Joseph A. Pichler
1939–



Retired chairman and chief executive officer, Kroger Company

Nationality: American.

Born: October 2, 1939, in St. Louis, Missouri.

Education: University of Notre Dame, BBA, 1961; University of Chicago, MBA, 1963; PhD, 1966.

Family: Son of Anton Dominick Pichler and Anita Marie Hughes; married Susan Ellen Eyerly, December 27, 1962; children: four.

Career: University of Kansas, 1964–1968, assistant professor of business; 1968–1973, associate professor of business; 1973–1978, professor of business; 1974–1980, business school dean; U.S. Department of Labor, 1968–1970, special assistant to the assistant secretary for manpower; Dillon Companies, 1980–1982, executive vice president; 1982–1986, president; Kroger Company, 1985–1986, executive vice president; 1986–1990, president and chief operating officer; 1990–2003, chief executive officer; 2003–2004, chairman.

Awards: Horatio Alger Award of the Horatio Alger Association, 1998; William Booth Award, Salvation Army, 1998; Distinguished Service Citation, National Conference for Community and Justice, 2000; Greater Cincinnati and Northern Kentucky Business Hall of Fame, 2001.

Publications: Inequality: The Poor and the Rich in America (with Joseph W. McGuire), 1969; Creativity and Innovation in Manpower Research and Action Programs, 1970; Contemporary Management: Issues and Viewpoints , 1973; Institutional Issues in Public Accounting , 1974; Ethics, Free Enterprise, and Public Policy: Original Essays on Moral Issues in Business , 1978; Co-Creation and Capitalism: John Paul II's Laborem Exercens , 1983.

■ As CEO and chairman of the Kroger Company, Joseph A. Pichler maintained Kroger's position as the nation's number one grocery store chain, despite increasingly fierce competition from discount superstores. He expanded Kroger's product line

Joseph A. Pichler. AP/Wide World Photos.
Joseph A. Pichler.
AP/Wide World Photos
.

and services. His many acquisitions included Fred Meyer, a West Coast chain of grocery and general merchandise stores. As president and COO in the late 1980s, Pichler formulated and implemented strategies to protect Kroger from hostile takeovers by corporate raiders. Unlike most supermarket executives, Pichler did not work his way up in the business. Rather he earned a PhD in business and spent 15 productive years in academia, including six years as dean of the University of Kansas School of Business. Pichler was a financial expert and a proponent of long-range planning.

ENTERED BUSINESS VIA ACADEMIA

Pichler was born in St. Louis, Missouri, on October 2, 1939. He earned a bachelor's degree in business from the University of Notre Dame in Indiana and a master's degree in business administration from the University of Chicago. While finishing his PhD at the University of Chicago, Pichler worked as an assistant professor at the University of Kansas School of Business. He was awarded a Woodrow Wilson fellowship, a Ford Foundation fellowship, and a Standard Oil Industrial Relations fellowship. Between 1968 and 1970 he also served as a special assistant to the U.S. Labor Department's assistant secretary for manpower. He was chairman of the Kansas Manpower Services Council from 1974 until 1978.

Prior to becoming a business leader, Pichler worked his way up the academic ladder at the University of Kansas. He became dean of the business school in 1974. His research focused on various issues, including studies of the adjustments made by laid-off workers following plant closures. Pichler authored numerous articles for professional journals and wrote and edited several books on business topics.

While still at the University of Kansas, Pichler joined the board of directors of the Dillon Companies of Hutchinson, Kansas, an operation that included grocery and convenience stores as well as manufacturing facilities. He left the University of Kansas in 1980 to become executive vice president and later president of Dillon. When the Kroger Company acquired the Dillon Companies in 1985, Pichler became an executive vice president of Kroger, which was based in Cincinnati, Ohio. He became president and COO in 1986, when his predecessor left because of long-standing disagreements with Chairman Lyle Everingham over the company management.

Founded in Cincinnati by Barney Kroger in 1883, the Kroger Company had become the largest retail food chain in the United States, with about 3,500 stores. Neighborhood Kroger supermarkets were so ubiquitous in the Midwest that "Krogering" came to mean grocery shopping at any food store. Neighborhood Kroger stores depended on the loyalty of their customers, who generally came from within a 2.5-mile radius of the store. Kroger store careers often lasted 40 years.

LEVERAGED KROGER TO THWART CORPORATE RAIDERS

It was a scary time at Kroger. Corporate raiders were going after chain-store companies, and Kroger was seen as a prime target. First the Dart Group drugstore chain and then Kohlberg Kravis Roberts & Company attempted to buy it out.

In 1986, in response to the possibility of a hostile takeover, Pichler and Everingham undertook a major restructuring of Kroger. They sold off the company's nonsupermarket assets and refocused and strengthened local management, giving regional managers more independence. They also stonewalled labor union demands and moved out of some areas in which labor costs could not be kept down.

In response to the 1988 attempt by Kohlberg Kravis Roberts to buy out the company for $4.64 billion, Pichler initiated an even bolder restructuring and recapitalization plan in hopes of increasing Kroger's value. Prices were slashed, store formats were updated, unprofitable stores were closed, and many employees were laid off. Pichler's riskiest move was to leverage the company by issuing $5.3 billion in junk bonds and paying shareholders a onetime dividend of $40 per share.

Ultimately Pichler's strategy proved to be a major success, and he was heralded as a corporate hero. Kroger became one of the very few multiregional chains to survive the breakups of the 1980s. However, in the process Kroger took on enormous amounts of debt. More than one-third of companies that carried out leveraged recapitalizations between 1985 and 1989, borrowing against future earnings to pay a large, onetime stockholder dividend, ended up defaulting on their debt.

FACED NEW COMPETITION

When Pichler became CEO of Kroger in 1990, the company was facing new crises. Kroger's unionized stores were affected by labor strikes and found it increasingly difficult to compete with Wal-Mart, Kmart, and other nonunionized one-stop superstores. Furthermore, these warehouse stores sold groceries at a loss, relying on higher-margin merchandise to make up the difference, although the price wars started by the superstores affected independent stores far more than Kroger.

In response to such competition, Pichler began to move Kroger toward a combination store format, adding higher-end cosmetics and perfumes, one-hour photo processing, video rentals, florists, bakeries, and delis. In an interview with David Merrefield of Supermarket News (May 28, 1990), Pichler said, "We spend a lot of time trying to read the tea leaves of lifestyle and demographic changes and asking ourselves 'what are the implications of this in shopping patterns and for consumer needs, and what departments do we need to develop and grow?'"

However, Pichler relied primarily on customer loyalty to neighborhood Kroger stores and committed the company to community relations. He invested in older stores in poorer inner-city neighborhoods and became involved with numerous local and national business initiatives for education. Pichler created a program for Kroger employees to volunteer at local schools. He told Michael Sansolo of Progressive Grocer in December 1991, "We, as an industry, are suited for this. We have to deal with people. We have to motivate and educate. This industry is so competitive that you can't afford to be arrogant or the market would eat you. We are a service industry."

"CASH FLOW JOE"

Although under Pichler costs were controlled and Kroger gained market share, its huge debt kept company profits at the bottom. In order to compete with the increasing numbers of food clubs and discount retailers, in 1992 Pichler announced major cost-cutting measures.

Pichler stressed efficiency but not efficiency at any cost. Instead he tried to take full advantage of Kroger's size. He updated Kroger's Peyton distribution center in Lexington, Kentucky. From there, general merchandise, including drugs and seasonal goods—among Kroger's fastest-growing product lines—was distributed to all 1,263 Kroger stores nationwide. Improved purchasing and distribution efficiency enabled Kroger's multidepartment stores to decrease floor space while increasing sales. Pichler invested heavily in information systems. Scanning technology at receiving docks yielded huge savings in labor costs. Pichler made full use of Kroger's manufacturing and food-processing plants to produce more private-label goods, including health and beauty products, which often could be sold for as much as 50 percent less than name brands.

By selling off stores and wholesale warehouses and postponing expansion, Pichler saved the company $333 million. The strategy proved to be fortunate since most of Kroger's competitors were overbuilding, only to be hit with a recession. Pichler reduced Kroger's corporate staff from 1,400 to four hundred and gave operating divisions more freedom in merchandising, purchasing and pricing, advertising, and labor. In addition, Pichler stood firm in the face of union demands. Productivity enhancements cut $142 million per year from Kroger's operating costs.

Above all, Pichler ordered managers to generate cash in every way possible, and he became known in the industry as "Cash Flow Joe." The plan worked. The increased cash flow, along with declining interest rates, enabled Pichler to begin repaying the company's debt and to increase stockholder dividends. The new cash flow also enabled Pichler to open new stores and remodel older ones. By 1994 Kroger was increasing total store floor space by almost 5 percent per year, up from 2.5 percent in previous years.

STRATEGY FOR GROWTH

In 1998 Pichler announced a major three-year growth plan. He invested in new systems and technologies to reduce costs and operating expenses and increase profits while allowing local managers enough flexibility to compete with the super-stores. Pichler's plan included maintaining a high level of investment in Kroger stores, opening new stores and relocating, expanding, or remodeling older stores. Instead of moving into new markets, new Kroger stores were added in existing markets, resulting in more efficient distribution and advertising. With more stores in a given locale, Kroger took customers away from its competitors rather than from its existing stores.

Although Pichler centralized more of Kroger's purchasing and increased its emphasis on national promotions, according to an April 1998 article by Steve Weinstein in Progressive Grocer , Pichler told a group of analysts, "We are not in the business of buying centrally and telling our KMAs [Kroger marketing areas] what they can sell. Rather, they have come to us and asked what we could do on coordinating deals and street money."

Pichler's biggest acquisition came in 1999, when Kroger bought Fred Meyer, a chain of multidepartment stores based in Portland, Oregon. Kroger—which had briefly lost its position as the nation's largest supermarket chain to Albertson's—regained its number one spot. Kroger now had a total of 2,200 stores in 31 states, a 50 percent increase. It was first or second in market share in 33 of the nation's largest markets. The Fred Meyer merger enabled Kroger to move into major, fast-growing West Coast markets and greatly increased its purchasing power.

Pichler and Fred Meyer CEO Robert Miller had been sharing ideas and strategies for about five years prior to the acquisition. However, the integration of Kroger and Fred Meyer was complicated because Fred Meyer stores had a variety of different formats in different locations. Nevertheless, the merger facilitated the addition of general merchandise to many of Kroger's combination food and drug stores. Fred Meyer also served as a springboard as Kroger began to launch its own multiformat stores. More Kroger stores added photo processing services and pharmacies as well as jewelry and clothing departments, bank branches, and gas pumps. In turn Kroger provided Fred Meyer with manufacturing facilities for private-label products.

MANAGEMENT STYLE

In May 1990 Pichler told Merrefield of Supermarket News , "I think management style should reflect the organization in which the individual is operating … So Kroger operates with a great deal of discussion…. Things happen as people agree, and then they say: 'here we go.'"

Associates consistently described Pichler as a modest, low-key leader who spoke simply and clearly and listened well. He carried on lengthy conversations with customers while shopping at his neighborhood Kroger store. He was known for his superb negotiating skills. As head of the Cincinnati Business Committee, Pichler acted as a diplomatic mediator between vying interests. He told Jennifer Bjorhus of the Oregonian (Portland), "As long as people keep eating chocolate chip cookies, they all stay, and no one gets mad" (October 25, 1998).

As Pichler acquired other supermarket chains, he made relatively few changes, maintaining local control. The chains usually continued to operate under their own names. Kroger developed positive employee relationships by paying union wages with good benefits. Under Pichler, Kroger had a reputation as a good corporate citizen with strong community ties.

COMMUNITY INVOLVEMENT

Pichler was known for his civic involvement. Between 1983 and 1996 he served on the national board of directors of Boys Hope. Pichler was a member of the fellowship advisory committee of the Woodrow Wilson Foundation from 1990 to 1993. Between 1994 and 2000 he was a member of the advisory board of the Salvation Army School for Officers' Training. Pichler served on the boards of directors of Tougaloo College and the Cincinnati Opera. In addition, he served on the board of the Cincinnati Center City Development Corporation and as chairman of its Over-the-Rhine working group, dedicated to revitalizing a historic but blighted Cincinnati neighborhood. In 2000 Pichler and his wife donated $1 million to Cincinnati inner-city Catholic elementary schools.

A board member of the National Alliance of Business between 1988 and 1996, Pichler served as its chairman from 1991 until 1993. He also chaired the Cincinnati Business Committee in 1997 and 1998 and served as a trustee of the Greater Cincinnati Chamber of Commerce and a member of the Business Roundtable. Pichler was a member of the board of directors of Cincinnati Milacron and Federated Department Stores.

THREATENED BY WAL-MART

By the end of 2001 Kroger was forced to begin slashing prices to compete with Wal-Mart and other superstores. Pichler announced a new strategic growth plan, investing in pricing, promotion, and acquisitions of additional chain stores. He further increased Kroger's pharmacy business, and the company became the world's largest florist.

However, Kroger continued to lose market share to Wal-Mart. In 2002 Pichler again undertook major cost cutting, further centralizing procurement and distribution and eliminating some 1,500 jobs. His budget-trimming strategy enabled Kroger to lower prices on some goods and to maintain or increase market share against superstore competitors.

In 2004 Kroger remained one of the biggest grocery store chains in the country, with fiscal 2003 sales of $58.3 billion and 2,530 supermarkets and department stores in 32 states. In addition to grocery and multidepartment stores, the company owned convenience stores and mall jewelry stores. Kroger operated under nearly two dozen different banners, including Quality Food Centers, Food 4 Less, Fred Meyer, and Kwik Shop. The company was first or second in sales in 41 out of the 48 major American markets it operated in.

Pichler consistently made Forbes magazine's list of corporate America's most powerful people. In 2003 he received $6.3 million in compensation in addition to stock options. Pichler retired as CEO of Kroger in 2003. As he approached the mandatory retirement age of 65, he worked on long-term planning and instituting a smooth leadership transition. He retired as chairman and board member on June 24, 2004, and was replaced by CEO David Dillon.

See also entry on The Kroger Company in International Directory of Company Histories .

sources for further information

Berss, Marcia, "Cash Flow Joe," Forbes , June 6, 1994, p. 47.

Bjorhus, Jennifer, "Alliance Born of Friendship: The Kroger–Fred Meyer Merger CEOs Began Sharing Ideas and Strategies Five Years Ago," Oregonian (Portland), October 25, 1998.

Byrne, Harlan S., "Kroger: Bigger Is Better," Barron's , February 28, 2000, p. 22.

Epstein, Joseph, "Forced March," Financial World , August 12, 1996, pp. 39–41.

Merrefield, David, "Kroger's New Chief," Supermarket News , May 28, 1990, pp. 1–4.

Sansolo, Michael, "'We Can Do Something,'" Progressive Grocer , December 1991, pp. 16–17.

Ward, Leah Beth, "Kroger Sees a Shadow Lurking over Aisle 3," New York Times , April 7, 2002.

Weinstein, Steve, "The Missing Link," Progressive Grocer , April 1998, pp. 79–81.

—Margaret Alic



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