Kroger Co. capitalizing on health care worries

Kroger details strategy success in investor call

CINCINNATI -- Have you ever thought of Kroger as a health care company? Kroger has, based on a presentation to analysts in New York Wednesday.

“When we talk to customers, they’re telling us one of their top concerns is around health care,” said Robert Clark, group vice president for non-perishables. “Health and wellness is dominating their life. It’s in the media every day. The benefits we all have are under fire and they’re looking for solutions.”

Clark said consumer insight gained through its market-research partnership with Dunnhumby USA has led to company investments in healthier food options, including its Simple Truth organic brand, which company officials said is close to becoming a $1 billion brand for Kroger.

In addition to healthier eating options, Kroger is expanding The Little Clinic, a limited-care health clinic concept founded by two pharmacists in Louisville in 2003. The Memphis Daily News recently reported that Kroger is adding 50 Little Clinics next year and expects to end 2013 with 120 locations. There are 17 Little Clinics in the Tri-State, including Hamilton, Anderson Township and Hyde Park in Ohio and Walton, Newport and Fort Mitchell in Northern Kentucky.

Kroger CEO David Dillon called out the company’s growth in its pharmacy business in March, after the company capitalized on a contract dispute between Walgreen Co. and Express Scripts in 2011.

“Our pharmacy business this past year was outstanding,”  Dillon told shareholders in March. “I want to make sure that anybody who’s touched our pharmacy business in our organization knows how we feel about that. We were absolutely thrilled.”

Kroger doesn’t break our revenue for its health care components but Clark said it has become a pervasive theme for Kroger buyers.

“We’re investing every day in things like produce and natural foods, which customers are telling us through their buying and their surveys are important to them,” Clark told analysts Wednesday. “Customers are looking to affect their expenditures around health care through eating healthier.”

The investor conference yielded little in the way of news. The company said it remains on pace to complete its merger with Harris Teeter by year end and it affirmed its prior guidance on earnings for the quarter and full year. CEO Dillon said the company is on pace to have its 40th consecutive quarter of identical store sales growth when third quarter results are announced in early December.

The investor call closed with Dillon taking a shot at potential rival, Amazon.com, which is experimenting with grocery home delivery. When an analyst asked how Kroger can compete with Amazon, Dillon laughed and described Amazon as “a company that’s valued entirely by its revenue than by the cash flow it produces. Ultimately, he predicted there will be “a day of reckoning back to the cash flow it produces.”

Kroger’s next CEO, Rodney McMullen, said European home delivery services show there is a limit to the amount of grocery business that can be done via delivery. And Dilllon recalled a conference he attended more than two decades ago when a futurist predicted an end to brick and mortar stores. He didn’t believe the prediction then and doesn’t now.

“There’s still a fair amount of customers, in fact I think a very high majority of customers, who like to physically get out, like to have some interaction in a retail store,” Dillon said. “I see it all the time in in stores that I personally shop in or stores that I’m visiting. So, I wouldn’t be too quick to assume that the leap all the way to home delivery ends up replacing everything.”

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