Why no one is eating Kroger's lunch

The grocery store chain shows that even when a giant like Wal-Mart invades its turf, it can still succeed.

By Jonathan Berr Jun 24, 2013 10:45AM
Reports of the grocery store's demise have proven to be wrong. Kroger (KR) is a case in point.

The country's largest supermarket chain recently reported better-than-expected quarterly results and gave bullish guidance. That's despite a grocery expansion at Wal-Mart (WMT) that was expected to punish Kroger. Instead, giant discount retailer has come under fire for failing to keep its shelves stocked with fresh produce.
Amazon
’s (AMZN) planned grocery delivery service is another potential threat, but it will be expensive to implement and faces stiff competition from local grocers, such as Kroger.

The Cincinnati-based company is in a good position to compete against these larger rivals. For one thing, it has reported 38 straight quarters of rising same-store sales, a key retail metric of sales at stores open at least a year. Excluding fuel, those sales rose 3.3% in the latest quarter.

Kroger logo on a grocery cart (© Brian Christopher/Demotix/Demotix/Corbis)Kroger, which owns 2,419 supermarkets and multi-department stores in 31 states under two dozen names, is also well managed. It recently halted double coupons in some markets and lowered the everyday prices on thousands of items. Although coupon clippers weren't happy, investors were pleased because the moves didn't affect gross margins.

As consumers show greater interest in organic food, Kroger has seen a spike in sales for its Simple Truth line. It's planning to add 75 new items by year-end. President Rodney McMullen told analysts during the recent earnings call, "Simple Truth has been obviously a huge home run."

Moreover, Kroger shares are also cheap, trading at a recent price-to-earnings multiple of 11.89, near a five-year low, according to Reuters. That's a discount to Wal-Mart's 14.52 multiple and Whole Food's (WFM) P/E of 36.8. Analysts have an average 52-week price target of $34.11 on Kroger's stock, which about where it trades now.

Wall Street, though, may be underestimating Kroger's growth potential. The company, whose brands include Kroger, Ralphs and Dillons, will likely add delivery to compete against its larger rivals. It's also very focused on shareholders, having returned more than $1.3 billion to them over the past four quarters.

Kroger's stock may not be on the discount rack for long, so investors should consider buying it today.

Jon Berr doesn't own any stocks mentioned here. Follow him on Twitter @jdberr.
52Comments
Jun 24, 2013 11:05AM
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Produce at Walmart falls far short of that offered at Kroger...my two Walmarts nearby seem unattended and shoddy......produce, for the most part, has seen better days and there is not a lot of it....
Jun 24, 2013 11:36AM
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Will shop at a Kroeger store anytime over Walmart.  Friendly staff & generally more competitive prices.
Jun 24, 2013 11:39AM
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I shop Krogers 95% of the time.  Walmart pet food prices are the best, but Kroger's is a well-run, clean, well-stocked store.  LOVE those gas points also!

Jun 24, 2013 11:26AM
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My local Walmart is a dive. Last time I was there, the cashier needed a manager to clear something on her register, waited over 15 minutes, when the cashier complained to the manager, he chuckled and said "That's awesome". She was so mad she told me I should call 1800Walmart and complain. I chuckled all the way out the door. Haven't been back since.
Jun 24, 2013 10:58AM
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Anyone tell me how that pink slime tastes in Walmart Hamburger? I wouldn't know since I only get meats from Kroger, who promised never to use the stuff. Walmart won't make that promise, nor Food City.
Jun 24, 2013 11:51AM
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Facts:

Product quality control is not as good at Walmart than most "traditional" supermarkets

Temperature control (Food Safety) is not as good at Walmart than most "traditional" supermarkets

 

Bottom line:

You get what you pay for

Jun 24, 2013 12:10PM
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Just the fact that Wal-Mart is selling groceries is the ironic part of this article. After destroying every possible other aspect of retail, the biggest cancer on Earth goes into food... if we will still call it that after they finish assimilating. End Wal-Mart... recover America.
Jun 24, 2013 12:45PM
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kroger is ten times better than walmart . and alot of the time cheaper !
Jun 24, 2013 12:02PM
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Hoorah for Kroger's! At the Walmart I sometimes shop at (because of the wife) the produce manager picks his nose and tells you how he was a sniper in Vietnam. Let's just call him Booger Flikker and no I DO NOT buy produce at Walmart. I hate to even park my car at Walmart as it appears to be a Waste Disposal Site.

 

Jun 24, 2013 12:22PM
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Wal Mart is the most horrible store with no quality, no service and no business ethics.  I will continue to support stores that respect unions and treat their employees (and customers) with respect!

 

Jun 24, 2013 12:06PM
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I do shop at WalMart for packages goods, but will not buy their produce. It is not fresh. Everything seems to have a rubbery feel. Their customer service on the sales floor is also lacking. 
Jun 24, 2013 12:33PM
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WE DO NOT HAVE A KROGER BUT WE HAVE A PUBLIC ,AND THEY HAVE THE BEST MEAT AND PRODUCE AND MEATS IN FLORIDA ,AND THE STORES ARE THE CLEANEST.
Jun 24, 2013 1:04PM
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Walmart has ruined small business. I say Boycott them. Love Kroger & Meijers.
Jun 24, 2013 12:50PM
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I shop at Krogers as the employees at WalMart creep me out.
Jun 24, 2013 12:15PM
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Wal-Mart plays games with product placement, too. They put the next smaller size where the largest size would be, so you pay for bigger, and get smaller. Their ads are so much lies.
Jun 24, 2013 12:44PM
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I spend a lot of money at Kroger, which is where I do the majority of my grocery shopping.  Based on this story, I'll investigate adding it to my financial portfolio.
Jun 24, 2013 1:30PM
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Wal-Mart has been so focused on satisfying Wall Street’s need for growth and margins that they forgot to satisfy their customers.

 

Wal-Mart doesn’t understand the grocery business. The grocery department doesn’t carry the right products (I still have to go to Kroger to get the rest of what I need), or produce (quality), in the right sizes, at the right price points in the right location (if you need lights bulbs, or tooth paste or contact wetting solution at my Wal-Mart you’ll have to walk two football fields over to the hardware/lighting department or pharmacy). Kroger = better selection of products, better prices usually, better organized (layout) and focused on who and what they are- a Grocery store.

 

Wal-Mart has no idea how the grocery business fits in with all the other things they want to be — Target, Best Buy, Home Depot, Sports Authority, Bed Bath and Beyond, Walgreens etc. Everything Wal-Mart does now they do poorly compared to their newly framed competition.

 

Wal-Mart use to have the right departments, with the right products at the right price. They had what I needed, not any more. Now when I go to Wal-Mart, I know I’ll also have to go somewhere else to finish getting everything Wal-Mart use to carry, so I keep skipping Wal-Mart— more and more and more.
Jun 24, 2013 1:13PM
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Just looked at Kroger's sale sheet for the week , and then drove to Sam's club to compare . I would assume Sam's would be cheaper than Walmart  ! Anyway of the 5 items I checked , everyone was cheaper at Kroger . The produce is also cheaper and much , much prettier at Kroger . Makes me wonder why I'm a member of Sam's club !
Jun 24, 2013 1:45PM
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Way to go Kroger.....!! Never let Wal Mart takeover!!!
Jun 24, 2013 12:41PM
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I often shop Wal-Mart as it is the closest "grocery" store to my house but I prefer King Soopers (Kroger) whenever I have the chance. it is too bad they closed the one closest to me, always had good customer service and reasonable prices. Wal-Mart is usually a little cheaper for most items but you "get what you pay for" and I think their low prices forces the Kroger's and Safeway's to be more competitive with pricing and customer service. Yes I will pay a little more at King Soopers since I know they will treat me right and help find items that I overlooked on my shopping list. Just wish it wasn't 6 miles to closest King Soopers.
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