by Corey Gibson
Barney Kroger knew what he was doing. He started a company from scratch that competes toe to toe with every major food retail company in the United States. He built a company that survived the Great Depression, rationed food and employees for WWII and built a nationwide grocery empire. And Kroger made another important business decision when he invested the small listing fee to be incorporated into the Cincinnati Stock Exchange in 1902.
The Cincinnati Stock Exchange is one of the country’s oldest stock exchanges. Of the 13 stock exchanges that were operating in the early 1930s, the Cincinnati Stock Exchange is the oldest by far, dating back to March 1885. Some evidence even suggests that the exchange could have been started as early as 1858, but it ceased operations during the Civil War and never regained its identity when hostilities ended. The early exchange of 1858 would have allowed men the opportunity to trade stock every Saturday and Wednesday, more of a means to socialize than to trade shares of their companies with each other.
In 1885 the Cincinnati Stock Exchange, as it is known historically, was formally organized and trading began. The CSE helped many significant Cincinnati companies grow by offering distributions of their stock throughout the nation. While the exchange grew larger and began trading more companies geographically disbursed throughout the country, Kroger stock benefited by being sold to investors throughout the country. Other local companies and Ohio-based companies that prospered because of the CSE were Cincinnati & Suburban Tel. Co. (1903), Procter & Gamble Co. (1906), Cincinnati Gas and Electric Co. (1906), Cincinnati Milling Machine Co. Milacron (1905), Columbus Power and Light Co. (1906), The Formica Company (1913) and Goodyear Tire & Rubber Company (1921).
The Kroger Grocer and Baking Company was one of the first and largest companies to be listed on the CSE. Kroger was incorporated on April 30, 1902, with 40 stores to its name and $1.75 million in annual sales.
When Kroger joined the CSE, the company was turning disaster into a triumphant business. After the business depression of 1893, the company came out even stronger than it had gone in. By the end of the year, Kroger had bought 17 new stores and profits for the year exceeded $112,000.
In 1902, Kroger expanded to 40 stores and began extending its reach to other parts of the state as well. Kroger stock was selling at a respectable $40 per share, but according to the records kept by the CSE, Kroger stock did not sell a single stock for nearly four years, from 1906 until 1910. Although the company had expanded to nearly 100 stores, had over 300 horse carriages making deliveries and had bought other food chain stores to lower competition, shares of stock were not selling for the company.
Between 1910 and 1918 Kroger stock climbed to its highest price, $305 for a single share of stock. The extremely high rates came from the low trading volumes during the early years of the stock market. With less stock selling, prices of each share had to be high. And although some years no Kroger stock was being traded at all, other stock, like the Cincinnati Gas and Electric, was being traded heavily each day. Other times, such as in the late 1910s, Kroger stock was only been traded a few times a month, or even a few times a year. Although the stock kept climbing throughout the 1920s, the Great Depression sunk Kroger stock to an all-time low.
With the looming retirement of Barney Kroger, stocks began a slow decline from a steep cost of $128 in 1929 to an all time low of $12 ¾ in 1932, when Albert H. Morrill was president of the company. When Kroger retired from the company in 1930, Morrill had been promoted to president of the company, in charge of keeping Kroger among the top grocery store chains in America. But stock prices fell quickly. Stock dropped from more than $130, with trading in the 200,000 share volumes, to just $25 two years later, when trading volumes barely reached 100,000. With the retirement of Kroger came the loss of his hands-on approach to running the company and his determination to keep the high quality of his products at an affordable price.
The Great Depression brought more than stock price woes to the Kroger Company. The 5,575 stores, the largest number of stores in the history of the company, became too many to handle. With transportation and communication methods not yet highly developed, the company found it hard to keep in contact with all the stores. It became imperative that the company hire a real estate manager to cut out the ailing stores and keep the health of the entire company as the top priority.
Another challenge Kroger faced was the public’s outcry against chain stores. Politicians, radio announcers and the general public were starting an anti-chain store movement. The country had seen the sprouting of bare bones “super-markets” that had little to offer. The country was taking a stand against big business. But Kroger prevailed by decentralizing the Kroger company, allowing them to pay special attention to different communities, all while owning thousands of other stores around the country. Kroger also started massive campaigns convincing people to shop at Kroger; convincing them that Kroger was not a “chain store menace.”
Even after retirement, Barney Kroger responded to his namesake company when his help was needed. After selling all his stock before the Great Depression, he reinvested in the company when no one else had the confidence too.
As the country struggled to break free of the Depression, Kroger fared better in the stock market and the grocery front. Although not many new innovations marked the period between 1929 and 1939, Kroger stock prices hovered around $25, depending on the quarterly reviews of the company. In the 1930s, shopping carts were added to stores, frozen food became commonplace and the supermarket earned a reputation as a household name. But investors were still wary of the stock market. Kroger also became incorporated into the New York Stock Exchange on January 26, 1928, the exchange that the Kroger is still traded on publicly until this day.
After the death of Morrill in 1942, Charles M. Robertson took over as president of the company. He had big aspirations, such as the expansion of the Kroger Co. to new states and increasing the efficiency of manufacturing practices, however these were put on hold as WWII started.
According to a wartime report, “about 40 percent of all Kroger employees served in the armed forces.” Expansion and progress were set aside until Kroger could be fully staffed again.
After the war subsided in 1946, Kroger stock reflected the company’s rapid expansion. Stock doubled from $30 to $60 per share in one year. After Robertson retired, Joe Hall took his place. Hall, the real estate agent who trimmed down the 5,575 stores in 1929, was one of the many reasons for the rapid stock price growth. He began a huge consumer research program, bought an egg processing plant to help with manufacturing and changed the name of the company from the Kroger Grocery and Baking Company to the Kroger Company. By the 1950s, Kroger stock had risen to $70 per share, and in 1952, the Kroger Company topped $1 billion in sales.
For the next five years, Kroger stock continued to rise. In the 1960s, the company ventured into the trend of discount stores, lowering prices and limiting customer service. Kroger products were still held to the same standard, but prices were reduced even further. The company also expanded into the drug store business by buying a chain called SuperX. Kroger became the first food retail chain to have a pharmacy inside the store. In response, Kroger stock hit a premium of $99 in 1959. The stock split 3 for 1, causing trade volumes to skyrocket from around 20,000 a month in 1958, to nearly 50,000 a month in 1959.
Why should a company split their stock? According to Scott Henderson, treasurer and vice president of Kroger, “There’s no reason split the stock. If you have one share of stock at $50, and it splits two to one, now you have two shares of stock at $25. You still have the $50,” says Henderson. “If anything it might be a bit more administratively expensive to have more shares outstanding.” Yet, Henderson also noted that “It appears to be more of a psychological event. There seems to be more of an emotional response that shareholders have. It seems like they have more trading and more support for stocks that have a $20, $30 or $40 price stock. Most people cannot afford to buy a $500 stock. But they can afford to buy a $30 stock.”
The company continued expansion throughout the 1960s, tripling annual sales from $1 to $3 billion in just a few years. Stock held steady at $30 per share until the 1970s. In an effort to expand the company more, Kroger began building larger stores with more specialized departments. The company closed many smaller stores and replaced them with giant supermarkets capable of doubling the income of the smaller stores. George Hancock writes in his book The Kroger Story that “while the number of Kroger stores decreased by 166 between 1972 and 1982, total square footage climbed 45 percent. Meanwhile, average weekly sales per Kroger store increased from $44,000 to $180,000.”
This profitability, among other factors, led to the steep increase in the number of Kroger stock shares being traded each month. Kroger sold an average of 80,000 shares of stock in 1960, but by 1970, an average of 200,000 shares changed hands every month. In November 1972 alone, Kroger sold over 1 million shares.
Innovations within the country contributed to the increase in Kroger stock prices and its trading. Kroger stores shelves featured nearly doubled the product they held two years prior and every product had a sell-by date as well as nutritional facts printed on every label. Kroger was the first supermarket in the country to add sell-by dates on their products. Although sell-by dates are not federally mandated, Kroger went the extra step to put their product ahead of the competition.
The 1970s also saw highly developed advertising. Kroger began running ads that hailed every product Kroger had as the best. As one executive put it, “The customer was changing, so we began searching for ways to bring new direction to our merchandising.”
According to Hancock, Kroger was the first grocery store to apply the “everyday low prices” motto to selling its goods. Kroger wanted every bill “to be as low as or lower than it would be at any other comparable store.”
The 1980s proved tough for both Kroger and the stock market. The nation’s recession led to stock price volatility. Every month saw extreme highs and lows. For example, in October 1988, Kroger stock went from a high of $58 to only $18 four days later.
Although the stock prices were low for the company, Kroger seemed to fare well enough in the recession. The company bought a chain of convenience stores called Kwik Stop and merged with the Dillon Companies in 1983, allowing Kroger to operate nationwide. “Kroger went from a $25 billion company to almost a $40 billion company,” says Henderson.
However, many companies sought to buy Kroger, which led to higher stock prices. In 1988, several companies offered to buy Kroger; the highest bid was $5 billion, placed by Kohlberg, Kravis and Roberts, a global assets management company.
“The board of directors rejected the offers being made because they were saying the offers being made did not fairly value the whole company,” says Henderson. To prove this, he explained that “Kroger is incorporated in the state of Ohio… and under the laws of the state of Ohio; corporations can pay a dividend up to the fair value of the enterprise.” In other states a corporation can only pay a dividend up to the capital of the company. In other words, Kroger can pay a larger dividend than other corporations when they find the fair value of the company to be larger than their capital, which Kroger was able to do.
After the board rejected the offer, members sought a way to minimize the price fluctuations of the stock. They started by reorganizing the stock and giving control of 30 percent of the company to its employees. Shareholders of the stock also received dividends of $48.69 a share, on top of the price of the share they had previously bought.
“Kroger took on several billion dollars of debt to pay the dividends and we paid out more than the retained earnings of the company,” says Henderson. “Our shareholders equity became a large negative number.” This is where the Kroger acquired its largest debt ever. “In the history of Kroger and Kroger stock events, it was the most complicated event we have ever had.”
Kroger accumulated a debt total of $5.3 billion. This reorganization, a low point in Kroger’s history, lowered stock prices to $8 per share in 1988 and 1989. Yet trading volumes remained high, with nearly 400,000 shares traded every month.
Throughout the 1990s Kroger climbed out of debt and hit a high point in 1999 with the acquisition of Fred Meyer. The $13 billion merger created the nation’s largest retail grocery company. According to a press release from Kroger, Fred Meyer shareholders would own 38 percent of the company. Joseph A. Pichler, CEO and chairman of Kroger at the time of the merger, assumed the role for both companies. Kroger stock reached a high of $60.81 on the day of the merger and stock volumes for that day soared from 1.5 million the previous day to 5.3 million.
“There is $20 billion of capital invested in the company,” says Henderson. “Kroger is one of a small number of companies that historically over time have produced a return in excess of capital employed in this business.”
Today the Kroger Company controls 9 percent of the retail food industry market, falling second only to Wal-Mart. Kroger posted a net revenue of $70.2 billion in 2007. It now operates nearly 2,500 stores nationwide, with nearly 800 convenience stores and 400 jewelry stores under the Kroger brand.
Time and time again Kroger has used innovation and the stock market to fuel growth.
Laycock, George. The Kroger Story: A Century of Innovation. Cincinnati: Kroger Company. 1983. Print.
Henderson, Scott. Personal Interview. 4 Dec. 2009.
Cincinnati Stock Exchange Manuscripts and Pamphlets.
Leshner, Don. Bullish: Of History and Electronics and a Come-Back Trail. Cincinnati Magazine. Nov. 1971: 50, 70-73. Print.