Kroger 2008 Annual Report Download

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THE KROGER CO.
2008 Fact Book

Table of contents

  • Page 1
    THE KROGER CO. 2008 Fact Book

  • Page 2
    ...to "years" is to Kroger's fiscal years. July 2009 I. Preface & Overview About the Kroger Fact Book Shareholder Information Financial Highlights Supermarkets ï,ª Store Formats ï,ª Geography & Markets ï,ª Acquisition Strategy Corporate Brands ï,ª Kroger Manufacturing Pharmacy Natural & Organic Foods...

  • Page 3
    ... INFORMATION CORPORATE OFFICE 1014 Vine Street (513) 762-4000 Cincinnati, OH 45202 www.kroger.com Shareholder Services (513) 762-4808 Investor Relations & Financial (513) 762-4366 Materials Requests e-mail: [email protected] STOCK TRANSFER AGENT & REGISTRAR BNY Mellon Shareowner Services...

  • Page 4
    ... per share data, as reported) Calendar Year Ended December 31, Closing market price per share Fiscal Year End Closing market price per share Fiscal Year Total sales Operating profit Net earnings per diluted share Average number of common shares used in diluted calculation Dividends declared per...

  • Page 5
    ...more than 24%, or 1.8 billion kilowatt-hours. That's enough electricity to power every single-family home in Seattle, Washington for one year! Using 2000 as a base, our stores have a goal of reducing overall energy consumption by 30% by 2010. Customers have responded particularly well to our efforts...

  • Page 6
    ... this Fact Book. The Company also manufactures and processes some of the food for sale in its supermarkets. As of January 31, 2009, the Company operated 40 manufacturing plants. See Section III of this Fact Book for more information about our manufacturing operations and private label products. All...

  • Page 7
    ... 75% of the Company's store employees are covered by collective bargaining agreements negotiated with local unions affiliated with one of several different international unions. There are approximately 309 such agreements, usually with terms of three to five years. The Kroger Co. Page 6

  • Page 8
    ...and manufacturing facilities. At year-end 2008, Kroger operated 2,481 supermarkets classified under the four primary formats listed in the table below. Store Formats Combination Food & Drug Stores Multi-Department Stores Marketplace Stores Price Impact Warehouse Stores Total Supermarkets # of Stores...

  • Page 9
    ... pharmacy - most include service bakeries, delis, seafood, meat, and floral shops; expanded general merchandise; "whole health" sections and organic produce; and pet centers. Many include a supermarket fuel center. Combination stores that were opened during the last two years average 73,000 square...

  • Page 10
    ... is not a big box store, hypermarket, supercenter, warehouse store, discounter, or department store. It is a collection of several specialty stores under one roof:  Food: Grocery, Natural Choices, F.G. Meyer Meat Market, Fish Market, Produce Market, Deli, Bakery, Wine, and Drug Store.  Apparel...

  • Page 11
    .... They do offer full-service grocery and pharmacy departments as well as an expanded general merchandise area that includes outdoor living products, home goods, and toys. Marketplace stores opened during the last two years average 112,000 square feet and required an average investment of $17 million...

  • Page 12
    ... Stores ï,§ Food 4 Less Banners ï,§ Foods Co. Our price impact warehouse stores offer a "no frills, low cost" shopping experience that features everyday low prices for a wide selection of grocery, health and beauty care items. Quality meat, seafood, poultry, dairy, baked goods, and fresh produce...

  • Page 13
    ... and others listed below. Kroger has grown through organic growth and acquisition and believes strongly in maintaining local banners where appropriate. State California Ohio Texas Georgia Indiana Colorado Michigan Washington Arizona Tennessee Kentucky Kansas Virginia Illinois Nevada Oregon Utah West...

  • Page 14
    ...Kroger Cincinnati Kroger Delta Dillon Stores Quality Food Centers (QFC) Jay C TOTAL Headquarters Los Angeles, CA Atlanta, GA Houston, TX Louisville, KY Indianapolis, IN Los Angeles, CA Denver, CO Novi, MI Salt Lake City, UT Portland, OR Roanoke, VA Columbus, OH Phoenix, AZ Cincinnati, OH Memphis, TN...

  • Page 15
    ... CA Atlanta GA Houston TX Seattle WA Phoenix AZ Detroit MI Cincinnati OH Denver CO Columbus OH Riverside CA Dallas TX Nashville TN Indianapolis IN Las Vegas NV Louisville KY Portland OR San Diego CA Memphis TN Fort Worth TX Wichita KS Salt Lake City UT Dayton OH Little Rock AR Toledo OH Lexington KY...

  • Page 16
    ... CO Huntington WV Lynchburg VA Huntsville AL Saginaw MI San Francisco CA Springfield OH Weirton OH Blacksburg VA Bloomington IN Clarksville TN - Hopkinsville KY Columbia SC Decatur IL Elkhart IN Eugene OR Greeley CO Jackson TN Lafayette IN Lake Charles LA Lawrence KS Myrtle Beach SC Parkersburg WV...

  • Page 17
    ... 2008) KROGER DIVISIONS/ Major MSAs ATLANTA Atlanta Knoxville Savannah CENTRAL Indianapolis Fort Wayne Peoria CINCINNATI Cincinnati Dayton COLUMBUS Columbus Toledo DELTA Memphis Little Rock Jackson DILLON STORES Wichita Omaha FOOD 4 LESS Los Angeles Riverside Las Vegas Chicago San Diego Oxnard FRED...

  • Page 18
    ... (Year-End 2008) KROGER DIVISIONS/ Major MSAs JAY C Louisville KING SOOPERS Denver Colorado Springs MICHIGAN Detroit Flint MID-ATLANTIC Richmond Roanoke Charleston WV Raleigh MID-SOUTH Nashville Louisville Lexington QFC Seattle Portland RALPHS Los Angeles Riverside San Diego Oxnard SMITH'S Las Vegas...

  • Page 19
    ... produce a higher incremental return because they require little investment in overhead, advertising, and distribution. Mergers/Acquisitions Winn-Dixie Albertson‟s [Individual stores] Winn-Dixie Buehler Food Markets Scott‟s Food & Pharmacy Farmer Jack [Individual stores] [Individual stores...

  • Page 20
    ... our gasoline facilities offer pay-atthe-pump convenience for our customers. Over 300 of our convenience stores are tied into the Company‟s successful loyalty card program. MARKETS Kroger‟s convenience stores continue to concentrate on small to mediumsized towns located near interstate highways...

  • Page 21
    ... Shop Loaf „N Jug Quik Stop Tom Thumb Turkey Hill Minit Markets TOTAL States IA KS NE CO MT ND NE NM OK SD WY CA NV AL FL IN PA 2006 133 175 103 127 241 779 # Stores 2007 131 174 106 126 245 782 2008 129 172 106 116 248 771 Square Feet (000) 2008 2006 2007 370 373 369...

  • Page 22
    ... Ohio Oklahoma Oregon Pennsylvania Tennessee Utah Virginia Washington West Virginia Wisconsin # STORES 1 7 1 53 33 8 11 4 64 3 6 Fred Meyer Jewelers came to Kroger as part of its successful merger with Fred Meyer, Inc. in 1999. The business is fully aligned with Kroger‟s Customer 1st strategy...

  • Page 23
    ...®", our Banner brands, and "Comforts®" are Kroger's ultimate loyalty program because customers can buy these brands only in our stores. Our supermarket divisions typically stock approximately 14,000 corporate brand items. During the fourth quarter of fiscal 2008, 27% of Kroger's grocery sales came...

  • Page 24
    ...flavor experiences for our customers. We introduced Banner brand tortilla chips - which we manufacture in one of our own plants - in a new bag size to bring a unique $1 price point to bagged snacks that is popular in the recent challenging economy. Finally, Banner brand cake mixes with edible images...

  • Page 25
    ... our customers save energy and money. Other important general merchandise brands include seasonal "Holiday Home®" items, upscale "HD Design®" products for home, "MotoTech®" products in the automotive category, and "Office Works®" in the office and school supplies category. The Kroger Co. Page...

  • Page 26
    ... juice, cultured products such as yogurt and cottage cheese, ice cream, novelty treats and non-carbonated beverages. In all of our markets, Banner brand milk is the "national brand" for most customers. Kroger also operates two cheese plants, which produce a variety of natural and processed cheeses...

  • Page 27
    ... Dairy Tamarack Farms Dairy Tolleson Dairy Turkey Hill Dairy Vandervoort Dairy Westover Dairy Winchester Farms Dairy GROCERY America's Beverage Bluefield Beverage Delight Products Kenlake Foods Pontiac Foods Springdale Ice Cream & Beverage State Avenue Tara Foods MEAT King Soopers Meat Vernon Meat...

  • Page 28
    Corporate Brand Categories Produced at Our Manufacturing Facilities DAIRY ï,§ Ice Cream ï,§ Ice Cream Cakes ï,§ Milk ï,§ Yogurt ï,§ Cottage Cheese ï,§ Processed Cheese ï,§ Natural Cheese ï,§ Sour Cream ï,§ Frozen Novelties ï,§ Orange Juice ï,§ Fruit Juices/Drinks ï,§ Citrus Punch ï,§ Bottled Water ...

  • Page 29
    ... States in number of locations, operating retail pharmacies in over 1,900 of our food stores. During fiscal 2008, Kroger pharmacists filled over 131 million prescriptions at a retail value of approximately $6.7 billion, an increase of approximately 3.1% versus fiscal 2007. Kroger Pharmacy Growth...

  • Page 30
    ... discounted prices. Customers can access our drug list by visiting our stores, at www.kroger.com, or by calling (877) 4RX-LIST. In May 2008, Kroger announced a partnership with The Little Clinic LLC to bring walk-in medical clinics and quality, affordable consumer health solutions to stores across...

  • Page 31
    ... lifestyles and better nutrition has fueled significant growth in the natural and organic foods industry over the past several years. In response to this interest, Kroger customers can find a variety of natural and organic products throughout our stores, from our produce and meat departments...

  • Page 32
    ... gasoline at our convenience stores. Despite low margins, fuel centers can deliver a high return on investment because of their extraordinary inventory turns and positive effect on overall store sales. The typical supermarket fuel center consists of three to seven multi-product dispensers covered...

  • Page 33
    ..., and 2008, respectively. A portion of the decrease in our OG&A rate is due to Kroger's growing retail fuel business. The decrease in our non-fuel OG&A rate reflects Kroger's strategy of producing operating cost leverage through strong identical sales growth, increased productivity, and cost control...

  • Page 34
    ... consist primarily of employee-related costs such as wages, health care benefit costs and retirement plan costs, utilities, and credit card fees. Rent expense, depreciation and amortization expense, and interest expense are not included in OG&A. Kroger's retail fuel business can increase the...

  • Page 35
    ...evolve. Each year this partnership helps us analyze our business in ways we may not have considered before. In addition to helping Kroger build customer loyalty and brand value, dunnhumbyUSA serves other manufacturing and non-grocery retail clients through offices in Atlanta, Chicago, and Cincinnati...

  • Page 36
    ... insurance (car, home, renters, life, pet, and specialty), mortgages, home equity lines, identity theft protection, in-store money services, and a full line of gift card products at the One Stop Gift Card Shop. We consider these services to be an extension of Kroger's overall "Customer 1st" strategy...

  • Page 37
    ... ï,§ Customer loyalty and fuel systems ï,§ Expanded handheld & mobile technologies ï,§ New data center & network implementations ï,§ Store labor forecasting systems ï,§ Supply chain & transportation management programs ï,§ Manufacturing planning & control systems ï,§ Web-based application focus...

  • Page 38
    ... engineering to continuously improve the efficiency of the supply chain. The program examines each step - from suppliers to the stores - streamlining processes, driving out waste, and reducing costs to enable continued investment in our Customer 1st strategy. Many of Kroger's distribution centers...

  • Page 39
    ... of consolidation centers that service retail stores - within a roughly 350-mile radius - for slower turn pharmaceuticals, HBC items, and dry grocery merchandise. These regional consolidation centers allow Kroger to purchase in larger quantities at the lowest possible price bracket. The product is...

  • Page 40
    ...for deliveries. With rising fuel and operational costs, Kroger is further leveraging its investments in network-based transportation management systems to improve utilization of its store delivery and inbound fleets. Fleet capacity management across all markets and business units is being integrated...

  • Page 41
    ... excluding our retail fuel operations. Investments in our customer's shopping experience help us drive strong and sustainable identical sales growth. These investments can take several forms - including improved customer service, better product quality and selection, and lower prices. We are able...

  • Page 42
    ... Kroger serves customers in 42 major markets. We define "major market" as a metropolitan area in which we operate nine or more stores. Over 70% of our stores are located in these markets. The 2008 market share figures reported below are based on our internal estimates. We include all retail outlets...

  • Page 43
    ... include expansions and relocations and more closely resemble industry-defined "same store sales". Other companies in our industry may calculate identical or comparable sales differently than Kroger does, limiting the comparability of these measures. Gasoline sales at our supermarket fuel centers...

  • Page 44
    ... reflect our strategy of growth through expansion and acquisition, as well as our emphasis on self-development and ownership of real estate, and logistics and technology improvements. Since 1995, Kroger has been aggressively purchasing the real estate associated with our storing program. At year-end...

  • Page 45
    .... The term "operational closure" describes a store location that has been closed without opening another store in the same vicinity to replace it. ï,§ ï,§ The chart on the following page provides Kroger's real estate activity by quarter for fiscal 2006, 2007, and 2008. The Kroger Co. Page 44

  • Page 46
    ... Stores Jewelry Stores Fuel Centers Pharmacies FY 2008 Beginning # Stores New Acquired - New Acquired - Relocation Relocations Total Stores Opened Expansions Total Store Projects Operational Closures Ending # Stores Remodels Square Footage (millions) % Increase Convenience Stores Jewelry Stores Fuel...

  • Page 47
    ... our cost of capital. 3. Maintain a strong capital program. 4. Smooth debt maturities. 5. Allocate cash flow to keep our store base current, reduce Kroger's leverage, and provide a solid return for shareholders. DEBT ISSUES At year-end 2008, Kroger had one credit facility: ï,§ $2.5 Billion Five...

  • Page 48
    DEBT ISSUES (Year-End 2008) Credit Facility 7.25% Senior Notes (A) 8.05% Senior Notes 6.80% Senior Notes 6.75% Senior Notes 6.20% Senior Notes 5.50% Senior Notes ...$119 $163 $7,597 $421 $8,018 These notes were repaid during Second Quarter 2009. Before SFAS No. 133 Adjustment. The Kroger Co. Page 47

  • Page 49
    ... we may be aware of material non-public information, as long as purchases are made in accordance with the plan. We made open market purchases totaling $448 million, $1.2 billion, and $374 million under Board-authorized repurchase programs during fiscal 2008, 2007, and 2006, respectively. At the end...

  • Page 50
    ... $189 million, $270 million, and $259 million under the stock option program during 2008, 2007, and 2006, respectively. $ millions Stock Option Program Board Repurchase Authorization TOTAL COST Fiscal Year 2006 2007 2008 TOTAL # Shares 29 million 53 million 24 million 106 million FY 2006...

  • Page 51
    ...'s peer group has consisted of the major food store companies. In recent years, there have been significant changes in the industry, including consolidation and increased competition from supercenters, drug chains, and discount stores. As a result, several years ago we changed our peer group (the...

  • Page 52
    ... Costco Wholesale Corp., CVS Corp, Delhaize Group SA (ADR), Great Atlantic & Pacific Tea Company, Inc., Koninklijke Ahold NV (ADR), Marsh Supermarkets Inc. (Class A), Safeway, Inc., Supervalu Inc., Target Corp., Wal-Mart Stores Inc., Walgreen Co., Whole Foods Market Inc., and Winn-Dixie Stores, Inc...

  • Page 53
    ...weeks) Sales 2008 2007 2006 (A) Q2 (12 weeks) Q3 (12 weeks) Q4 (12 weeks) Year (52 weeks...2008 $3,851 $2,956 2007 $3,609 $2,827 2006 (A) $3,528 $2,649 Rent 2008... & Amortization 2008 $432 2007 $404 2006 (A) $388 Interest Expense 2008 2007 2006 ...2008 $613 $435 2007 $544 $433 2006 (A) $489...

  • Page 54
    ... $1.54 Average Number of Common Shares Used in Diluted Calculation 2008 664 659 656 655 2007 715 709 685 676 2006 (A) 729 725 720 715 (A) (B) (C) 659 698 723 2006 was a 53-week fiscal year. The Fourth Quarter contains the extra week. Includes advertising, warehousing, and transportation. Certain...