Kroger leads supermarkets' embrace of GM.(special report: supermarkets competes for general merchandise market share)

It strikes you at the Housewares Show--half the retail badges identify the buyer as being from a supermarket. But if you want even more evidence as to just how deeply supermarkets are penetrating into general merchandise, all you have to do is look at Kroger.

Kroger has been energetic in experimenting with new ways to win incremental non-food sales. That it was surpassed as the top food seller in the United States a couple of years ago by Wal-Mart perhaps gives it special motivation.

In a fourth-quarter conference call with investors, chairman Dave Dillon said that Kroger competes against a total of 1,020 supercenters. In 33 major markets where Kroger operates, supercenters have achieved at least a No. 3 market share position, and competing there can be rough. "In 2004, Kroger's market share increased in 17 of those 33 markets, declined in 15, and remained unchanged in one," Dillon noted.

Even before the supercenter format became a growth vehicle, back when warehouse clubs first began to challenge supermarkets, Kroger began to consider how it could respond to the changing environment.

In 1998, Kroger purchased Fred Meyer, the unique northwestern U.S. food and grocery retailer. Observers expected a rapid expansion of the concept, but Kroger was cagier than that. Kroger has since combined its own expertise with Fred Meyer to develop a new generation of stores that take from the best of both retailers. Most conspicuous is the company's Marketplace format. The Marketplace stores attempt to make mainstream supermarkets upscale with more perishables and services.

Kroger's Marketplace store boosts the general merchandise contribution. Sometimes described as a mini supercenter, Kroger's Marketplace might better …