Kroger 2008 Annual Report Download - page 44

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The Kroger Co. Page 43
CAPITAL EXPENDITURES
Total capital expenditures for 2008 were $2.2 billion, excluding acquisitions.
Approximately 61% of Kroger’s 2008 capital dollars was used to build,
acquire, expand, or remodel food stores. The balance was allocated
among the Company’s other operating and administrative segments,
including convenience stores, jewelry stores, manufacturing facilities, as
well as technology, logistics and distribution, and other miscellaneous
projects.
We allocate capital to projects that we expect to earn a rate of return in
excess of our internal hurdle rate of 11.3% after-tax. These projects
include new stores, major remodels and expansions of existing stores, as
well as distribution facilities, technology and manufacturing investments.
We primarily target existing markets for new combination stores. In our
experience, such “in-market” growth generally produces higher returns,
with a lower level of risk, by leveraging fixed expenses such as
warehousing, transportation, advertising, and other overhead costs across
an expanding store base.
Capital expenditures 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, approximately 43% of the Company’s
2,481 supermarkets were owned by Kroger. Kroger estimates that it saves
approximately $1 per square foot per year when owning versus leasing
stores.
2008 Capital Investment Allocation
Supermarkets, including real estate: 61.0%
Technology & Logistics: 17.5%
Mfg, C-Stores, Jewelry: 5.4%
Other: 16.2%