Kroger (KR) inching forward with Ruler Foods, expanding deep discount chain in Illinois

Analyst says up to 100 new stores possible

CINCINNATI - The Kroger Co. is expanding its Ruler Foods format in Illinois this month, as it experiments with the discount chain that sells mainly Kroger corporate-brand products.

"It's a deep-discount grocery store operated by our JayC Division, based in Southern Indiana," said Kroger spokesman Keith Dailey. "Value shoppers are a growing customer segment, a segment we think is here to stay. This is a concept store that's helping us learn not only how to be relevant to a value shopper but you create a deep and lasting loyalty with that customer segment."

The 18th Ruler Foods store opens this week in Danville, Ill. Store number 19 is slated to open later this month in Urbana. The stores are small, averaging about 18,000 square feet, or about one tenth the size of a typical Kroger store. Most of the stores are in rural locations in Indiana and Illinois. A Lima, Ohio store opened last year.

Dailey declined to comment on future growth plans, including whether the format will make a Cincinnati appearance.

"It's an experimental format," said Dailey. "We're pleased with the results to date but its too soon say if the stores are going to operate in other markets."

Local shoppers may recognize the format because Ruler Foods looks a lot like Aldi stores with about a half dozen stores in the Greater Cincinnati area. 

Ruler Foods is a non-union format that requires a quarter deposit to get a shopping cart. In addition to frozen foods and stables, it offers fresh produce and a delicatessen, which differentiates it from other no-frills discount chains. Dailey said the typical shopper can save 30 to 50 percent at a Ruler Foods store.

Northcoast Research analyst Chuck Cerankosky said the format fits with Kroger's strategy of building stores that use a variety of merchandising strategies to adapt to the neighborhoods where they operate. He thinks the concept could expand to 100 stores within five years, perhaps even to Cincinnati.

"You're not going to have them all over the place," he said. "They'll be neighborhood-specific."

Kroger is one of the world's largest grocery retailers with $96 billion in fiscal 2012 revenue and 2,424 grocery stores in 31 states, along with 791 convenience stores and 348 jewelry stores.

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