He Used to Bag Groceries. Now Kroger’s CEO Is Trying to Save a $20 Billion Deal.
As antitrust trial wraps up, Rodney McMullen aims to strengthen grocery chain against the next wave of industry disruptors
Rodney McMullen first realized the threat Walmart WMT 1.18%increase; green up pointing triangle posed to the established supermarket business in the 1990s, while he was rising through the finance ranks at Kroger KR 1.29%increase; green up pointing triangle.
Walmart had just started selling groceries at a new supercenter store in Dickson, Tenn., near the Kentucky border. Almost overnight, McMullen said, the supercenter took between 30% and 35% of the sales from nearby stores run by Kroger, the century-old supermarket chain.
“We keep doing what we were doing, we would go out of business,” McMullen thought at the time, he told a federal court in Oregon earlier this month.
McMullen, now Kroger’s CEO, has made his 46-year career at Kroger a study of the grocery industry, using its sometimes-bruising lessons to hone his strategy of getting bigger to build leverage with suppliers and cut costs. It has helped make the Cincinnati-based company the biggest U.S. supermarket company by sales.
The trouble is, Walmart is bigger. The Arkansas-based retailer 22 years ago became the country’s largest seller of groceries, surpassing Kroger and other supermarket chains—just as McMullen had anticipated. He sees the next wave of disrupters in e-commerce giant Amazon and European discount grocers like Aldi.
McMullen, who started as a bag boy and has led Kroger since 2014, is fighting to save the deal he believes will secure its future—a roughly $20 billion takeover of Kroger’s next-smallest competitor, Albertsons, that would unite the two largest pure-play supermarket operators. McMullen says the combined company will invest $1 billion to lower prices at the newly acquired Albertsons stores.
Opposing the deal is the Federal Trade Commission, which has sued to block it, as well as state attorneys general and labor officials representing supermarket workers. After testimony finishes this week in an antitrust trial, a judge is set to consider the case and rule in the coming weeks or months. Analysts at Bank of Montreal this month forecast a 70% likelihood that the deal is blocked.
In the antitrust trial this month, McMullen, 64, has been the defense’s star witness. Inside a packed, sweltering Portland, Ore., courtroom, he described how decades of watching supermarket competitors rise and fall formed his rationale for the deal, while government lawyers sought to portray it as a way to squelch competition.
If he can pull it off, McMullen would begin the next chapter of his career leading a nearly 5,000-store supermarket empire, roughly double Kroger’s current total and matching the scale of Walmart’s 3,500 supercenters. If completed, it could redefine McMullen’s legacy and how Americans shop. If the deal is blocked, analysts say Kroger could try to acquire a smaller, regional grocer, while Albertsons said it could close stores and lay off employees.
McMullen, 64, is a farm-raised Kentuckian and Cincinnati Reds fan who grew up in Kroger’s backyard. While earning his college degree and later his master’s in accounting, he worked at Kroger stores, and then stuck with the company afterward.
Over time, former colleagues said, McMullen developed a reputation for shopping at competitors’ stores, alert for things they do differently than Kroger, how their stores look, and their prices. At Kroger, he keeps a list of the top grocery retailers going back several decades, a reminder of how quickly the industry can change.
When he first got into the business, A&P was the largest U.S. grocery retailer, McMullen told the court during testimony in the antitrust trial. “They don’t even exist today,” he said.
Jorge Montoya, a former Kroger board member, recalled walking the aisles of a Virginia Wegmans store with McMullen, who examined everything from the produce’s freshness to the lighting and the spread in the meat case. McMullen chatted up customers about the store and prices.
“He could spend hours in one store,” Montoya said.
McMullen also likes buying them. Early in his tenure as Kroger’s CEO, McMullen spent about $200 million to acquire chains such as Roundy’s and Pick N’ Save in Wisconsin and Mariano’s in Chicago, expanding Kroger’s Midwest footprint.
It was Amazon’s $13.7 billion acquisition of Whole Foods Market in 2017, though, that McMullen said was a watershed moment. He told the Portland courtroom that he keeps on his desk an article published that year by the Cincinnati Business Courier headlined “How Amazon is Crashing Kroger’s Party.”
“It’s to remind me every day that Amazon is just like Walmart where they’re going to keep adding things every single day,” he said.
Another revelation hit McMullen during a trip to Europe, where he saw how German grocers that once resembled many U.S. stores had been gobbled up by discount grocery chains. “Today Aldi and Lidl control about 50% of that market,” he said.
McMullen testified that the deal would give Kroger a better chance at matching Aldi on price and Amazon’s e-commerce prowess.
Representatives for Walmart, Whole Foods and Aldi had no comment.
Dave Dillon, a friend for the past 40 years who preceded McMullen as Kroger’s CEO, said in the 1990s McMullen was one of the first grocery leaders to recognize that his competitors stretched well beyond other supermarkets—any retailer selling products that Kroger stocked could be a threat.
That view has been validated for years, as Walmart, Costco and Amazon have gathered more grocery sales while Kroger’s slice of the market has declined. Currently Walmart’s market share in U.S. grocery sales is nearly 30%, compared with Kroger’s 10%, while Costco is at 9% and Albertsons 6%, according to Numerator data.
Figures like those underpin McMullen’s core argument for preserving Kroger’s planned takeover of Albertsons. Combining Kroger stores, largely in the Midwest and Western U.S., with Albertsons’ presence in the Northeast and West Coast will provide Kroger more leverage with suppliers to lower costs, he said, and ultimately reduce prices for shoppers.
The FTC sued to block the deal in February, saying that it would reduce competition in the industry, leading to higher prices for shoppers and lost jobs for workers.
“I think people underestimate [McMullen] because he is a mild-mannered guy,” said Joseph Feldman, an industry analyst at Telsey Advisory Group. “But he’s intense. He wants to win.”