What’s in store for 2007?

KU graduate David Dillon visits state for holiday

The head of the nation’s largest supermarket chain spent much of his holidays shopping – for groceries.

Back in his native Kansas, David B. Dillon, chairman and chief executive of Kroger Co., hit as many stores as he could, including seven or eight on Christmas Eve.

“I bought several things in every store, so the car was pretty full,” Dillon said. “And so I’m calling my wife, and I called my mother, asking ‘Anything you need from the store, let me know.’ “

Dillon makes it a habit to pop in at the nearly 2,500 grocery stores run by Kroger, a $60.6 billion business with 290,000 employees. His visits are unannounced; sometimes he meets with the manager or other workers; other times he blends in with shoppers. He also shops secretly in competitors’ stores.

“I’m really looking for ‘what’s the shopping experience here?’ ” Dillon said in an interview in which he also commented on the year ahead, looming labor negotiations and the British invasion by Tesco PLC. “Would I find the items I’m looking for? Would I be satisfied with the cleanliness of the store? Does the pricing look relevant to that particular market? What’s the attitude of the employees in the store? How do customers feel about the store?”

Dillon, who became Cincinnati-based Kroger’s president in 1995 and is in his fourth year as chief executive, has led during an era of sweeping change in competition and grocery shopping habits.

Some other long-established grocers have fallen by the wayside or been taken over – including his family’s Dillon chain, the Hutchinson-based business acquired by Kroger in 1983. Kroger has grown behind a strategy of keeping prices down amid Wal-Mart Stores Inc. and other grocery-selling discounters while improving service, store appearance and offering more variety in both products and store formats.

David B. Dillon, chairman and chief executive of Kroger Co., talks with employees Melissa Ellcessor, left, and Lora Smith at the opening of a Kroger store in West Chester, Ohio, in July. Dillon, a graduate of Kansas University and former president of Hutchinson-based Dillon Cos., makes it a habit to pop in when he can at some of the nearly 2,500 supermarkets run by Kroger. Dillon was in his native Kansas last month and visited seven or eight stores on Christmas Eve.

“Kroger appears to be reaping the benefit from the decision made several years ago to invest in lower prices in many of its markets and to identify the key nonprice factors that would make customers happy,” Lehman Brothers analyst Meredith Adler wrote last month, saying it “has led to a strong and improving competitive position.”

Kroger stock rose 5.2 percent, to close at $23.49 Dec. 5 after the company reported a 16 percent profit increase in its third quarter and raised its profit outlook for the year. It has been trading a little above that lately on the New York Stock Exchange after hitting a 52-week high of $24.48 Dec. 15, up from February’s $18.05.

Dillon, a young-looking 55, showed off a photo of his first grandchild, born last year, and talked about how he and his wife, Dee, closely follow Kansas University basketball by TV and Internet. Then the KU graduate talked about the grocery business he’s been part of since leaving college.

The company is sticking with its strategy of trying to keep prices low and shopping appeal high, Dillon said. Kroger has focused on areas such as faster checkouts, offering more natural foods and more attractive stores.

After adapting to Wal-Mart’s entry into groceries two decades ago, Kroger now has London-based Tesco, another one of the world’s largest retailers, ready to enter the U.S. market. Tesco this year plans to begin rolling out grocery stores in California, Arizona and Nevada, a move Dillon said wasn’t a surprise from what he called “one of the world’s better retailers.”

“All you get a vote in is how you respond; I think we can only get better as a result of watching what they do,” he said.