Attention Shoppers, Executive Compensation at Kroger, Safeway, Costco and Whole Foods
Retail grocery sales represent a significant portion of the U.S. economy. The industry was highly competitive, with companies operating on low gross and net margins. As a result, grocery stores were generally under significant pressure to reduce their operating costs in order to maintain profitability. For the last several decades, the grocery industry grew roughly in line with gross domestic product and was considered a mature industry. In order for companies to succeed, they needed to find effective strategies to steal customers from competitors. Many sought to differentiate themselves through store format, store location, product mix, ancillary services, or quality of customer service. Strategies, however, could easily be imitated by competitors, putting grocery store chains under constant pressure to innovate and remain efficient. In general, growth also required the expansion into new store locations. Companies that failed to grow often went bankrupt or were acquired. This case explores executive compensation at four retail grocery stores: Safeway, Kroger, Costco, and Whole Foods. Consideration is given to each company’s strategy and market position and corporate governance structure. Readers of the case are asked to evaluate in a critical manner the appropriateness of each company’s compensation strategy and compensation levels, given company performance.