W. Rodney McMullen: The other thing is that we are seeing some nice opportunities with logistics projects and some IT projects that we feel good about the return potential. As long as we see those out there we will continue to fund them in a balanced sort of way.
Mark Wiltamuth (Morgan Stanley): What are you seeing in food away from home trends versus food trends at the grocery stores in general?
David B. Dillon: I do not get a lot of data from the restaurant industry, but what little data I see and episodically what I hear from restaurateurs is that in this economy their sales have been less than they would like them to be. We have believed this year and this past year and in the year before, even, that trend has actually been of benefit to not just Kroger, but probably to all supermarkets. You saw the supermarkets as a whole, as an industry, are identical sales intended to move up a couple years ago and my personal view is that that is the reason why. We think we are doing a particularly good job in our deli/baker and in some other parts of our store which helps us catch that particular time, which is perhaps one of the reasons that our sales are strong.
Mark Wiltamuth (Morgan Stanley): If you look across the spectrum you have seen some strong sales out of the club stores. Do you think the consumer is shading more in that direction now that you are in a more price focused environment?
David B. Dillon: I would be speculating if I answered that. I could see people turning to a number of places, including our Kroger brand and including the club stores, as a way to save money.
Mark Wiltamuth (Morgan Stanley): You mentioned you were taking share from some of the independents and those that do not have scale. Do you think this environment could foster more consolidation?
David B. Dillon: Consolidation takes a lot of years. Most industries we have watched, it is not just a linear movement, there are some starts and stops and some diversions and so forth. It is generally continuing as it has been continuing. I do not think that there is any greater pressure today than there was before or less pressure than there was before. It is generally true that relative to our competitors, our pricing, not in every case but in many cases, has gently improved. If they stayed the same and we lowered our price that is what would produce that improvement. I do not see any radical change in pricing strategies out in a competitive environment right now.
W. Rodney McMullen: If you look at consolidation long-term trend there has been a consolidation in our industry for 20 years. I do not see anything that would cause that to change looking forward. That is something that we have been saying for the last five or 10 years.
Mark Wiltamuth (Morgan Stanley): There have been several periods of rising inflation. When will you lap out of inflationary trends?
David B. Dillon: That is hard to predict. In 2008 so far, based on what information we have on cost increases expected this quarter, we do not think that it is abating at this point in time.
Mark Stillman (MacKay-Shields): Could you break out price versus volume?
David B. Dillon: It is even between the two.
Deborah Weinswig (Citigroup): Can you talk about your fuel strategy as it relates to your promotional efforts and specifically when customers are using their Kroger Plus card or their 1-2-3 Reward MasterCard?
David B. Dillon: We do not have the same program in every market, but in most markets if you make purchases at Kroger with your Kroger Plus card you will get a discount on gasoline. And if you use your 1-2-3 plus Kroger MasterCard, which is from our Kroger Personal Finance Group – and this is a commercial, you will get a 15 cents per gallon reduction at the pump if you have spent, in most markets, if you have spent $100 in purchases.
Deborah Weinswig (Citigroup): Could you provide an update on Kroger Personal Finance and how has it contributed to your recent results?
W. Rodney McMullen: There are two aspects when you look at Kroger Personal Finance. The business itself, and we have a great partnership with Royal Bank of Scotland. They do bring the expertise to the financial industry and we have the connection with the customers and the customer traffic. Working together we have been able to create several products that have been positive with our customers. The other thing that we like is the loyalty that it creates from our customers. We can see a change in customer behaviour when they become a Kroger Personal Finance customer. So it is both.
Deborah Weinswig (Citigroup): When do you expect KPF to represent a significant enough driver to your overall results to see it broken out on your financials?
W. Rodney McMullen: It depends on how you define showing up. Because from a loyalty standpoint we would certainly say that it is showing up today. When a customer uses a Kroger credit card they earn gift certificates and so far our customers have earned over $40 million worth of gift certificates to reuse at Kroger. The redemption rate is high on those, so we know that our customers love that $40 million.
Robert Summers (Bear Stearns): Could you give metrics around performance the increased penetration levels, what the drag to comp has been, and your thoughts on how that progresses through 2008?
David B. Dillon: I do not know about 2008 for a moment, but our market share on Kroger brands on the whole continued to increase in the year. I do not think we gave any specific data this time on that. In grocery, which is the way we have traditionally looked at it, that has continued to grow. We are pleased with that progress. I do not think it is causing a drag on our comps because it is improving our sales. I suppose if a person trades from a higher priced item to this item then you could have some impact on comps.
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