Kroger Co Could Be One of 2018’s Best Comeback Stories

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KR - Kroger Co Could Be One of 2018’s Best Comeback Stories

Source: Nicholas Eckhart via Flickr (Modified)

Kroger Co (NYSE:KR), the nation’s biggest grocer, is said to be in talks with Chinese e-commerce giant Alibaba Group Holding Ltd (NYSE:BABA). Sources claim the companies are looking to develop some sort of symbiotic relationship.

What that means exactly is still unclear, but given that Kroger has also been named as a likely buyer of Overstock.com Inc (NASDAQ:OSTK) as well as Boxed.com within the past couple of weeksthe number of rumors mentioning Kroger is too high to be a coincidence. The company is likely looking to make some big moves, and soon.

While it’s entirely possible none of the rumors will come to fruition, KR shareholders can still celebrate. The beleaguered grocer has finally accepted the fact that “business as usual” just isn’t going to work anymore.

Not-So-Strange Bedfellows?

Whispers of an Alibaba relationship materialized Wednesday afternoon in a commentary from the New York Post, which only cited “multiple sources” as the basis for the possibility. It worth noting though, that Alibaba already mentioned something along those lines last week, saying it and the grocer had already been working together to “speed up the integration of online and off-line sales.”

That could mean a lot of things, but it’s not surprising that the two outfits are working together. Alibaba already operates about a dozen grocery stores. And in the middle of last year, it developed an app that enhances and simplifies the grocery shopping experience. The Hema app was built from the ground up to be a revenue-bearing product. The fact that Alibaba’s grocery stores benefit from the app is only a coincidence.

Even if Hema is not the focal point of the rumored discussions, it’s increasingly clear that Kroger has finally realized it can’t passively compete with Amazon.com, Inc. (NASDAQ:AMZN).

Kroger has to fight fire with fire.

That’s what lends credibility to the rumor that Overstock.com may also be of interest to Kroger. Well, that and the fact that Overstock.com CEO bluntly said last month he was looking to shed the e-commerce venue and focus on blockchain.

Boxed.com, a grocery delivery startup that’s sometimes called the “Costco for millennials” has also been pegged as a potential target for the grocer. Kroger has fallen behind in the melding of offline and online and might be looking buy its way into the e-commerce arena.

A (Modest) Sigh of Relief

It remains to be seen which — if any — of these deals end up becoming reality. It’s entirely possible none  do. It’s rare to see this kind of acquisition chatter make the rounds several times, however, without there being something to it. Indeed, Kroger has already been generally moving closer to becoming a more relevant new-economy company.

Case in point? The “Restock Kroger” initiative.

This broad collection of overhauls will make the grocer more data driven and strengthen its relationships with customers. App-based coupons and personalized communications are part of the effort. Part of the same corporate overhaul is more geographically-minded inventory management. Also in development are more Pay-&-Go and Self-Checkout options akin to the recently-launched Amazon Go store.

Beyond better use of technology, Kroger has upped its game in prepackaged meal kits, where it faces Amazon.com as well as the industry’s dedicated flagship Blue Apron Holdings Inc (NYSE:APRN). Unlike Blue Apron though, Kroger doesn’t have to turn a wide profit on meal kits. It can use meal kits to draw a crowd that buys other goods.

These are all things that Kroger didn’t seem terribly interested in doing a year ago.

Bottom Line for KR Stock

Don’t misread the message. Even if Kroger pulls the trigger on all of these rumored deals, there’s still plenty of work to do. Integration can be tricky, and acquisitions can be expensive.

All the same, it’s encouraging that Kroger is doing something new, even if it took fear to get the ball rolling.

The irony is, Amazon’s move into the grocery game — the very thing that stoked these fears — may end up becoming the weapon Kroger uses to push back against the e-commerce giant. The buzz is that Amazon hasn’t handled the take-over of Whole Foods very, creating (along with other headaches) major inventory snafus.

If Kroger can avoid the pitfalls of trying to run one kind of company like another and instead rely on outside experience — like letting Alibaba build a shopping app rather than building its own — KR stock may end up being one of 2018’s best Cinderella stories.

The fact that KR stock is up 50% since September’s low suggests other investors are starting to see the same, and believe.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.


Article printed from InvestorPlace Media, https://investorplace.com/2018/01/kroger-kr-2018-comeback-stories/.

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