If you listen to the media and industry experts, you would discover that the role of the traditional grocery store is fading away. Retail trends show the grocery landscape in a state flux due to pricing and young and old health consciousness shoppers.
With that being said, how do we explain Kroger Co (NYSE:KR)?
Fourth-quarter earnings announced Thursday by the Cincinnati-based grocery store chain surpassed expectations. One year ago it reported revenues of $23.2 billion and earnings of $422 million, or 82 cents per share. This year during the same period revenues were $25.2 and the bottom line came in at $518 million, or $1.04 per share.
Kroger has reported positive comparable-store sales for 45 straight quarters. The 2015 outlook forecasted a per-share profit in the range of $3.80 to $3.90. It also expected comparable supermarket sales, excluding gas sales impact, to increase by 3% to 4%.
This story isn’t new. Kroger stock has soared almost 180% since 2013. Even with the phenomenal growth, there’s still a feeling that KR stock is under the radar. There may be some trepidation in investing in a grocery store as analysts believe that the Wal-Mart Stores, Inc. (NYSE:WMT) and Whole Foods Market, Inc. (NASDAQ:WFM) of the world are cutting into the industry on different fronts.
But there lies the key to Kroger. The grocery chain is merely not just a bunch of grocery stores located around the country. It’s a conglomerate of brands with many products and services to compete with both WalMart, Whole Foods and even Dollar stores at their own game.
And the strategy seems to be working.
Kroger Stock: More Than Just a Grocery Store
Let’s get the grocery store concept out of your head. Think of Kroger as more of a general merchandiser than a bunch of supermarkets. The company is more diverse than most people think.
Kroger owns more than 2,600 supermarkets and multi-department stores in 34 states. However, it’s much more than that. KR is also the umbrella for many local brands such as City Market, Dillons, Food 4 Less, Fred Meyer, Harris Teeter and Ralphs and Smith’s. The company — either directly or through the use of franchises — operates more than 780 convenience stores and 320 jewelry stores. Of these stores, more than 1,200 have gas stations.
Back in 1999, Kroger purchased the West Coast-based Fred Meyer general merchandise chain and has been a player in that marketplace ever since. The Fred Meyer chain has allowed Kroger to leverage its offerings to other stores under their umbrella and enabled KR to target different groups and markets and grow faster than other large retailers attempting to do the same thing.
Kroger Stock: Groceries are Good, Too
Researchers Jones Lang LaSalle (JLL) produced a report in September regarding the current state of the grocery landscape. The findings say that supermarkets are in trouble. They are in a market share war with high-end grocers, warehouse chains and dollar stores because shoppers either want specialty assortments or really cheap products.
Kroger acknowledged the shift in consumer tastes and behavior and acted accordingly.
The supermarket chain partnered with the Dunnhumby analytics firm to use data-driven loyalty programs to defend itself from competitors. The customer data compiled seemed to be the driving force behind new products and promotions.
The JLL report also mentions that younger and older shoppers — millennials and baby boomers – now desire healthier eating options and creatively prepared meals. Using this information, Kroger two years ago introduced its Simple Truth line of private-label organic and natural products. The line now accounts for more than $1 billion in sales.
According to a recent report by JPMorgan, Kroger should overtake Whole Foods Market within two years and become the nation’s top seller of organic and natural food.
As far as the discount /warehouse competitors are concerned, Kroger offers a deal of private label products that keep prices down. To ward of possible rivals attempting to gain market share, Kroger has cut prices over the years and will continue to do so by allocating $3.5 billion each year to what it calls “price investment.”
Kroger Stock: Innovation
“What marks Kroger out is its ability to constantly innovate and rethink its proposition so that it remains relevant to shoppers,” said Stephen Ward, commercial director of the consultancy Conlumino.
A great example of this innovation is a new feature at Harris Teeter called “click and collect.” This option allows shoppers to shop online and pick it up their items at the store.
Kroger gets it and is prepared for all competitors no matter what form that may take. With stores in 34 states, Kroger still has growth possibilities with its organic and specialty food offerings.
There is room even now to jump on the Kroger stock bandwagon.
As of this writing, Jason Jenkins did not hold a position in any of the aforementioned securities.
