Merger Closing Announcement -Investor Conference Call

May 27, 1999 - 3:00 p.m.

[comments by Kathy Kelly]

Good afternoon. Before we begin today's call, I must inform you that the discussion today will include forward looking statements. We wish to caution you that such statements are predictions, and actual events or results can differ materially. A detailed discussion of the many factors that we believe may have a material effect on our business on an ongoing basis is contained in our SEC filings.

[comments by Joe Pichler]

Good afternoon and thank you for joining us. With me today are Bob Miller, Kroger's Vice Chairman and Chief Operating Officer and Rodney McMullen, Kroger's Chief Financial Officer.

We have some very exciting news to share with you. This morning the FTC announced that it has given final approval for our merger with Fred Meyer. We will close the transaction today.

Kroger's fundamental strategy is to leverage our size while, at the same time, allowing divisional operators the freedom to respond to local communities and markets. This merger will enable us to implement that strategy on an unprecedented scale.

The combination of Kroger with Fred Meyer will create a food retailing powerhouse that is capable of achieving substantial economies, company wide, to support our premiere operating divisions. Together we will operate over 2200 supermarkets ranging across 31 states and will hold leading market share positions in 10 of the top 15 fastest growing markets. We will feature a variety of complementary formats including multi-department stores, combination food and drug stores, price-impact warehouse stores and convenience stores - all dedicated to serving our customers' needs.

Today's agenda will be brief. As you are aware, Kroger's first quarter 1999 ended last Saturday May 22. Therefore we are in our "quiet period" and will not be able to comment on current business trends other than to say we are comfortable with the consensus estimate for the quarter which is a pooled number.

First I will outline the required divestitures which are very few in number, and discuss the transition in Arizona from the Smiths' banner to the Fry's banner. Bob will review the progress of the integration teams, and Rodney will provide an update on the synergies that the combined company expects to achieve. We will then be happy to answer your questions.

The FTC has required us to sell 8 stores. In Arizona, we will sell the Fry's stores in Prescott and Yuma and the Smith's store in Sierra Vista. All will be sold to Fleming. In Price, Utah we will sell the City Market store to Albertson's. And in Wyoming we will sell the City Market's stores in Green River and Rock Springs to Fleming and the two Smith's stores in Cheyenne to Nash-Finch. These transactions will close within the next couple of weeks. There are no required divestitures in Phoenix and Tucson.

As we previously announced, the Smiths' stores in Phoenix and Tucson will change to the Fry's banner. The conversion will begin immediately and we expect to be completed by the end of the summer. After the conversion, Fry's will operate 65 stores in Phoenix and 18 stores is Tucson.

We are very pleased by this outcome and are optimistic that our customers will embrace this change and see great stores become even better.

Now I am pleased to introduce my partner, Bob Miller.

[comments by Bob Miller]

Thanks Joe. I am thrilled to be able to say "we are done!" Now the fun really begins. As you know, the integration planning process has been underway since last fall. In October, 14 integration teams were formed, each chaired by a Kroger and Fred Meyer executive. These teams have made tremendous progress in planning the integration of our two companies.

We are well positioned to operate as a combined company starting today. Just to give you a couple of examples of the progress we have made: Our merchandising teams have established a private label strategy and are ready to begin identifying purchasing opportunities in national brand products. By late summer, Fred Meyer's private label Splash products called "Splash", "Bath and Body Therapies" and "Spa" will be introduced in the Kroger divisions. Beginning next week, all of the Fry's stores will receive produce from the Smith's warehouse in Tolleson.

The finance team has been busy interviewing insurance carriers and expects to achieve substantial savings in our annual premiums. And the senior management structure has been announced and is in place. As you can see, we have been busy planning "behind the scenes" while awaiting regulatory approval.

Rodney will now discuss the expected synergies. Rodney...

[comments by Rodney McMullen]

Thanks Bob. As Joe said earlier, the merger will close today. We are still comfortable with the synergy projections that we outlined last fall. As you recall, we expect to achieve $75 million in the first 12 months, $150 million in the second year and $225 million in year three. We remain committed to achieving those numbers.

Synergy savings in fiscal year terms will be broken out as follows:

          2000 - $115 million

          2001 - $190 million

          2002 and beyond $225 million

In each of these years, most of the savings will be achieved at the back end of the year. It will take some time to begin realizing cost savings in procurement, general and administrative expenses and in Arizona.

As Joe mentioned earlier, our 1st quarter 1999 closed last Saturday, so we are officially in a quiet period regarding quarterly information. We can say however, that we are comfortable with the consensus estimate for the quarter - which is a pooled number and for the year.

This morning we also announced that Kroger will guarantee the Fred Meyer public debt. We believe over time this will reduce total financing costs.

Back to Joe...

[comments by Joe Pichler]

We are absolutely thrilled that our merger will be final today. The Fred Meyer-Kroger combination will create the nation's largest supermarket company – a formidable competitor with the broadest geographic coverage and the widest spectrum of food retailing formats of any player in the industry. The combined company will have leading shares in rapidly growing markets across the country. As the nation's largest food retailer, we will generate substantial economies of scale and increased purchasing power. And we will achieve significant cost savings.

This is a terrific growth story, a cash flow story, and an exciting merchandising story for our customers, our employees and our shareholders.

With that, we will be happy to take your questions.

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