Dillon to Retire: What’s Next for Kroger?
Dave Dillon, who has adeptly run Kroger Co. for the last decade, last week announced plans to retire at the close of the year, replaced by COO Rodney McMullen.
The 37-year veteran, as CFO, led the 2009 integration of the $13 billion merger with Fred Meyer, allowing Kroger to get into the non-grocery business with categories such as jewelry and furniture. Mr. Dillon became CEO in 2003 as newer threats to the traditional grocery format soon sent several competitors to file for bankruptcy protection or to downsize. The disruption came not only from Walmart, Target and warehouse clubs, but dollar stores and c-stores making bigger pushes into food, organic rivals led by Whole Foods, and limited-assortment specialists like Trader Joe’s and Aldi.
With its Customer 1st strategy focused on offering competitive pricing, broad assortments, faster checkouts and customer service, Kroger has tallied 39 consecutive quarters of comparable-store sales growth. It’s been relentless around feeding any cost savings into lower prices for customers, something Wall Street has wished would be used to boost profit margins.
Kroger was also seen as well ahead of the curve when it partnered with dunnhumby in 2003 to better analyze the customer data coming from its loyalty program with the goals of personalizing offers and learning more about shopper habits. The Cincinnati Business Journal said the partnership gave "Kroger entry into the world of ‘big data’ before it was even called big data."
Mr. McMullen, whom Mr. Dillon said played a key role in both the development of the Customer 1st approach and the dunnhumby alliance, still faces the newer food competitors and must also steer the pending acquisition of Harris Teeter, Kroger’s biggest acquisition since Fred Meyer.
The transition also comes as same-day delivery pushes from Amazon, Walmart and several upstarts are yet again promising to bring e-commerce to grocery on a large scale. Mobile apps and other digital technologies also appear set to transform the in-store grocery shopping experience.
"The progress we’ve made on digital tells us that there’s tremendous growth there," Mr. McMullen, a 35-year Kroger veteran, told The Wall Street Journal, last week. "Whether it’s people finding discounts on things they care about, looking at the layout of the store, or creating a shopping list, customers are engaging through our app."
Mr. Dillon told the Journal that "new blood coming in" is necessary given the rapidly changing environment.
"The new era of supermarkets began 10 years ago, when people started buying food in lots of places, not just supermarkets," Mr. Dillon said. "We caught it pretty early, but most other supermarkets did not."
- Kroger Announces CEO Succession Plan – Kroger press release
- Kroger CEO David Dillon to Retire in January – The Wall Street Journal (sub. required)
- Dillon to Retire as Kroger CEO – Supermarket News
- Here’s how Kroger’s David Dillon built a powerhouse – Cincinnati Business Journal
- Kroger’s No. 2 executive to lead grocer as CEO retires – USA Today
- Kroger No. 2 to become CEO as Dillon retires – cincinnati.com
Discussion Questions
How would you sum up Dave Dillon’s legacy at Kroger? What new challenges will Rodney McMullen face? What advice would you give to Mr. McMullen?
Kroger is a middle of the road, plain vanilla supermarket. Its not easy being in this position. Kroger has managed to survive and thrive while others in its class have been getting annihilated. Mr. Dillon summed it up very well “The new era of supermarkets began 10 years ago, when people started buying food in lots of places, not just supermarkets,” Mr. Dillon said. “We caught it pretty early, but most other supermarkets did not.” For consumers who don’t want to go to the high quality customer service stores and don’t want to go to the deep discounters, Kroger is one of the best middle of the road operators. Advice for Mr. McMullen would be to stay the course. Remember, while Kroger is good, they are not that good, so don’t go out and buy some train wreck of a chain and think you can make them better. Otherwise you will soon be another Albertsons or A&P.
Kroger became finer-tuned during Dave Dillon’s tenure. He developed successful strategies and applied new technology to compete with a seemingly endless number of new places selling food. Dillon built a solid powerhouse upon the strong foundation produced by predecessor Joe Pichler’s financial acumen. Kudos to Dave Dillon.
Rodney will face challenges from Amazon and others who might bring “immediate” service, even wider global assortments and still undiscovered innovative methodology. In turn, potential competitors to Kroger will have an uphill struggle as Kroger and Rodney McMullen continue their insightful programs to stay ahead of the cusp.
Advice to McMullen: the world is changing ever-faster. Always lead by planning what could come next. On a personal note, make me even prouder of the quarter century I productively spent at Kroger.
To McCullen, I’d (humbly) give two pieces of advice:
(1) Don’t screw it up. Keep using your customer data to focus on your best shoppers and deliver the price, assortment, and personalized marketing that they have come to expect.
(2) Make the next leap. Embrace the next generation of digital marketing and communication tools so you can continue to engage your shoppers as they shift from traditional media (circulars, direct mail, TV, etc.) to always-on digital and mobile touchpoints.
If McCullen can show the same steadfast vision and leadership in embracing the next wave of customer communication that his predecessor showed in embracing customer-centric, data-driven decision making, then Kroger will be in for another decade of growth and prosperity.
Kudos to Mr Dillon! He has led Kroger to excellence during a period which has seen many peers fail. Good for him to go out while on top.
Advice to Mr McMullen? “Don’t screw this up.” The next 10 years will see just as many changes, and it appears Mr. McMullen has been and still is up to the task. Be as bold as you have been in the last 10.
Mr. Dillon has done well and the company has thrived under his stewardship. I’d point to two strategies that have served Kroger well during this period by offsetting the dreaded paradox of scale.
First is the corporation’s willingness to let its banners retain their identities and regional relevance.
Second is its investment in the dunnhumby data analytics platform and its focus on frequent shopper marketing.
Both strategies have served the very large retailer well by institutionalizing local and segment-level responsiveness.
I think describing Mr. McMullen as “new blood” may be a bit optimistic, but at least he shares some of the success DNA. It will be hard for him to top the two strategies. My advice would be to be constantly aggressive about questioning every business assumption so he can see change coming early; maintain readiness to react when the circumstances dictate; and to choose strategies that enhance shopper success.
There are always new challenges as more and more competitors add food. One of the bigger challenges is that the younger generation doesn’t seem too interested in shopping at a conventional; they seem to prefer the Trader Joe’s, Costco, Whole Foods, and Walmart store mix. Sprouts is popular with us too. This may make it difficult to continue the sales momentum unless Kroger tries some new formats, which I wouldn’t put past them.
While 80% of their stores are plain vanilla, they do have things going on with marketplace stores and fresh fare stores in fresh departments that I think help move them out of that plain vanilla hole in that minority of locations.
The opportunity lies in transitioning more stores into something better, but a one size fits all approach will not work. They do not seem to take opportunities to do that as well as they could in every market, with every remodel. In my market, they have done five remodels in the past three years and only one of those remodels really moved the store to another level. The others were more like redecorations. What is the point? I know they can do so much better.
You also have to remember all the work Joe did before Dave. You can not underestimate the work those two did together. Just as Rodney has worked with Dave for years and been heavily involved. The question should be, WHO will Rodney be selecting?