Head of America's Largest Grocer Talks Amazon and Ugly Tomatoes

By Heather Haddon Features Dow Jones Newswires

If you run America's largest supermarket chain, it should be easy to travel anywhere in the country and answer questions about where you work. But for Kroger Co.'s Rodney McMullen, those conversations can be a chore.

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"I'll say 'Kroger,' and they don't even know what that is," says Mr. McMullen, who became the company's chief executive in 2014. Then, "they will Google it and go 'oh, wow.'"

Until recently, investors were just as enthralled with the world's third largest retailer. But after three years presiding over steady growth, Mr. McMullen, a farm-raised Midwesterner, has been navigating Kroger through its stormiest period in more than a decade.

The Cincinnati-based company's stock fell 19% in June after it reported a slide in sales growth and lowered its guidance for the year. The next day, Amazon.com Inc. announced it was buying Whole Foods Market Inc.

To fend off Amazon and other online grocery services, Kroger is sacrificing profits to provide e-commerce pickup options at hundreds of stores. It is also lowering prices on staples as it competes with Wal-Mart Stores Inc. and European discount chains Aldi and Lidl for value-oriented shoppers.

Mr. McMullen, 57 years old, sat down with The Wall Street Journal this month to talk about the competition, Kroger's future and the value of ugly vegetables.

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Edited excerpts:

The Wall Street Journal: Where were you when you got news of the Amazon-Whole Foods deal?

Mr. McMullen: I was with our internal audit team. The average age is in their low 20s. One of our interns who is 20 years old, the very first question to the group is, 'I thought bricks and mortar was dead? If it's dead, why is Amazon buying Whole Foods?' It didn't surprise me at all. Several years ago, we decided that the customer wants a physical experience and an online experience. Obviously, it surprised the market a lot more than it did me.

WSJ: What does the deal mean for Kroger?

Mr. McMullen: There isn't anything from a strategy standpoint that we will change because the strategy we've been executing assumed something [like the Amazon deal] would happen. It makes it a lot easier in terms of helping [Kroger executives] understand the sense of urgency.

WSJ: Given the competition, have you had conversations with, say, Albertsons Cos., about a deal?

Mr. McMullen: I always tell people that if there's anything out there, you should assume we've looked at it.

WSJ: Which of these developments is making you lose the most sleep: Whole Foods/Amazon, a revitalized Wal-Mart or the growing presence of foreign chains like Aldi and Lidl?

Mr. McMullen: I worry about all of them. And I worry about restaurants. We operate in an industry that is $1.5 trillion in terms of how much people spend on food. If people are eating a meal, we want to get our fair share of that meal. Anybody who is getting a meaningful part of that, we'd worry about.

WSJ: What are you doing to cut down on food waste?

Mr. McMullen: Over the last four years, we've partnered with local food banks and provided over 1 billion meals. In some of our fresh departments, that would have been product we'd have thrown away. We were able to partner with local food banks so fresh product that is still high quality to eat, but you wouldn't sell from an appearance standpoint, [is donated]. We legitimately believe we will be able to get every store to be zero waste.

WSJ: Much of the food that's wasted in the U.S. is edible produce that doesn't meet aesthetic standards. Do you believe customers are open to eating less-attractive tomatoes?

Mr. McMullen: I grew up on a farm. Last Sunday, I went out to see my parents and their garden, and I find the produce that looks the ugliest tastes the best.

WSJ: You started as a stock clerk for Kroger. How does that experience inform the way you do your job today?

Mr. McMullen: I've done a lot of different jobs in the company so it helps you understand how hard each person's job is. You know how hard it is to stock shelves, to work an eight- or 10-hour shift. Every year I'll go and work in a store. In the old days, I could do any job in the store. Today, bagging is about the only job I can do. Which is embarrassing but at least I can still do something.

WSJ: Time travel to Kroger 2025. What would it look like?

Mr. McMullen: It wouldn't surprise me that customers would be in the store eating but they would use an app to order what they want. When they are finished, [the store clerk] would deliver the groceries to them. It will be so easy because we'll be able to predict a lot of the things you want. The associates you engage with will be so knowledgeable about where tortillas came from. I believe some stores will be big and some small. And it will be the combination of all those things that make it special.

(END) Dow Jones Newswires

August 22, 2017 05:44 ET (09:44 GMT)