Kroger CEO: Downtown store will test new products and services

McMullen expects 'a great store for the city'
Posted at 3:00 PM, Jun 06, 2017
and last updated 2017-06-10 06:47:38-04

CINCINNATI - Above average innovation, below average profitability.

That’s what Kroger Co. CEO Rodney McMullen expects from a Downtown grocery store the company plans to open in 2019.

The company projects it will spend more to make less at the 45,000-square-foot store at Court and Walnut streets than at its typical Kroger.

RELATED: Kroger reveals plans for Downtown store

“The store will be on a couple of levels, which makes it a little bit more complicated,” McMullen said. “But it’s something we believe will be a great store for the city, a great store for the broader community and the return certainly will be acceptable.”

Rodney McMullen

Kroger is known for its disciplined approach to capital deployment, demanding double-digit returns from investments in new stores. Those returns have been above 13 percent in each of the last seven years, which means it gained 13 cents in operating profit for every dollar invested in store construction, renovations and logistical improvements.

McMullen wouldn’t reveal Kroger’s projection for the Downtown store, only that “it will be lower than what we’d expect in the prototypical store.”

But what it lacks in profit the store will gain in new ideas that will be tested at Court and Walnut, one block away from Kroger’s headquarters.

“Part of it’s because obviously it’s so close to our office,” McMullen said. “It would be crazy not to take advantage of that because all you have to do is walk across the street and see how things are in a store. We try a lot of things in Corryville and Newport just because of the proximity. This will make it even easier.”

Kroger plans to use the Downtown store as a kind of test kitchen for new products and services, some of them developed at the corporate headquarters down the street, others at a culinary training center that Kroger is building at 9th and Elm streets Downtown.

The Cincinnati Center City Development Corp., or 3CDC, said the store will have unique features like a beer and wine section with a full bar and outdoor patio, plus a food hall where vendors and restaurateurs will offer a wide variety of prepared foods.

“We’ve spent a lot of time working with folks on store design and planning,” said Adam Gelter, 3CDC’s executive vice president of development. “I don’t think there’s anything that’s brand new to Kroger but we’ll have a unique collection of things pulled from stores around the country. We’ve built a lot of flexibility into the store plan.”

Housing developer Rick Kimbler said the building’s design itself is unique, with a support system that enables 16 floors to be built above the two-story Kroger without interrupting the sales floor with support columns. The eight-story garage required a creative approach to ramping so cars could make their way to the third floor without interfering with the retail box below.

A rendering of the new store. Provided by GBBN Architects

“It’s a very complex set of circumstances,” said Kimbler, a partner in NorthPointe Group, one of three companies partnering on a 139-unit apartment building above the store. “The way you’d build a garage is to have more columns. A grocery store needs to be open. That’s contradictory to a garage, contradictory to a residential tower.”

Beyond those design considerations, Kroger is putting a lot of work into its merchandising strategy for the Downtown store. The standard meat, dairy and produce aisles will be located on the 30,000-square-foot ground floor. That portion of the store is more than double the footprint of Kroger’s Over-the-Rhine store at 1420 Vine Street. About 160 employees will operate the Downtown store, including 60 from Vine Street, which will close when the new store opens.

The second floor food hall will be offered in Cincinnati for the first time, but McMullen said it’s an idea borrowed from Kroger stores in other cities.

“We would also expect to partner with local restaurants on some things at our store as well,” McMullen said. “We’re increasingly doing that in different areas of the country. We find it’s very helpful for a small entrepreneur, from a restaurant standpoint, to help them get scale and our customers really like it as well.”

Home delivery is not part of the store’s operating plan at this point. McMullen said it’s too early to predict whether it could be offered in the future.