In one of the most ungracious comments by a corporate executive in recent years, Kroger CFO Mike Schlotman says in a quote picked up by major media today: Visa “has been misusing its position and charging retailers excessive fees for a long time.”
What Mr. Scholtman does not say is that Kroger has been receiving preferential pricing, like many of the largest supermarkets in the US. As table II-1 indicates in the referenced Federal Reserve report, Kroger’s numbers may not be as correct as the grocer claims. In fact, as the chart indicates, Visa’s interchange fees on a $40 transaction, actually dropped in 2012 and have since remained flat.
Kroger is a powerhouse, like Walmart. 2017 sales were more than $2 billion a week, totaling $122.7 billion, with 2,765 supermarkets and multi-department stores. With 443,000 employees, Kroger is ranked as the 28th largest employer in the US and is the third largest retailer after Costco and Walmart.
How much of Kroger’s angst comes from its latest strategy to address the internet channel? Supermarket News, a trade publication, noted digital sales jumped 60% in the quarter as Kroger Ship expanded to all divisions. For the credit card industry, this represents a wave of new card not present (CNP) transactions flooding the authorization channels. CNP transactions are typically risker than card present transactions.
The biggest irony of all in Kroger’s move is that the gentleman who made the ungracious comment, CFO Mike Schlotman, will be stepping down this spring, as the WSJ reported in December 2018. WSJ noted “as the grocer tries to find its footing in a market transformed by Amazon.com Inc. and changing consumer behavior.”
Interestingly enough, Scholtman’s successor, who hails from RBS and lead the personal financial division at Kroger “delivered double-digit year-over-year growth, offering it an alternative stream of profit. The company is increasingly seeking revenue outside food selling to boost its bottom line.”
The big question is what is behind all of Kroger’s noise and Scholtman’s aggressive claim against Visa. Is it the changing of the guard? Misalignment in the market that Amazon owns? Or trying to make one last hurrah on the way to his upcoming retirement?
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group