On the Call: Kroger CEO David Dillon

By The Associated Press

Companies always keep a close eye on competitors, but when your rival is the biggest retailer on earth the pressure is even tougher. Supermarket retailer Kroger Co. reported its first-quarter results Thursday — net income fell but the results beat expectations and sales grew. However, the grocer is facing tough competition from Wal-Mart Stores Inc., which recently rolled out some of its fiercest reductions in food prices to help boost its slumping sales. Wal-Mart gets about half of its revenue from groceries.

Kroger CEO discussed the issue during a conference call with analysts:

QUESTION: Wal-Mart started the roll-back campaign on April 1st and started to do the deep discounts on May 1st. Wondering in markets where you overlap with a Wal-Mart super center, have you seen any discernible trends since they began that roll-back activity?

RESPONSE: Let me talk generally about Wal-Mart and how we see our markets for a moment.

We don't often talk about individual competitors, but many of you have asked about them, so it is probably worth commenting.

Wal-Mart affects any of the marketplaces in which they operate like any other competitor affects those marketplaces. Wal-Mart has become publicly more aggressive in what they're saying that they're doing, and if you look at what's happening in the stores and in the markets — just like we said the last two quarters — the marketing behavior, merchandising behavior Wal-Mart is (doing is) a lot more consistent with a traditional grocery supermarket operation than it is consistent with what Wal-Mart used to do.

It is a lot more feature items, sometimes features are on a little longer than a week, but it is feature items. And when you operate that way, there are items that come down in price which get lots of publicity, but there are also items that go up in price that don't get much publicity.

So we see the behavior as there is a lot of marketing noise around it, but we see the behavior as pretty much what happens in a lot of grocery. ... As a result, the most important thing I think for you to think about is that our behavior in those markets and in every market is based upon our plan and what we believe to be consistent with our customer-first strategy and what we think our customers want.

We can't do that with a blind eye to what competition does, but we also can't let competition dictate what we're going to do in those markets and we have chosen not (to do).

We're approaching this from purely from the point of view of 'What do we think our customers want from us in this kind of environment?' and using our data and insight in order to drive that.