Operating, general, and administrative expenses consist primarily of employee-related costs such as wages, health care benefit costs and retirement plan costs, utilities and credit card fees. Rent expense, depreciation and amortization expense, and interest expense are not included in operating, general, and administrative expenses.
Rent expense was $648 million in 2009, compared to $659 million in 2008 and $643 million in 2007. Rent expense, as a percentage of sales, was 0.84% in 2009, as compared to 0.87% in 2008 and 0.91% in 2007. The decrease in rent expense, as a percentage of sales, reflects the decision by Kroger on owning rather than leasing, whenever possible. Wages and utilities are variable costs for the Kroger Company, while rent, insurance, and office supplies are known as fixed. The variable costs can vary greatly depending on the output of production; they rise as production increases, and fall as production decreases. Variable costs are different from fixed costs because fixed costs tend to remain the same regardless of production output. For example, if Kroger decides to keep some of their stores open for 24 hours a day, this will increase the cost of labor compared to closing the store during the night. Price elasticity of demand for a product or service is a measure of how much the quantity demanded changes as a result of a change in price. Very inelastic products would show little change in demand when prices are increased. Elastic products would have a significant change. Understanding price elasticity is critical to making strategically sound pricing decisions. A consumer may view staple foods, such as vegetables, as necessities for a balanced diet, so will continue to purchase them at the grocery store even if prices rise. Brand name food products are elastic because savvy consumers know how to compare prices at more than