Kroger 2012 Annual Report Download - page 63

A-5
During 2013, the Company will negotiate major labor contracts covering store employees in Indianapolis,
Houston, Dallas, Cincinnati and Seattle, among others. These negotiations will be challenging, as the Company
seeks competitive cost structures in each market while meeting our associates’ needs for good wages and
affordable health care. In these negotiations, we will also need to address the underfunding of our multi-
employer pension plans.
ST O R E S
As of February 2, 2013, the Company operated, either directly or through its subsidiaries,
2,424 supermarkets and multi-department stores, 1,169 of which had fuel centers. Approximately 45% of
these supermarkets were operated in Company-owned facilities, including some Company-owned buildings
on leased land. The Company’s current strategy emphasizes self-development and ownership of store real
estate. The Company’s stores operate under several banners that have strong local ties and brand recognition.
Supermarkets are generally operated under one of the following formats: combination food and drug stores
(“combo stores”); multi-department stores; marketplace stores; or price impact warehouses.
The combo stores are the primary food store format. They typically draw customers from a 2 – 2½ mile
radius. The Company believes this format is successful because the stores are large enough to offer the
specialty departments that customers desire for one-stop shopping, including natural food and organic
sections, pharmacies, general merchandise, pet centers and high-quality perishables such as fresh seafood
and organic produce.
Multi-department stores are significantly larger in size than combo stores. In addition to the departments
offered at a typical combo store, multi-department stores sell a wide selection of general merchandise items
such as apparel, home fashion and furnishings, electronics, automotive products, toys and fine jewelry.
Marketplace stores are smaller in size than multi-department stores. They offer full-service grocery
and pharmacy departments as well as an expanded general merchandise area that includes outdoor living
products, electronics, home goods and toys.
Price impact warehouse stores offer a “no-frills, low cost” warehouse format and feature everyday low
prices plus promotions for a wide selection of grocery and health and beauty care items. Quality meat, dairy,
baked goods and fresh produce items provide a competitive advantage. The average size of a price impact
warehouse store is similar to that of a combo store.
In addition to the supermarkets, as of February 2, 2013, the Company operated through subsidiaries
786 convenience stores and 328 fine jewelry stores. All of our fine jewelry stores located in malls are operated
in leased locations. In addition, 81 convenience stores were operated by franchisees through franchise
agreements. Approximately 53% of the convenience stores operated by subsidiaries were operated in
Company-owned facilities. The convenience stores offer a limited assortment of staple food items and general
merchandise and, in most cases, sell gasoline.
SE G M E N T S
The Company operates retail food and drug stores, multi-department stores, jewelry stores, and
convenience stores throughout the United States. The Company’s retail operations, which represent over
99% of the Company’s consolidated sales and EBITDA, are its only reportable segment. The Company’s retail
operating divisions have been aggregated into one reportable segment due to the operating divisions having
similar economic characteristics with similar long-term financial performance. In addition, the Company’s
operating divisions offer to its customers similar products, have similar distribution methods, operate in
similar regulatory environments, purchase the majority of the Company’s merchandise for retail sale from
similar (and in many cases identical) vendors on a coordinated basis from a centralized location, serve similar
types of customers, and are allocated capital from a centralized location. The Company’s operating divisions
reflect the manner in which the business is managed and how the Company’s Chief Executive Officer and
Chief Operating Officer, who act as the Company’s chief operating decision makers, assess performance
internally. All of the Company’s operations are domestic. Revenues, profit and losses and total assets are
shown in the Company’s Consolidated Financial Statements set forth in Item 8 below.