous paper label-bases picking. Our real-time warehouse management system improves both the speed and accuracy of product assembly and shipping

(www.krogerco.com).” Kroger’s distribution network allows them to deliver their products in a time and cost efficient manner.

The cost savings through these activities are reflected on the product prices in the stores. The Company is able to improve distribution utilization and delivery through its transportation fleet. Kroger is home to one of the largest trucking fleets in the world. The Company’s transportation capacity maximizes coordination and utilization throughout the distribution process; enabling them to

achieve cost leadership. Kroger has superior corporate manufacturing abilities. This allows them to serve as a distribution source for other smaller grocery chains. The Company also avoids profit cutting expenses through corporate branding. Distribution of their own products throughout the industry causes an increase their profit margins. “By manufacturing our products, we lower our costs and pass on savings to our customers (www.kroger.com).”

Minimal Research Costs

Kroger is able to minimize research costs through customer loyalty cards. The “Kroger Plus” shopper’s card is the mechanism used to deliver valuable research and customer information. Customers can apply and receive a card in exchange for personal information. “In fact, approximately 40% of all U.S. households hold one of our shopper cards (www.krogerco.com).” The Company is able to receive valuable research within their stores; avoiding high expense costs associated with customer data research. Kroger has formulated an extensive collection of consumer data generated from their customer loyalty cards plus a unique partnership with a data analysis firm called ‘dunnhumby’ (www.kroger.com).” The Company is able to monitor customer trends and formulate marketing strategies to increase profits. Stores often offer preferable discounts exclusively to card holders; enabling the stores to effectively move inventory and seasonal products (www.krogerco.com).