The Kroger Company

Introduction

The Kroger company is a retailer based in the United States and was founded by Bernard Kroger back in 1883.It is one of the largest retailer supermarket chain according to its revenue contribution. Behind Walmart, it is the largest of all other general retailers in U.S. It operates via its subsidiaries that consist of 2,424 stores or directly from its headquarters that are located in Cincinnati, Ohio. It has market stores in 31 states and the stores are usually in the form of supermarkets, department stores, superstores, convenience stores as well as jewelry stores. Employers in this company are mostly represented by the United Food and Commercial Workers union (McLeod, 2011).

The company is rated as number one world’s largest retailer of grocery products with exponential sales of $98.4 billion in the year 2013. (Benson and Shaw, 2014).The rationale of this paper is to investigate the Kroger retail company and evaluate the history and operations of the company. The paper shall also evaluate the strategic business unit of the company and discuss the current enterprise system in the company. Furthermore, the paper shall define emerging trends, technologies and their applications in the retailer industry.

History

Bernard Kroger opened a grocery store in the year 1883 from his $372 savings downtown Cincinnati at 66 Pearl Street. He was a son of a merchant and his driving force was to make sells that he himself would wish to buy hence honesty. (Mowery and National Research Council, 1999) A variety of aspects of the company’s business has their foundation from Mr. Kroger himself. Most grocers in early 1900s preferred purchasing their bread from independent bakeries and Kroger unraveled that he would make huge profits by baking bread and selling at a cheap price. Therefore, in 1901, he was revealed as the pioneer of groceries that owned a bakery in addition to selling meat in the same place where he sold groceries (Mowery and National Research Council, 1999).

Kroger further decided to manufacture the products he sold by buying a lot of cabbages and with the aid of her mother, he would make tangy sauerkraut that was loved by his customers from Germany (Laycock, 2004).This was the platform of the current booming manufacturing business in U.S. Kroger currently has 37 operational food processing amenities that make products that range from cookies, bread, and ice cream in addition to peanut butter. One of Kroger’s manufacturing plants makes more than 4,800 private-label substances established in its stores. The company has a significant strategic benefit in that these corporate brands account for 25 percent of the company’s entire store dollar (McNeil, 2013).

Currently, the shops have grown larger to cater for customers who are interested in one-stop shopping. The Marketplace stores of the company which has a variety of merchandise have an average of 125,000 square feet. Under the Fred Meyer banner, the multi-department stores are over 165,000 square feet. Hot meals, natural foods, organic vegetables and basic grocery forms more than the 50,000 items that are packed currently in the shelves. Kroger also operates in-store pharmacies that are more than2, 109. Kroger co. is also considered world’s largest florist and have fuel centers that are 1,180 and above (Benson and Shaw, 2014).

 Kroger co. has further enhanced its growth through merging with other companies. The first successful merge was with Dillon Companies Inc. back in1983 in Kansas whereby it became cost-to-cost machinist of drug, food and convenience stores. However, the most remarkable merge was a $13 billion deal that the company made by teaming up with Fred Meyer Inc. in 1999 (McLeod, 2011). The merger resulted in the creation of supermarket chain which covered a large geographical area incorporating the widest variety of formats. Kroger becomes the first retailer in the grocery industry to use an electronic scanner in the history of America. This took place in 1972 in a store located in Cincinnati and was attended by various visitors (Oz, 2002).

Industry Analysis

Economic Characteristics    

i.                    What is the size of the supermarket industry?

The supermarket industry is very large with few major plays. There many brands of supermarkets with the top bland controlling most of the markets.

ii.                  What is the growth rate of this market?

The growth rate is high in this kind of markets, the majority of the top supercenters have a huge market share. Kroger has grown as a supermarket chain, its growth has come from acquiring other smaller supermarkets and convenience store.

iii.                How many rivals in the industry and how large or how small?

There are thousands of rivals in the supermarkets/supercenter industry; there are small and large supermarkets. The large supermarkets dominate the markets; these leaders are likely to rise due to divesting the underperforming business.

iv.                What is the scope of competitive rivalry?

The competitive rivalry is very intense, Kroger has few main competitors. It has to compete with the major retailers such as Wal-Mart and Mash. It also has to compete against major drug chains that are entering the industry.

v.                  What is the industry pace of change of innovation?

The pace of change is very low; they cannot do something different that other supercenter can’t duplicate. They might be able to produce a new product under their brand that will give them an advantage.

vi.                What is the size of consumers large or small?

The size of the consumer is very lager. It has a market capital of 12.33 billion.  This put them as the leader in retail grocery compared to their competitor. There is a huge number of consumer and will continue as long as the population grows.

Economic Factors Attractiveness

Porter’s 5 forces

i.                    How strong is the rivalry among competitors?

The rivalry among competitors is very strong, mostly against the major firm such as Wal-Mart, Safeway, and Ahold USA. These are the top competitors in this industry competing with Kroger. Wal-Mart is the number one retailer in the United States, they compete on low price.

ii.                  Do the buyers have much power?

No, the buyers do not have purchasing power. The price the Kroger set is the price the buy must pay, they can’t ask for prices to be lowered or how a product can be produced to meet customer needs or demand.

iii.                Do the suppliers have much power?

No, the supplier does not have power over how the products are going to promoted or the price that Kroger is going to put on that certain product.

iv.                Is there potential for new entrants?

Yes, there is new entry in this marketplace but the newcomers are very few. There is a majority of customers might want to stick with the brand their familiar to. The larger retailers are competing on acquiring the market share by a margin with the smaller retailer or large one as well in the marketplace.

Competitive Attractiveness

Driving Forces

Emerging new markets, there are not too many retailers opening up in this market. The numbers of supermarkets are growing as long there is a demand in the retail industry. The only new market Kroger can enter is the drug markets place where they can open up a separate brand of pharmacy.

Healthcare, it has opened up a pharmacy at its supermarket and it provides all natural food at its grocery store. People are looking for healthier food or food products that are safe to eat. Their plan is to sell fresh products.

Cost control, Kroger new strategy is to reduce the operating cost, administrative cost to achieve greater economic of scale and to reinvest in its core business to increase sales and market shares. It also plans to narrow the retail price gap with major discounters which will widen prices advantage over old-fashioned supermarkets competitor.

Productivity, Kroger has a method to improve labor productivity, lower products costs, energy conservation and administrative efficiencies. It wants to differentiate itself by offering a convenient shopping experience to its customers, such as pharmacy and high-quality outstanding private label products.

Long Term Industry Attractiveness Summary

The retail, grocery store industry many attractive potentials, as long there is demand for grocery and retail products. This market will continue to grow. The Kroger company growth will keep increasing even though the buyers do not have much power. This is an attractive industry.

A vital part of the planning, organizing, leading, and controlling functions facing management remains to analyze the effects of these factors. The purpose of this team essay is to identify some of the internal and external factors that management must consider when performing each of the four functions. The use of some examples of a well-known retail grocery conglomerate, Kroger Company, aids the team in analyzing these factors. Members of the team review specific effects of globalization, technology, innovation, diversity and ethics on the functions of management and provide examples for each. The team also explains how the use of delegation increases managers’ effectiveness in solving some of the issues faced due to the factors discussed.

The SWOT Analysis

            The main points management must consider when performing the four functions of management are the existing internal strengths and weaknesses, and the external opportunities and threats that may present themselves (Bateman & Snell, 2009). This is known as the SWOT analysis. As an example of the importance of following this procedure, the Kroger Company employs a corporate governance committee, an audit committee, and a compensation committee at the strategic level to analyze financial strengths and weaknesses on a regular basis to ensure organizational goals and operating procedures are in line with company reserves and earning potential(Kroger Company, 2011). The analysis of internal and external factors is performed at the strategic, tactical, and operational levels of management that ideally remain in line with organizational goals. These factors can affect all four functions of managing a company.

 All four functions of management are traditionally affected by the external factor of customer loyalty and demand. In a recent SWOT analysis, it was revealed that analysts believe that internal expansion and stabilization of operations in the area of the increasing trend toward a demand for organic foods and private label products was a strong tactical move on part of Kroger management (Rind, 2011). Kroger believes that the implementation of this plan potentially generates revenue well beyond the cost of production and reorganization, and increases customer loyalty.

 However, this internal reorganization and other expenditures also potentially threaten the company’s strong financial position. Kroger’s operating expenditures include unionized labor and the operation of its 40 manufacturing plants. External issues such as the economic recession and customer demand for lower prices calls for a continual analysis of planning initiatives and internal controls.

Conglomerate Diversity

History shows us that if a company wants to remain competitive it needs to evolve and change to keep up with demands. Sometimes companies evolve into the production and sales of items they are not known for. This idea refers to conglomerate diversity. Conglomerate diversity introduces a corporate strategy that involves expansion into unrelated business (Bateman & Snell, 2009).In the 125 years since beginning operations, Kroger expanded operations from a grocery store retailer into convenient stores and jewelry stores across our country. Top executives used the planning process to create a diversified store and franchise. The company branched out and now sells gas, jewelry, and many specialty items in various stores.

 The function of organizing is used to determine what type business to branch out into. Kroger’s people have seen money to be made in convenient stores and jewelry so they made the executive decision to try this market and it has worked so far. The leadership is expected to carry out the values in the business practices of the company: honesty, integrity, respect for others, diversity, and safety. All of these values are put in place to show leadership cares and wants its employees to get on board and use these values in the day to day business of the Kroger Company.

The control contributes to the Kroger Company’s diversity as well. Management at all levels continues looking for ways to keep up with change and the factors that change business. Kroger’s management holds people and employees accountable. The grocery business is extremely competitive – one mistake or bad choice can change the public view of the business. The Kroger company spends millions of dollars training and teaching employees how to treat their customers.

Globalization

Globalization can be defined as the process of integration among the companies, people, and governments of different nations. Kroger Co. is a national food chain that serves 31 US states. As of now, Kroger is not a global company but they have the means to go global if they saw fit. They have a strong standing in the U.S. market which would make it probable for the company to expand to other countries. Until then, “Kroger plans on implementing an expansion plan which entails store relocations and store remodeling and new store openings”

Kroger is a well-established retailer and when the name Kroger is mentioned people feel like it is a trusted brand. Kroger could make significant gains on its strategic goals and objectives by pursuing global expansion (Ward, 2005).The market continued to open in Mexico for a company like Kroger to expand and be as successful as they are in the United States. If Kroger can plan their expansion strategically and properly examine the risks they should be successful in reaching their objectives in Mexico. If managers take into account all the aspects of globalization there is a room for Kroger to expand into a country like Mexico and add to shareholder wealth.

Ethics

The aim of ethics is to identify both the rules that should govern people’s behavior and the “goods” that are worth seeking (Bateman & Snell, 2009). The term business ethics is the moral principles and standards that guide behavior in the world of business. In the statement on ethics made by David B. Dillon, chairman, and CEO of the Kroger Company, “The requirements of ethical behavior transcend the particulars of a policy or the underlying spirit of the policy that aids our values is as important as their specific contents (Kroger Copany, 2011).

The best way to communicate an ethical spirit for the Kroger organization involves putting emphasis for each person the importance of leading by example (Dillon, 2011). In the retail business, keeping the customer feeling satisfied and welcomed builds a strong customer base. Management constantly monitors and ensures the ethical treatment of its customers. They utilize all four of the functions of management to ensure employees follow the guidelines and values that are part of Kroger’s strategic plan.

Technology

Technology is known as an external component that greatly affects the internal component of the company. The advancements in technology today have made it easier for Kroger to pursue excellence in customer service. If Kroger wanted to go global, this also would not be an issue because of all the advancements in modern technology. Technology has enabled Kroger and other companies as well to use the internet for various purposes such as to compete, sell and advertise their products nationwide. With Kroger’s large and growing base that includes 44 brands, modern technology is great for communication through email, webcams, and conference calls which management can use to hold meetings and communicate with other employees around the country. Not only is the technology used to communicate with other employees but it also helps with the customer experience.  One example of how Kroger is using technology to make customer’s experience easier is the “Self-Check-Out” lanes in their supermarkets. This gives customers the opportunity to be in and out of the supermarket and not have to wait in long lines.  Other examples of technology within the company include Time & Attendance Systems, Labor Management and Scheduling Technology, Pharmacy systems, Voice-pick technology for distribution centers, and Real-time warehouse management & automation systems (Kroger Company, 2011) just to name a few. These new developments with technology have contributed to Kroger’s “Customer First” strategy.

Innovation

To be competitive in the grocery store market, Kroger has to be innovative. One idea that Kroger came up with was instead of focusing on lower prices like their competitors, they would focus on customer service and experience. According to Rivkin (2006), “Excellent customer service, specialized financial programs, re-merchandised stores featuring added kiosks and services such as postal facilities, dry cleaners, coffee shops and more, plus a solid, well-executed corporate brand program have all played a role in Kroger’s customer-centric approach”. A lot of planning must go into Kroger’s customer initiative; they must have stores that are set up with the appropriate merchandise to satisfy their diverse customer demographics. They also have to make sure that their newer and older stores are stocked equally regardless of the size of the store.

The “do it right the first time” approach is the way that Kroger Company approaches all facets of operations and executive governance. Managers rely on their employees’ dedication and capabilities to achieve success. They are committed to quality and strong team efforts.  Kroger encourages all employees to be involved in their business. Kroger strives for excellence in manufacturing innovation. Their plants are state-of-the-art manufacturing facilities. David Dillon, president, and chief executive officer stated, “(Kroger Company, 2011) faces the 21st century as leaders in our industries. Innovative “entrepreneurial” thinking is a key to our future success” (Kroger Company, 2011). Kroger Co. is committed to internally-driven innovation.

Delegation

Success for a company also demands that management understands the importance of effective delegation. Top management delegates the responsibility of tactical planning to its middle managers, and operational functions are delegated by middle management to the frontline supervisors. In turn, these managers delegate specific tasks to hourly employees. The purpose of this gradual assignment of responsibility is to allow each level of management the time to do tasks commiserate to their job description and to create team spirit.

Managers earn a higher wage and obtain higher education levels and more experience as they are promoted with the corporation. With these promotions come higher levels of responsibility and specific duties that only they are qualified to do. Therefore, effective management learns to carefully choose persons qualified and motivated to do those tasks. Delegation allows management to develop better-qualified personnel, give their subordinates a sense of contribution to company directives and confidence in execution to both manager and the person is given the responsibility.

The Kroger Company’s mission statement reflects its understanding of this concept. The statement released in 2005 states that they work to position those people closest to the customer to best serve the customer changing needs (Dillon, 2005).

Conclusion

Kroger takes the management process keenly and this has attributed to the company’s tremendous performance when compared to other retail companies. In the event that I would want to invest my retirement benefits in the company, I would do so without any doubts in my mind since the entire management process is transparent and accountable and this ensures that there is little or no mismanagement of the available resources. Management is a challenge at every level of responsibility. An effective manager learns to plan, organize, lead, and control while taking those factors that affect these functions of management into careful consideration. The SWOT analysis revealed ways Kroger resolves external and internal issues. The Kroger Company developed strategies that demonstrate their ability to effectively analyze these factors and utilize the four functions to resolve difficult issues. Delegating responsibilities and tasks to those qualified and willing to participate in company objectives remain an important part of this process. Kroger is a staple shopping venue in the United States, and they use what they have