Dillon: Stores get more competitive

HUTCHINSON — David Dillon says the Kroger Co. he leads is trying to set itself apart from Walmart and its other competitors in an increasingly competitive market.

Dillon, 58, the Hutchinson native who is chairman of the board and CEO of Cincinnati-based Kroger, delivered the Barbara Peirce Memorial Lecture on Wednesday at Hutchinson Community College.

Before the speech, Dillon talked about his company's efforts to segment the grocery and department store markets as it battles for market share.

Dillon is the great-grandson of J.S. Dillon, who founded the Dillons grocery chain in Sterling in 1913. He is the fourth generation of his family to work in the company.

"Walmart, in my opinion, in the non-food area has a wider range of product, and they go for a little lower quality of product," Dillon said. "And as a result, a little lower price."

Instead, Kroger wants to be an upscale alternative for "the customer who wants a little higher quality and who wants the convenience," Dillon said.

He acknowledged, however, that Kroger is in the midst of an intense battle for market share in the grocery industry.

To keep up, Kroger and Dillons have become more aggressive in pricing, products and the customer experience.

"The competitiveness of our market generally in the U.S. has gone up a notch or two in the last six months," Dillon said.

"I think that's a direct result of the economy, with a number of retailers hurting for sales, and they're having to step it up a notch to get sales in the door. That means we've had to respond in kind to make sure we protect our market share, so you'll see the advantage of that as a customer."

Dillon said Kroger milk and produce prices have been cut to draw more shoppers in the door. The result has been sales and market share growth. Kroger had $70.2 billion in sales last year, with more than 3,500 supermarkets and multi-department stores in 31 states.

"We've fared well in that environment, but it has been more difficult for everybody because we're all fighting for that business," Dillon said.

"When we fight for business, the customer ends up winning, and we're happy with that, too, because that's part of our strategy."

Part of that fight is a broader "non-food" selection, Dillon said, which gave birth to the Dillons Marketplace concept.

"It's not just about non-food, though," he said. "That's helped us a lot, because people like the convenience of all those products under one roof."

Kroger and Dillons will continue to look for ways to tweak the business model, with an emphasis on cross-division programs.

One example is the cooperative business relationship between Dillons stores and Kwik Shop, Kroger's convenience store chain.

In Greensburg, those two concepts have been blended into one grocery/convenience store in the wake of the 2007 tornado, a concept that Kroger continues to study, Dillon said.

"It's instructive in a lot of different ways," he said. "One of the things it's helped us see is how to combine store formats in a way that's effective to the customer.

"Whether that results in a new store format we develop elsewhere is hard to say. The more likely outcome is some of the things that we've learned from that collaboration will be moved to other stores. That's what you're seeing with our electronic gasoline discount (earned through Dillons grocery spending), as one example."

Kroger will continue pursuing partnerships with local service businesses, such as banks, Dillon said.

"I think that's still a really good opportunity," he said. "We think of ourselves as a local store operation, and we like to connect with businesses that are local."

He's less optimistic about a quick economic recovery.

President Obama has to encourage savings, Dillon said, while also encouraging consumer spending to revitalize the American economy.

"My own personal view is because of the combination of people spending a little and saving more, the economy will slowly recover and it won't grow in a way we'd see as retailers... until people are comfortable enough to spend again," he said.

"I tend to think it will be slow for a couple of years out."