WHEN: Today, Thursday, October 30th
WHERE: CNBC's "Squawk on the Street"
Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Kroger CEO Rodney McMullen on CNBC's "Squawk on the Street" today. Following is a link to the interview on CNBC.com: http://video.cnbc.com/gallery/?video=3000326067.
All references must be sourced to CNBC.
SARA EISEN: HELLO, SIMON AND DAVID. AND HIS FIRST INTERVIEW ON TELEVISION SINCE BECOMING CEO AT THE BEGINNING OF THE YEAR RODNEY McMULLEN.
RODNEY McMULLEN: HI SARA.
EISEN: AND RODNEY IS A LIFER AT KROGER, CORRECT?
McMULLEN: CORRECT.
EISEN: HOW MANY YEARS?
McMULLEN: 36.
EISEN: NOT QUITE SINCE 1883 AT THE BEGINNING OF KROGER.
McMULLEN: NO. NOT QUITE THAT MUCH.
EISEN: BUT YOU DO HAVE AN AMAZING STORY TO TELL HERE. AND THAT IS IN THE LAST YEAR OR SO THE STOCK HAS ABSOLUTELY EXPLODED. YOU BECOME THE NATION'S NUMBER TWO GROCER. HOW ARE YOU DOING IT? HOW ARE YOU TAKING SHARE FROM THE BIG GUYS LIKE WALMART AND WHOLE FOODS?
McMULLEN: WELL, IT'S REALLY OUR ASSOCIATES ARE DOING IT. AND OUR ASSOCIATES DO A GREAT JOB EVERY DAY OF IMPROVING OUR CUSTOMERS' EXPERIENCE. AND THEY DO THAT IN TERMS OF THE SHOPPING, THE PRODUCTS THAT WE OFFER. AND WHEN YOU LOOK AT ALL THOSE THINGS TOGETHER PLUS A GREAT PRICE, IT'S JUST REALLY DONE A GREAT JOB. AND WHEN WE DO A GOOD JOB FOR OUR CUSTOMERS AND OUR ASSOCIATES, THAT IN TURN CREATES GOOD EARNINGS AND GROWTH FOR SHAREHOLDERS.
EISEN: BUT JUST ON THE COMPETITION PERSPECTIVE, I MEAN, PEOPLE THOUGHT OF IT LIKE A SLEEPY CINCINNATI GROCERY. YOU DEFY THE ODDS AND YOU DEFIED THE HEAVYWEIGHTS. HOW HAS IT BEEN TAKING MARKET SHARE FROM WALMART, THE NUMBER ONE? AND DO YOU HAVE ASPIRATIONS OF OVERTAKING THEM AS THE NUMBER ONE GROCER IN THE NATION?
McMULLEN: WELL, I DON'T LOOK AT US AS SLEEPY, BUT I HAVE NEVER LOOKED AT US AS SLEEPY. YOU KNOW, YOU ARE CONTINUALLY TRYING TO GET BETTER. AND YOU KNOW, WHEN YOU LOOK AT THE STORE WE ARE IN HERE AND THE GREAT FRESH PRODUCTS, THOSE ARE THE THINGS THAT OUR ASSOCIATES ARE DOING. YOU KEEP GETTING BETTER AND YOU KEEP IMPROVING ONE CUSTOMER AT A TIME. SO IT'S NOT TRYING TO ASPIRE TO BE SOME SIZE. IT'S TRYING TO ASPIRE TO TAKE CARE OF EVERY CUSTOMER AND EVERY ONE OF OUR ASSOCIATES ARE DOING THAT. AND THAT IN TURN CREATES –
EISEN: BUT PRICING MATTERS, TOO. UNDERCUTTING ON PRICING.
McMULLEN: OH, ABSOLUTELY. WE'VE INVESTED OVER $3 BILLION IN PRICING WHEN YOU LOOK AT OVER THE LAST SEVEN OR EIGHT YEARS. YOU KNOW, AND THERE'S A LOT OF CUSTOMERS STILL, THEIR BUDGETS ARE TIGHT. AND THAT ALLOWS THAT CUSTOMER'S BUDGET TO GO A LITTLE FURTHER. SO YOU KNOW, PRICE IS JUST ONE ELEMENT OF IT.
EISEN: SURE.
McMULLEN: AND YOU KNOW, OUR CUSTOMER FIRST STRATEGY. AND IT'S PEOPLE, PRODUCTS, AND SHOPPING EXPERIENCE AND PRICE.
EISEN: SO WALMART IS SORT OF SHIFTING STRATEGIES GOING FROM SUPERCENTER TO NEIGHBORHOOD MARKETS, DIRECTLY COMPETING WITH YOU AND SAFEWAY. ARE YOU THREATENED AT ALL? BECAUSE THEY ARE KNOWN FOR THE LOWEST PRICES.
McMULLEN: YEAH, WELL, YOU KNOW WE HAVE A LOT OF COMPETITORS. AND YOU NAMED A FEW OF THEM. BUT, YOU KNOW, RESTAURANTS WOULD BE A COMPETITOR. SO WE DON'T LOOK AT IT SO MUCH IN TERMS OF ONE COMPETITOR. IT'S REALLY TRYING TO UNDERSTAND FROM OUR INSIGHTS WHAT DOES A CUSTOMER WANT? AND THEN HOW DO WE DELIVER AGAINST THAT DESIRE AND DO IT BETTER THAN OUR COMPETITORS? AND WE THINK ONE OF THE THINGS THAT'S REALLY IMPORTANT IS DOING ALL FOUR ELEMENTS, NOT JUST ONE ELEMENT.
EISEN: WHEN IT COMES TO EXPANSION, YOU HAVEN'T REALLY INCREASED STORE COUNT IN THE LAST SEVERAL YEARS BEYOND ACQUISITIONS. IS THAT SOMETHING IN THE PLANS? HEARD A LITTLE BIT ON INVESTOR DAY ABOUT PLANS TO GROW. WHERE ARE YOU LOOKING TO OPEN UP NEW STORES?
McMULLEN: WELL, IF YOU LOOK, WE ARE INCREASING CAPITAL INVESTMENT BY 200 MILLION A YEAR. THIS YEAR WE'LL SPEND ABOUT $3 BILLION. THAT WILL START INCREASING OUR STORE COUNT SLOWLY. AND IT IS REALLY AS WE DEVELOP PEOPLE TO BE ABLE TO OPEN STORES AND HAVE THAT GREAT EXPERIENCE.
EISEN: IS IT IN NEW MARKETS WHERE YOU ARE NOT CURRENTLY, LIKE CHICAGO OR FLORIDA? OR IS IT IN PLACES YOU ARE ALREADY?
McMULLEN: TODAY, IT IS MOSTLY IN EXISTING MARKETS. THERE ARE STILL A LOT OF MARKETS WHERE OUR MARKET SHARE IS 10 OR 15%. AND WE FIND BY GETTING MARKET SHARE HIGHER THAN THAT IT REALLY CREATES A GOOD RETURN.
EISEN: WHAT ABOUT AMAZON FRESH GETTING INTO ONLINE GROCERIES. THEY DON'T CARE ABOUT MAKING PROFIT. THAT HAS TO BE A CHALLENGE FOR YOU AS YOU, TOO, TRY TO ENTER THE E-COMMERCE MARKET.
McMULLEN: YEAH, WELL, WE HAVE COMPETED WITH AMAZON FRESH FOR SEVERAL YEARS IN SEATTLE. AND WE REALLY LOOK AT IT IN TERMS OF BROADER THAN THAT. BECAUSE WE THINK IT'S IMPORTANT FOR A CUSTOMER TO BE ABLE TO ENGAGE WITH US THE WAY THEY WANT TO ENGAGE WITH US. SO IF YOU LOOK AT IT FROM A DIGITAL STANDPOINT WHEN WE MERGED WITH HARRIS TEETER, THEY HAD A VERY STRONG CLICK-AND-COLLECT OPERATION THAT WE ARE NOW TESTING IN A STORE HERE IN CINCINNATI AND WE'LL START ROLLING THAT OUT. WE MERGED WITH A COMPANY CALLED VITACOST WHERE YOU CAN DELIVER TO HOME. AND WE HAVE AN APP THAT IS ONE OF THE BEST IN CLASS APPS THAT IS HAVING 50 TO 100% GROWTH. SO IT'S MUCH BROADER THAN JUST ONE DIRECTION.
EISEN: I DO WANT TO ASK YOU ABOUT LOWER GAS PRICES, WHAT'S HAPPENING WITH ENERGY. DOES THAT HELP YOU, EARNINGS OVERALL? BECAUSE I KNOW YOU ARE ALSO IN THE FUEL BUSINESS.
McMULLEN: USUALLY IF FUEL PRICES ARE GOING DOWN, IT HELPS EARNINGS SOME.
EISEN: WHAT ARE YOU SEEING OUT OF THE CONSUMER RIGHT NOW?
McMULLEN: THE CONSUMER REACTION, YOU KNOW, YOU HAVE SOME INFLATION AND SOME COMMODITIES. BY FUEL GOING DOWN, IT HELPS THE CUSTOMER ON A BUDGET TO REALLY BALANCE ALL THOSE PIECES OUT. AND WE THINK THIS INFLATION IN COMMODITIES IS SHORT LIVED. SO WE THINK THE WHOLE PIECE IS WHAT REALLY IS HELPING THE CUSTOMER.
EISEN: AND WHAT ABOUT THE STRENGTH OF THE CONSUMER OVERALL? WE WERE TALKING ABOUT THE GDP REPORT OUT THIS MORNING, 3.5%. DOES THAT TELL THE STORY THAT YOU ARE SEEING ACROSS AMERICA IN YOUR THOUSANDS OF STORES?
McMULLEN: OH, ABSOLUTELY. AND IF YOU REMEMBER BACK WHEN WE RELEASED SECOND QUARTER EARNINGS, WE TALKED ABOUT THE CONSUMER CONTINUES TO SPEND A LITTLE BIT MORE, BE A LITTLE BIT MORE COMFORTABLE. WE CONTINUE TO SEE THAT. IF YOU LOOK BEHIND THE NUMBERS, IT'S STILL VERY MIXED. IF YOU LOOK AT A MAINSTREAM AND UPSCALE CUSTOMERS, THEY ARE SPENDING JUST LIKE IT WAS BEFORE 2008. A CUSTOMER ON A BUDGET, THEY ARE STILL STRAINED. AND ONE OF THE THINGS WE ARE REALLY TRYING TO DO IS HELP THEM STRETCH THEIR FOOD BUDGET.
EISEN: AND EVERYBODY IS BUYING NATURAL AND ORGANIC. YOU SAY THAT'S HERE TO SAY?
McMULLEN: OH, ABSOLUTELY. NO DOUBT ABOUT IT. AND IT'S A HUGE GROWTH CATEGORY AND IT IS SO EXCITING. ALL THE INNOVATION IN THAT PRODUCT AND OUR TEAMS ARE JUST DOING A GREAT JOB.
EISEN: AND YOU ARE INVESTING IN YOUR OWN PRIVATE LABEL BRAND. TALK ABOUT THE GROWTH THAT YOU SEE THERE.
McMULLEN: OH, YEAH. IT IS REALLY ONE OF THE EXCITING THINGS. WE INTRODUCED A PRODUCT CALLED SIMPLE TRUTH. LESS THAN TWO YEARS AGO. THIS YEAR IT WILL BE A BILLION DOLLAR BRAND FOR US. IT'S GROWING SIGNIFICANTLY, DOUBLE DIGITS. WE CONTINUE TO ADD PRODUCT. IT HELPS THE CUSTOMER FROM A BUDGET STANDPOINT. AND IT'S EASY TO UNDERSTAND IN TERMS OF FREE FROM 101 INGREDIENTS AND IT'S GOOD FOR YOU, AS WELL.
EISEN: 43 STRAIGHT QUARTERS OF SAME-STORE SALES GROWTH. I KNOW YOU DON'T LIKE TO BRAG ABOUT IT, BUT THAT HAS TO BE A LITTLE BIT OF PRESSURE GOING FORWARD TO KEEP THAT MOMENTUM.
McMULLEN: WELL, I DON'T LOOK AT ANYTHING AS A PRESSURE. IT'S OUR WHOLE TEAM. AND WE HAVE 375,000 ASSOCIATES TAKING CARE OF OUR CUSTOMERS EVERY DAY.
EISEN: ALRIGHT. WELL THANK YOU FOR HAVING US HERE TODAY.
McMULLEN: THANK YOU, SARA.
EISEN: IN THE FLAGSHIP CINCINNATI, MY HOMETOWN KROGER. WE'RE GOING TO TALK A LITTLE BIT LATER TO ANOTHER HOMETOWN CEO KEVIN KABAT OF FIFTH THIRD. BUT FOR NOW, THANK YOU, RODNEY. RODNEY McMULLEN, THE CEO OF KROGER. BACK TO YOU, SIMON.
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