Kroger Company - 2005

A. Case Abstract
This is a comprehensive strategic management case that includes the companys financial statements, organization chart, competitor information, and industry trends. Sufficient internal and external data are provided to enable students to evaluate current strategies and recommend a three-year strategic plan for the company. The Kroger Company, Inc., with headquarters in Cincinnati, Ohio (513-762-4000), operates over 2,500 supermarkets, 795 convenience stores, and 436 jewelry stores. The Kroger Company employs approximately 290,000 employees. The company achieved annual revenues of $56.4 million in fiscal year ending February 2005, compared to $53.7 million in 2004. Kroger is ranked #19 on the Fortune 500 list and is ranked as the third largest retailer in the world, behind Wal-Mart (#1) and the Home Depot (#2). The company has been in existence for over one hundred years and is the # 1 pure grocery chain in the United States with over 3,770 (including subsidiary businesses) stores in 32 states. Kroger and its subsidiary operations market food, pharmacy, and jewelry products.

B.

Vision Statement (proposed)

Our vision is to be Americas supermarket, and to continue to provide innovation and unparalleled value to our customers, employees, and shareholders.

C.

Mission Statement (actual)

Our mission is to be a leader in the distribution and merchandising of food, pharmacy, health and personal care items, seasonal merchandise, and related products and services. (proposed) 1. Provide the freshest food, highest quality products, and exceptional service to our customers all at reasonable prices; 2. Be a leader in the distribution and merchandising of food, pharmacy, health and personal care items, seasonal merchandise, and related products and services; 3. Strive to have a prominent, profitable presence and positive name recognition in all 50 states and the District of Columbia; 4. Employ the latest and most innovative technology to improve distribution, enhance customer service, anticipate customer needs, cut costs, and compete using an arsenal of consumer data;

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5. Continuously review the performance of each and every Kroger store, manufacturing facility, employee, and private label product to insure that every element of the company is contributing to its growth and financial strength; 6. Hold fast to our corporate values of honesty, integrity, respect for others, diversity, safety, and inclusion; 7. Uphold the motto of our founder, Be particular. Never sell anything you would not want yourself. 8. Contribute generously to causes that relieve hunger and provide medicine to the poor; and 9. Compensate our employees in a manner that is consistent with the exceptionally high quality of customer service that is expected of them, striving to maintain positive relationships with the labor unions that represent our many associates across the country. This mission statement incorporates all aspects of the companys interests. The first point relates to the fact that Kroger must differentiate itself on the basis of fresh food, high quality products, and exceptional service. In this respect, Kroger has a strategic advantage, since rivals like WalMart are weak on customer service, and since Kroger manufactures many of its own items, it therefore has more control over quality and prices. The third point is important since Kroger now has a very weak presence on the East Coast. Kroger is missing opportunities by not having grocery stores in places like New Jersey, Maryland, and Florida. The fourth point is supported by Krogers new relationship with dunnhumby, a database management company from the United Kingdom, which is partnering with Kroger to better utilize consumer information to improve sales. This is an overwhelming strength against WalMart, which does not even issue loyalty cards to its customers, and therefore, does not have access to nearly as vast a customer database as Kroger does. Point five is key, since Kroger must have the management dexterity and courage to close underperforming stores, execute make-versus-buy decisions, and implement enterprise-wide changes quickly when necessary.

D.

Class Discussion Questions and Issues

1. Considering Krogers current position in the industry, would you advise an international expansion strategy? If so, in what international market(s)? How would you suggest entrance with respect to location selections and number of units? Currently, Kroger has no existence in international markets, it would be advisable for Kroger to enter, perhaps Mexico and/or Canada, with a limited number of locations so it can test and strengthen the market at one or both international arenas. While Wal-Mart seems to exist everywhere, Canada is a promising economy to test 3 to 5 store locations.

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2. If international expansion is one recommended strategy, discuss the pros and cons of considering hiring expatriate leadership/management teams. Leading/operating in international markets requires a thorough cultural understanding of the respective country. Its difficult for expatriates to serve in such a capacity without having a conceptualization of the culture. It is advisable to recruit local leaders from the countries and perhaps examine local operational functions to ensure they are adaptable to business/cultural standards abroad. The use of expatriates can be considered a strength as they are aware of the corporate functions/culture and can operate with minimal direction abroad. 3. Discuss cultural diversity/sensitivity management, as it applies to Kroger Company, Inc. How might it differ and what should Kroger consider/incorporate if international expansion efforts are proposed? Cultural diversity is critical regarding workforce. Kroger should consider recruiting proposed international market leaders and training them at their headquarters. This would constitute leadership that represents the sociological culture of a respective country coupled with the values/operational functions of headquarters as a result of training, etc. There is more of a buyin when local cultural leaders are in power, where transfer of objectives would take place much easier. 4. Discuss how Kroger can take advantage of the concept of synergy. Kroger operates over 40 manufacturing facilities and should continue to focus on this business to operate the system more lean, where it can achieve optimal operating costs, converting to manufacturing savings and better pricing for consumers relating to corporate brand (55%) goods (www.kroger.com). Moreover, Kroger can benefit from manufacturing dairy/bakery, etc., goods at a reduced price that it sells in its grocery stores, which can be considered a strategic advantage. 5. How can Kroger, if at all, keep competitors at a distance? In your response discuss expansion in the United States, abroad, product line(s), and portfolio management. Kroger should continue to focus on its core business, grocery, by identifying emerging markets (population > 20,000) and expanding. Additionally, continue to focus on product lines (grocery), with respect to buying power and sales. Incorporate more self-checkout units in stores to cut employee costs. Also, expand the jewelry business into more states and perhaps consider international expansion into Mexico and/or Canada too. 6. How effective is the Strategic Growth Plan? Would you change and/or recommend any additions? The growth plan in its current state is worthy; however, should include specific language/objectives with respect to international expansion to better compete with rival competitors. The focus should be to operate more lean and expand businesses that are achieving lucrative sales.

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7. What influence, if any, may consumer purchasing behavior affect an organizations (grocery retail) considerations to transition abroad? Please discuss: Specialty outlets, such as butcher/meat shops, produce and flower outdoor markets, etc. Sociological factors, such as diet and grocery purchasing frequencies, etc.

Kroger should always focus on behavior patterns of consumers; one way to monitor this may be by use of a club card where consumer transactions are able to be recorded and reviewed. This is especially valuable abroad as behavior patterns are obviously different, simply just by physically noticing what is purchased and the quantity also. In Europe, butcher, flower markets, and outdoor produce markets are all highly common, where prices are lower as a result of operating expenses are being trimmed. Moreover, a greater part of the world (Asia and Europe) consumption patterns are minimal compared to the United States. It is common for consumers to visit the grocery store to purchase enough items to store in a shopping basket, as opposed to an average shopping visit in the United States which may require the use of a shopping cart. Obesity factors should be considered too.

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E.

External Audit
Opportunities 1. 2. 3. 4. 5. 6. 7. Supermarket sales of drugs grew 6.9% to $27 billion in 2004. Wal-Mart has a large, recruitable low-paid, nonunion workforce. Organic food sales are up 19.5% annually over the last 5 years. Hispanic shoppers spend $117/week vs. $87/week average on groceries. Hispanic population growth rate = 13% = 4X average. Margins for private-label products are 35-45% vs. 27% for national brands. 87% of consumers have tried private-label products.

Threats 1. 2. 3. 4. 5. 6. 7. 8. Traditional drugstores are focusing on customer service and merchandising. Mail-order pharmacies are the fastest-growing format in the industry (up 17.9%). Health plans allow larger supplies of drugs for Mail-order pharmacies. Drug price inflation has led to illegal drug importation. Supercenters are dominating the market share of grocery sales. Wal-Mart is tops in logistics technology. Labor costs account for >50% of operating expenses. Price pressure was the cause of the Southern California strikes.

Competitive Profile Matrix

Critical Success Factors Market share Financial position Growing markets Multiple formats Customer database Price competitive Name recognition Organized labor Distribution system Customer service Consumer loyalty Employee satisfaction TOTAL Weight 0.10 0.10 0.05 0.05 0.05 0.15 0.10 0.15 0.05 0.10 0.05 0.05 1.00 Kroger Rating Weighted Score 3 0.30 3 0.30 3 0.15 4 0.20 4 0.20 3 0.45 3 0.30 2 0.30 3 0.15 4 0.40 4 0.20 3 0.15 3.10 Albertsons Rating Weighted Score 2 0.20 1 0.10 2 0.10 3 0.10 3 0.15 2 0.30 2 0.20 2 0.30 2 0.10 3 0.30 3 0.15 4 0.20 2.25 Safeway Rating Weighted Score 2 0.20 3 0.30 3 0.15 2 0.10 3 0.15 2 0.30 2 0.20 2 0.30 2 0.10 3 0.30 3 0.15 3 0.15 2.40 Wal-Mart Rating Weighted Score 4 0.40 4 0.40 4 0.20 2 0.10 1 0.05 4 0.60 4 0.40 4 0.60 4 0.20 1 0.10 1 0.05 1 0.05 3.15

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EFE Matrix
Key External Factors Opportunities 1. Supermarket sales of drugs grew 6.9%. 2. Large, low-paid Wal-Mart workforce. 3. Organic food sales are up 19.5% annually. 4. Hispanics spend 34.5% more than average on groceries. 5. Hispanic population growth rate is 4 times the average. 6. Higher margins for private-label products. 7. 87% of consumers have tried private-label products. Threats 1. Drugstores focusing on service and merchandise. 2. Mail-order pharmacies are the fastest-growing format. 3. Mail-order pharmacies can dispense larger prescriptions. 4. Drug price inflation has led to illegal drug importation. 5. Supercenters are dominating grocery sales. 6. Wal-Mart is tops in logistics technology. 7. Labor costs account for >50% of operating expenses. 8. Price pressure caused Southern California strikes. TOTAL Weight 0.07 0.05 0.05 0.10 0.08 0.05 0.05 0.10 0.08 0.07 0.05 0.10 0.10 0. 10 0.05 1.00 Rating 3 1 3 2 2 4 4 2 3 2 1 3 4 2 2 Weighted Score 0.21 0.05 0.15 0.20 0.16 0.20 0.20 0.20 0.24 0.14 0.05 0.30 0.40 0.20 0.10 2.80

Increasing organic and natural food selections helped to exploit that opportunity Krogers strong private-label brands are a real boon to the bottom line Kroger has online prescription fulfillment and mail order of prescriptions Kroger must partner with drug makers to help reduce drug costs in order to curb importation Kroger has maintained its market share against low-priced supercenters, Krogers 3-tiered logistics system is a strong rival to the Wal-Mart machine The overall score of 2.8 indicates an above-average job in responding to external forces

F.

Internal Audit
Strengths 1. A high-quality asset base with leading market shares in many of the nations largest and fastest growing markets. 2. Broad geographic diversity and multiple retail formats that allow Kroger to meet the needs of virtually every customer. 3. An extensive collection of consumer data generated from our customer loyalty cards plus a unique partnership with dunnhumby. 4. A successful track record of competing head-to-head against supercenters. 5. Outstanding private-label products that have earned industry-leading market share. 6. The financial strength and resources to build Krogers business for the future. 7. A prominent reputation in charitable giving and community involvement.

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Weaknesses 1. 2. 3. 4. 5. 6. Operates under two dozen banners. Only owns 35% of store property. Workforce is 71% unionized. Jewelry stores are 11% of stores, but account for less than 1% of revenue. Has not issued dividends since 1988. Negative net income in 2004.

Financial Ratio Analysis

November 2005 Market Cap: Employees Qtrly Rev Growth (yoy): Revenue (ttm): Gross Margin (ttm): EBITDA (ttm): Operating Margins (ttm): Net Income (ttm): EPS (ttm): P/E (ttm): PEG (5 yr expected): P/S (ttm): ABS = Albertson's Inc. SWY = Safeway Inc. WMT = Wal-Mart Stores Inc. Industry = Grocery Stores KR 13.93B 289,000 6.80% 58.36B 23.81% 3.10B 3.13% -15.00M -0.021 N/A 1.5 0.24 ABS 8.79B 241,000 0.20% 41.30B 27.97% 2.44B 3.12% 510.00M 1.374 17.36 2.57 0.21 SWY 10.38B 191,000 7.20% 37.76B 29.03% 2.26B 3.52% 590.40M 1.313 17.6 1.88 0.28 WMT 204.01B 1,700,000 10.10% 305.37B 23.02% 22.70B 5.87% 10.80B 2.569 19.08 1.19 0.68 Industry 893.98M 6.47K 5.30% 2.58B 27.08% 147.21M 3.41% 27.98M 1.16 17.76 1.86 0.25

These fiscal 2005 statistics are not as dismal for Kroger as they appeared in the fiscal 2004 Annual Report. Revenues are ahead by nearly $2 billion, and the net income is vastly improved over the -$100 million of 2004, although it is not yet on the positive side. The numbers for the industry in the above table represent averages. In the table below, Kroger is compared to a partial list of the grocery firms with the largest market capitalization.

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Entity Grocery Stores Kroger Co. Safeway Inc. Whole Foods Market Inc. Albertson's Inc. Distribucion y Servicio S.A. The Great Atlantic & Pacific Tea Co. Casey's General Stores Inc. Weis Markets Inc.

Market Cap 53.17B 14.19B 10.48B 9.84B 8.76B 2.23B 1.22B 1.14B 1.13B

ROE % 10 -0.367 13.47 11.682 9.455 7.436 79.924 10.294 10.382

Debt/ Equity 0.012 1.842 1.35 0.014 1.222 0.733 0.371 0.287 0

Price to Book 5.46 3.635 2.211 7.275 1.59 2.425 1.596 2.341 1.902

Net Profit Margin (mrq) 1.1 1.414 1.369 0.812 1.05 1.112 27.302 2.427 2.553

The table describes the grocery sector in total. Notice that Wal-Mart by itself has over three times the market capitalization than the entire grocery store industry. This poses problems of scale as well as comparisons between Wal-Mart and any other grocery firm. Krogers negative return on equity has made it more of a buy-and-hold stock than it has been. Shareholders right now have to either cut their losses or ride out this trend of negative returns. Either way, this weak financial position will deter any major fund-raising from the issuance of new stock. Additionally disturbing for Kroger is that the long-term debt-to-equity ratio of 1.842 is astronomically higher than the industry, and indicates that there is already an overload of longterm debt, which should probably not be increased in order to raise money. This dilemma makes the question of debt or equity financing almost a Catch-22. Net Worth Analysis (January 2006 in millions) 1. Stockholders Equity + Goodwill = 3,540 + 2,191 2. Net income x 5 = (100) x 5= 3. Share price = $18.88/EPS(0.04) = 0.76 x Net Income (100) = 4. Number of Shares Outstanding x Share Price = 725.5 x $18.88 = Method Average $ 5,731 $0 $0 $ 13,697

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IFE Matrix
Key Internal Factors Strengths 1. Quality asset base 2. Leading market shares 3. In large and growing markets 4. Geographic diversity 5. Multiple retail formats 6. Consumer database 7. dunnhumby partnership 8. Competitive with supercenters 9. Outstanding private-label products 10. Financial strength Weaknesses 1. Too many banners 2. Too much leased property 3. Unionized workforce 4. Many low-revenue jewelry stores 5. No dividends in nearly 20 years TOTAL Weight 0.05 0.10 0.10 0.05 0.10 0.05 0.05 0.10 0.05 0.05 0.1 0.05 0.1 0.05 0.05 1.00 Rating 3 4 4 3 4 4 4 3 3 3 1 2 1 2 2 Weighted Score 0.15 0.40 0.40 0.15 0.40 0.20 0.20 0.30 0.15 0.15 0.10 0.10 0.10 0.10 0.10 2.90

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G.

SWOT Matrix
Strengths S 1. Quality asset base 2. Leading market shares 3. In large and growing markets 4. Geographic diversity 5. Multiple retail formats 6. Consumer database 7. dunnhumby partnership 8. Competitive with supercenters 9. Private-label products 10. Financial strength Opportunities O 1. Supermarket sales of drugs up 2. Low-paid Wal-Mart workforce 3. Organic food sales growth 4. High level of Hispanic spending 5. Hispanic population growth rate 6. High Margins for private-labels 7. High demand for private labels Threats T 1. Drugstore service/merchandise focus 2. Growth of mail-order pharmacies 3. Larger prescription rules for MOPs 4. Illegal drug importation 5. Supercenters dominate grocery sales 6. Wal-Mart logistics technology 7. Labor >50% of operating expenses 8. Price pressure caused labor strikes SO Strategies 1. More pharmacies in stores (S1,O1) 2. Organic private-label (S9,O3-6-7) 3. Hispanic private-label (S9, O4-5) 4. Hispanic format (S4-5, O4-5) 5. Take Wal-Marts best employees (S10, O2) 6. New stores in Hispanic hot spots (S4, O5) ST Strategies 1. Match drugstore offerings of service & merchandise. (S1-5, T1) 2. Grow online pharmacy business (S610, T2) 3. New stores in non union areas (S4, T7) 4. VP of unions (S10, T7-8) 5. Stress customer service in all operations (S6-7, T1-5-7) Weaknesses W 1. Too many banners 2. Too much leased property 3. Unionized workforce 4. Low-revenue jewelry stores 5. No dividends in nearly 20 years

WO Strategies 1. Hybridize banners & push Kroger brands (W1, O6-7) 2. Replace some jewelry stores with organic markets (W4, O3)

WT Strategies 1. More hybrid banner supercenter-type stores (W1, T5) 2. Buy store property and save money (W2, T7-8) 3. Divert jewelry store funds into online pharmacy (W4, T2)

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H.

SPACE Matrix
Conservative FS 6 5 4 3 2 1 CA IS Aggressive

-6

-5

-4

-3

-2

-1 -1 -2 -3 -4 -5 -6

Defensive

ES

Competitive

Financial Strength (FS) Net Income Current Ratio Loss in EPS in 2005 High debt to capital ratio Low bookvalue per share Financial Strength (FS) Average

1 3 1 1 1 1.4

Environmental Stability (ES) Hispanic groth rate is 14% High energy prices Aggressive labor unions Mail order pharmacies increasing sales Supercenters dominate grocery sales Environmental Stability (ES) Average

-1 -5 -6 -6 -6 -5

Competitive Advantage (CA) #1 or #2 in most major markets Diversified with four different operations Private label share of sales is 24.6% Website pharmacy sales grew 18% in 2004 Control over Suppliers and Distributors Competitive Advantage (CA) Average

-2 -1 -1 -1 -2 -1.4

Industry Strength (IS) Retail drug chains strong gowth Supermarket drug sales continue to grow Organic food sales up 19% in last 5 years Customers continue to use private brands Labor cost total >50% of operating expenses Industry Strength (IS) Average

6 6 6 5 1 5

y-axis = FS + ES = 1.4 + (-5.0) = -3.6 x-axis = CA + IS = -1.4 + (+5.0) = 3.6

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I.

Grand Strategy Matrix

Rapid Market Growth Quadrant II Quadrant I

Weak Competitive Position

Strong Competitive Position

Albertsons

Kroger SafeWay Wal-Mart

Quadrant III Slow Market Growth

Quadrant IV

Despite the relatively strong growth in the drug business, the grocery industry itself is not growing. Instability in the industry is due largely to competitive pressure of supercenters. As a result, Kroger, despite its strong competitive position, will occupy Quadrant IV, along with Safeway and Wal-Mart. True to the recommendations of the GSM, Albertsons is attempting to liquidate its operations, due to its weak competitive position. Kroger is an interested buyer in this sale. One problem with going ahead with the deal is that both Kroger and Albertsons have miserable credit ratings of BBB. So as much as Kroger would probably like to horizontally integrate Albertsons that may not happen. However, Kroger can do substantial concentric diversification with its natural and ethnic product selections in its stores. Also, a fair amount of conglomerate diversification of its supermarkets can take place by closing jewelry stores and convenience stores, and opening more revenue-enhancing fuel centers at its supermarkets. As for a joint venture, the dunnhumby arrangement came about in the nick of time to be useful. All of these changes can and should be done without any significant fund-raising through debt or equity.

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J.

The Internal-External (IE) Matrix

The IFE Total Weighted Score Strong 3.0 to 4.0 High 3.0 to 3.99 I Average 2.0 to 2.99 II Weak 1.0 to 1.99 III

Medium The EFE Total 2.0 to 2.99 Weighted Score

IV

VI

Kroger

Low 1.0 to 1.99

VII

VIII

IX

Hold and Maintain This matrix shows that Kroger really should dig in with those operations that have been the money-makers for it thus far. At 1% of total revenues, jewelry stores do not represent an area of continued revenue generation. More effort should be placed in the supermarket business, specifically proliferating supermarkets with pharmacies and alternative departments in fastgrowing regions of the country. Kroger is in no financial position to do any massive expansion, but capital diversions from jewelry stores and underperforming supermarkets into the hot growth areas is certainly indicated. Additionally, since convenience stores only contribute 3.6% to revenues, and since fuel centers at the supermarkets increase sales at those supermarkets by some 130 basis points, Kroger might also consider trading under performing convenience stores for supermarket fuel centers.

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K.

QSPM
Strategic Alternatives A - Diversification of Private Label Natural and Ethnic Products B - Replace Convenience & Jewelry Stores with Fuel Centers Key Factors Weight Supermarket sales of drugs growth 0.07 Large, low-paid Wal-Mart workforce 0.05 Organic food sales are up 0.05 Hispanics spend more than average 0.10 High Hispanic pop. growth rate 0.08 High margins for private-label 0.05 Popularity of private-label products 0.05 Opportunities Drugstore focus on service and merchandise Mail-order pharmacy (MOP) growth MOPs dispense larger prescriptions Illegal drug importation Supercenters dominate grocery sales Wal-Mart logistics technology Labor >50% of operating expenses Labor strikes Quality asset base Leading market shares In large and growing markets Geographic diversity Multiple retail formats Consumer database Dunnhumby partnership Competitive with supercenters Outstanding private-label products Financial strength Too many banners Too much leased property Unionized workforce Many low-revenue jewelry stores No dividends in nearly 20 years Sum Total Attractiveness Score 0.10 0.08 0.07 0.05 0.10 0.10 0.10 0.05 0.05 0.10 0.10 0.05 0.10 0.05 0.05 0.10 0.05 0.05 0.1 0.05 0.1 0.05 0.05 A AS ----4 4 4 4 4 --3 ----3 2 2 2 --4 4 4 4 4 --3 4 4 ----2 1 --TAS ----0.20 0.40 0.32 0.20 0.20 1.32 --0.24 ----0.30 0.20 0.20 0.10 1.04 --0.40 0.40 0.20 0.40 0.20 --0.30 0.20 0.20 2.30 ----0.20 0.05 --0.25 4.91 AS ----1 1 2 1 1 --1 ----4 3 4 4 --3 3 3 2 3 --4 1 2 ----4 4 --B TAS ----0.05 0.10 0.16 0.05 0.05 0.41 --0.08 ----0.40 0.30 0.40 0.20 1.38 --0.30 0.30 0.15 0.20 0.15 --0.40 0.05 0.10 1.65 ----0.40 0.20 --0.60 4.04

Note Kroger may need up to $3 billion over the 2006 to 2008 period of time to add more stores, add more ethnic products, expand into Canada and Mexico, and to acquire another rival firm. Thus the EPSEBIT analysis will be based upon the need for $3 billion.

Weaknesses

Strengths

Threats

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L.

EBIT/EPS Analysis
$ Amount Needed: $ 3,000M Stock Price: $ 18 Tax Rate: 40% Interest Rate: 5% # Shares Outstanding: 725.5M
Common Stock Financing Recession Normal Boom $500,000,000 $1,500,000,000 $3,000,000,000 0 0 0 500,000,000 1,500,000,000 3,000,000,000 200,000,000 600,000,000 1,200,000,000 300,000,000 900,000,000 1,800,000,000 892,166,667 892,166,667 892,166,667 0.34 1.01 2.02 70 Percent Stock - 30 Percent Debt Recession Normal Boom $500,000,000 $1,500,000,000 $3,000,000,000 45,000,000 45,000,000 45,000,000 455,000,000 1,455,000,000 2,955,000,000 182,000,000 582,000,000 1,182,000,000 273,000,000 873,000,000 1,773,000,000 842,166,667 842,166,667 842,166,667 0.32 1.04 2.11 Debt Financing Normal $1,500,000,000 150,000,000 1,350,000,000 540,000,000 810,000,000 725,500,000 1.12

EBIT Interest EBT Taxes EAT # Shares EPS

Recession $500,000,000 150,000,000 350,000,000 140,000,000 210,000,000 725,500,000 0.29

Boom $3,000,000,000 150,000,000 2,850,000,000 1,140,000,000 1,710,000,000 725,500,000 2.36

EBIT Interest EBT Taxes EAT # Shares EPS

70 Percent Debt - 30 Percent Stock Recession Normal Boom $500,000,000 $1,500,000,000 $3,000,000,000 105,000,000 105,000,000 105,000,000 395,000,000 1,395,000,000 2,895,000,000 158,000,000 558,000,000 1,158,000,000 237,000,000 837,000,000 1,737,000,000 775,500,000 775,500,000 775,500,000 0.31 1.08 2.24

M.

Epilogue
In December 2005, Kroger Co. sold nine Kroger-anchored shopping centers, including one in Pasadena, California, for $79.9 million. The Pasadena store is located at the 80,738square-foot Kroger Junction shopping center at 2619 Red Bluff Road. Inland Real Estate Acquisitions purchased all of the Kroger stores and the adjacent retail centers. Kroger had owned all of the shopping centers, which collectively total almost 810,000 square feet, for several years. As part of the agreement, Kroger has signed long-term, 15-year leases to continue its operations in each of the nine Kroger grocery stores. The agreement also affords Kroger the right to add fuel stations to some of the properties. At the end of the third quarter of fiscal 2005, Kroger operated (either directly or through its subsidiaries) 2,510 supermarkets and multi-department stores in 32 states under two dozen local banners including Kroger, Ralphs, Fred Meyer, Food 4 Less, King Soopers, Smith's, and Smith's Marketplace, Fry's and Fry's Marketplace, Dillons, QFC and City Market. Kroger also operated (either directly or through subsidiaries, franchise agreements, or operating agreements) 792 convenience stores, 431 fine jewelry stores, 567 supermarket fuel centers, and 42 food processing plants. For more information about Kroger go to http://www.kroger.com.

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